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December 8, 2019

Nepra approves market mechanism for electricity trade


December 8, 2019

KARACHI: Power sector’s regulator has approved the market mechanism for electricity sales and purchases, but stakeholders are skeptical about the effectiveness of what they call Turkish model in resolving chronic cash shortages and poor infrastructure issues.

It was learnt on Saturday that the National Electric Power Regulatory Authority (Nepra) approved the conceptual design of competitive trading bilateral contract market model (CTBCM) to enable sustainable power sector in the country.

Power sector’s players slammed the model and are doubtful if the new mechanism could tackle longstanding issues of circular debt and bottlenecks in transmission and distribution.

Sources in K-Electric said the model focuses on incentivising generation and does not address the critical issues dominant in the power sector of Pakistan, including circular debt, lack of investment in transmission and distribution infrastructure, demand-side management, off grid renewables, lack of planning, poor governance, and high aggregate technical and commercial losses.

“Turkish model has been proposed to be replicated in Pakistan without due consideration to the challenges that may arise out of such replication,” an industry official said, requesting anonymity.

Government officials said the model envisages a mechanism in which the most efficient generators would be at an advantage while the inefficient ones would gradually cease to exist.

Nepra said the Central Power Purchasing Agency (CPPA) was mandated to prepare the model for competitive market operations encompassing both the sale and purchase of power at wholesale and sale/purchase of power at retail and submit the same for the approval of the authority.

It was prepared through an international consultant with the technical assistance of the Asian Development Bank, following a decision of the Economic Coordination Committee for power sector reforms and taking into consideration the peculiarities of the sector.

“In order to have a sustainable power sector in the country, introduction of the competitive electricity market is the need of the hour,” the authority said in a document.

The actions that need be taken within three to four years for implementation of the model are related to regulatory, legal, technical, commercial and financial and that would set the groundwork for the transition to new market mechanism.

Sources in Fatima Energy Limited said there should be gradual shift to the competitive market until the guaranteed capacity payment contracts exist. Another player Metro Power Company said any rights available to independent power producers (IPPs) under power purchase agreements should not be transferred without consent of the concerned company.

IPP association said the issues of circular debt, lack of security of payment to IPPs, and lack of investors' confidence are serious impediments to the implementation of the proposed model.

Industry officials said elimination of circular debt and structural overhauling of distribution companies are prerequisite to the implementation of the model.

Sources said the model is silent on various aspects of the proposed competitive market, including transparency in dispatch of power plants, availability of transmission capacity for spot sellers, cost of transmission system, failures of either party to buy or sell the agreed power in case of force majeure events or failure to comply with the provisions of the grid code.

CPPA-G officials said the proposed model is not incentivising generation rather it promotes sharing of risks between buyers and sellers to bring transparency in the market.

The proposed model is prepared for the design and implementation of the wholesale electricity market rather than reforming the powers sector. “However, the implementation of the proposed model may help alleviate the issues,” an official said.