Opening-up the power sector

May 28, 2023

The introduction of competition in the power sector will benefit consumers in the long run

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he power sector in Pakistan is going through a transformational shift and moving towards liberalisation of the market through a competitive trading bilateral contract market (CTBCM) model.

While the overall framework is still in the works, the National Electric Power Regulatory Authority (NEPRA) has taken a significant step in this direction by issuing non-exclusive licences to ex-WAPDA distribution companies (XWDISCOs) for the next 20 years. The licences were issued in early May. Sources close to the decision making suggest that the NEPRA may face resistance in this regard from these distribution companies.

On the other hand, K-Electric, the country’s only privatised and vertically integrated power utility, has chosen to apply for a non-exclusive licence for the distribution and supply segment. According to Moonis Alvi, the company’s CEO, this step was taken because the company recognises the market potential as well as the abundance of opportunities available. He says in the interest of consumers, it is ready to embrace competition on its territory.

Along with its licence request, the company has submitted a Rs 484 billion investment plan for 2024-2030. According to the plan, the company is aiming to achieve its Vision 30 by 30 which includes taking the share of renewables in its energy mix to 30 percent.

The K-Electric’s choice of a non-exclusive licence indicates a willingness to avoid monopolistic practices and challenge the status quo. However, some quarters are calling for the cancellation of KE’s licence altogether.

The company is currently engaged in several community development programmes, such as Sarbulandi, Roshni Baji Safety Awareness, and KHI Awards.

The power sector circular debt currently stands at Rs 2.6 trillion, which is around 27.3 percent of the country’s budget for the fiscal year 2022-23. Given the circumstances, NEPRA’s effort to introduce competition through CTBCM is likely to attract foreign direct investment. It may also be able to pave the way for the privatisation of other government-owned DISCOs which are currently struggling with their financials and continue to incur heavy losses every year that become a part of the country’s burgeoning circular debt.

According of NEPRA officials, it has already offered non-exclusive licences to ex-WAPDA DISCOS for the next two decades. The K-Electric has requested the NEPRA to end its ‘exclusive’ rights of power supply distribution in the company domain areas and opened the field to any company interested in investing in a power distribution network.

Technically speaking, as of July 21, the distribution segment of Pakistan’s power sector is open to anybody who wants to offer their services. XW-DISCOs have already been provided non-exclusive licences as of May 9.

The decision taken by K-Electric to opt for a non-exclusive licence shows their willingness to avoid monopolistic practices and challenge the status quo. However, some quarters are calling instead for the cancellation of KE’s licence.

The step is in line with NEPRA and the government of Pakistan’s vision defined in the Indicative Generation Capacity Expansion Plan (IGCEP-2022-31) and Competitive Trading Bilateral Contract Market (CTBCM) framework. The NEPRA has published a public notice to invite comments on K-Electric’s request to renew its distribution licence for another 20 years.

Regarding K-Electric, the Jamaat-i-Islami (JI) led by Hafiz Naeem has been calling for improvements in the power supply in Karachi.

Jamaat-i-Islami is not considering entering the arena but has been voicing consumers’ complaints against the K-Electric as part of its political agenda.

Shoaib Ahmed, the JI deputy information secretary, says that the JI is considering investing in the power distribution business. However, he says, it will keep voicing the citizens’ complaints about the utility company.

A NEPRA official says that the omission of exclusivity clause is aligned with the amended NEPRA Act 2018 and global best practices.

The existing Discos, he says, shall have the monopoly in their service territory for network business expansion, maintenance and operations but where there is no network available in new economic zones, industrial states, societies and colonies, etc, new market players will have the option to apply for distribution licences.

The new regime will enhance access to electricity and add and improve competitiveness in the distribution service segment. K-Electric’s Director Communications, Imran Rana, says, “There is an assumption that as a monopoly K-Electric enjoyed exclusivity. This is a false impression. The fact of the matter is that 20 years ago, ‘exclusive, integrated monopoly’ was the business model prescribed to the power sector. Today, this model is changing.”

Since the opening of the power distribution network, only Bahria Town has applied for a distribution licence.

The regime can have a positive impact on the power sector in terms of better distribution services, improved liquidity, enhanced recovery and reduced losses. NEPRA Chairman Tauseef Farooqi says he is very keen on swift implementation of the open market framework (CTBCM) in line with the proposed timelines. Several hearings have already taken place and consultative sessions are under way.

The fact that competition is being introduced in the power sector is a positive development. It will lead to increased efficiency, better service and ultimately, lower costs for consumers. K-Electric, which has been associated with Karachi for more than 113 years now, is also set to learn and develop in the process.

K-Electric’s request for the renewal of its distribution and supply licence on a non-exclusive basis is a progressive step in line with the vision of the NEPRA and the government of Pakistan. It has the potential to pave the way for a new phase of sectoral development. It is highly likely that the licence will be renewed.

The writer is a business reporter

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