Govt mulls framework to allow bilateral trading of electricity

KARACHI: Government is mulling a new framework to authorise bilateral trading of electricity between distributors and consumers to make tariffs more competitive and minimise its role in power purchase agreement, The News learnt on Thursday.

“The proposed competitive power market design aims to create conditions for a fair allocation of risk and benefit sharing between investors/sellers and buyers/consumers, while leveling the playing field and removing conflict of interest to facilitate entry of new investors and participation of private players,” the Central Power Purchasing Agency (CPPA) said in a proposal. CPPA forwarded the Competitive Trading Bilateral Contract Market (CTBCM) model to the National Electric Power Regulatory Authority (Nepra) for approval, which outlines the roadmap to introduce competitive wholesale power market.

The CPPA proposed an amendment into the Nepra Act, which governs the main institutional framework and current actors in the power sector and the scope of the regulatory framework.

The actions that need be taken within three to four years for implementation, from the date of the approval of the CTBCM plan, consist of regulatory, legal, technical, commercial and financial actions that would set the groundwork for the transition to the wholesale power market by 2020. The proposed model is based on creating the conditions to attract investments based on credit cover provided by market participants, without the need of the government providing sovereign guarantees and at the same time exerting pressure on the payment discipline.

A competitive wholesale electricity market will enhance security of supply and generation adequacy to develop power sector sustainability in the short, medium and long term, ensuring accountability of all participants and service providers. The CTBCM is a competitive wholesale electricity market with bilateral contracts as the main component for electricity trading. Under the proposal, existing power purchase agreements would be assigned to distribution companies as retail suppliers.

The report said the power sector’s reform requires a stable and adequate legal and institutional framework to create a level playing field between the consumers, market participants and investors interests, and ensure a predictable basis for investments, risk sharing, private sector participation, reliable network services, and supporting security of supply at reasonable and competitive electricity prices.

“One of the main objectives for the new market is to create the proper conditions and to reduce the government liabilities by reducing or eliminating the need of sovereign guarantees,” the document said. “To achieve this goal, it is necessary to have a very stable and firm legal basis of the market.”

The goal is to attract or develop knowledgeable investors or operators that take the risk of bringing financial resources and managerial skills to ensure the sustainability and modern performance of the power sector and its companies.