Govt mulls revision in fuel price adjustment for coal-fired plants

KARACHI: Government is mulling amendment in fuel price adjustment formula for coal power producers to bring it at par with the international prices as the last mechanism was introduced five years back, officials said on Tuesday.

The officials said the National Electric Power Regulatory Authority (Nepra) initiated proceedings to review the fuel price adjustment mechanism for coal power projects to align it with the prevailing international prices of coal and heat values.

The Pakistan Power Infrastructure Board’s (PPIB) data showed that coal-based power projects currently have installed production capacity of around 3,000 megawatts, while 7,890MW of coal-based power plants are scheduled to come online by 2022.

Coal-based power generation increased six percent to 1,168 gigawatt hours (Gwh) in February compared to 1,102 Gwh during the same month last year. It rose 72 percent in the July-February period of 2018/19, according to the PPIB.

Nepra approved coal price adjustment mechanism in the determination of coal upfront tariff approved 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 coal 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 review proceedings would consider potential 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 official said the marine freight calculation would also include voyage days, port days as well as proforma disbursement account charges.

The Nepra also planned to fix appropriate benchmark for letter of credit charges as well as appropriate exchange rate for conversion of coal prices in Pakistani rupee.

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.”