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Coal on credit from Russian supplier?

28 Aug 2022

  • Cabinet approval for $ 1.4 b tender
  • Coal stocks in country to run out next month
The Lanka Coal Company (LCC) is assessing the possibility of immediately proceeding with a newly-approved Russian coal supplier to bring down coal on credit, The Sunday Morning learns. This, as LCC is short of $ 32 million in outstanding payments for the coal shipments that have been ordered, which are expected next month. The decision on the payments is to be taken next week following the scheduled meeting between the LCC, the Governor of the Central Bank of Sri Lanka (CBSL), and other officials. The LCC received Cabinet approval last week to award a $ 1.4 billion-worth tender to Russia’s Suek AG/Black Sand Commodity to supply nearly 4.5 million MT of coal to Lakvijaya Power Plant (LVPP) in Norochcholai for three years on a six-month credit period.   Supplier selection   The supplier was selected from the recent tender process called by the Special Standing Cabinet Appointed Procurement Committee (SCAPC) Chairman of the Ministry of Power and Energy on behalf of LCC to supply coal for the 900 MW LVPP from coal suppliers registered with LCC, who are eligible to bid. Seven companies – namely, 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. – have been pre-qualified to bid for the coal tender. The selected company is required to supply 4.5 million ±10% MT of coal during the agreement period on Cost and Freight (CFR)/Free on Board (FOB) Trimmed basis. However, the Technical Evaluation Committee (TEC) appointed to evaluate the bids has finalised Russia’s Suek AG/Black Sand Commodity as it was the lowest cost bidder that has offered $ 328.22 per MT (including freight charges) on a six-month credit facility, it is learnt. The possibility of going ahead with ordering new shipments on credit while cancelling the already-ordered shipment due to the extreme shortage of foreign exchange is being assessed at a time when the already-secured coal stocks have reached their lowest last week, with the remaining stocks said to be enough only until the first week of next month. As per the estimates stated in the Cabinet paper on the coal procurement submitted recently by Power and Energy Minister Kanchana Wijesekera, the total coal requirement of LVPP for the 2022-’23 season is 2.42 million MT and a total of 50% of the said requirement, which is around 1.14 million MT, has been secured from the last term tender while another around 120,000 MT (two shipments) has already been secured from the five spot tenders. As per the Minister’s Cabinet paper, the balance quantities are yet to be procured on a suitable payment method.   Pending payments and procedures   “We can’t segregate the coal requirements just by shipments. There is a total of $ 32 million to be paid as an outstanding payment,” LCC Chairman Dr. Jagath Perera told The Sunday Morning when asked about the shipments scheduled for this season. He explained that there was a two-step method for releasing payments for shipments. “First we release 80% of the total cost before loading and the remaining 20% after checking the quality,” he said, adding that for some shipments there were payments to be made for the 20% and for some shipments payment was due for the full stock. “All together there is an outstanding amount of $ 32 million,” he stressed. Elaborating further, the LCC Chairman said, considering the current financial situation of the country, the company intended to get shipments from the newly-awarded Black Sand Company because they could get shipments on six months’ credit with zero interest. “We don’t have rupees with the Ceylon Electricity Board (CEB) and the country doesn’t have dollars. We are struggling with fuel payments as well. There is still $ 32 million to be released for coal. We have already ordered two shipments from this same company. Last time we ordered eight shipments, but we could only open Letters of Credit (LCs) for six shipments. Due to the inability to open LCs for two shipments, we have shifted to this season,” he clarified.   The Chairman added that the LCC had received Cabinet approval to get the two shipments for this season which were due on 25 and 30 September. “But the matter has not been finalised; we are thinking and analysing. We are going to discuss this matter with the CBSL Governor and relevant officers. Then we will decide the manner in which we are going to get the shipment,” he said.   Annual coal requirement   Lakvijaya generates around 40-50% of the total electricity requirement of the country. The first stage of the LVPP commenced in February 2011 and the annual coal requirement for that connection was identified as 650,000 MT. The power generation of the second and the third stages thereof commenced in April and September of 2013 respectively and, accordingly, the total annual coal requirement was identified as 2,250,000 MT. The annual coal requirement for the generation of thermal power is collected from October to March of the ensuing year, stored in the coal yard, and used for uninterrupted generation of power. As the period from April to September is the off season with rough seas in the Norochcholai area, it is not possible to unload coal as the coal-carrying vessels are unable to reach the power plant jetty. The quantity of coal carried by ships arriving at Norochcholai is about 65,000 MT with around 35 shipments a year. When The Sunday Morning inquired about remaining coal stocks, LCC Chairman Dr. Perera said: “Usually, we should commence the unloading by 15 September, but due to the unexpected breakdown and ongoing repair work at Norochcholai these days, two plants are not working. Repair work of one plant has been going on for more than three months, therefore there is more storage than we expected.” However, he stressed that the existing coal would be enough until the end of October. “We are comfortable with the existing stocks. Even though we receive Cabinet approval, there is a possibility of cancelling the two pending shipments. Since we have already ordered them, we should negotiate with them,” he said. “Normally it takes 20-23 days for a shipment to arrive and for the loading to take place; we can get coal within a one-month period. We have received Cabinet approval and we don’t want to shut down the plant even for a day due to the lack of coal,” Dr. Perera explained.   Tenders despite high prices   Earlier, questions were raised by industry experts over the call for tenders on a long-term basis at a time when coal prices have gone up in the world market. As mentioned in the recent Cabinet memorandum by Minister Wijesekera, global coal prices have risen from $ 70 to $ 300 per MT during the period from 2017 to date and the exchange rate against the USD has also fluctuated from Rs. 152 to Rs. 359. As a result, compared to the previous seasons, the unit cost of coal in the current season has increased threefold. Accordingly, it is expected that the total cost of coal may increase to $ 600-650 million for the next coal season (2022-’23) and the monthly USD requirement for the purchase of coal is expected to be $ 90-100 million. Clarifying concerns, Dr. Perera said the price offered by Black Sand was $ 328.22 per MT and this price would not be a fixed price as it would vary in parallel to the coal indices of the given time. “We are evaluating the prices based on four price indices, namely, Indonesian, Russian, South African, and Australian,” he said, adding that the recently-approved company would supply coal for three seasons and that the total worth of the tender was $ 1.4 billion.   – By Maheesha Mudugamuwa


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