CTBCM: a possibility or a pipe dream?

The electric power sector of Pakistan has been plagued by multiple issues since the late 90s entailing both availability and affordability of energy for sustainable development in Pakistan. The recent remarks by the Special Assistant to the Prime Minister (SAPM) for Power and Petroleum, Tabish Gauhar, and evidence produced by several eminent economists provide a detailed root cause analysis of the problems and suggests that the solution to these issues lie in the introduction of competition in the monopolistic electricity market of Pakistan. The claim of the honorable SAPM that the time is near when consumers will be able to switch from one electricity provider to the other as easily as switching between mobile networks will require substantial coordination, policy, and legislative reforms.

For the layman, electricity supply chain usually has three major nodes, the generator, transmitter, and the distributor. The generator sells electricity to the transmitter, National Transmission & Dispatch Company (NTDC) via its sister concern, Central Power Purchasing Agency (CPPA) and finally to the various public distribution companies (Discos) and the only private one, that is, K-Electric.

Globally electricity market has been a natural monopoly since the start. Several initiatives to ensure electric market competition have been tried and tested in various parts of the world leading to a mix of both success and failure stories. Mostly, models for competitive market exist in countries with stronger economies such as US, Turkey, and the European Union but some of the earliest adaptors to competitive market were from South America. The classic failure case study is the electricity market crisis in Texas, the US, in early 2021 leading to the customers paying hundred times more price for electricity. Similar failures occurred in Italy and Romania is the past. In Argentina, which is generally considered a success story, cost of electricity went down for bulk purchasers but actually went up for small home based consumers.

Taking advantage of the international evidence, a case was prepared for the creation of competitive market in Pakistan and finally, in April 2015, the government of Pakistan’s Economic Coordination Committee (ECC) mandated CPPA to prepare a roadmap for the implementation of the Competitive Trading Bilateral Contracts Market (CTBCM). Afterwards, the roadmap prepared by CPPA was approved by National Electric Power Regulatory Authority (NEPRA) and implementation is expected to be completed in 2022. CTBCM model will require the power generation companies to sell power to a wholesale market. The competitive suppliers will buy from the wholesale market and finally the eligible consumer will be able to buy electricity from the competitive supplier. While the concept, backed with anecdotal evidence suggests that the affordability and availability of energy shall be made possible through, in spirit, implementation of CTBCM, but some of the aspects need to be taken care of in this regard.

Firstly, for the policy to be implemented in spirit, there is a need to focus on the main goal behind the shift towards competitive electricity market, i.e., ensuring affordability and availability of electric power for all types of consumers. For a developing country, more emphasis in this regard is sought towards export industry to ensure international market competitiveness. In a SDPI study conducted two years’ back, the exporters from all over Pakistan termed energy affordability as the major barrier to exports in Pakistan.

Secondly, there is a need for policy implementation to focus on inclusivity from the private sector side. The regulator needs to ensure easy market entry for both suppliers and generators. This will in turn also support the vendor industry and in return will be helpful for the overall economy of Pakistan. Also, most countries that have implemented CTBCM have gone for almost complete privatization of the entire value chain, including DISCOs (distribution companies), existing generating assets and at the minimum parts of transmission infrastructure, which is an important consideration, if market is to be made really competitive and free. The other side of inclusion is from within the government. The government working in Pakistan is fragmented. Several of the energy relevant governmental stakeholders are residing in different federating units. The coordination issue was further aggravated after the 18th constitutional amendment. This lack of inter and intra federating units and departmental coordination result in policy, legislative and regulatory asymmetry leading to disbenefit of the public.

Thirdly, there is a need to ensure competition in the envisaged electricity market structure. The need for strengthening and including the Competition Commission of Pakistan (CCP) in all phases of the CTBCM implementation plan is evermore increasing. A strong need for setting up of laws, policies, and regulations to ensure competition is a must to achieve the intended benefit.

Fourth, there is a need to ensure strengthening of the transmission and distribution system. While Mitiari to Lahore transmission line project under the China Pakistan Economic Corridor (CPEC) is a good step in this direction, more needs to be done. This may include standardization of transmission and distribution equipment throughout the country to ensure easy evacuation and distribution of power for bringing down the losses. This should be coupled with transparency in the procurement processes and avoidance of theft.

Fifth, there is a need for independent and strong monitoring and evaluation of all phases of the CTBCM implementation plan. This will require detailed understanding of the theory of change and should aim at assessing the indicators at the output, outcome, and impact level to ensure the focus remain towards the main goal of the initiative. Evidence suggests policies that are evidence backed and agile are easy to implement and more prone to success.

Sixth, there is a need to come out of the subsidy-based mindset. The private sector and the government both need to understand the main causes behind electricity issues such as the circular debt. The long-term economic viability instead of short-term financial feasibility shall be the way forward in this regard.

Last but not the least, CTBCM should include a more inclusive consultative process. The key to success lies in involvement of all stakeholders including relevant government departments, distribution companies, generators, consumer interest groups, investors, financial institutions, research institutions and civil society organizations.

Implementation of any ambitious policy initiative will require substantial efforts, but it is a good time to inculcate the global lessons learned and a detailed focus on the end goal should be ensured and assured. If a reform oriented agenda is not followed, the intended benefit of affordable and available energy might not be possible.

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