The National Electric Power Regulatory Authority (NEPRA) has revealed that Chinese coal-fired power plants in Pakistan are utilizing lower-quality imported coal, thereby deviating from the terms of the agreement. Despite this, they claim capacity payments based on higher standards. This revelation emerged during a public hearing conducted by Nepra to review the existing mechanism for coal procurement.
The current derated installed capacity of coal-based power plants in Pakistan is 6,777MW, primarily funded by foreign investments and relying on imported coal. These plants have an outstanding capacity payment of approximately Rs643 billion.
Nepra has alleged that none of the imported coal consignments meet the required standards, and the power plants have been billing customers based on higher-quality coal prices while using substandard coal. The coal power plants had committed to utilizing coal with a calorific value (CV) of 6,000, but they imported coal with CVs ranging from 4,500 to 5,500.
The power plants receive various discounts based on CVs, sulfur content, and moisture, but they are unwilling to pass on these discounts to consumers. Nepra suggested reducing the price to reflect the lower quality of coal in use.
Representatives of the coal-based independent power plants (IPPs) argued that they had long-term contracts with coal suppliers, which they negotiated accordingly. They also expressed concerns about sudden deductions in API 4 differential without prior notice, affecting 44 shipments.
Nepra recommended an increase in the share of coal procurement from the spot market from 10% to 20%. It also suggested importing coal through a competitive bidding process from local and international markets.
Challenges in Pakistan’s Coal Procurement for Power Generation
The China Power Hub Generation Company (CPHGC), which developed a coal-fired thermal power plant in Hub, Balochistan, under the China-Pakistan Economic Corridor (CPEC), rejected the suggestion to increase the share to 20%, citing obligations under the Power Purchase Agreement (PPA).
The exchange rate issue and border closures were factors affecting coal imports. Some Chinese banks were willing to open Letters of Credit (LCs) in Chinese Yuan, and coal-based IPPs could consider importing coal in RMB. Closure of the Pak-Afghan border, which also supports coal import, is another challenge.
This dispute highlights the complexities and challenges in coal procurement for power generation in Pakistan.
