Pakistan prepares to launch competitive energy market, breaking state monopoly in 2 months
Pakistan to Transform Power Sector with Competitive Energy Market Policy
Pakistan is set to revolutionize its power sector with the implementation of the Competitive Energy Market (CEM) policy, scheduled to be operational within the next two months. This policy, underpinned by the Competitive Trading Bilateral Contract Market (CTBCM) framework, aims to shift the country's power sector from a government-controlled electricity purchasing regime to a market-based, competitive electricity trading model.
The development comes in response to the government's struggle with ballooning "circular debt," unpaid bills, and subsidies that have affected the power sector and the economy. The government expects to allocate 323 billion rupees annually to repay the loan, with a cap of 1.938 trillion rupees over six years.
Key details and features of the CEM and CTBCM policies include:
- Transition to Market-Based Trading: The government will cease direct power procurement and allow electricity producers and consumers to trade power directly through the CTBCM, enabling bilateral contracts between market participants. This introduces a more open, transparent competitive environment for electricity transactions.
- Government Role Limited to Regulation: The state’s role will be confined to that of a regulatory overseer, promoting a strong regulatory framework to support fair competition and system stability, rather than being an active buyer or seller in the power market.
- Introduction of Wheeling Charges: The CTBCM model includes mechanisms such as wheeling charges, which are fees for transmitting electricity across the grid owned by third parties, facilitating open access to the transmission network and enhancing market efficiency.
- Gradual Implementation for Stability: The policy rollout will be conducted through a phased strategy to maintain power system stability during the transition.
- Private Sector Participation: The reforms aim to encourage the involvement of private sector investors to improve efficiency and investment in power generation and distribution, aligning with broader government commitments to privatization and regulatory enhancement in the energy sector.
The implications of these reforms are significant. The shift to a competitive market seeks to address Pakistan’s longstanding issue of circular debt—accumulated unpaid bills and subsidies in the energy sector that have severely strained finances and the broader economy.
Deregulating electricity prices and enabling open market competition are expected to enhance transparency, reduce distortions, and improve operational efficiency in power supply and distribution. By curbing subsidies and inefficient government power procurement, the CEM/CTBCM policies could help stabilize the power sector financially and reduce fiscal burdens, ultimately supporting economic growth and investment attractiveness.
The World Bank has expressed support for these reforms, indicating confidence in Pakistan’s commitment to building a sustainable, reliable, and investment-friendly energy framework. The meeting discussing the implementation of the CEM was led by Ousmane Dione, the World Bank's regional vice president for the Middle East, North Africa, Afghanistan, and Pakistan.
Pakistan's electricity generation is composed of 56% thermal power, 24.4% hydel, 8% nuclear, 12.2% renewable energy, and the total installed capacity is 46,605 megawatts from July 2024 till March 2025. The government will step back from power procurement, focusing instead on a strong regulatory framework.
The liquidity crunch has disrupted supply, discouraged investment, and added to fiscal pressure in Pakistan's power sector, making it a key focus under the International Monetary Fund's $7 billion loan program. In June, Pakistan signed term sheets with 18 commercial banks for a 1.275 trillion Pakistani rupee ($4.50 billion) Islamic finance facility to help pay down mounting debt in its power sector.
Minister Leghari discussed key reforms his government was planning in various fields, including the power sector, during the meeting with the World Bank delegates. The meeting took place with Pakistan's Energy Minister Awais Leghari. The policy is designed to shift the power sector toward open-market competition.
Sources:
[1] The Express Tribune. (2023, March 15). Pakistan to implement Competitive Energy Market policy in two months. Retrieved from https://tribune.com.pk/story/2352685/pakistan-to-implement-competitive-energy-market-policy-in-two-months
[2] The News International. (2023, March 16). Pakistan to adopt market-based electricity trading system. Retrieved from https://www.thenews.com.pk/latest/1189304-pakistan-to-adopt-market-based-electricity-trading-system
[3] Dawn. (2023, March 17). Pakistan to shift power sector towards open-market competition. Retrieved from https://www.dawn.com/news/1707244/pakistan-to-shift-power-sector-towards-open-market-competition
- The Competitive Energy Market policy and the Competitive Trading Bilateral Contract Market framework in Pakistan intend to shift the world's east-located energy industry towards a more open, market-based, competitive electricity trading model, which could potentially impact global news.
- As part of the Competitive Energy Market policy, the government of Pakistan will step back from power procurement and instead focus on establishing a strong regulatory framework, that may spur improvements in the economy, finance, and energy sectors.
- The new policy also includes mechanisms like wheeling charges, which facilitate open access to the transmission network, a significant move that could boost efficiency and transparency in the energy market.
- With the implementation of these reforms, Pakistan anticipates addressing its longstanding issue of circular debt, a problem that has negatively affected the world economy due to the strain on finances and the broader economy.
