ISLAMABAD-National Electric Power Regulatory Authority (Nepra) has questioned the use of only imported coal for power generation from 300MW Gwadar coal-fired power plant.
While presiding over a public hearing on the petition of CIHC Pak Power Company Limited (CPPCL) for a hike in EPC (engineering, procurement and construction) cost of 300MW Gwadar coal-fired power project, Chairman Nepra Tauseef.H.Farooqui questioned the delay in implementing coal power plant in Gwadar that led to hike in project cost owing to depreciation of Pakistani rupee.
CIHC Pak Power Company Limited (CPPCL) is building a 300MW coal-fired power station in Gwadar, Balochistan. NEPRA raised several questions regarding use of only imported coal in 300 MW Gwadar coal based power instead of indigenous or Thar coal. “Who was responsible for a delay in the installation of coal-fired power plant at Gwadar?” chairman NEPRA asked. It took around 18 months for Nepra to consider the petition that was filed back in 2018.
Similarly, it took two years in finalizing the Power Purchase Agreement (PPA) with government agency, the sponsor further informed. The government’s policy of moratorium on imported coal based power plants was another reason that led to a delay in the establishment of coal fired power plant in Gwadar, they added. Regarding the reason for using imported coal, the hearing was told that project sponsor wanted to follow API4 index for the imported coal. API4 is published by Argus/McCloskey that refers to thermal coal based on FOB delivery in the port of Richards Bay in South Africa. However, intervenor was of the opinion that project sponsor should install coal fired plant in Gwadar to use API3 coal that would also enable it to utilize indigenous coal. Responding to the intervenor, the project sponsor said that it would have to import lignite coal in higher volume if it does not import API4 index for its power plant.  
NEPRA said that project sponsor should not lock the coal fired power plant with imported but it should be open to indigenous coal as well. It was argued that the sponsor should use around 20 to 30 percent indigenous coal for Gwadar coal fired plant. The regulator was told that project sponsor had pointed out to use only 6 percent indigenous coal and the option of 20 to 30 percent was not feasible. It was also pointed out that project sponsor would require laying railway track to transport indigenous coal from Thar that had lower quality. During the hearing, it was informed that Prime Minister and Planning Commission had directed to install Gwadar coal fired plant on imported coal. However, Nepra said that the higher authorities had not asked for utilizing coal with certain specification.
The regulator directed the project sponsor to provide a due diligence regarding use of lignite coal & indigenous coal and impact of cost of railway track within three week time to take a formal decision. The project cost has been predicted at $403 million (up by 25.38%), owing to delays in project implementation. The company also requested a 21.43 percent increase in return on equity (RoE) in its petition for modification or revision of the tariff for the 300 MW coal-fired project in Gwadar, and it asked the regulator to permit an increase in internal rate of return (IRR) from the previously calculated 14 percent to 17 percent. The Chinese company has asked for an increase in EPC costs of $82 million. 
The project’s EPC cost was requested by the corporation to be increased by 25.38 percent, from the previously revised calculated $321.41 million to $403 million. For the Gwadar coal project, NEPRA initially permitted EPC of $236.13 million; this amount was then raised to $321.41 million. The Chinese corporation now requests another price increase. Additionally, the petitioner asked the regulator to eliminate the clauses that restricted project cost indexation to a particular PKR rate, namely 105/USD. The CPPCL suggested that a maximum of 7 percent of debt servicing be applied to the Sinosure cost at actual under a Buyers Credit Insurance. According to the petition, the financial guarantee should be included in the annual recurring charges at a rate of 0.9 percent of the guaranteed amount that applies to that year.  In contrast to the permitted sum of $10.50 million, the Chinese corporation requested an increase in the project development and sponsor’s cost to $47.87 million. The petition asked that the API-4 be maintained as the basis index for calculating coal prices in accordance with the authority’s fuel pricing system, which was published on September 23, 2016. 
Additionally, the petition demanded clarification on taxes and charges. The petition asked for a $12.71 million increase in the O&M expense allowance to $17.43 million. The business has also asked for permission to charge Sinosure fees under the Buyer’s Credit Policy. Earlier, NEPRA had permitted Overseas Investment Insurance Policy in the revised determination. In its initial petition, the petition asked for $369.89 million for EPC, consisting of $250.16 million in offshore funds and $119.73 million in onshore funds. The 300MW coal-fired power station in Gwadar’s EPC cost of $236.13 million was first approved by NEPRA and had granted the Chinese company a rate of Rs6.96 per unit.