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No bidders: Dollar crunch hits spot tenders for coal
Sri Lanka’s dollar crunch has hit another sector: There have been no bidders for the last two spot tenders called by the Lanka Coal Company (Pvt) Ltd (LCC) which buys the commodity for the Lakvijaya coal power plant in Norochcholai.
The problem arose with suppliers asking for upfront payments to be made for the coal purchases instead of transacting through the usual method, which is letters of credit, authoritative sources said. The issue was compounded by a sharp rise in global coal prices, making it completely unfeasible for LCC to buy the commodity in that manner.
All previous LCC letters of credit have been honoured but fears that this might change–given the situation in the country–have prompted suppliers to avoid bidding, they said.
Each tender is for 300,000 metric tonnes of coal. One closed on September 30 while the other closed on Friday. “There is now a shortfall of 300,000 metric tonnes which would have arrived in five shipments throughout November,” the sources explained. “There is, however, no fear of coal running out for the operation of Lakvijaya as we have buffer stocks.”
LCC calls four spot tenders a year, each for 300,000 metric tonnes or a total of 1.2mn metric tonnes. Additionally, it calls one term tender a year, again for 1.2mn metric tonnes. The coal procured through the last term tender is scheduled to arrive in December and unloading will continue till end of March, before monsoons make the sea too rough for it.
The company hopes to get its spot tenders sorted out in the meantime or go for another term tender, the last of which had proved cheaper in terms of freight prices, the sources said. A final decision has not been made. Coal bought through term tenders are supplied at market price while spot tenders are fixed price.
“In general, coal prices are going sky high,” the source pointed out. “There is a shortage of production in the LNG market so the demand for coal has risen. In the meantime, there is bad monsoonal weather in Indonesia, which is the biggest coal exporter, so its exports are lower. This means the demand for caol from South Africa, where Sri Lanka procures from, is also high. This makes it more expensive.”