Arshad Mahmood Awan
For over thirty years, the quest to reform Pakistan’s electricity sector has been a prominent issue. The country’s aspiration is to move from a monopolistic single-buyer arrangement to a more dynamic competitive market that encompasses multiple buyers and sellers. This ambitious transformation aims to enhance efficiency and establish a pricing mechanism that reflects market conditions rather than governmental dictates.
The groundwork for this shift was laid in 1992 with a Strategic Plan that highlighted the necessity for unbundling, corporatization, and, ultimately, privatization of the power sector. The vision was to transition from a government-dominated framework to a system characterized by competition and transparency in pricing. Yet, as of 2024, Pakistan still faces significant challenges, hampered by stagnant reforms and an electricity market that remains largely underdeveloped.
A significant milestone in this reform journey arrived with the formation of the National Electric Power Regulatory Authority (Nepra) in 1997. The authority was established with the objective of creating a “safe, reliable, affordable, modern, efficient and market-driven environment for the provision of electric power.” However, the translation of these lofty ideals into reality has proven to be elusive. Despite making strides in oversight and organizational structure for market reforms, the competitive landscape Nepra sought to foster remains largely unrealized.
In the early 2000s, the idea of a Competitive Trading Bilateral Contract Market (CTBCM) was introduced as a potential solution to infuse competition into the electricity sector. This innovative concept was designed to empower power generation companies to sell electricity directly to distribution entities or large consumers through bilateral agreements, thus allowing pricing to be established by market forces. By 2012, the National Transmission and Dispatch Company (NTDC) was tasked with developing this market framework; however, a decade later, progress remains minimal.
In a glimmer of optimism, 2022 saw NEPRA granting a Market Operator License to the Central Power Purchasing Agency-Guaranteed (CPPA-G) and approving the Market Commercial Code (MCC). This move was accompanied by a six-month mandate for CPPA-G to test and implement the mechanisms necessary for CTBCM. Furthermore, NTDC received a System Operator License and began to consider applications from various independent entities to act as Auction Administrators, which was seen as a critical step toward establishing a competitive wholesale electricity market.
However, the implementation of these reforms has faced numerous hurdles, primarily due to conflicts of interest among key stakeholders. NEPRA has often relied heavily on government-owned entities such as CPPA-G and NTDC to facilitate the CTBCM, which were originally designed and operated under the single-buyer model. This reliance has resulted in a substantial gap between the existing system and the reforms necessary for competitive trading.
The entrenched interests of these organizations in the status quo have stunted the momentum for reform. Their inherent lack of preparedness and incentive to enable competition poses a considerable barrier to the necessary market transformation.
A significant pivot occurred recently when the Cabinet Committee on Energy sanctioned the establishment of a new entity, the Independent System and Market Operator (ISMO). This organization is intended to serve as an independent platform for electricity trading in Pakistan, tasked with assuming the roles of both the Market Operator and System Operator previously held by CPPA-G and NTDC, respectively. Many view the inception of ISMO as a potential breakthrough that could alleviate the persistent deadlock within the sector.
Yet, while the formation of ISMO is hailed as progress, it also represents a departure from the achievements made over the past three decades. The integration of yet another state-owned enterprise into the electricity market raises critical questions regarding the government’s capability to implement genuine market reforms. Historical precedents demonstrate that reliance on state-owned enterprises often leads to inefficiencies, fostering skepticism regarding ISMO’s ability to fulfill its mandate without succumbing to the same bureaucratic and political obstacles that have hindered past efforts.
The stakes in this situation are exceedingly high. The electricity sector in Pakistan is characterized by inefficiencies, exorbitant costs, frequent outages, and an unreliable supply. The absence of a competitive market framework has resulted in consumers facing inflated electricity costs while power generation, transmission, and distribution companies remain cushioned from competitive pressures. The government’s failure to execute necessary reforms has exacted a heavy toll, costing the economy billions and thwarting the potential advantages a well-functioning competitive market might provide—such as reduced prices, improved efficiency, and heightened innovation.
As electricity demand continues its upward trajectory, Pakistan cannot afford to languish in its current state. If meaningful reforms remain elusive, the electricity sector is poised to continue burdening the national economy, thereby inhibiting growth and development.
The introduction of ISMO, albeit a notable advancement, must be accompanied by earnest adherence to market principles. This entails facilitating private sector participation, spurring competition among power producers, and ensuring consumers enjoy access to affordable electricity based on transparent pricing structures.
In summary, the protracted journey towards transitioning from a single-buyer model to a competitive electricity market in Pakistan has been riddled with obstacles. Despite initial aspirations and decades of endeavors, the country finds itself confronted with familiar challenges, and the promise of reform still seems distant. The establishment of ISMO offers a renewed glimmer of hope, yet only time will reveal if this new entity can ultimately dispel inefficiencies and foster a competitive, market-oriented electricity sector. To succeed, the government must decisively move forward to ensure that this latest initiative does not turn into another missed opportunity in the long quest for a more efficient and reliable electrical infrastructure.
