• Half from long-term, half from spot tendering for 2024/’25 and 2025/’26  

A single tender has been floated by Lanka Coal Company (LCC) to procure 50% of the total coal requirements of the country’s only coal power plant in Norochcholai for two terms, 2024/’25 and 2025/’26, The Sunday Morning learns.

It is learnt that the LCC will be adopting a mixed coal purchasing option for the next two terms, which will include 50% of the requirement from a long-term contract tender and the rest from spot tendering.

The coal is to be procured at a fixed rate for two terms based on the index prices, it is further learnt. The tender will be closed on 2 April and the total volume expected is 2.25 million MT.

It is also learnt that 19 registered suppliers with the LCC, including companies from Russia, Indonesia, Australia, and the UAE, will submit their bids for the long-term contract tender. The procurement will be based on an upfront payment mechanism.

According to the Ceylon Electricity Board (CEB), the total coal contribution to the country’s national grid has risen to around 40.3% of the total electricity generation requirement. This comes against the backdrop of the CEB expecting an extreme dry season.

A senior engineer attached to the CEB who wished to remain anonymous told The Sunday Morning that coal power generation would reach its maximum in the coming months to meet electricity generation requirements due to the gradual curtailment of hydropower generation.

As per the CEB’s generation statistics on Friday (1), the CEB’s total thermal oil generation was 11.9% of the total energy requirement and the thermal oil power generation from Independent Power Producers (IPPs) was 13.4%.

The Lakvijaya Coal Power Plant provides nearly 900 MW of energy to the national grid, accounting for about 40% of the country’s total energy requirement.

Speaking to The Sunday Morning, LCC Chairman Shehan Sumanasekara revealed that the company had already unloaded 24 shipments and was anticipating the arrival of 14 more. Out of these, seven shipments are currently at sea.

Sumanasekara said that despite facing logistical challenges, particularly concerning the Red Sea issue, the company had successfully navigated through delays and aimed to conclude the season with the usual coal quantity of 38 shipments by 30 April.

Providing additional clarification, the LCC Chairman stated that looking ahead to the upcoming season, seven shipments had been earmarked from the renewed long-term contract set to commence once again in September. These shipments have been allocated for the months of September and October. 

The Chairman added: “Furthermore, we have initiated a fresh tender for the procurement process for the upcoming season, encompassing coal acquisition for the years 2024/2025 and 2025/2026. With the participation of 19 registered suppliers from across the globe, including representatives from Russia, Indonesia, Australia, and the UAE, each entity has been afforded the opportunity to engage in this tender and submit their most competitive pricing. The tender is set to conclude on 2 April.

“Our participation rate is robust and genuine suppliers exhibit trust in the system. On previous occasions, there were instances with 28 registered parties; however, many of them were not authentic coal suppliers but companies. 

“This time around we have conducted a meticulous evaluation of the companies, examining their historical supply mechanisms, providing evidence of their capabilities, and verifying the unloading of coal. In our tender processes, we aim to avoid any time wastage due to sudden entries from non-serious players. We have successfully curated a commendable roster of suppliers and have also retained the flexibility to incorporate spot tenders. Our focus is on the procurement for the period 2024-2025.

“In the upcoming two seasons, we are considering procuring half of the required quantity through a long-term contract while the remaining half will be obtained through a spot tender. The rationale behind this decision lies in the current opportunity to monitor the market index. By leveraging this opportunity, we can strategically assess the index fluctuations and secure coal at the most favourable prices when the index is on a downward trend. Therefore, we have allocated 50% of the cargo for this purpose.”

Addressing inquiries about the payment options, the LCC Chairman clarified that no transactions would involve credit; all transactions were to be conducted through upfront payments. This approach, he emphasised, was instrumental in securing favourable prices for the company.

He elaborated: “The cost stands at $ 124 CFR delivered to Colombo for coal right now. This price is subject to variations of plus or minus 3 or 4 based on the index; it experiences fluctuations. Generally, it hovers around 124, constituting a very favourable rate. While it may seem high, determining the exact world market price proves challenging due to the distinct pricing in different regions. Our supply comes from Russia, ensuring zero penalties and a 100% adherence to our specifications. 

“Notably, logistics pose a significant expense. For instance, if one were to purchase Russian cargo today, the price would be approximately $ 150, given the substantial surge in shipping costs. Fortunately, we secured our supply at $ 30 and the supplier is committed to maintaining that rate. In comparison to the Russian market, this is a commendable achievement.”

Furthermore, in response to queries about the term tender, the Chairman clarified that a single supplier would be engaged for two terms, with the flexibility of 50% allocation. 

“The scenario is that the normal requirement for the tender is 2.25 million MT, with 50% designated for the second season. This quantity will be divided accordingly, contingent on the prices at the time. The final decision will be based on the prices we secure in April, while the base price remains a constant factor.”

The coal tenders have been marred by controversy in the recent past, leading to last-minute cancellations. Some of the suppliers selected by the LCC did not proceed as expected, contributing to the challenges faced in the procurement process.

Presently, Russian Black Sand Commodities is in the process of supplying a total of 2.25 million MT through 38 coal shipments at an index-based rate of $ 124 per MT. Notably, Black Sand Commodities secured the position as the second lowest bidder, with the controversial Coral Energy submitting bids for the long-term contract at nearly $ 123 per MT.