ISLAMABAD: National Electric Power Regulatory Authority (Nepra) has finalised a comprehensive review of the mechanism for procurement and pricing of imported coal, introducing significant changes aimed at aligning tariffs with market realities, ensuring energy security, and addressing long-standing concerns of independent power producers (IPPs).
The revised framework, issued after detailed deliberations with stakeholders, consultants, and international market experts, modifies earlier decisions of 2016 and reflects evolving dynamics in global coal markets, currency volatility, and operational challenges faced by coal-based power plants.
A central feature of the new mechanism is the continued reliance on internationally recognised coal price indices, with refined application criteria for different coal origins and calorific values. For South African coal, the regulator has maintained the API-4 index as the benchmark but has allowed the use of published price differentials for coal with calorific value (CV) below 5,850 kcal/kg. This decision acknowledges market practices where lower-grade coal trades at discounts relative to the API-4 benchmark.
Stakeholders, particularly power producers, had raised concerns over the application of these differentials, arguing that long-term coal supply contracts often differ from spot market transactions and include factors such as reliability, penalties, and supply security.
However, the Authority concluded that the use of differentials better captures the true market value of varying coal grades and enhances transparency in tariff determination.
For Indonesian coal, the Authority has reaffirmed the use of the ICI (Indonesian Coal Index) series, rejecting proposals to adopt blended indices such as averages of Argus and McCloskey benchmarks. After reviewing submissions from consultants, IPPs, and index providers, it was decided that ICI-2, ICI-3, ICI-4, and ICI-5 would remain the applicable benchmarks depending on coal quality.
This reflects the widespread acceptance of ICI indices in international markets and their endorsement by the Indonesian government and industry participants.
The authority noted that although alternative indices such as M50 and M42 are used in certain markets, the price differences between these and ICI indices are minimal over time. Maintaining consistency with ICI benchmarks was therefore considered more practical and aligned with prevailing procurement practices of Pakistani IPPs.
Regarding Australian coal, the revised mechanism introduces a more nuanced approach by linking index selection to coal quality. The globalCOAL Newcastle (gC NEWC) index will be used for higher-grade coal above 5,850 kcal/kg, while the API-5 index will apply to lower-grade coal. Additionally, appropriate discounts and price differentials will be applied for coal falling below standard specifications.
This change reflects the diversity of coal grades imported from Australia and aims to ensure that pricing accurately reflects quality variations. The Authority also acknowledged the volatility of the gC NEWC index, particularly during seasonal demand fluctuations, and incorporated safeguards through discount mechanisms.
Another critical issue addressed in the revised framework is the treatment of exchange rate fluctuations. IPPs have long argued that the existing practice of using the average exchange rate of the month of the Bill of Lading (B/L) exposes them to significant financial losses, especially in periods of rapid currency depreciation. Several companies reported billions of rupees in losses due to the gap between the allowed and actual exchange rates at the time of payment.
After reviewing these concerns, the Authority has allowed the use of the actual exchange rate applied at the time of retirement of Letters of Credit (LC) or settlement of payments. However, to protect consumers from inefficiencies or payment delays, this allowance is capped at a maximum of 35 days from the B/L date. If payment occurs after this period, the exchange rate prevailing on the 35th day will be considered applicable. This compromise seeks to balance the interests of power producers and consumers by ensuring cost recovery while discouraging delays in payment processing.
Copyright Business Recorder, 2026
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