The Power Division has identified major discrepancies in imported coal procurement and proposed tighter rules, including limiting coal supply agreements to one year and preventing avoidable procurement costs from being passed on to electricity consumers, measures expected to save about Rs380 million annually.
In a letter to the National Electric Power Regulatory Authority (NEPRA), the Power Division said its review of coal procurement by independent power producers found significant variations in discounts offered against international benchmark prices, with discounts ranging from 20 cents to $7.12 per metric ton.
The review also found cases in which the same supplier offered substantially different discounts to different power plants. In some instances, backup supply contracts were concluded at lower discounts than principal contracts, while coal was received from suppliers offering lower discounts even when the plants had contracts with suppliers offering higher discounts. The Power Division said such practices warranted consistent regulatory oversight because differences in procurement costs ultimately affect electricity tariffs paid by consumers.
It has asked NEPRA to incorporate additional provisions into its coal procurement guidelines to improve transparency, competition, and procurement efficiency. Under the proposed changes, long-term coal supply agreements should not exceed one year. The Power Division said shorter contracts would allow power producers to periodically test the market, benefit from competitive pricing, and capitalise on improved market conditions, including changes in global and regional demand and supply, freight rates, and other economic factors.
The ministry has also proposed that where a power producer procures coal from a lower-discount supplier after a higher-discount supplier defaults, the resulting additional cost should not be passed on to consumers through the tariff. Instead, the extra cost should be borne by the defaulting supplier and/or the concerned power producer, as determined under the applicable contractual and regulatory framework.
The move follows NEPRA's June 2025 decision on similar procurement practices and comes after power producers began competitive bidding for coal procurement in 2022. The Power Division has also sought implementation of the proposed provisions with immediate effect, saying they would protect consumers from market distortions and strengthen prudent procurement practices by IPPs. The reforms are part of the government's effort to identify avoidable costs in the power sector and ensure that savings from more efficient fuel procurement are ultimately reflected in lower costs for electricity consumers.