EDITORIAL: Just before leaving office, the outgoing caretaker Energy Minister wrote a damning letter on alleged corruption in the purchase of coal under CPEC’s (China Pakistan Economic Corridor’s) 1,320MW Sahiwal Coal Power Plant.
Serious concerns have been raised on the purported absence of fairness and transparency in the bidding process of long-term coal contracts.
The ex-Chairman Nepra (National Electric Power Regulatory Authority) termed these allegations “very serious”. Talks in the energy traders’ community have earlier pointed towards irregularities in the process of coal procurement which favoured two suppliers over others in the case of the Sahiwal power plant. This letter by the outgoing minister brings the matter further into the limelight.
As alleged by market sources, the long-term contract for coal was given to two favoured suppliers during Financial Year 2022-23. These were supplying coal roughly at a 50 percent premium over the then prevailing market price. After a while, other suppliers started pushing to get through the door, and it was after a hue and cry that Nepra allowed spot bidding. That resulted in a significant reduction in prices, which put the favoured suppliers at a loss while consumers received power at a 40 percent discount.
The fuel cost component or FCC determined by Nepra for the Sahiwal power plant reduced from Rs28-30/unit during Jul-Dec 2022 to a mere Rs18.9/unit in September 2023. However, later, the new suppliers were penalised in various ways and disqualified on ostensibly “flimsy grounds”. The favoured suppliers are now selling again at a premium. It has been suggested that the tender documents themselves were put together by the favoured suppliers and the long-term contract was awarded to them to avoid spot bidding and competition.
The other coal suppliers registered their complaints with the Chinese management running the plant about such irregularities. However, as per sources, while frustrated, the Chinese management is alleged to have said that the then Power Secretory was pushing for favoured suppliers. Either way, the Chinese do not have to bear the cost as the fuel is a pass-through item. The market has been rife with this story for a while and it is now gaining credibility after the letter of the outgoing Energy Minister. It is estimated that the price difference of coal per ton is around Rs20,000-25,000 of what is being supplied in the long-term contract versus the spot value. And with average monthly consumption of 200,000 tons of coal in the Sahiwal plant, the additional burden comes to around Rs4 billion per month; which would take the total toll to roughly Rs40-50 billion in the last 18 months.
Since the cost of the fuel is passed on, the eventual burden of alleged excess charges is being borne by electricity consumers at large that are already paying ever-ballooning electricity bills. These are very serious allegations, and an inquiry should be conducted as suggested by the outgoing minister and the culprits should be taken to task.
It is pertinent to note that the Sahiwal coal power plant has been under criticism from day one, as it is run on imported coal and away from port. The coal has to be imported and transported to the upcountry, which is the case for local coal too. There are direct economic and environmental costs involved in transporting coal over long distances.
Copyright Business Recorder, 2024
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