Reforming power sector: Overcoming deviations and embracing competition

ISLAMABAD: Pakistan’s power sector reforms under the 1992 strategic plan, initiated to introduce competition, efficiency and choice to consumers, have faced significant deviations from achieving their original objectives and timelines.

The reforms aimed to i) unbundle and restructure the power sector to remove conflict of interests and self-dealing; 2) introduce competition in generation through Independent Power Producers (IPPs) and 3) provide choice to consumers through spot market/power exchange established.

Currently, the masses of the country are badly locked in the IPPs contracts regime and they can be provided lower tariffs if the regime is switched on to market-based trading, and the people can get the electricity through auctions which is a global trend.

However, several key deviations that have hindered the reform process include that i) Wapda and Pakistan Atomic Energy Commission (PAEC) remained an authority and commission, rather than becoming a public corporatised entities for projects’ development for improved efficiency and performance; ii) NTDC and DISCOs were corporatised in 2002, but privatisation was delayed resulting in unreliable and inefficient operations and impacting consumers affordability and quality of services, iii) CPPA-G, the Central Power Purchasing Agency, used upfront and cost-plus modes instead of competitive auctions based price discovery impacting the substantial cost of consumers that very purpose of creating this role; vi) the persistence of the single buyer model by CPPA-G as an agent of DISCOs hindered the transition to bilateral contracts market and creating surplus procurement of long terms contracts that have become liability with stranded cost impacting transition to market model; v) DISCOs are being privatised and on the other hand, those are coerced and forced through the IGCEP (Integrated Generation Capacity Expansion Plan) for procurement from undesired and costly projects under committed category there by deviating the least-cost and competitive price discovery options in the times when the tariff is regionally high and out of affordable range of consumers, limiting competition and auctions based discovery is not less than day light robbery on consumers. How come NTDC as a planner decides on behalf of DSICOs and how come DISCOs procure committed projects in violation of the prevailing policy and regulatory regimes of auctions that has negative and serious impact on the consumer end tariff, this calls for policy and regulatory level review and adjustment.

Lack of Co-optimisation is also a hindrance in the way to the required reforms as IGCEP (Integrated Generation Capacity Expansion Plan) and TSEP (Transmission System Expansion Plan) planning, approval, and implementation lacked least cost and optimal cost co-optimization that by optimising the resource and location decisions and maximising consumer benefits, no lines and projects be contracted unless there is demand of the DISCOs, it’s unfortunate that YoY there is decreasing trend of DISCOs sales and YoY additions of the plants’ capacity is thrice times higher and constructed in speed without DISCOs consents, this requires the pressure break for study to be conducted, prudence of procurement to be established and rationale for new procurement while considering and factoring in the priority utilisation of existing assets and removal of transmission constraints.

These deviations led to the delays and confusion about the wholesale electricity market/CTBCM operations, mixing wheeling charges and stranded costs with bulk consumer choice.

However, operationalising the Competitive Trading Bilateral Contracts Market (CTBCM) would i) enable bilateral trade among buyers and sellers especially DSICOs procurement on competitive basis; ii) facilitate full cost pooling and settlement under spot market/power exchange models and iii) pave the way for a smooth transition to retail market, which is ultimate goal to achieve retail competition.

The way forward is to achieve the original reform objectives, Pakistan’s power sector must address the identified deviations, embrace competition and transparency and commence the CTBCM immediately, foster private sector participation in distribution and transmission business and ensure predictable and accountable policy and regulatory frameworks for auctions based procurement.

By doing so, Pakistan can create a more efficient, competitive, and affordable power sector, ultimately benefiting consumers and driving economic growth.

There is a dire need to review and revise IGCEP and TSEP and establish demand need procure power plants only auctions based, implement bilateral contracts market for DISCOs to do auctions based procurement, limit CPPAG’s agency role to legacy contract settlements and ensure the commencement of the wholesale market which is the need of hour to provide solace to the electricity consumers particularly, the bulk consumers. By adopting these measures, Pakistan can overcome the challenges facing its power sector and unlock a brighter energy future with a successful transition from IPPs contracts regime to market-based trading, which is a global trend.