Sahiwal power plant: Inquiry into coal purchase contract corruption allegations launched

ISLAMABAD: An inquiry has been initiated into allegations of corruption surrounding a coal contract at the 1,320-MW Sahiwal Power Plant, a crucial project within the China-Pakistan Economic Corridor (CPEC).

Former energy minister Muhammad Ali had voiced concerns about the procurement process, prompting the inquiry. Ali’s inquiry, launched just three days before he departed from office as caretaker minister, stemmed from a letter penned over stakeholders’ concerns. These stakeholders raised alarm over what they perceived as a lack of transparency in the long-term coal purchase contract for the Sahiwal Power Plant.

The National Electric Power Regulatory Authority (Nepra) had previously cautioned Chinese-imported coal-fired power plants to pass on any “legitimate” discounts in coal prices to consumers. In a letter dated March 1, 2024, Ali referenced stakeholder worries regarding fairness and transparency in the bidding process, urging an urgent two-week investigation covering various aspects. These aspects include past coal purchases’ conformity to prevailing rates and the delay in Nepra issuing guidelines for long-term coal procurement in Pakistani rupees.

Additional areas of inquiry involve assessing efforts to ensure fair competition in supplier selection and suspending purchase contracts until a standardized, comprehensive procurement mechanism is established. The Power Division faces increasing pressure to address these concerns and maintain transparency in coal procurement for the benefit of consumers and the government.

According to stakeholders, the contract, which ideally should have undergone a bidding process, appeared to favour a specific party, as indicated by the Request for Proposal (RFP) process. The minister’s letter highlights the alleged preferential treatment of two suppliers in the financial year 2022-23, who were reportedly supplying coal at significantly higher prices than the market rate.

The Sahiwal Coal Power Plant, reliant on imported coal, has faced criticism not only for its procurement practices but also for the environmental and economic implications of coal transportation over long distances.

Following industry resistance, the National Electric Power Regulatory Authority (Nepra) introduced spot bidding, notably reducing coal prices to the benefit of consumers but disadvantaging initially favoured suppliers.

Despite these concerns, the economic burden of price discrepancies, resulting in additional monthly costs of multi-billion rupees, falls on electricity consumers due to the pass-through nature of fuel costs.

During a public hearing in August last year on FCA for July 2023, Nepra highlighted the significant financial strain on power consumers due to costly imported coal inventory held by coal-based power plants, particularly the Sahiwal Coal Power Plant.

Nepra raised concerns over lower base tariffs but higher claimed tariffs by coal-based power plants, particularly the Sahiwal plant, which submitted claims for Rs27.7 per unit despite Nepra’s reference tariff of Rs16.18 per unit.

The CPPA stated that despite coal purchased at $400 per ton being utilized for power generation at the Sahiwal Coal Power Plant, plummeting coal prices to $100 per ton still led to high generation costs. Moreover, the plant recorded zero output in April, and minimal outputs of 3 per cent in May and 8 per cent in June.