EDITORIAL: Last week, NEPRA approved the design and implementation plan of Competitive Trading Bilateral Contract Market (CTBCM). It's a long-awaited step and was envisaged in WAPDA's de-bundling plan of 1992. The idea is to move away from 'single buyer and single seller' model. Since the government is the only buyer and seller of electricity, any power producer would not come on board without take or pay agreement where capacity charge is covered with sovereign guarantees. Now this move can in the long run move to take and pay. But there are many slips between the cup and the lip. The objective is for the government's monopoly to remain in the network businesses while the market operations are envisaged to be taken over by the privet sector. A wholesale competitive market is to be developed by 2022, allowing bulk consumers (over 1MW usage) to buy electricity independent of the government clearing and settlement body - CPPA-G. And eventually, the goal is to bring this consumer limit close to zero to have retail segment into it. But there is no timeline as such mentioned for the full development of a retail market.
For bulk consumers, the concept of direct wheeling is to be allowed now. Consumers can buy directly from the power generators without the involvement of discos. There are about 2,000 such customers with a share of 16 percent consumption in the NTDC market. The remaining 84 percent consumption or over 26 million consumers are to be left with discos.
One problem discos face is to live without better customers, as industrial consumers are better in terms of billing and collection. There might be a layer of competitive suppliers in between the generators and bulk consumers by 2022. These will select best consumers to supply at unregulated tariff (close to the marginal cost) while the discos are to be left with others including rotten eggs which could further reduce their recovery ratio. That is why the wheeling pricing is of utmost importance for NEPRA to create a balance between competitive suppliers and the discos. The development of a wholesale market is likely to happen and may be on time. This may incentivize the captive power producers (mainly industries) to move towards this direct wheeling concept. Industrial players have been asking this for long, and finally this is happening. The competitive suppliers would be using technology to compute the marginal cost on an hourly basis (once a wholesale market is developed) and the unregulated tariffs for the industry to fall. But at the same time, the government has to give the right price signal. For example, if the export industry keeps on getting gas at subsidized rates, direct wheeling might not be lucrative for them.
It is important to note that industrial energy package announced by PM a couple of weeks back might induce industrial consumers to demand higher power from the gird. In the package, SME industrial consumers would get a 50 percent discount on incremental consumption along with no peak hour charge. The peak hour consumption is 12.7 percent of total and this may grow with no peak hour for SMEs. For bigger consumers, the 25 percent discount on incremental consumption is computed at marginal cost - the price would be similar to what they would get on direct wheeling. The problem is of small consumers (mainly residential and commercial). There is no price incentive for the consumers. Most of the bad disco consumers are in this segment and discos' recovery may fall further without any improvement in governance. That will push the pressure of increase in tariff to reduce the circular debt flow. The only way to deal with this is to improve governance of discos.
Seeing the district and provincial level governance and administration in food and grains market in the last one year, there is not much hope of improving the discos, even if these are moved to provinces. The only way to bring the losses down in this segment is by involving private sector in the equation in retail distribution.
Copyright Business Recorder, 2020