Eco-impact warning: Coal imports under fire

Tender procedure questioned:

By Rukshana Rizwie

Startling revelations have surfaced in a study by an independent committee appointed to probe the procurement of coal for the Lak Vijaya Coal Power plant indicating that there had been complete disregard for environmental impacts and arbitrary change of technical specification during the bidding process. The experts committee has recommended to Government that the future supply of coal be undertaken through a fully revised procedure and framework.

The Sunday Observer is in receipt of the 25-page dossier which details that the Government of Sri Lanka profited from the coal tender with a gain of USD 7,596,676. However, it had been achieved at the cost of grave environmental repercussions arising from the purchase of undersized coal particles.

The report which was presented to parliament on August 10 was prepared by an independent three-member committee comprising eminent academics, namely, Prof. K.K.Y.W. Perera, Prof. Lakshman R Watawala and Prof Janaka B Ekanayaka who were given 21 days to file a report on whether the government profited or incurred a loss from the controversial coal tender in 2015 and 2016. Secretary to the Ministry of Power and Renewable Energy Dr. Suren Batagoda, told the Sunday Observer that the document was tabled before Cabinet for deliberations.

Loss

According to the Report , the procurement of coal for two years (2015 & 2016) was split into two: 50% was to be purchased by a long term tender, while the remaining 50% by spot tender. Until April 5 this year, four spot tenders were awarded for the purchase of 1,126,805 metric tons of coal at a price of USD 49.7 per metric ton. Under the long term tender 1,064,724 metric tons of coal was purchased for a price of USD 57,932,356 at a price of USD 54.4 per metric ton.

Their findings showed that the government profited from the spot tender purchase with a gain of USD 7.5 million by April 5, 2016.

Since coal had been purchased based on the Newcastle index, there had been a global downward trend in prices with fluctuations from an index price of USD 120 in 2010 to USD 65 in May this year, adding to the profit margin.

Bidders' battle

According to the Report, two bidders, namely, Nobel Resources International and Swiss Singapore were chosen, of which Swiss Singapore quoted a bid of US 68.72. It was at this point that the decision was reached to not consider the grain size when evaluating the tender and purchasing coal, a decision which would have serious repercussions as the documents show.

The original price quoted by Swiss Singapore was negotiated and reduced to US 58 subsequently. Another deciding factor was the change of index. When bids were called, coal prices were evaluated based on the Newcastle index, however when it was initiated, the index was changed to AP14, a South African Index while a penalty on the grain size was also withdrawn, the Report said.

Bid parameters

The change of two parameters, the physical properties and the coal index paved the way for Swiss Singapore to reconsider prices, the Report said. Accordingly, Nobel Resources was to supply coal that did not have grain size above 50 mm and only 10% of the stock was going to be grain size below 2 mm. However, Swiss Singapore was to supply 3% of its coal with grain size above 50 mm and 25% which is 1/4 of the total stock with grain size below 2 mm, giving it dust-like properties.

It must also be noted that the coal supplied had to be of a Gross Calorific Value of 6,300 Kcal/kg. Energy experts told the Sunday Observer that to have a low calorific value means more coal has to be burnt to generate a given amount of heat and more pollution generated.

The original EIA report prepared in 1999, had stated that only coal with a calorific value of 63. kcal/kg, sulphur content below 0.7% and ash content of 11% will be used. If there are any deviations in these specifications, the plant needs more coal, emit larger amounts of fly ash and bottom ash and higher amounts of SO2. However, according to the specifications abided, there was a total moisture of 12%, ash content, 11%, volatile matter, 27% and sulphur content of 0.5% in both bids.

According to the Report, the size of coal plays a minor role in relation to the plant efficiency. If, however, coal particles are too large, a separate crusher is used to crush and reduce the size before being sent to the pulverizer, which needs additional energy and wear-and-tear of the crusher. However, if the coal size is too small or less than 2mm, which was the case with coal supplied by Swiss Singapore where 25% of the shipment were small, the coal particles behave like dust.

"When stocked in the coal yard, wind will cause the dust to blow and settle on nearby trees, plants and homes. The probability of self-ignition resulting in fires while in storage may increase partly because of high air contact surrounding small particles," the Report cautioned, adding that the powdery coal dust will have adverse environmental impacts.

The Report also stated that the Lak Vijaya Power Plant in Sri Lanka has a peculiar situation which has to be catered to, since coal can be unloaded only between September and April when weather conditions are not adverse. At the same time, adequate stocks have to be maintained approximately for six months to cater to the adverse weather season when coal cannot be unloaded.

"Therefore, coal stocks and exposed yard are very large thus increasing the environment damage. Under these circumstances, controlling the quantity of small and fine sized particles is desirable."

The Report recommends that a study be undertaken to modify specifications/penalties to overcome these adverse implications for the future supply of coal.

[Three-member committee report: Conclusions ]

The country profited from the spot tenders, a total saving of USD 7,596,676 compared to coal purchased on long term tenders.

Without completely relying on spot tenders, a mix of procurement through long term as well as spot tenders were implemented. This, they say was good from the point of view of source diversity and supply security.

A balance between the long term and spot procurement should be maintained due to changes in market conditions.

It is important to introduce future technical specifications clauses to penalize oversize and undersize coal after carrying out a detailed study of their impact to the environment as well as additional cost of crushing larger particles.

Compared to the original bid price with size penalty, the negotiated price resulted in a net saving of USD 287,029.

Even if we consider the long term contract and apply the penalty for size, the majority of shipments have been a financial gain.

Since the payment price for coal is based on the index at the time of shipment and because the shipment may come from different countries such as Indonesia, South Africa, Australia, Russia, it is suggested that a composite index be considered.