Since tariffs have climbed significantly over the last year or two, the energy sector—where the government has raised electricity producing capacity to 43,775MW but transmission lines can only handle 22,000MW—is presently one of the hottest subjects. Paradoxically, the administration intends to add more—possibly as much as 17,000 MW more.
However, analysts are doubting the people’s ability to handle the additional workload.
At the “Advancing CTBCM – A Multi-Stakeholder Conference” on Tuesday, executives from the sector questioned if the government is capable of managing the electrical grid.
They voiced worries about expensive take-or-pay contracts and surplus generating capacity.
Pakistan pays set fees to Independent Power Producers (IPPs) whether or not the nation consumes energy. significant declines in grid electricity usage have resulted in higher power rates, which has dealt significant damage to the energy industry.
A research released in February of this year by the Pakistan Credit Rating Agency (PACRA) estimated that the financial impact of transmission losses in the fiscal year 2023 was around Rs30.794 billion.
In the meantime, a report released by Business Recorder states that the Power Division has also asserted that, in the Financial Year 2023–2024, it is anticipated that the Distribution companies (DISCOS) may incur losses of approximately Rs589 billion, including under recovery and losses exceeding the threshold set by the National Electric Power Regulatory Authority (NEPRA).
Circular debt in the power industry hits Rs2,655 billion by May.
Therefore, in order to avoid dealing with the government, experts have supported the Competitive Trading Bilateral Contract Market (CTBCM) system, which enables bulk power customers to buy electricity directly from generators.
But in Pakistan, the market structure has been a single-buyer model, wherein CPPA, acting as a single buyer, buys energy for the former WAPDA distribution companies (DISCOs).
The goal of the CTBCM model, which NEPRA approved in November 2020, is to provide bulk power users (those with loads of one megawatt or more) the option to buy electricity from DISCOs or other competitive suppliers of their choosing. The model outlined a timeline for the wholesale electricity market to open in Pakistan.
Tauseef H. Farooqi, a former chairman of NEPRA who takes delight in advancing the CTBCM cause during his time, stated that CTBCM is critical to the success of Pakistan’s economy.
Pakistan’s energy problems can only be solved by using CTBCM. And the core of Pakistan’s economic predicament is the electrical problem, Farooqi stated to Business Recorder outside the meeting.
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Pakistan’s current political system is unable to save the country from its predicament. This was taken into consideration when creating CTBCM.
“CTBCM gives the business community the freedom to purchase electricity from any supplier, just like they would with any other commodity. The 250 million people who live in Pakistan will not be able to boost exports, generate employment, or raise GDP if business costs don’t decrease.
He said that Pakistani companies won’t be able to compete with competitors in the world or even regional market if they purchase power at 17 cents a unit.
Asif Inam, Chairman of APTMA and Vice President of FPCCI, emphasised the importance of the textile sector to the development of CTBCM,pointing out that maintaining competitive energy costs is crucial for market survival worldwide.
According to Inam, companies in India receive power at a rate of 4.5 cents, making it nearly hard for them to compete with them or even with Bangladesh. He went on to say that if this condition persists, Pakistani companies would keep moving to Bangladesh and other locations.
Action is announced by PM Shehbaz against personnel who overcharge electrical units.
According to Ahad Nazir of the Sustainable Policy Institute (SDPI), collusions and monopolies are widespread throughout the nation. Nevertheless, CTBCM’s implication—competitive pricing mechanisms—will lower customers’ energy bills, as demonstrated by the European Union.
“Because of greater competition and efficiency gains, the EU’s liberalised electricity markets have seen a drop in household energy prices of 10-15%.Consumer energy rates may drop as a result of increased competition among Pakistani power providers, making electricity more affordable for homes and businesses, the speaker stated.
According to Shaheera Tahir, a researcher at the Policy Research Institute for Equitable Development (PRIED), it is important to make sure that a market structure change is “just” and takes end users’ needs into consideration.
While not entirely new, the shift in the power industry towards market-based energy generation, supply, and distribution is undoubtedly a crucial moment.
Although it was first considered in the 1990s, we can now see that the whole regulatory structure has been designed to make its implementation possible after decades of discussion. Although this seems promising, it shouldn’t be implemented unless certain requirements are met. The most important thing is to make sure that the change from one market structure to another is “just” and mindful of the effects on final consumers, and that there is a strategy in place for labour transfer and capacity growth.
Of Pakistan’s total installed power generating capacity of 43,775MW, the NEPRA 2022 annual report states that 59% of energy is derived from thermal sources (fossil fuels), 25% from hydropower, 7% from renewable sources (wind, solar, and biomass), and 9% from nuclear power.
Ironically, Pakistan Environment Trust and the energy and environmental research group Renewable First also hosted the meeting.
According to Zeeshan Ashfaq, CEO of Renewable First, “the cheapest electricity comes from renewable sources such as solar and wind,” as reported by Business Recorder. “Renewable energy will see mushroom growth if CTBCM is implemented.”
According to Dr. Khalid Waleed of the Sustainable Policy Institute (SDPI), CTBCM would not only have an influence on prices but also on society as a whole.
According to him, there would be more international rules and compliance demands for the export-oriented sector in an effort to lower greenhouse gas emissions.Pakistan’s industrial sector is required under laws like the EU’s Carbon Border Adjustment Mechanism (CBAM) and the net-zero pledges made by big international companies to reduce its emissions to zero by 2050 throughout all of its supply chains.
“Green and clean electricity sources are quickly becoming a need for industry participants, not just a competitive advantage,” he stated.
The introduction of a Charter of Demands, supported by significant industry groups and chambers, marked the closing of the meeting.
The government is required under the charter to declare a competitive rate for system charges and the date of the first bilateral transaction to allow businesses to enter the electricity market.