CTBCM: A carefully designed reform

In an article published in Business Recorder dated September 3, 2025, the author has rightly appreciated the government’s efforts in improving crisis response, strengthening administration, and reducing tariffs; however, on the contrary, it has also raised concerns regarding CTBCM, portraying it as an illusion.

While acknowledging progress is important, dismissing CTBCM as an ‘illusion’ overlooks its carefully designed framework and the critical role it plays in ensuring long-term efficiency, transparency, and sustainability of the power market of Pakistan.

In the same article, the author further suggested that for CTBCM to succeed, three conditions are necessary:

(a) Discos to be given ring-fenced supply arms,

(b) capacity payment distortions to be addressed, and

(c) subsidies to be phased out transparently.

These points reflect a clear lack of understanding of author about competitive electricity markets.

The proposal to allow DISCOs ring-fenced supply arms goes against the purpose of competition. International experience shows that whenever distribution companies are allowed to be competitive suppliers as well, the competition was weakened. For example, the Competition Commissions of France and Turkey found that this practice limited consumer choice, discouraged new entrants, and preserved monopoly structures. Such an approach would reduce opportunities for private suppliers and harm consumers in the long run.

Secondly, shifting capacity payment costs mainly to industries contradicts the aim of supporting competitiveness. Globally, capacity costs are shared across all consumers to maintain fairness. Placing this burden only on industries would raise their tariffs, weaken their ability to compete regionally and internationally, and also hurt exports especially at a time when mechanisms like CBAM already challenge Pakistan’s exports.

The call for subsidy reform is understandable but lies outside CTBCM’s design. Subsidies are political and social decisions meant to protect vulnerable consumers and exist in nearly all developing countries regardless of market reforms. CTBCM’s role is not to abolish subsidies but to create efficiency and transparency in procurement, while subsidy decisions remain with policymakers.

Taken together, these recommendations are inconsistent, calling for more competition while suggesting measures that would limit it or increase costs for industries. By contrast, CTBCM provides a transparent, rules-based, and internationally aligned framework where all players such as generators, suppliers, and consumers operate under NEPRA’s oversight on a level playing field.

CTBCM is not meant to undo legacy contracts or subsidies overnight, but to prevent future inefficiencies by ensuring power procurement is competitive, least-cost, and transparent. Its success should not be measured by the optics of launch but by the structural improvements it brings over time.

The assertion that CTBCM lacks credibility after years of planning and investment overlooks the fact that such transformative reforms in power markets globally are gradual, resource-intensive, and require extensive groundwork. The investments made in IT frameworks and institutional capacity are not wasted expenditures but necessary building blocks for a transparent and competitive market.

CTBCM is not an overnight reform, it is the culmination of lessons learned from international electricity markets, global best practices adapted to Pakistan’s context, wisdom of experienced international market experts and a phased approach that ensures stability while transitioning towards a competitive electricity market.

On the matter of stakeholder engagement, it is important to clarify that consultations have not been limited to roadshows or academic seminars.

Engagement has been carried out with multiple tiers of stakeholders, including industry players, regulatory bodies, IPPs, distribution companies, chamber of commerce and consumer representatives. It would not be an exaggeration to say that no other reform in Pakistan’s power sector has undergone the scale and inclusivity of stakeholder consultation that CTBCM has achieved. To name a few: several Electricity Market Professional Programmes were held for the private sector participants including Industry, giving them insights on the CTBCM design and roadmaps while taking their inputs; Extensive consultative sessions involving Generation companies and Bulk Power Consumers on power wheeling; Consultative workshops, with open invitation to private sector in collaboration with think tanks, on CTBCM; Policy dialogues bringing policymaker, regulator and implementing entities on one platform for sharing of ideas. It is worth mentioning that the wheeling 800 MW cap and the proposal of viable wheeling charges was discussed with the industrial experts representing several industries. It is also worth highlighting that on top the consultations mentioned above, NEPRA also approved the CTBCM design, Market Code, and related regulations after thorough public consultations spanned a considerable time period, wherein comments from Industries and stakeholders were invited and addressed. These initiatives demonstrate that CTBCM is not being developed in isolation, but through an inclusive, transparent, and collaborative process that reflects the voices of all key stakeholders.

Decades of planning, efforts and consultations can be summed up as ‘tough luck’ (as claimed in the article), only if one is totally ignorant of the actual design and phased implementation plan as well as the prevailing regulatory framework. The initial 1 MW threshold, explicitly mandated by the NEPRA Act, is an internationally recognized as a wholesale market starting point to ensure stability, protect smaller consumers during transition to retail market, and allow learning before scaling down to lower consumption brackets.

The phased design demonstrates a cautious and responsible approach, balancing ambition with system reliability and consumer protection.

The article raises the issue of capacity charges, suggesting that CTBCM will worsen the problem. This misrepresents the purpose of CTBCM. Capacity payments stem from legacy take-or-pay contracts backed by sovereign guarantees. These contracts are a product of past planning weaknesses and cannot be altered due to the sanctity of Power Purchase Agreements (PPAs). The Power Division is already negotiating to ease terms of these contracts.

However, CTBCM is not designed to undo what Government has guaranteed; rather, it ensures that future procurement are done on competitive basis, ensuring the least cost without government taking the long term liabilities over time.

Under CTBCM, procurement will be done through competitive bidding with strict capacity obligations, ensuring no over- or under-procurement. This is a forward-looking safeguard against stranded costs.

Another concern raised in the article is that CTBCM strips away Discos’ best customers, weakening them further. Again, this is misleading due to the following reasons:

• Cross-subsidy protection: Even if eligible consumers participate in the market, they will continue to pay their fair share of cross-subsidy, as provided in the policy framework.

• Wheeling charges: Consumers using Discos’ networks will pay wheeling charges, ensuring that Discos are compensated fairly for infrastructure use.

• Governance issues: If DISCOs face losses due to theft or inefficiency, this is a governance challenge, not a structural flaw of CTBCM design. Market reforms cannot be blamed for governance issues. Here it is important to mention that apart from privatization of DISCOs, which is a big undertaking, Ministry of Energy (Power Division) through its appointed competent Board, is taking several strategic steps to improve the operational efficiencies of the Discos, before they are privatised.

In every country that has transitioned towards competitive electricity markets, whether in Europe, the US, or regional peers, the roles of distribution companies have evolved from being monopoly suppliers to efficient network operators. This transition does not ‘weaken’ them; instead, it compels them to focus on their core function: delivering reliable power, improving efficiency, and reducing losses.

The concept of ‘Supplier of Last Resort’ is a globally recognized safeguard that ensures no consumer is left without supply during market transition. Far from trapping DISCOs in losses, competitive markets incentivize them to improve recovery, reduce theft, and innovate business models, while also providing consumers with choice. CTBCM therefore aligns Pakistan with international best practice, ensuring that DISCOs are modernized rather than marginalized.

The writer highlights the 800 MW cap as arbitrary and damaging. This is not accurate. The 800 MW allocation translates around 30 percent of the eligible consumer base. Far from undermining competition, this allocation will be competitively done, ensuring fair access and preventing market distortion. The impact of stranded costs on other consumers will be marginal, and as competition deepens over time, this burden will shrink further.

It must be emphasized that CTBCM is not designed to resolve legacy capacity payment problems. Instead, CTBCM ensures that such problems do not recur by bringing competitive, transparent, and rules-based procurement to Pakistan’s power sector.

The premise that competition must be fair with clear rules and viable participants is fully aligned with the core design of CTBCM. Far from creating ‘selective opportunities,’ CTBCM establishes a transparent, rules-based marketplace under NEPRA’s regulatory oversight, where all market players— generators, suppliers, and consumers— participate on a level playing field.

CTBCM provides the framework to make improvements through transparency, information access and competition in the-market and for-the-market. Thus, Pakistan’s power sector will gain the right opportunity to gradually and systematically move on the path of improvement.

CTBCM will be remembered not for the day it was launched, but for the enduring impact it created by reshaping Pakistan’s electricity market for the better.

Copyright Business Recorder, 2025