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Spot tenders for coal: Lanka saves Rs. 1.1 billion
View(s):The Power and Energy Minister’s initiative to introduce spot tenders for the procurement of coal has resulted in a saving of nearly US$ 7.6 million (Rs. 1.1 billion) compared with coal purchase through long-term tenders, an independent committee has found.
The decision to implement a mix of procurement through long-term and spot tenders is a good formula for coal purchases, concludes the report of the independent committee appointed by the Minister of Power and Renewable Energy to study coal procurement for the Lak Vijaya coal power plant at Norochcholai. “This is also good from the point of view of source diversity and supply security,” it says.
The group — chaired by Prof. K.K.Y.W. Perera and also including Prof. Lakshman R. Watawala and Prof. Janaka B. Ekanayaka — was appointed on July 12 to investigate and report whether decisions on the purchase of coal had caused loss or damage to the Government. The group was given a deadline of just over two weeks for the study.
There were two types of procurement in 2015 and 2016. They were the main, long-term bulk tenders and the spot tenders for immediate procurements (introduced last year). The committee has advised that a balance between long-term and spot procurement be maintained in view of changes in market conditions.
“It is important to note that the spot prices depend on day-to-day market conditions,” the experts explain, referring to a table charting prices (as per the Newcastle Index) over a six-year period beginning in January 2010 and ending in May 2016. “As there was a downward trend, the spot purchases have had a gain against the long-term tender. However, in 2016, there is a slight upward trend of coal prices. Therefore, there should be a balance between long-term and sport purchases; this will also help multiple sources of coal and uninterrupted supply of coal which is advantageous from supply security point of view also.”
The committee stresses that it is important to introduce, in future, technical specification clauses to penalise for oversized and undersized coal and carry out a detailed study on their impact on the environment as well as increased cost of crushing larger particles.
“If the coal size is too large (>25mm in the specific case of Lak Vijaya plant), a separate crusher is invoked to crush and reduce size before being sent to the pulveriser,” the members observe. “This needs additional energy and wear and tear of the crusher. For coal which is too small (<2mm), it behaves like dust. When stocked in the coal yard, wind will cause the dust to blow and settle on nearby trees, plants and home.”
This increases the probability of self-ignition while in storage, partly because of high air contact surrounding small particles. Powdery coal dust has an adverse environmental impact which is not quantifiable.
Meanwhile, the Lak Vijaya plant is beset by a peculiar situation which has to be catered to. Coal can only be unloaded from September to April, when weather conditions are not adverse. Adequate stocks have to be maintained for about six months. Therefore, the coal stock and exposed yard is large, thereby increasing environmental damage.
“Under these circumstances, controlling the quantity of small and fine-sized particles (coal dust) is desirable,” the members agree. “This Committee suggests that a study be undertaken to modify specifications/penalties to overcome these adverse implications for the future supplies of coal.”
“Compared to the original bid price with size penalty, the negotiated price resulted in a net saving of US$ 287,029.73 to the country,” the committee says. This amounts to around Rs. 41.7 million. “Even if we consider the long-term contract only, and apply the penalty for size specified in the bidding document, in the majority of shipments, Sri Lanka has financially gained,” it holds.
The Power and Energy Minister’s initiative to introduce spot tenders for the procurement of coal has resulted in a saving of nearly US$ 7.6 million (Rs. 1.1 billion) compared with coal purchase through long-term tenders, an independent committee has found.
The decision to implement a mix of procurement through long-term and spot tenders is a good formula for coal purchases, concludes the report of the independent committee appointed by the Minister of Power and Renewable Energy to study coal procurement for the Lak Vijaya coal power plant at Norochcholai. “This is also good from the point of view of source diversity and supply security,” it says.
The group — chaired by Prof. K.K.Y.W. Perera and also including Prof. Lakshman R. Watawala and Prof. Janaka B. Ekanayaka — was appointed on July 12 to investigate and report whether decisions on the purchase of coal had caused loss or damage to the Government. The group was given a deadline of just over two weeks for the study.
There were two types of procurement in 2015 and 2016. They were the main, long-term bulk tenders and the spot tenders for immediate procurements (introduced last year). The committee has advised that a balance between long-term and spot procurement be maintained in view of changes in market conditions.
“It is important to note that the spot prices depend on day-to-day market conditions,” the experts explain, referring to a table charting prices (as per the Newcastle Index) over a six-year period beginning in January 2010 and ending in May 2016. “As there was a downward trend, the spot purchases have had a gain against the long-term tender. However, in 2016, there is a slight upward trend of coal prices. Therefore, there should be a balance between long-term and sport purchases; this will also help multiple sources of coal and uninterrupted supply of coal which is advantageous from supply security point of view also.”
The committee stresses that it is important to introduce, in future, technical specification clauses to penalise for oversized and undersized coal and carry out a detailed study on their impact on the environment as well as increased cost of crushing larger particles.
“If the coal size is too large (>25mm in the specific case of Lak Vijaya plant), a separate crusher is invoked to crush and reduce size before being sent to the pulveriser,” the members observe. “This needs additional energy and wear and tear of the crusher. For coal which is too small (<2mm), it behaves like dust. When stocked in the coal yard, wind will cause the dust to blow and settle on nearby trees, plants and home.”
This increases the probability of self-ignition while in storage, partly because of high air contact surrounding small particles. Powdery coal dust has an adverse environmental impact which is not quantifiable.
Meanwhile, the Lak Vijaya plant is beset by a peculiar situation which has to be catered to. Coal can only be unloaded from September to April, when weather conditions are not adverse. Adequate stocks have to be maintained for about six months. Therefore, the coal stock and exposed yard is large, thereby increasing environmental damage.
“Under these circumstances, controlling the quantity of small and fine-sized particles (coal dust) is desirable,” the members agree. “This Committee suggests that a study be undertaken to modify specifications/penalties to overcome these adverse implications for the future supplies of coal.”
“Compared to the original bid price with size penalty, the negotiated price resulted in a net saving of US$ 287,029.73 to the country,” the committee says. This amounts to around Rs. 41.7 million. “Even if we consider the long-term contract only, and apply the penalty for size specified in the bidding document, in the majority of shipments, Sri Lanka has financially gained,” it holds.