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Power sector could see ‘market operator’ under new reforms

February 14, 2018

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Electricity markets have been introduced in many countries around the world to connect various transmission and distribution companies to each other while Pakistan has lagged behind in introducing this reform.
Electricity markets have been introduced in many countries around the world to connect various transmission and distribution companies to each other while Pakistan has lagged behind in introducing this reform.

ISLAMABAD: The government has started the process for transformation of Central Power Purchasing Agency-Guarantee (CPPA-G) as an independent operator of the country’s electricity market from its existing role of a billing and financial settlement agent of the distribution companies.

An application to register CPPA as a ‘market operator’ was admitted by the National Electricity and Power Regulatory Authority (Nepra) in July 2017. Having taken stakeholder comments, Nepra is now moving ahead to a public hearing to be held on March 6.

As market operator, the transformed CPPA-G will be responsible for almost all buying and selling of electricity at market prices, from power generation to transmission and distribution companies and enable third-party private players as well.

Pricing of electricity was supposed to become market based many years ago

The CPPA was originally a part of the National Transmission and Despatch Company (NTDC) and then separated as a CPPA-G licencee through a business transfer agreement (BTA). Under that agreement, NTDC became the transmission network operator or system operator, while CPPA-G took over the role of market operator although at a limited scale.

Separately, the government is working on market development on the Turkish model to ensure that competitive electricity markets take shape by 2020 under various covenants from international lenders. As part of this, the CPPA-G has to develop and expand core functions like strategy, corporate planning, information technology, energy demand and supply forecasting mechanism and taxation.

As part of the process, the National Electric Power Regulatory Authority (Nepra) has accepted a petition from the CPPA-G for issuance of a formal licence and market structure and will be holding a public hearing process early next month.

The authorities have been engaged with Turkish authorities at different levels to emulate their reform process. Turkish power market, according to CPPA-G, has been reformed with great success since 2001 when the Turkish electricity market was in doldrums like currently in Pakistan. The market conditions back in 2001 were very similar to Pakistani market conditions recognised with non-payments and cash flow issues, high losses, long-term generation contracts backed by government sovereign guarantees and fewer investments.

Starting with unbundling of the power sector companies, Turkey created an independent market operator and around two dozen distribution companies. At present, Turkey also have a private and independent market operator, a transmission or system operator, public and private generators and one regulator.

About 30 per cent shares of the Turkish market operator were held by the stock exchange (Borsa Istanbul), another 30pc by the public sector and remaining 40pc shares are traded. The market operator is responsible for management of energy market through transparent operations of both, electricity and gas, by operating as power exchange of Turkey. It also provides the counterparty guarantee of all the transactions and billing and settlement of payments.

Until recently, the Turkish market had around 950 electricity market participants of various nature and trading is taking place on an intraday basis and what is called the Day Ahead Market. The prices are quoted for the intraday and for a day later.

The government claims that after the introduction of liberalised and transparent market following operationalisation of a market operator, the private investments in the power sector increased manifold and no investment required sovereign guarantees from the government as was the case in the previous structure.

It said the Turkish electricity market was moving towards complete freedom for consumers where all the consumers have the liberty to make bilateral contracts for buying electricity from whichever retail company or generator they choose to. Before the liberalisation and privatisation of the distribution companies in Turkey, in some areas, losses due to non-payments were as high as 80pc.

Non-collection was a prevalent culture. However, after the transition, Turkey has been able to substantially reduce power sector losses. Currently, the highest losses were below 40pc.

The CPPA-G is currently in the process of preparing its integrated business plan to lay out scope, time and cost of various initiatives necessary to facilitate a power market transition.

Published in Dawn, February 14th, 2018

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