Country to have competitive electricity market by 2020

KARACHI: Pakistan has planned to reform its electricity market in line with international practices by introducing a strategy, which will help improve energy efficiency and open opportunities for more foreign and local investors, an official said on Tuesday. 

“Central Power Purchasing Agency (CPPA) has finalised a Competitive Trading Bilateral Contract Market (CTBCM) plan, which if approved, will transition the country’s current single-buyer electricity market into a competitive one,” Javed Minhas, Chief Information Officer at CPPA said. 

Minhas added that the CTBM plan was being reviewed internally. “The plan would be presented before National Electric Power Regulatory Authority (NEPRA) for approval this month,” he said. 

Minhas further said complete phase-based implementation of the approved plan would take around three years. “By the year 2020, the transition would be complete, allowing other buyers to enter the market,” the CPPA official added. 

At the moment, according to analysts, Pakistan’s power market is riddled with non-payments and cash flow issues, high losses, long-term generation contracts backed by government sovereign guarantees. “Market’s general emphasis is on supply security, while developers compete for long-term contracts in an organised way.

Once these contracts are obtained, they are not exposed to further competitive pressures,” an analyst explained.  In a single buyer, or principal buyer models, the purchaser i.e., the governmental entity takes the volume risks and hence the efficiency objective is somehow diminished, which is later transferred to the end-user customers. While changing the market model, the overall strategy is to bring efficiency through competition in generation and retail, while transmission and distribution business remains regulated as they are natural monopolies. 

As per an official document, with the implementation of the plan, the contractual arrangements in the sector will evolve and market participants could freely decide to agree contracts, which may be of different types.  “The final design of the CTBCM will outline the characteristics of the contracts,”the document stated.

It added that the government was already in a process of shifting towards competitive bidding regime from upfront tariff regime, aimed at assuring reduced market clearing price as well as assist in smooth transition towards the competitive trading bilateral contract market, which was a pre-requisite for the establishment of wholesale market regime. 

“Under the executive direction from the Economic Coordination Committee (ECC) in April 2015, NEPRA mandated the Central Power Purchasing Agency to propose
the characteristics of a competitive trading bilateral contracts market (the CTBCM),” it said.

It must be noted that the current structure of Pakistan’s wholesale power market is a single buyer arrangement. Presently, CPPA is involved in all power procurements, maintaining a central power pool. Total power purchase by the CPPA in FY 2015-16 was 101,122.20 Gwh. Total capacity payments and energy payments to purchase this power were Rs279.66 billion and Rs468.56 billion so that the total amount was approximately Rs 840 billion. However, later with the introduction of bilateral contracts and competitive market models, the Central Power Purchasing Agency will have a limited role in power procurement business.