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Coal supplies issue: Lengthy power cuts loom next month

18 Sep 2022

By Maheesha Mudugamuwa   Sri Lanka’s national power supply is at risk of losing 900 MW of electricity generated from coal at the Norochcholai Power Plant by the end of next month, The Sunday Morning learns. Disruption to the supply of coal – caused by the extreme shortage of foreign exchange, litigation regarding the procurement process, lack of enthusiasm to incorporate renewable energy sources, and failure to secure long-term contracts for supply – has contributed to the energy insecurity Sri Lanka is facing at present. As a result, it is now likely that the country will once again plunge into hours-long power cuts from 25 October onwards. Further complications stem from the Russian coal contractor’s refusal to proceed until legal clearance is given for a Fundamental Rights violation petition filed by Ven. Omalpe Sobitha Thera regarding a controversial coal tender. The Cabinet recently awarded approval for the contract worth $ 1.4 billion to Russia’s Suek AG/Black Sand Commodity, which offered $ 328.22 per MT (including freight charges) – the lowest bid to supply nearly 4.5 million MT of coal to Lakvijaya Power Plant (LVPP) for three years on a six-month credit period. Nevertheless, after the recent petition was filed in the Supreme Court, the supplier has now refused to proceed with the contract until a legal clearance is given.     A matter for courts   The petition filed by Ven. Sobitha Thera stated that the coal tender had been awarded to a party that was not a qualified bidder. The petition also said that the tender had compelled the country to purchase coal for a long period of two-and-a-half years at a price determined based on the prevalent coal price, which is at an extremely high level because of the Ukraine war. The petition further stated that there were several unsolicited proposals as well, which should have been evaluated. However, it is reported that the Supreme Court has fixed the matter for support on 21 October and the issue of granting interim relief will also be considered on that day. The respondents were directed to file objections prior to 25 October, it is reported. Among the respondents are Lanka Coal Company (Pvt) Ltd., the Technical Evaluation Committee (TEC) (which is a Standing Cabinet Appointed Procurement Committee), and the Cabinet of Ministers. The Court also ordered that notice about the filing of this petition be sent to all the respondents prior to 21 October.   Insufficient coal stocks   Sri Lanka is in dire need of securing required coal stocks as the country is currently experiencing a severe power shortage triggered by a shortage of petroleum products due to the foreign exchange crunch. As learnt by The Sunday Morning, the existing stock of coal is said to be enough till 25 October if managed with two generators of 300 MW each. According to the Lanka Coal Company (LCC), this year’s coal requirement is being fulfilled by a long-term tender that was floated in 2021 to purchase around 2.25 million MT of coal. Accordingly, half of the stated requirement, which is around 1,140,000 MT, was unloaded between September 2021 and April 2022. The balance is to be unloaded during the period from September 2022 to April 2023 due to sea conditions and the remainder required for the year 2022 was met by calling three spot tenders. The annual coal requirements for the generation of thermal power are collected from October to March of the ensuing year and stored in the Coal Yard to be used for uninterrupted power generation. The period from April to September is the off-season with rough seas in the Norochcholai area, making it impossible for the coal-carrying ships or barges to reach the jetty of the power plant to unload coal. The ships that arrive at Norochcholai carry about 65,000 MT of coal, and according to the plant’s requirement, the ships must transport about 35 shipments per year. Lakvijaya in Norochcholai generates around 40-50% of the total electricity requirement of the country.   Pending shipments   According to LCC, there are 19 shipments pending for this season. “We already have 19 pending shipments from tenders that we awarded last season. We awarded 40 shipments and out of that, we received only 21 shipments, so there are 19 pending. However, we have to find dollars and rupees for this,” LCC Chairman Jagath Perera told The Sunday Morning.   When asked how much is needed for the 19 pending shipments, he stressed: “We require approximately $ 95 million, which is around Rs. 32 billion.” Perera noted that the TEC and the Special Standing Cabinet Appointed Procurement Committee (SSCAPC) had given all necessary approvals for the recently concluded tender to proceed with the 180-day credit period because of the country’s financial situation and the Ceylon Electricity Board (CEB)’s liquidity issues. “There is a petition filed in the Supreme Court and until it is cleared the supplier has refused to go ahead,” he said. “There is no interim order or an injunction. But since this is the first time, we awarded a long-term contract and we have clearly mentioned that we are not in a position to open Letters of Credit (LCs) as none of the LCs opened by the State banks have been confirmed by the foreign banks,” he added. On 12 July, the Chairman of the SSCAPC of the Ministry of Power and Energy on behalf of the LCC invited sealed bids to supply coal for the 900 MW LVPP from coal suppliers registered with LCC, who were eligible to bid. Seven companies – Swiss Singapore Overseas Enterprises (Pte) Ltd., Suek AG, Adani Global (Pte) Ltd., HMS Bergbau AG, Mercuria Energy Trading (Pte) Ltd., Knowledge International Strategy Systems (Pte) Ltd., and Yongtai Energy (Pte) Ltd. – were pre-qualified to bid for the coal tender. The selected company was required to supply 4.5 million ±10% MT of coal during the agreement period on a Cost and Freight (CFR)/Free on Board (FOB) Trimmed basis. The tender was closed on 10 August and the LCC received two bids.   Power cuts may increase   Against such a backdrop, Public Utilities Commission of Sri Lanka (PUCSL) Chairman Janaka Ratnayake said: “The length of the power cuts will be decided on the availability of coal after 25 October.” “The Commission is not worried about the mode of procurement. Our intention is to have sufficient coal for electricity generation,” he said, adding that there were no issues at present. “We have enough coal for two plants until the beginning of the third week of October,” he added. A senior engineer attached to the CEB who wished to remain anonymous also stressed that should there be a lack of sufficient coal reserves, the country would definitely experience hours-long power cuts.    “The length of the power cuts will depend on hydropower availability. Assuming we get 40% from hydro, we will still experience over 10 hours of power cuts per day,” he stressed.   Issues with opening LCs    When contacted by The Sunday Morning, Power and Energy Ministry Secretary M.P.D.U.K. Mapa Pathirana said as per the instructions given by the Cabinet, discussions were currently ongoing with the Attorney General’s Department.  He said that at present the opening of LCs had become an issue as the Central Bank as well as the State banks were struggling to source the necessary funds for payments of fuel shipments that had already been ordered.  “We tried to bring down coal on credit by awarding a contract, but there’s now a petition filed against the awarding of the contract in courts,” Mapa Pathirana added.  However, the Secretary noted that they were considering all possible avenues to expedite the process as the remaining coal stocks would only be sufficient until the end of this month.   CEB trying to secure funds   Commenting on the country’s coal situation, CEB Chairman N.S. Ilangakoon told The Sunday Morning that the CEB would be receiving tariff collections from the revised tariffs by the end of this month, after which it would be in a position to pay for the scheduled shipments.    “We have coal till the end of this month and there are some procurements from last year which are being done in about 19 shipments. They will come and unload them if we pay. The procurement is not the problem – we are trying to find the funds somehow,” he said.   “We started billing last month and collection started after that. Collections are currently ongoing and we will be receiving some money by the end of this month, so we will be able to make payments,” the Chairman said, adding that even though the CEB would be making the payments, the payments would be made in rupees and therefore the necessary foreign exchange should be available to pay for the shipments. Ilangakoon revealed that the CEB had attempted to open a dollar account to secure foreign exchange for the CEB, but the attempts had failed as the Central Bank had not given permission. The CEB was dependent on the Central Bank and State banks for foreign exchange, the Chairman explained.        


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