ISLAMABAD: The government is looking to revise the fuel price adjustment formula for coal power producers in the country, aiming to align it with international prices, a regulatory authority said on Friday.
The National Electric Power Regulatory Authority (NEPRA) said it would hold a public hearing on September 21 to review the existing mechanism, which was last revised in 2016 and is based on a fixed benchmark weightage of different coal origins and heat values.
It is worth noting that NEPRA originally approved the coal price adjustment mechanism as part of the determination of coal upfront tariffs back in June 2014. At that time, the authority said that if the coal price is fixed as per any fixed benchmark weightage, then even if an independent power producer (IPP) procures 100 percent Indonesian coal, its coal price would be determined based on the price prevalent at that time in a given percentage.
NEPRA cautioned against prescribing fixed weightages, citing potential complications in the monthly fuel cost adjustment process. The authority stated, "The market is not ripe to fix benchmark prices based on assumed baskets. This may be reconsidered after 5 years or earlier when actual coal import data is available, which could prompt a revision in the pricing mechanism."
During the forthcoming NEPRA re-hearing, several critical aspects will be reviewed. This includes an assessment of the justification for coal procurement through tendering, as well as the rationale for procuring 10 to 20 percent of coal from the spot market. Additionally, various technical considerations will be examined, such as the introduction of new indices based on the country of origin and calorific value, marine freight calculations based on time charter rates, and bunker fuel rates.
Determining the tariff for electric power services is a primary responsibility of NEPRA. The authority sets electricity tariffs while adhering to the principles of economic efficiency and quality of service, in accordance with the prescribed tariff standards and procedures established in 1998.
NEPRA had previously argued against a fixed price structure, highlighting Pakistan's lack of experience in handling large quantities of coal for power generation. The authority noted, "The authority is aware that IPPs lack experience, and local infrastructure is yet to be established. Pakistan is not like India and Indonesia, where a robust domestic and export market is already established and such a mechanism can be easily applied."