Inefficiency in coal buying unearthed

Power Division says corrective action can save Rs380m annually

ISLAMABAD:

In a major step to reduce the cost of electricity for consumers, the Power Division has identified significant inefficiencies in the procurement of imported coal by power plants and has issued policy guidelines for corrective action that could save the national exchequer up to Rs380 million annually.

The revelation came during a series of meetings, chaired by Federal Minister for Power Awais Ahmed Khan Leghari, where officials reviewed actual data, contractual arrangements and market practices, said a statement issued on Tuesday.

Pakistan has a significant number of coal-fired power plants with a combined capacity of 5,280 megawatts that rely wholly or partly on imported coal. These include three major 1,320-megawatt plants at Port Qasim, Hub and Sahiwal as well as Lucky and Jamshoro plants, which also have the capability to use imported coal.

To keep these plants running, they must enter into coal supply agreements with international suppliers. The price of imported coal is generally linked to internationally recognised benchmarks such as the API-4 index. However, the price that a power plant ultimately pays depends not only on this benchmark but also on the discount it is able to negotiate with the supplier.

As a first phase of reform, the Power division is introducing the principle of "best available discount" in coal procurement. Power plants will be required to purchase coal from their contracted suppliers offering the highest discount against the applicable international benchmark and will not be permitted to purchase from a supplier offering a lower discount.