ISLAMABAD: Port Qasim Electric Power Company (PQEPC) has opposed the proposed one-year limit on coal supply agreements, arguing that the restriction could undermine fuel security, disrupt procurement operations and increase risks for coal-fired power plants, sources told Business Recorder.
In its comments submitted to the Central Power Purchasing Agency-Guarantee (CPPA-G), the company has also challenged the proposed mechanism for benchmarking coal procurement discounts, maintaining that variations in discounts offered by suppliers cannot, by themselves, establish irregularities in procurement.
In a letter to CPPA-G, PQEPC responded to proposals contained in a Power Division letter concerning improvements to coal procurement guidelines for coal-fired power plants. The company urged the government and CPPA-G to assess its procurement practices against its approved tariff determination, generation licence, power purchase agreement (PPA) and implementation agreement with the government.
PQEPC, which operates a 2x660-megawatt coal-fired power complex, maintained that it had procured and continued to procure imported coal in accordance with these project documents, adding that no departure from their requirements had been identified or alleged.
The company argued that the proposed requirement to benchmark the ceiling price for replacement or alternative coal suppliers against the highest discount offered in comparable tenders was not expressly provided for in the NEPRA Act 1997, regulations framed under it or the project’s contractual documents.
According to PQEPC, the coal procurement guidelines issued by the National Electric Power Regulatory Authority (NEPRA) constitute policy guidance and cannot override contractual and regulatory obligations unless formally incorporated into the relevant tariff determination, licence conditions or contractual amendments in accordance with the law.
The company further argued that procurement tenders could not be compared solely on the basis of headline discounts, as their terms varied in terms of quantities, contract duration, payment currency, delivery arrangements, coal quality specifications and performance guarantees.
It maintained that tenders floated by different companies, or even by the same company at different times, might attract different offers because suppliers independently assess commercial risks and prevailing market conditions.
Responding to the variation in discounts cited by the Power Division, PQEPC rejected the comparison between discounts ranging from US$0.20 per metric tonne to US$7.12 per metric tonne as a basis for an adverse finding.
The company stated that the US$7.12-per-tonne discount cited in the ministry’s letter related to a contract that remained unimplemented and was backed by a performance guarantee of approximately Rs5 million. It argued that the guarantee was only a fraction of the exposure required by PQEPC from its own suppliers, making the contract commercially unsustainable and an inappropriate benchmark.
PQEPC also raised concerns over the procurement of Indonesian coal, arguing that historical discounts against the ICI-3 benchmark could not be treated as a permanent market entitlement when coal specifications, quality thresholds, availability and market conditions had changed.
It specifically pointed to an increase in the applicable coal rejection threshold from a net as-received (NAR) calorific value of 4,000 to 4,200, which it said had raised the quality requirements for acceptable coal.
The company also cited supply-side constraints in Indonesia following reductions in coal export quotas during 2026. According to its letter, seaborne coal exports from Indonesia in August 2026 declined by 23.34 per cent year-on-year, while market participants continued to report supply and logistical constraints.
PQEPC argued that suppliers might therefore be unable to maintain discounts previously offered for coal meeting lower quality specifications and could require higher prices to secure coal meeting the revised requirements. It maintained that the absence of a historical discount, or the emergence of a premium for compliant Indonesian coal, should not automatically be treated as evidence of impropriety or non-compliance.
The company also defended instances in which the same supplier offered different discounts to different independent power producers (IPPs), saying such variations reflected differences in risk profiles, contract tenures, quantities and payment terms.
It further argued that securing backup suppliers at less favourable discounts was a prudent risk-management measure to protect continuity of fuel supply and avoid capacity-payment deductions and liquidated damages under power purchase agreements if the principal supplier failed to perform.
Similarly, PQEPC maintained that procuring coal from a supplier offering a lower discount while a higher-discount contract remained in place could result from a shortfall or default by the principal supplier rather than an attempt to circumvent the benchmark.
Opposing the proposed mandatory one-year cap on coal supply agreements, the company said the restriction would be commercially impractical and could weaken rather than strengthen security of supply.
It argued that international coal miners and vessel owners generally did not enter into supply arrangements on a one-year horizon, particularly in the absence of minimum offtake commitments.
PQEPC attributed the absence of minimum offtake commitments in its coal supply arrangements to CPPA-G’s alleged failure to fulfil its minimum annual energy payment obligation under clause 9.2(a) of the power purchase agreement.
The company also warned that mandatory annual re-entering could require a new tender to be launched before the preceding procurement process had concluded, leaving insufficient time for the necessary board, shareholder and regulatory approvals.
It maintained that the existing framework already provided for monthly regulatory scrutiny of fuel costs through the fuel price adjustment mechanism under its tariff determination, offering NEPRA a continuing means of assessing procurement prices without imposing a rigid annual contract limit.
On the proposed allocation of costs arising from supplier defaults, PQEPC said it did not oppose the principle that a defaulting supplier should bear the consequences of its failure to perform.
However, it called for any such mechanism to apply only where a default had been established after due process and the company concerned had been given an opportunity to be heard. It also sought the explicit exclusion of force majeure events and other circumstances beyond the control of the supplier or the power producer.
The company argued that a blanket cost-allocation rule could penalise an IPP for risks outside its control while simultaneously requiring it to assume full responsibility for fuel supplies under its power purchase and implementation agreements.
Explaining its position on fuel procurement risks, PQEPC said it assumed the entire fuel supply risk under its contractual arrangements, earned no return on the fuel-cost component and recovered only actual and verifiable procurement costs through the tariff.
It stated that it had absorbed losses when its procurement outcomes fell short of NEPRA’s approved benchmark, including a pass-through loss of approximately US$0.58 per tonne in its most recent fuel price adjustment and losses of around Rs1.62 billion arising from the spot coal procurement guidelines.
The company argued that it should not be penalised merely because the outcome of a procurement exercise differed from an industry average derived from transactions that were not directly comparable.
PQEPC has asked the government and CPPA-G to limit assessments of its coal procurement to compliance with the project documents, reject discount variations across dissimilar tenders as evidence of irregularity in the absence of a demonstrated breach, and reconsider the proposed one-year contract limit.
It has also called for any supplier-default cost-allocation mechanism to incorporate due-process safeguards and exclude force majeure and other circumstances beyond the company’s control before amendments to the coal procurement guidelines are finalised and applied to it.
Additionally, the company referred to NEPRA’s recommendations in its mechanism and guidelines for imported coal procurement of June 22, 2026, and proposed that the government designate a public-sector agency or enterprise to assume unified responsibility for procuring and supplying the required quantities of coal to coal-fired power plants.
Copyright Business Recorder, 2026