Power division seeks 1-year cap on coal supply contracts

August 25, 2026 (MLN): Long-term coal supply agreements for coal-fired power plants should not exceed a maximum tenure of one year, the Power Division has submitted to NEPRA for incorporation into the Coal Procurement Guidelines.

The proposal follows NEPRA's mandate requiring all coal-fired power plants to procure imported coal through a competitive bidding process, aimed at enhancing transparency, competition and prudent fuel procurement for consumers; IPPs have been undertaking such bidding since late 2022.

Capping contract tenure at one year would allow IPPs to periodically test the market and capture prevailing competitive pricing, rather than being locked into longer-duration contracts that may limit access to improved discounts arising from shifts in global demand-supply dynamics, freight rates and broader market conditions.

A second provision has also been submitted to NEPRA: where an IPP procures coal from a supplier offering a lower discount due to default by a supplier offering a higher discount for comparable coal specification, the resulting cost differential should not be passed on to consumers through the tariff.

Instead, the additional cost is to be borne by the defaulting coal supplier and/or the concerned IPP, as may be determined under the applicable contractual and regulatory framework, to protect consumers from the financial consequences of non-compliance with agreed commercial terms and reinforce prudent procurement practices.

Both provisions have been requested to be incorporated into the guidelines to enhance transparency, promote competitive procurement and safeguard consumer interests, with a request that they apply with immediate effect for coal procurement.

The submission follows a review by the Power Division of coal procurement practices, which found discounts varying between $0.20/MT and $7.12/MT across power plants purchasing coal from the same suppliers against the same international benchmark, the same supplier submitting significantly different discount offers to different IPPs, back-up contracts concluded at lower discounts than principal contracts, and supplies drawn from lower-discount suppliers while higher-discount contracts remained active.

As an immediate corrective measure, the Power Division has separately introduced a "best available discount" rule requiring power plants to purchase coal only from the contracted supplier offering the highest discount against the benchmark.

The measure is expected to generate estimated annual savings of Rs380mn for electricity consumers without requiring additional investment.

Copyright Mettis Link News