Fuel price adjustment formula for coal power producers to be amended

ISLAMABAD-The federal government has decided to amend the fuel price adjustment formula for coal power producers, making it at par with the international prices.
The earlier mechanism was reviewed seven years ago in 2016 and NEPRA in its determination said that “the pricing mechanism shall be reviewed after three years when the actual coal price, quality, quantity, source, etc., data is available. It can be reviewed earlier if it is noted that current mechanism leads to a coal price that is unrealistic and detrimental to both the interest of consumers and the project sponsors,”. The National Electric Power Regulatory Authority (NEPRA) has decided to hold a public hearing on September 21 and will review the coal price adjustment mechanism to align it with the prevailing international prices of coal and heat values.
It is worth mentioning that Nepra approved coal price adjustment mechanism in the determination of coal upfront tariff in June 2014. The authority then said if coal price is fixed as per any fixed benchmark weightages then even if an independent power producer procures 100 percent Indonesian coal, its price would be determined based on price prevalent at that time in a given percentage. Prescribing fixed weightages will complicate the exercise of monthly fuel cost adjustment. “The market is not ripe to fix benchmark prices based on assumed basket. This may be reconsidered after 5 years or earlier when actual coal import data is available which could prompt revision in the pricing mechanism,” Nepra then said.
The re-hearing by the Nepra will review whether procurement of coal through tendering is justified and whether procurement of 10 to 20 percent coal from the spot market is justified. This may also review about the new indices on the basis of country of origin and calorific value, marine freight calculation based on time charter rate and bunker fuel rate.
The determination of tariff for electric power services is one of the primary responsibilities of Nepra, which determines electricity tariffs, keeping in view the principles of economic efficiency and service of quality, according to the prescribed tariff standards and procedure rules 1998. The authority previously argued against the fixed price structure. “Pakistan has no experience handling large quantities of coal to be used for power generation,” it added.
“The authority is aware that IPPs lack experience and local infrastructure is yet to be established and Pakistan is not like India and Indonesia, where a robust domestic and export market is already established and wherein such mechanism can be easily applied.”
The authority in September 2016 issued another decision in its suo moto review proceedings in the fuel price adjustment mechanism determined in upfront coal tariff and said: “Without a clear pricing mechanism, the operation of these upcoming power plants could be jeopardized. It is felt that the federal government may take the initiative to establish an imported coal pricing agency for the purpose of prescribing a coal pricing mechanism based on the international best practices. Therefore, in the absence of imported coal pricing mechanism, and till such time a coal pricing mechanism is put in place, this adjustment mechanism as approved in this decision shall be used,”.
It further said that in case Thar coal is utilized for non-mine mouth power plant in full or in part, the price of Thar coal shall be determined by the Thar Coal Energy Board/Relevant Agency and fuel price will be determined based on the weightage average actual percentage of coal i.e. Thar and imported coal,”.

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