Decentralising power: a provincial pathway for Pakistan’s energy future

Pakistan’s energy sector is at a crossroads, with a decades-long struggle to privatise its Distribution Companies (Discos) coming up against structural challenges and political realities. Privatisation alone may not be the answer to improving efficiency, reducing theft, or solving the complexities of regional demands and discrepancies in power usage.

An alternative, more sustainable approach involves decentralising control by transferring DISCOs to the provinces and ending the Uniform Tariff structure, a strategy that aligns financial responsibility and regulatory power with local needs.

This model, if implemented with careful policy design and a staged transition, has the potential to reshape Pakistan’s energy landscape, offering provinces the autonomy to determine electricity rates, enforce better theft prevention, allocate subsidies from provincial budgets, and even provide tailored industrial incentives to attract investment.

Following examples from countries with successful models, like India and the United States, Pakistan could transition to a decentralized system that gives Nepra oversight over wholesale and high-voltage transmission networks, while empowering provincial regulatory bodies to manage distribution, retail tariffs, and local demand-side management.

Transferring ownership and regulatory control of Discos to provincial governments, coupled with individualized tariff structures, would provide much-needed flexibility and encourage provinces to address specific local challenges.

Pakistan’s regions differ considerably in energy needs and economic makeup, and provincial regulators could tailor tariffs to match the economic realities and policy priorities of their provinces. This shift would also address pressing issues like power theft more effectively, allowing for enforcement measures that align with local legal and administrative structures.

In this model, provincial regulatory bodies would set distribution and retail tariffs, control energy theft measures, and implement power purchase agreements. Such a decentralised structure would also enable provinces to make their own budgetary allocations for subsidies and design incentive packages for sectors they aim to prioritise.

For example, provinces with industrial development goals could use electricity rate adjustments to attract investments in manufacturing or renewable energy, supporting their own economic goals and creating localized, demand-driven solutions.

This province-driven approach redefines the role of Nepra, Pakistan’s central regulatory authority, by limiting its focus to the wholesale electricity market and high-voltage interstate transmission networks that connect provinces. Under this system, Nepra would regulate the System Operator (SO) and Market Operator (MO) functions of the National Grid, managed by the National Transmission and Dispatch Company (NTDC), which would continue to facilitate the stability of Pakistan’s interconnected grid.

This setup would allow Nepra to develop policies that encourage market competition and improve national grid reliability, while provincial regulators oversee DISCOs and manage local distribution. Each provincial regulatory body would be empowered to make decisions on energy sourcing, billing structures, and theft mitigation measures, addressing energy issues at a local level with greater accountability and transparency.

A similar decentralized model has already been implemented in India, where the Central Electricity Regulatory Commission (CERC) regulates the wholesale market and interstate transmission, while state regulatory commissions handle tariffs for local distribution and consumption.

This approach has allowed Indian states to have significant influence over energy distribution and tariff structures within their jurisdictions. For instance, states can set targeted subsidies for specific sectors or consumers, which helps balance social and economic priorities at the state level.

The United States has also adopted a state-centered model for its power market, where the Federal Energy Regulatory Commission (FERC) regulates interstate transmission and wholesale markets, while individual state Public Utility Commissions (PUCs) control electricity rates and retail policies within each state.

This decentralised approach allows US states to set their own renewable energy targets, incentivize local energy projects, and create tailored pricing structures based on regional demand and resource availability. Drawing on these examples, Pakistan’s energy sector could benefit from a similar regulatory balance, where the central authority, Nepra, remains responsible for interprovincial matters, and local bodies manage day-to-day distribution concerns.

To maintain stability during the initial phase of decentralisation, central power plants and long-term power purchase agreements could remain under NTDC’s control, with centralized financial transactions managed through the Central Power Purchasing Agency (CPPAG).

This would ensure that provinces have a shared financial pool, easing the transition to individualized control. Over time, however, provinces could gain authorization from their respective regulators to acquire or develop their own power plants, reducing dependency on the central system and fostering local investment in energy infrastructure.

Higher-voltage connections or cross-provincial transmission lines would still require Nepra’s approval to ensure grid stability and continuity, which is crucial for maintaining a national energy strategy. Allowing for provincial discretion in energy sourcing and distribution while retaining Nepra’s authority for interprovincial matters creates a policy environment conducive to regional innovation and accountability.

A key challenge in implementing this model lies in building the regulatory and administrative capacity of provincial governments and establishing competent provincial regulatory bodies. Regulation in the power sector demands specialized skills and a deep understanding of market dynamics, technical infrastructure, and policy implications.

Simply rotating bureaucrats and technocrats through these roles may not provide the consistency and expertise needed for effective governance. Instead, provinces will need to invest in specialized training, capacity-building initiatives, and long-term appointments for energy professionals.

This will require dedicated funding and technical support from the central government during the initial years, potentially with assistance from international partners. These capacity-building efforts will not only help the provinces manage DISCOs more effectively but also ensure that regional policies are aligned with broader national goals of energy efficiency, sustainable growth, and reliable supply.

Decentralising Pakistan’s energy sector by transferring control of Discos to provincial authorities, ending the Uniform Tariff, and redefining NEPRA’s regulatory scope presents a promising alternative to privatization. By tailoring tariffs and incentives to meet local needs, provinces can improve financial viability, reduce energy losses, and offer targeted support to vulnerable populations or emerging industries.

Drawing on successful models from India and the United States, Pakistan can create a balanced regulatory framework where Nepra oversees the wholesale and transmission networks while provincial regulators manage localized distribution.

This transition offers an opportunity to establish a more responsive and resilient energy system, one that supports local economies, improves accountability, and empowers provinces to meet their energy needs sustainably. However, to make this model effective, provincial regulatory bodies and energy departments must invest in skilled manpower and regulatory expertise. With a clear policy direction and a commitment to regulatory capacity-building, Pakistan can move toward an energy future that is both reliable and aligned with the specific needs of its provinces.

Copyright Business Recorder, 2024