There is a silent change coming in the electricity distribution system for good. The exclusivity to distribute power in certain jurisdictions for all XWDISCOs (ex- WAPDA distribution companies) barring two companies (SEPCO and TESCO) has ended and these are granted with non-exclusive licenses for twenty years beginning May 23 while KE has applied for its no-exclusivity license, as its exclusivity of distributing power in Karachi and surroundings is ending in July 23.
This is the first step towards ending monopolies of DISCOs and moving towards deregulation and open competition. This is something akin to cutting monopoly power of PTCL in telecommunication in 1990s. And in due course of time, if things move in the right directions, one day customers can switch electricity providers like the sim cards on their phones. However, that day is still a distant future.
Right now, the competition to open for bulk power consumers (BPC) whom to buy minimum of 1 MW. This opening of the network is an industrial inevitability, especially as the power sector is shifting towards CTBCM and an open market.
The fate of DISCOs was sealed when the NEPRA Act was overhauled by the Amendment Act 2018 which removed exclusivity. Licenses issued are ‘statutory licenses’ hence the Amendment Act 2018 provides the bedrock for the issuance of new ones. As a result, no DISCO could request for exclusivity when approaching NEPRA for renewal or extension, even if they wanted to.
However, contrary to popular sentiment, the impact of these decisions is not going to fall on the majority of customers. This is because, as mentioned above, the current requirements specify that electricity customers using over 1 MW of electricity (BPC) are the only ones who can benefit from the CTBCM.
There are very few such consumers. The industrial bulk consumers represent a handful of the approximately 36 million consumers in the country as per NEPRA’s State of Industry Report 2022. Under the non-exclusive market, a power company which is producing 1 MW of electricity can enter a direct contract with a BPC and use the network laid down by existing DISCOs to dispatch the electricity.
Although the impact is limited now, this move of non-exclusivity is the first step towards a landmark transition and credit should be given to the regulator under its current leadership for leading the change from the front. One important element to note here is that unlike other DISCOs which took to the courts to resist the change and received two provisional extensions of 6 months each before reaching this stage, KE filed for a non-exclusive license prior to its expiration. NEPRA is currently inviting comments from stakeholders as part of its proceedings.
Opening the market even to this degree has immense benefits. Most BPCs are currently from industries. If they can access cheaper electricity from an innovative power producer, they should have the option. Electricity affordability and industrial productivity go together. If the remaining regulations are sorted quickly, it could help boost the demand.
XWDISCOs and KE are also providing Power Acquisition Programs which are essentially forecasting their future demands and outlining the kind of projects being added to reduce the cost of generating electricity for customers. When costs are reduced for most customers, BPCs will also benefit. It appears to be a win-win situation.
The opening of the market will not deter DISCOs from investing in their network either. Their wires are responsible for channeling electricity effectively from source to sink. If they are unable to do so, they will lose out. There is more reason to maintain the network as there is an increased level of accountability as both power producer and power purchaser has an equal stake.
As mentioned above, the sector may still be a distance from a time when customers can switch electricity providers like the sim cards on their phones. However, a certain degree of the ‘monopoly’ may have ended due to these policy level changes; the control of the infrastructure still dominantly rests with the existing DISCOs.
New entrants are theoretically welcome in the distribution segment if they can go through the approval process to set up a company, the capital to set up their own infrastructure, and the customer base to justify the expense, but that would increase the inefficiency in the system for a variety of reasons.
However, the ‘monopolies’ have ended, and the market is open. If the people of Gulberg in Lahore, or H-11 in Islamabad, or Surjani in Karachi demand it, anyone can try their hand at what the incumbents have been doing for decades. The bottom line is that it’s a win for consumers, as mentioned by KE CEO Moonis Alvi in a tweet that “At its core, the customers win”.
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