Pakistan power producers overcharge users via opaque coal deals

Independent power producers (IPPs) operating on imported coal are allegedly burdening electricity consumers with inflated costs through non-transparent and inefficient procurement methods. These extra costs are passed on to users via monthly fuel price adjustments (FPAs).

Consumer groups have voiced concerns, and now Pakistan's power division and the National Electric Power Regulatory Authority (Nepra) have also highlighted these procurement inefficiencies and their financial impact. The issue gained significant attention when a recent competitive bid for coal supply to the state-owned Jamshoro Power Plant secured a discount of $7.12 per tonne, starkly contrasting with the much lower discounts of 20 to 50 cents per tonne seen in some IPP contracts.

“

The power division has identified significant inefficiencies in the procurement of imported coal by power plants.

"The power division has identified significant inefficiencies in the procurement of imported coal by power plants," a statement confirmed, adding that new policy guidelines have been issued to potentially save the national exchequer up to Rs380 million annually. Nepra, in a recent order concerning Port Qasim Electric Power Company (PQEPC), questioned its coal procurement contract. Nepra noted that PQEPC's contract involved discounts of only $0.20 to $0.50 per tonne based on estimated coal prices, a method it found unusual and potentially unjustified.

“

This type of evaluation has never been observed in any bidding by any other power plant, including PQEPC, and does not seem justified, as it is based on estimated coal prices, which may change in future.

Nepra also pointed out that PQEPC had limited its tender notice to China, potentially missing out on broader bidder participation. The regulator suggested that incorporating discounts as a major criterion in bid evaluations could yield more competitive offers. Furthermore, Nepra observed that PQEPC had not disclosed an existing long-term coal supply agreement when discussing the matter, leading to proceedings regarding misstatement. Nepra directed PQEPC to conduct fresh bidding within three months.

Despite this directive, officials reported that PQEPC procured about 1.2 million tonnes of coal just before the new tender, under a contract with a discount of around $0.50 per tonne. This contrasts sharply with the $7.12 discount obtained by the public-sector Jamshoro plant, representing a difference of approximately $8 million. If similar practices are widespread among other IPPs, the financial impact on consumers could be substantial.

“

Had discounts been incorporated into the bid evaluation as a major criterion, it may have yielded more competitive and higher discounts from prospective bidders.