Pakistan: IPPs bound to use Thar coal first

The National Electric Regulatory Authority (Nepra) has made it mandatory for all independent power producers (IPPs) to utilise local coal, particularly from Thar, before opting for imports that would also be contracted in Pakistani rupees. This has been done through notification of ‘Guidelines for Procurement of Coal on Spot Basis’ issued by the regulator to ensure that procurement of coal on a spot basis is conducted fairly and transparently and is efficient, economical and provides value for money for the consumers.

The IPPs including those based on imported coal would be required to “first ensure whether local coal such as from Thar is available which can be used keeping in view plants’ technical requirement’ and they would estimate total quantity and quality to be procured in the next six months and then contact Thar Coal Energy Board (TCEB) to confirm availability from any of its blocks.

If no local coal is available which meets the desired specifications, then IPPs shall proceed with spot purchases through a transparent process by reaching out to all suppliers through advertised publications with sufficient time given for response. The publication of the advertisement shall be for monthly bidding as well as for pre-qualification of coal traders for an extended period of 3-6 months. The term of bid, whether monthly or 3-6 months, would be decided by IPPs and the “currency of contract shall be in Pakistani rupees.”

Imports are allowed only if specs do not meet plant requirements

The comprehensive Request for Quotation (RFQ) document would include all supply, quality, and payment-related details, along with the grievance redressal procedure for bidders. There would also be minimum acceptance and rejection standards of coal along with the penalty for any deviation from the required quality of coal including ash, moisture and sulphur content etc.

The tendering process would be well-documented and traceable and the quality of coal shall be determined on a weighted average basis of the complete order accepted quantity. Rejected quantity will not be part of the total weighted average.

There would be minimum eligibility criteria for bidders including a bid bond equivalent to five times the price and tendered quantity. The successful bidder would be required to either replace the bid bond with a performance guarantee of 10pc or submit an additional performance bond or guarantee of 5pc.

The IPPs are also required to pre-qualify a pool of coal suppliers for a monthly tendering or extended period of 3-6 months with two years minimum experience of commodity trading and compliance with other coal specifications.

The IPPs shall ensure that the final bid or negotiated price is competitive, market reflective and comparable with that of other power plants. Nepra would have the power to seek justification from the IPPs in case of any abnormal difference in coal prices.

The calculation of benchmark coal price would be worked out in rupees per million British thermal unit (mmBtu). Technical specifications for coal and transportation costs have also been set under the new guidelines including those relating to ship sizes, monsoon and non-monsoon period, taxes and other charges.

Minimum order for spot purchase will be 5,000 tonnes per month and the coal specifications shall be prescribed by each IPP as per its requirements. The selection and award process shall prioritise the lower quoted price irrespective of the volume committed hence enabling a pool of suppliers to complete the requested quantity on a per-month basis.