Pakistan's power sector to benefit from price decrease in global coal market

• Power sector likely to see decline by Rs0.5-1.5/kWh.
• Coal prices in int'l markets touched eight-month low.
• Power sector consumes around 9m tonnes of coal per annum.

KARACHI: Following a slump in the coal prices internationally, the cost of electricity generation in Pakistan is likely to see a decline by Rs0.5-1.5/kWh, The News reported.

The power sector consumes around 9 million tonnes of coal per annum against the total consumption requirement of around 28 million tonnes, per the analysts.

Pakistan relies on coal electricity generation from 12% to 32% at a maximum. It depends on the availability of cheap hydropower, as the cost of coal-based power generation was higher (third most expensive fuel after furnace oil and LNG).

As per the latest data from the National Electric Power Regulatory Authority (NEPRA), the cost of electricity generation from coal during September 2022 stood around Rs18/kwh when the average coal was around US$310-320 per tonne. 

“Thus, if coal price stays at the current level, overall country’s cost of electricity generation may reduce by Rs0.5-Rs1.5/kWh,” believed Farhan Mahmood, head of research at Sherman Securities.

He noted that the declining price of coal would reduce the cost of electricity generation, which would also curtail circular debt.

Coal prices in the international markets touched an eight-month low level recently mainly due to weak global demand led by rising inflation and a slowdown in construction activities in China, the world’s largest consumer of coal. Besides, Europe which already secured its energy requirement ahead of winter for power generation through liquefied natural gas (LNG), was another factor affecting the prices of alternate fuels, including coal.

Pakistan’s coal-fired power plants import coal from South Africa and Indonesia, while NEPRA has also approved the import of Afghan coal.

However, the existing capacity of the coal market in Afghanistan was not sufficient to meet the consistent demand and supply of power plants in Pakistan.

As per the State of Industry Report 2022 issued by NEPRA, there was no price index published for Afghan coal, which was liquid, transparent, and reflective of the market. It should be noted that considering the surge in prices of imported coal and scarcity of foreign exchange, the power plants in the country have been exploring alternate cheaper sources of coal.

Hence, this was the reason NEPRA has accorded approval for the import of coal from Afghanistan, provided that the delivered price per MMBTU of Afghan coal was lower than its existing coal imports and payment was made in rupees.

Considering the issues with Afghan coal, a proposal was also being mulled by NEPRA to convert imported coal-based power plants to indigenous coal, as there were a few set up already in the country via Thar Coal. 

The Private Power and Infrastructure Board (PPIB) has been leading the process. PPIB apprised that as per the initial findings, imported coal power plants could use Thar Coal for some percentage without any plant modification of their power plant. “Therefore, maximum utilisation of local coal needs to be encouraged to reduce reliance on imported fuel. Further commissioning of the power plants based on Thar coal needs to be expedited,” the report said.

The fuel cost per unit cost of energy generated from imported coal increased stands around Rs20.17/kWh to Rs29.12/kWh while the per unit cost of energy generated from local Thar coal remained around Rs4-4.5/kWh.