Govt mulls market-based tariffs for power generation

KARACHI: The government is mulling to allow market-based tariffs for electricity generation, transmission and distribution projects, indicating a step closer to deregulation of the entire energy chain to attract private investors.

The National Electric Power Regulatory Authority (Nepra) proposed a competitive bidding regime for setting tariffs for generation and transmission projects, a document said on Friday.   “The Nepra aims to promote competition in electricity procurement, encourage private investment in generation and transmission sector and facilitate transparency and fairness in the procurement processes,” it said. “The competitive bidding regime will incentivise generation and transmission companies to adopt innovative financial modeling, tax planning methods and technological advancements to ensure competitive tariff and return on investment.”

In October, last upfront tariff for power generation on imported/local coal expired, paving the way for market-based tariffs for the new coal-fired power projects.

The Nepra said a common approach globally is to ensure supply adequacy at the least possible cost. “In view of the fast-growing electricity consumption in Pakistan, ensuring an adequate volume of new generation is of paramount importance,” it added.

The use of competitive bidding as a procurement mechanism will contribute to supply adequacy and security, alongside providing the benefits of competitive price hedging to consumers.

The proposed draft provides space for innovation and development in bidding design and methodology, which is imperative to foster competition.

Earlier, Nepra Competitive Bidding Tariff (Approval Procedure) Regulations, 2008 introduced a mechanism to award tariffs to generation companies through competitive bidding.

The regulations provided a basic framework for approval of tariff set through a process of competitive bidding. 

In 2014, the Nepra issued another set of regulations under which the scope of competitive bidding was extended to transmission and distribution tariffs.

The Nepra has issued different set of regulations for tariffs through competitive bidding. However, the existing regulations are restrictive and not in consonance with the best international practices. Moreover, they lack an element of promotion of competition in the electricity sector.