Power market: Nepra chief says 'we've to take baby steps and exercise caution'

KARACHI: Agreeing with international experts who were gathered to discuss the 'Future of Energy Market' in Pakistan, Chairman National Electric Power Regulatory Authority (Nepra) Tauseef H. Farooqi stated, "We have to take baby steps and exercise caution and be watchful when coming up with this system. There should not be any errors". As an example, Farooqi also shared how the recently approved Indicative Generation Capacity Expansion Plan was the first time in Pakistan's history that a data-driven and scientific approach was being used to forecast the trend of long-term generation capacity in the country.

As Pakistan embarks on a journey towards a modernized electricity market, a panel of experts gathered to discuss the liberalization of the energy market under the umbrella series of "The Future of Energy". The session was organized by the Nutshell Conferences in collaboration with the Nepra, supported by K-Electric and was attended by global and local leading subject matter experts from the International Finance Corporation (The World Bank), Central Power Purchasing Agency-Guaranteed (CPPA-G), Kearney - a global management consulting firm with presence in over 40 worldwide markets, and from the industry.

Taking stock of the status quo and the role that various stakeholders have to play, Omer Haroon, Head of Strategy at CPPA-G, said that shifting the market is a huge undertaking and transparency, predictability, and accountability have to be embedded into the design process for a successful implementation. Alongside policy changes, there is also a need to restructure organizations and institutions to integrate greater automation and digitization for improved customer service. At the third tier, capacity building of staff is also a priority.

He acknowledged that there could be enormous benefits of the Competitive Trading Bilateral Market (CTBCM) to the end consumers. Not only will bulk power consumers be able to get more choice and get reduced rates, tech-based interventions would improve efficiencies and confer huge savings in fuel costs which will be passed on to consumers as well.

Chairman Nepra also echoed this sentiment, stating that the government was already working on plans to privatize the state-owned distribution sector as a key pillar of the transition towards an open market. Farooqi also mentioned that unlike K-Electric, the other distribution companies (DISCOs) lack customer centricity which Nepra is making efforts to change that. While there is a significant amount of technology being incorporated into the modernization efforts, competition on the supply side would attract private sector to enter whatever territory they like after the change in territorial exclusivity status of all DISCOs in Pakistan.

Chairman Baig Group, Dr Mirza Ikhtiar Baig also welcomed the move calling it a "long overdue" initiative. At the same time, he cautioned that continuity and stability of power supply in a contractual agreement was critical for the sustainability of the industries as it would have a disastrous impact on their economic activity if the bilateral agreements were not honoured. Responding to this, Chairman Nepra further added that the opening of market is being accompanied by a number of consumer and investor friendly initiatives and these concerns have been accounted for at the policy-making stage.

Peter Brishimov, Principal at Kearney, stated that the stage and speed of the transition needs to be gradual and planned in a way to minimize the costs and the disruption to the environment. He proposed that dry runs be conducted for about 6 to 12 months prior to the formal launch of any model which is commercially binding, to guarantee that the operations are running as intended. He also expressed his confidence that Pakistan will see a major change when it adapts to a competitive environment, which will drive higher efficiency for utilities and create "opportunities for revenue streams by offering new and better services for customers."

Brishimov concluded by stating that the liberalization of the market will not only generate value for Pakistan over the next 3 to 5 years, but for decades to come if it is cautiously and meticulously planned.

While seconding Peter, Chairman Nepra also mentioned that the introduction of competition in the electricity market, if done rightly, can make it a "paradise" to bring further investment into the market and vie for customers alongside existing distribution companies.

Adil Marghub, Regional Industry Head & Energy, IFC, The World Bank also cited global examples of various markets across Europe, Latin, and South America which had undergone privatization or the entrance of the private sector at various stages, which catalyzed their transformation towards a liberalized market by reducing transmission and distribution losses and attracting investment into the power value chain. He stated that clear rules and regulations are as important as healthy cash flows, as bank ability of a project is directly linked to its competitiveness in the market.

The insightful and lively discussion had all panellists agreeing that systematic planning was critical to achieve financial equilibrium in an open electricity market, and prevent any major disruption from affecting the provision of critical services that utilities are responsible for. The panellists also agreed that there is an immense transformative potential packed within the CTBCM, and appreciated the concerted and comprehensive efforts that the Federal Government, Nepra, and CPPA were making towards actualizing this revolution in the country.

Copyright Business Recorder, 2021