ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) will induct a private consultant to determine coal-based electricity tariff for consumers on a monthly basis as new coal power projects start coming into production.

The power regulator on Monday said that it had started the process of hiring a private consultant or a firm in view of the fact that at least three 1,320-megawatt each of coal projects based on imported coal were currently under construction to achieve commercial operation within two years.

The need to hire a consultant for coal price adjustment emanates from the fact that there is no regulatory mechanism for coal pricing and import verification process unlike oil, gas and LNG prices, which are determined by the Oil and Gas Regulatory Authority (Ogra).

Also, some bagasse-based co-generation based power plants were also importing coal as alternative fuel when bagasse was unavailable. The coal market is developing in Pakistan and is expected to increase manifold – from current about 5 million tonnes to more than 15 million tonnes per annum.

As a result, there will be an enormous amount of workload on a periodic basis for revision in fuel cost component of these power plants.

Nepra has no mechanism for coal pricing and import verification

Therefore, the consultant to be appointed would be required to prepare a manual for periodic fuel price adjustment to verify the coal price of each cargo delivered to these power plants and independently recommend a final coal price of each coal cargo shipment received during the month.

Currently, less than one per cent of power generation is coming from the coal plants but expected to go beyond 5pc when major coal projects start coming into production.

The power regulator said the induction of a consultant would ensure transparency in the pricing of coal, which was a deregulated fuel.

Nepra has already determined a pricing mechanism in September last year to establish a checks and balance benchmark to have a price that was not only transparent but also reflective of the market.

For the purpose, freight-on-board (FOB) coal prices are linked with international indices API4, ICI-3 and NEWC and freight cost has been linked with Time Charter (TC) rates of vessels published by an independent agency Baltic Dry Index.

The consultant will be required to carry out detailed review of the pricing mechanism as determined by Nepra, prepare a manual of guidelines with the mechanism to fix different parameters like origin and date of coal cargoes and shipments through relevant shipping documents including invoices, letters of credit and bill of lading etc.

The consultant would also be required to verify the FOB requested price with that of approved benchmark index price of that particular coal origin and to recommend a prudent FoB price on the basis of quality of coal (benchmark index versus actually imported coal) and discounts if any of each cargo.

It will also be the responsibility of the consultant to suggest a prudent marine insurance cost of each cargo based on the reliable documentary evidence and keeping in view the approved benchmark marine insurance rate besides calculating freight charges on the basis of all relevant documents and ultimately recommend the final freight of each cargo.

The consultant will verify and check prudence of all other charges like port charges, terminal charges and other charges like inland transportation cost. The consultant will seek prior approval of Nepra for using manual in working out different coal price adjustments.

The consultant will be required to complete the coal pricing adjustment manual within four weeks. This will be an ongoing consultancy and the consultant will be engaged on as need basis.

The consultant would need to meet a minimum of 15 years of relevant industry experience in commodity trading, preferably in coal besides expert in the local and international import laws, port dynamics and charges. During the period of services to Nepra, the consultant would not represent any other client in the power sector to avoid conflict of interest.

Published in Dawn, September 12th, 2017