The National Electric Power Regulatory Authority (Nepra) has unveiled discrepancies concerning Chinese coal-fired power plants. Despite their commitment to using coal with a calorific value of 6,000 (CVs), the plants have used inferior-quality coal. Remarkably, every imported batch has failed to match the stipulated standards. Yet, these plants continue to demand vast sums as capacity payments are extracted from the public.
The discovery emerged during a Nepra-convened public hearing aiming to reevaluate the existing coal regulation mechanism, previously updated in 2016. Initially, Nepra had sanctioned this mechanism 2014 to set the coal upfront tariffs.
The Panel and Observations
Nepra Chairman Waseem Mukhtar was presiding over the meeting, flanked by authority members from various provinces. It’s imperative to underscore that the coal-oriented current derated capacity stands at 6,777MW, with an impending capacity payment of a whopping Rs643 billion.
Upon scrutinizing documents, a Nepra representative confronted the involved entities, “Your records indicate the import of coal of a quality inferior to the contractual promise.”
For instance, the Sahiwal Coal Power Project, now Huaneng Shandong Ruyi (Pakistan) Energy, disclosed importing colossal quantities of coal in July 2022, even when prices soared, equating to Rs70,000 per ton. Nepra’s counterargument was poignant, “You demand capacity payment but refrain from investing in quality coal.”
Consequences of the Quality Discrepancy
The data showed a stark difference between promised coal quality and imported grade. These plants had been procuring coal with calorific values oscillating between 4500 and 5500. The ripple effect of this discrepancy meant consumers were billed for superior coal while receiving a subpar product.
One Nepra member highlighted the inconsistency, emphasizing that these entities were levying charges corresponding to the 6000 CVs rate despite supplying substandard coal.
Challenges and Counterarguments
Pakistan has grappled with hitches relating to exchange rates and coal importation logistics. In a twist, some Chinese banks have expressed willingness to initiate Letter of Credits in Chinese Yuan, potentially facilitating coal imports.
Yet, external challenges persist, particularly disruptions at the Pak-Afghan border, directly impacting those importing Afghan coal. Moreover, the allure of Australian coal, despite its high demand and lack of discounts, is dampened by prohibitive freight charges.
Continuing their stance, coal-based IPPs emphasized their binding long-term contracts with coal suppliers, influencing their pricing dynamics. They also voiced concerns about Nepra’s inconsistent application of Fuel Cost Adjustments.
Nepra propounded importing a more significant coal share from the spot market and employing a bidding system to harness competitive prices. However, entities like China Power Hub Generation Company have reservations about exceeding the stipulated limit in their Power Purchase Agreements.
These deliberations underscore the multifaceted challenges in the power sector, demanding a balance between quality, cost, and logistical constraints.