Competitive electricity market

The announcement to partially deregulate the power sector marks a positive step forward. Although specific details of the proposed framework have not yet been made public, the author maintains that any initiative reducing government involvement in the supply of goods and services—including energy—should be welcomed, given the clear failure of the traditional bureaucratic system in this domain.

The proposed system has been described by the regulator as under:

Pakistan’s power sector has traditionally operated under a single-buyer model, where the Central Power Purchasing Agency (CPPA) purchases electricity on behalf of ex-WAPDA distribution companies (XW-DISCOs).

The sector is transitioning to CTBCM, a competitive wholesale electricity market model. Under CTBCM, multiple buyers and competitive suppliers can negotiate bilateral electricity purchases and sales directly at mutually agreed wholesale rates. Procurement for XW-DISCOs—acting as Suppliers of Last Resort (SOLR)—will be tariff-regulated by NEPRA and conducted on a least-cost basis.

Key operational changes proposed under CTBCM:

• Single-Buyer Model Termination: The centralized single-buyer regime will end, with DISCOs procuring power via centrally organized auctions managed by the Independent Auction Administrator (IAA) to meet forecasted demand.

• Consumer Choice: Bulk power consumers (BPCs) with demand exceeding 1 MW can choose to purchase power from either their regional DISCO or a competitive supplier. Retail market competition and lower consumer load thresholds will be phased in over time as market liquidity develops.

• Merchant Operations: Generation assets—including retiring fleet units and grid-connected captive power plants—may sell electricity on a merchant basis.

•Options for Legacy Generators: Legacy plants can sell to DISCOs on a least-cost basis (under the Integrated System Generation Expansion Plan / Power Acquisition Program), contract directly with competitive suppliers or BPCs (with appropriate supplier licenses), or operate as merchant power plants.

Price efficiency is anticipated through transparent economic dispatch, competitive bidding, bilateral contracts, disciplined procurement, and improved expansion forecasting. Existing CPPA legacy contracts remain protected, though parties may voluntarily terminate contracts by mutual consent to join the CTBCM. Federal sovereign guarantees will be phased out for creditworthy DISCOs in favour of commercial credit covers, remaining temporarily only for less creditworthy DISCOs.

Business-to-business (B2B) suppliers must handle investment risks independently. Industrial estates require a NEPRA distribution license to provide distribution services, or a competitive supplier license to supply BPCs directly, while the incumbent XW-DISCO retains SOLR responsibility. The Federal Government subsidies for consumers opting for competitive suppliers remain subject to federal policy and subsequent implementation mechanisms.

While this reform represents a necessary and positive step given the present circumstances, it stems from IMF recommendations aimed at establishing market-based energy pricing and removing the burden of past policy errors from the public exchequer.

Although this principle is sound in theory, the continuation and protection of existing contractual commitments leave the government with only two viable paths:

• Absorb the ongoing costs, thereby further draining state resources; or shift the financial burden onto retail consumers.

Consequently, although the proposed framework provides suitable relief to bulk and industrial electricity users, it fails to address the long-term challenge of high energy costs facing everyday residential consumers.

The government must present the underlying facts transparently, as consumer and public energy pricing directly shapes the trajectory of any future national growth. Historically, policy decisions in this domain were made incorrectly through short-sighted political and commercial expediency, ignoring long-term sustainability for both the public and the nation. Pakistan simply cannot absorb another crisis of this magnitude in the future.

The proposed framework includes training for market personnel, assigned to the Lahore University of Management Sciences. However, the author emphasizes that Pakistan’s economy relies on two main hubs: Karachi and Lahore regions.

Centralizing professional development in a single location is ill-advised, and lessons should be drawn from WAPDA’s legacy. To uphold the scheme’s goals of transparency and equity, the institutional role and economic prominence of Karachi must be fully acknowledged.

The proposed scheme aims to establish a market-driven mechanism for energy pricing. However, markets can only function effectively if the underlying system remains straightforward and user-friendly. Although the current regulatory framework is well-crafted, it must be simplified.

The primary step toward ensuring the success of this scheme is building business confidence to participate in these commercial arrangements. If overly complex regulation indicates that “the devil is in the details,” the intended outcome will remain out of reach. In the author’s view, further simplifying the framework and eliminating administrative bottlenecks are essential for the system.

Copyright Business Recorder, 2026