• LCC cites less financial constraints this season

 Dubai-based trader, Coral Energy, is gearing to play the role of primary coal supplier for the upcoming season, which is set to begin this week, informed sources close to the matter told The Sunday Morning.

According to sources, Coral Energy is likely to secure a long-term contract by offering what some critics consider to be an exceptionally low rate.

In a surprising turn of events, Coral Energy has also secured the bid for the spot tendering contract, overseen by Lanka Coal Company (LCC).

Confirming Coral Energy’s successful bid for the spot tender, LCC Chairman Shehan Sumanasekara told The Sunday Morning that Coral Energy would be responsible for providing five coal shipments to meet the region’s energy demands.

The company is reported to have offered a price of $ 128 per metric tonne, which is notably lower than the rates proposed by the other seven participating companies, according to Sumanasekara.

Sumanasekara stated that this season had brought significant relief from the financial challenges faced in the previous year.

During the last season, LCC found itself in a precarious situation, compelled to purchase coal on credit at exorbitant prices. This dire scenario necessitated the acquiring of cargo without issuing any guarantees. Fortunately, it managed to secure this cargo, albeit under challenging circumstances, as it grappled with a severe crisis, he stressed.

Proactive stance

However, this year, LCC had adopted a proactive stance, aggressively pursuing competitive pricing strategies, the Chairman said.

Notably, the spot tender awards have yielded prices as low as approximately $ 128 per MT, surpassing even their own pricing index. Sumanasekara added that the remarkable cost-effectiveness of these spot tender awards underscored a much-improved pricing landscape.

“We are pleased to announce that this season has brought about a significant improvement in our pricing situation. As many of you may recall, the last season was challenging for us as we had to resort to purchasing coal on credit at considerably high prices. We didn’t even have the luxury of issuing guarantees; we simply had to buy cargo and count ourselves fortunate for that. It was undoubtedly a trying period, marked by a crisis,” he added.

Sumanasekara also noted that the company had opted to forego credit purchases this season, adding that it indicated newfound financial stability. Instead, it will adopt a payment plan that entails settling 80% of the invoice at the loading point and the remaining 20% upon cargo receipt. 

The commitment to honouring four shipments pending from the previous season’s credit plan demonstrates the company’s resolve to fulfil its obligations.

“I’m delighted to report that this year we have taken a much more proactive approach in securing favourable prices. The spot tender we awarded has resulted in prices as low as approximately $ 128 per MT, even surpassing our initial expectations and the index we had set. These pricing levels are truly remarkable and present a highly attractive proposition for us,” he said.

In line with its commitments to performance and accountability, the LCC cancelled the award for Combasst, an Australian company, due to documentation issues that hindered its performance, Sumanasekara noted.

The LCC has also secured five cargoes of coal through spot tendering, with Coral Energy emerging as the most competitive option among seven participating companies, operating on a CFR basis.

When asked about outstanding commitments from last season, the LCC Chair said that they would be honoured as per the previous credit plan, with four shipments still pending.

“Our recent spot tendering efforts have borne fruit, with the procurement of five cargoes from Coral Energy, out of seven participating companies. These cargos have been secured on a CFR basis and represent the most competitive offers. Furthermore, our long-term tender for the procurement of 38 coal shipments is progressing well. Although we have not yet awarded this contract, we have heard that Cabinet approval is pending and we eagerly await the outcome,” he said.

Annual coal requirements 

The annual coal requirements for thermal power generation are collected from October to March of the following year, stored in the Coal Yard, and used for uninterrupted power generation. 

From April to September, during the off-season with rough seas in the Norochcholai area, it is not possible to unload coal and the coal-carrying ships or barges cannot reach the power plant’s jetty.

The quantity of coal carried by ships arriving at Norochcholai is approximately 65,000 MT, and according to the plant’s requirements, approximately 35 shipments are expected in a year.

Nevertheless, as per the Cabinet memorandum No: 09/2023/PE, signed by State Minister of Power and Energy D.V. Chanaka on behalf of the Minister of Power and Energy, the outstanding shipments from the last season will be supplied at a rate of $ 240 per MT by Coral Energy.

The Cabinet has recommended supplying 720,000 MT to each supplier in 12 shipments, with Coral Energy providing a $ 5 million performance bond for eight of the 12 shipments during the last coal season. 

Combasst Industry Development Co. Ltd. was to provide a $ 100,000 performance guarantee for four shipments for last season, subject to document authentication within a specific time frame.

In both cases, the remaining four (Coral Energy) and eight shipments (Combasst Industry) of both suppliers were to be provided in the upcoming coal season 2023/’24. 

Additionally, the Cabinet has recommended accepting Coral Energy’s fixed price of $ 240 per MT for quantities received before 5 May 2023 and negotiating a mutually-agreed index-based price for the remaining quantities based on the negotiation letters submitted by the bidders on 5 February 2023 and relevant documents.

The Cabinet has also recommended accepting Combasst Industry’s price of $ 230/MT (RCI-FOB Vostochny Index base) based on negotiation letters submitted by the bidder on 5 February 2023 and relevant documents.

If any shipments remain available under this contract after completing the last season, the Technical Evaluation Committee (TEC) recommends obtaining the remaining quantities from Coral Energy and Combasst Industry in the next season starting this month.

However, since Combasst failed to perform, it was Coral Energy that supplied shipments for last season, totaling eight shipments, at a rate of approximately $ 240 per MT, while the world market price during that period was around $ 144 per MT.

Later on, the LCC had cancelled the Combasst tender and, therefore, the remaining four shipments are to be supplied by Coral Energy.

High price

As previously reported by The Sunday Morning, according to sources close to the subject, the coal had been brought down at an excessively high cost and the country had not benefited from the coal price reduction in the world market.

Highlighting the prices, the sources stressed that Coral Energy had supplied coal at a fixed rate of $ 240 per MT since March on long-term credit facility, but according to World Bank Commodity Price Data (The Pink Sheet), coal prices (South Africa) had dropped to $ 144.7/MT in February this year from an average of $ 219.8/MT reported from January to March 2022.

As per the calculations, Sri Lanka had lost around $ 48 million due to the inability to go ahead with index-based pricing contracts for the season that commenced last October.