Power Division Targets Coal Procurement Inefficiencies to Cut Electricity Costs
The Power Division has identified significant inefficiencies in the procurement of imported coal by power plants and has issued policy guidelines for corrective action that could save the national exchequer up to Rs380 million annually. The announcement came after a series of meetings chaired by Federal Minister for Power Awais Ahmed Khan Leghari, where officials reviewed actual data, contractual arrangements and market practices, according to an official statement released on Tuesday.
Pakistan operates a substantial fleet of coal-fired power plants with a combined capacity of approximately 5,280 megawatts that rely wholly or partly on imported coal. These include three major 1,320-megawatt plants at Port Qasim, Hub and Sahiwal, as well as Lucky and Jamshoro plants, which also have the capability to use imported coal. To keep these plants running, they must enter into coal supply agreements with international suppliers. The price of imported coal is generally linked to internationally recognised benchmarks such as the API-4 index, but the final price depends on the discount a plant can negotiate with the supplier.
As a first phase of reform, the Power Division is introducing the principle of "best available discount" in coal procurement. Under the new guidelines, power plants will be required to purchase coal from their contracted suppliers offering the highest discount against the applicable international benchmark and will not be permitted to purchase from a supplier offering a lower discount.
The issue gained prominence after recent competitive bidding for coal supply to the 660MW state-owned Jamshoro Power Plant attracted a discount of $7.12 per tonne from a Karachi-based supplier. In contrast, some contracts involving independent power producers (IPPs) secured discounts of only 20 to 50 cents per tonne.
Consumer groups have been raising concerns over such practices at various forums, including public hearings. The power division and the National Electric Power Regulatory Authority (Nepra) have also pointed to inefficiencies in coal procurement and their financial impact on consumers.
In a recent order, Nepra highlighted concerns over coal procurement by Port Qasim Electric Power Company (PQEPC) under a six-year contract involving discounts of $0.20 to $0.50 per tonne based on estimated coal prices. Nepra's judgement questioned the evaluation methodology: "This type of evaluation has never been observed in any bidding by any other power plant, including PQEPC, and does not seem justified, as it is based on estimated coal prices, which may change in future."
The regulator also noted that PQEPC had published its tender notice only in China instead of reaching out to a broader pool of potential bidders. "Had discounts been incorporated into the bid evaluation as a major criterion, it may have yielded more competitive and higher discounts from prospective bidders," Nepra said.
Additionally, Nepra observed that PQEPC did not disclose it had already executed a long-term coal supply agreement when the matter was discussed with the regulator on two occasions. The regulator directed PQEPC to conduct fresh bidding for a long-term coal supply agreement within three months of its March 2026 FPA decision.
After the March 25 order, PQEPC procured about 1.2 million tonnes of coal, enough for almost an entire year, just before a new tender. The contract for that volume involved a discount of around $0.50 per tonne versus the $7.12 discount secured by the public-sector Jamshoro plant, resulting in a difference of around $8 million.
PQEPC Chief Financial Officer Adil Ashraf and Procurement Chief Liang Ding Ping did not respond to written queries from Dawn, the newspaper that first reported these details.