EDITORIAL: A Business Recorder exclusive reveals that Central Power Purchasing Agency-Guaranteed (CPPA-G) is giving the final touches to the establishment of the Competitive Trading Bilateral Contract Market (CTBCM) with scheduled operationalization envisaged by April 2022. Setting up a CTBCM exercise began in 2015 targeted for operationalization by 2018 and this delay as per Asad Umar, chairman of the Cabinet Committee on Energy as well as the Minister for Planning, Development and Special Initiatives, contributed to the piling of circular debt which today is estimated at 2.5 trillion rupees. The obvious question is why was there this delay when the outcome was so desirable, especially in the context of harsh upfront politically challenging conditionalities that have been imposed by multilaterals on Pakistan for decades, including the ongoing 6 billion dollar Extended Fund Facility programme? The answer as in the case of other desirable policies that remain unimplemented is the ‘elite capture’ of wealth supported by flawed/biased policies of our decision-makers.
CTBCM participants would include the existing generation entities and distribution companies as well as the entry of bulk consumers, wholesalers, retailers if they resell to end consumers and of course importers and exporters. The CTBCM’s objectives as stipulated by CPPA-G in July 22, 2018 are to: (i) improve efficiency attributable to competition in the market; (ii) enhance security of supply through developing power sector sustainability in the short-, medium- or long-term (that would mitigate the existing lacunae due to failure to import fuel on time as well as issues relating to distribution and transmission losses); (iii) create conditions to attract investments based on credit cover without the need for government guarantees (government guarantees at present are in excess of what is allowed under the Fiscal Debt and Sustainability Act 2015); (iv) create conditions for fair allocation of risk and benefit between investors/sellers and buyers; (v) remove conflict of interest to facilitate entry of new investors with market operator not able to have commercial interests in the market; (vi) ensure payment discipline, a major factor in the rising circular debt; (vii) ensure transparency and predictability; and (viii) open access to information.
In this context, it is relevant to note that the memoranda of understanding (MoUs) signed with the Independent Power Producers (IPPs) last year, which were then converted into binding contracts (though there was a delay in the payment of the first instalment due to National Accountability Bureau’s investigation) included conversion of IPPs guaranteed contracts “take or pay” to “take and pay” without exclusivity as and when CTBCM became operational as per the terms defined in the licence of each IPP; additionally, during the interim period CPPA-G pledged to work towards providing IPPs access to the bilateral market.
To-date relevant government ministries have agreed to first open the wholesale market and stabilise it and only later to open the retail market as per international best practices – a view which can be supported. In its current state, however, it is unlikely that the CTBCM design will in fact achieve these objectives. The biggest flaw in design is that it continues to enable the government, through the Alternative Engineering Development Board (AEDB) and Private Power & Infrastructure Board (PPIB) under the administrative control of Ministry of Energy, to undertake bilateral contracting instead of incorporated entities which are licensed brokers of electricity as enabled under the 2018 amendments to the Nepra Act. Additionally, there is no clarity on the specifics of the model with respect to the wholesale market and there is no tie in or learning from the local market experiences such as the commodity exchange and the stock exchange. It is also not clear what the option proposed by the CPPA-G is best since no other model has ever been put forward for debate in the public domain or for the policymakers to take an informed decision on. There is therefore a need for the government to generate a wider public debate on the issue, and get buy-in from all stakeholders, including provincial governments and experts other than CPPA-G and its consultant, to ensure that right choices are made in the larger interest of the country.
Copyright Business Recorder, 2021
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