‘Independent electricity market’

The Federal Minister for Power Awais Leghari is reported to have informed the National Assembly this week that the government would stop purchasing electricity after March this year as creation of an ’ independent electricity market’ has been approved.

He also said that the establishment of an independent electricity market is believed to be one of the significant milestones in the country’s transition towards a more competitive and efficient energy market.

It is anticipated to have long-term positive effects on consumers and the economy as a whole, given the country’s rising electricity demand and difficulties in controlling costs, according to the minister.

The statement of the minister is a welcome step as an independent electricity market is the right way forward towards a mature electricity market, which strikes a delicate balance between the interests of the supplier and consumer. All leading economies, including India’s, are reaping the benefits of it.

However, a question that needs a plausible answer is: Is Pakistan’s prevailing electricity regime mature and robust enough to embark on something as complex and ambitious as an independent electricity market?

The statement of the minister is silent to explain: (1) How and in which time-frame the government intends to go about it, considering the fragile state of country’s power sector? (2) What are the mechanism and framework under which the independent electricity market would function? (3) How the market has been prepared and the prevailing processes and systems have been adequately aligned to undergo such a dramatic transformation?

The answers to all these prerequisites shall determine at which stage the country stands in relation to an independent electricity market.

The need for an independent electricity market arises from issues like inefficiency, high electricity costs, supply disruptions, and a lack of competition. Pakistan electricity regime has all these unresolved flaws.

Undoubtedly, the open market structure can lead to improved service delivery, lower prices, and stimulated economic growth where consumers can choose their electricity suppliers.

It requires a comprehensive approach involving regulatory frameworks, market mechanisms, and infrastructural changes.

Pakistan’s existing electricity sector is weak and complex. It is dominated by public utilities, too many independent power producers, lack of competition, and regulated prices.

Key issues in the current system are power shortages, billing inefficiencies, subsidy burdens, reliance on fossil fuels and gross mis-governance all along the entire supply chain – from the supplier to the end-consumer.

Before the country could embark on the path of an independent electricity market, the following basic criterion has to be met and put on ground for any meaningful result.

1- Establish a mechanism for a competition amongst producers and provide consumers with choices, leading to better service and pricing.

2- Achieve overall efficiency in the entire electricity supply chain.

3- Establish an independent regulator (like NEPRA) to oversee market operations, set standards, and ensure a fair competition.

4- Establish a legal framework with clear legislation to define market structures, set rules for participation, and protect consumers’ rights.

5- Implement a ‘wholesale electricity market’ where power producers can sell electricity directly to consumers, providing choices based on prices and services.

6- Establish pricing mechanisms to adjust tariffs to reflect the actual cost of generation, transmission, and distribution.

7- Introduce options like time-of-use pricing, where rates vary based on demand and supply conditions.

8- Inject investment into infrastructure development like the transition to smart grids facilitates for real-time data exchange, better demand management, and integration of renewables. Technologies like smart meters allow consumers to track usage and costs dynamically.

9- Set up a financial mechanism to enable financing options and incentives for both consumers and suppliers to invest in energy-efficient technologies.

10- Trigger government support or loans for infrastructural developments without burdening state finances.

To make all of the said essential criteria functional for meaningful results will require much time, funds, professionalism and will on the part of stakeholders with divergent interests.

How far the government is ready with all of this is a question mark. It is advisable for the government to first initiate small-scale pilot projects to test market dynamics and regulatory frameworks by engaging all stakeholders, including fund lenders, government and private sector utilities, consumers, and potential market participants; and then a gradual transition to a competitive market structure in regions, using the lessons learnt from pilot projects. This may work.

Copyright Business Recorder, 2025