IHC Demands Answers from NEPRA, Energy Ministry on Alleged Corruption in Coal Import for IPPs

The Islamabad High Court has summoned official replies from the Ministry of Energy and National Electric Power Regulatory Authority (NEPRA) over alleged “fraud and collusion” in overpriced imports of coal by Sahiwal Coal Power Plant through Awan Trading Company, which translated into higher electricity prices for end-consumers. According to official court documents seen by ProPakistani, this alleged corruption has exposed the national exchequer to a potential impact of Rs. 81.7 billion which the consumers have to pay from their pocket. NEPRA has miserably failed to act in accordance with Section 7 (2)(ac), (3) and 31 of the NEPRA Act and in doing so has caused grave injustice and loss to the public while colluding with Sahiwal Coal Power Plant and Awan Trading Co. for their benefit, the document stated. In July 2022, the Sahiwal Coal Power Project along with other Independent Power Producers (IPPs) were directed by NEPRA to procure coal from local and regional sources on a “spot basis” due to skyrocketing exchange rates and the difficulties in establishing Letters of Credit due to shortage of US Dollar in the country, The scandal traces back to the period between July and December 2022, when “the preferred supplier” Awan Trading Co. provided coal at rates 85 percent higher than the market price. This resulted from the absence of strict procurement guidelines, effectively making consumers pay Rs. 185 for something worth Rs. 100. In January 2023, NEPRA introduced spot purchase guidelines which led to a significant drop in coal prices. From January to December 2023, suppliers offered 11-15 percent discounts due to the competitive environment, translating to consumers paying Rs. 85 for coal worth Rs. 100. However, Awan Trading Co., fearfully facing dwindling margins, circumvented these regulations by securing long-term contracts tailored to its commercial advantage. These long-term contracts allowed IPPs to source up to 90 percent of their coal requirements from Awan Trading, leaving only 10 percent to be procured on a spot basis. Consequently, a tender floated under these new terms disqualified 99 percent of potential suppliers, leaving only Awan Trading to secure the contract with a mere 0.3 percent discount, compared to the 11-15 percent discounts offered by competitors. On November 24, 2023, Sahiwal Coal Power Project issued a bidding document for the long-term procurement of imported coal, replacing the previous spot-based procurement of regional coal. The document included clauses that excluded most coal suppliers in Pakistan and eliminated healthy competition. It required bidders to have imported at least 300,000 metric tons of coal via sea in the past year and specified that the imports must be for trading purposes only. This requirement effectively excluded local and regional suppliers, leaving only one supplier, Awan Trading, as the only winner. This move was criticized as collusive and aimed at benefiting Awan Trading only, which had already profited from previous procurement practices, court document added. Evidence shows one situation where Awan Trading loaded coal on December 13, 2023, even before the contract was awarded on December 17, 2023, confirming that this was all pre-arranged for desired and “collusive” benefit. The company sold this coal to Attock Cement at $111.71 per metric ton on a spot basis while selling to Sahiwal Coal Power Plant at $113.20 per metric ton under a long-term contract, which should have been cheaper than the spot price. “The requirement of sea shipments was malalfide, unreasonable, manifestly arbitrary and had no nexus with the supply of coal. This requirement was included only to facilitate Awan, exclude others and eliminate competition,” the document stated, adding that this only ensured collusion between the coal power plant and Awan Trading. The court documents also highlight that the 15 percent discount captured by Awan Trading could amount to an additional $300 million annually if similar contracts were executed by all four imported coal power plants. The petitioners argue that NEPRA failed to protect consumer interests, allowing these inflated costs to be passed on to the public. They are calling for an immediate halt to the contract and the establishment of new regulations to ensure fair competition and lower prices. “All the parameters were pre-meditated, preempted were farcical and set in advance, so that only Awan could qualify and then it could sell coal at exorbitant rates without any competition which it did,” the document revealed. The scandal has broad implications for Pakistan’s energy sector. NEPRA to date has failed to provide any guidelines, which is a clear dereliction of its legal, statutory, and constitutional duty. The regulator has the obligation to not only ensure that the tariffs or electricity prices are to be economically prudent but also ensure that the tariffs being issued do not promote anti-competitive behavior but rather promote competition. IHC has set a one-month deadline for NEPRA and Energy Ministry to submit their official response against this case.