Private and state-owned independent power producers (IPPs) are paying significantly higher prices for imported coal than those achieved through competitive government procurement, raising concerns over inefficiencies that could ultimately increase electricity costs for consumers.
The Power Division and National Electric Power Regulatory Authority (NEPRA) have identified weaknesses in the way some IPPs procure imported coal.
The additional procurement costs can eventually be passed on to consumers through monthly fuel price adjustments reflected in electricity bills.
Jamshoro coal tender highlights price gap
The difference became particularly evident after a recent government tender for coal supplies to the 660-megawatt Jamshoro Power Plant resulted in a supplier offering a discount of $7.12 per ton.
In contrast, some coal supply contracts involving IPPs secured discounts of only $0.20 to $0.50 per ton.
The wide gap has prompted authorities to examine whether existing procurement practices at some power plants are delivering the most competitive prices for imported coal.
The Power Division said its review identified significant inefficiencies in imported coal procurement by IPPs and led to the issuance of new policy guidelines aimed at improving the process.
According to the division, the measures could potentially generate savings of up to Rs. 380 million annually for the national exchequer.
NEPRA questions IPP coal procurement
NEPRA had previously raised concerns over the coal procurement practices of a private power plant.
According to the regulator, the plant had entered into a six-year coal supply agreement under which the supplier offered a discount of only $0.20 to $0.50 per ton.
NEPRA also questioned the method used to evaluate competing bids. The regulator said bids were assessed against estimated future coal prices, a method that could limit effective competition because international coal prices can change significantly over time.
Under such an approach, suppliers may have less incentive to offer larger discounts because their bids are partly assessed against projected market prices rather than focusing more directly on the discount offered.
NEPRA suggested that placing greater emphasis on supplier discounts during the tender evaluation process could have resulted in more competitive offers.
Impact on electricity consumers
Imported fuel costs are an important component of electricity generation costs in Pakistan. When power producers pay more for fuel than necessary, the resulting additional costs can ultimately affect consumers through electricity tariff adjustments.
The latest review therefore highlights the importance of transparent and competitive coal procurement for power plants in Pakistan.
The new policy guidelines issued by the Power Division are aimed at improving procurement practices, increasing competition among suppliers and reducing unnecessary costs.
If the identified inefficiencies are addressed effectively, lower fuel procurement costs could help reduce the financial burden on the power sector and limit avoidable costs passed on to electricity consumers.
The development also comes as Pakistan continues efforts to improve the efficiency of its power sector, reduce generation costs and ease pressure on electricity bills.
