Bulk consumers of electricity will have the option to buy electricity on a competitive basis from any power producer of their choice from July 2022 onwards, said Tabish Gauhar, who recently stepped down as Special Assistant to the Prime Minister (SAPM) on Power and Petroleum.
Addressing the members of CFA Society Pakistan on Wednesday, Mr Gauhar said the first phase of the Competitive Trading Bilateral Contract Market will be operational by the end of the current fiscal year.
“One of the reasons why the power sector is in the (current) state is the single-buyer model,” he said while referring to the electricity management system in which an independent power producer (IPP) can be part of the national grid only if it sells its megawatts to the federal government.
Following the implementation of the multiple-buyer system, the government hopes that wholesale buyers consuming up to 20 per cent of total electricity will have access to their “choice of supplier”.
The concept of wheeling —ie using the system of a distribution company to transport electricity — has existed in Pakistan for many years. Power generation companies are allowed to sell their electricity to bulk consumer in any part of the country, as per the Wheeling of Electric Power Regulation 2016 of the National Electric Power Regulatory Authority (Nepra).
However, the practice hasn’t taken off so far because of two reasons: standard costs and cross subsidy.
“You have the standard cost of the incumbent distribution company. What will you do with it? If it’s not going to be subsidised, there is a real possibility that the newcomers will come with a cheaper cost of supply and cherry-pick and take away all the good customers, especially industrial customers,” he said.
This means that relatively inefficient distribution companies with higher losses will be left to serve only those customers who can’t afford to migrate to a better supplier. As a result, the whole exercise will only add to the existing woes of the power sector. The Ministry of Finance will eventually have to “foot the bill” for the poor cash flows of the incumbent distribution company unable to retain its best customers.
In its first attempt to popularise the concept of wheeling, Nepra came up with a wheeling charge of Rs1-1.5 per unit. Some distribution companies considered it excessively low and went to court against the move.
“I think the number they’re looking for is Rs6 (per unit). It was one of the unfinished agenda for me when I was there (in the government),” said Mr Gauhar, adding that the government should finalise a wheeling regime that allows a power producer based anywhere in the country to wheel its electrons across the national grid by paying a “reasonable toll tax”.
A power company finding its own bulk consumer of one megawatt and above anywhere in the country will bring the price of electricity down for that specific consumer and also benefit the economy in general, he said.
Lack of political will
Them former SAPM said there is “nothing that the policymakers are not aware of”. The poor state of affairs is mainly because of the “lack of political will”, he said.