FOR decades, Pakistan’s power sector has operated as a rigid, state-run monopoly — like a railway network where the state owns the trains and tracks and sets routes and fares. Under this centralised model, the Central Power Purchasing Authority (CPPA) acts as the sole buyer, procuring electricity from generation companies (Gencos) and independent power producers (IPPs) and channels it through distribution companies (Discos). This framework prevents competition, inflates costs and sustains inefficiencies.

The proposed ‘Competitive Trading Bilateral Contracts Market’ seeks to dismantle this monopoly and move Pakistan towards a decentralised electricity market. It will allow market participants to negotiate contracts, set prices and operate independently, while paying regulated ‘tolls’ for grid access, drawing parallels to a modern motorway network. The CTBCM framework defines market participants and service providers. Market participants include Gencos, bulk consumers, power traders and suppliers, who can engage in bilateral contracts for energy or capacity of 1MW or more.

Service providers manage grid operations and infrastructure, including the National Power Control Centre, National Transmission & Despatch Company, Dis­cos and CPPA. Contracts form the basis of CTBCM, enabling demand-based energy procurement. Standardised contracts follow fixed terms; customised contracts are tailored with the market operator’s (MO) coordination.

A critical element is the use of system charge, like motorway tolls. Market participants pay UoSC to wheel power throu­­gh the grid. However, disputes over the inclusion of cross-subsidies and stranded costs — unrelated to transmission and distribution — in the UoSC have delayed CTBCM implementation. While the government insists that participants bear these costs, market players, concerned about inflated tariffs, put up resistance.

CTBCM can boost industrial competitiveness.

The CTBCM’s groundwork began with the 1992 Wapda Strategic Plan, which advocated for sector unbundling to promote competition. In 1997, Nepra was created to regulate the power sector and bring in transparency and efficiency. By 2015, the ECC approved CTBCM, and Nepra finalised its high-level design and detailed design in 2019 and 2020 respectively. In 2022, Nepra licensed CPPA as MO, approved the market commercial code and conducted trial runs. But delays plagued 2023, as the Discos and energy ministry refused to engage in UoSC hearings. Despite a hearing in November 2023, no UoSC was approved by Nepra, leaving the model in limbo.

Pakistan can learn from the UK’s Electricity Market Reform. The privatisation of the UK’s electricity market began in the 1980s, but it triggered the ‘dash for gas’, a period in the 1990s when the UK’s newly privatised Gencos switched to natural gas. Although it cut emissions and costs, it established fossil fuel reliance. Moreover, privatisation also caused job losses. By the 2010s, the market was dominated by the ‘Big Six’ oligopoly — six major energy companies supplying gas and electricity to 70 per cent of Britain’s households. However, in 2013, the groundbreaking EMR was introduced, which introduced ‘contracts for differences’ (CFD) and the ‘capacity market’ (CM).

CFDs provided long-term price stability for renewable energy projects and de-risked investments by guaranteeing a fixed ‘strike price’ for electricity generated. The 2022 CFD auction secured 11GW of RE at record-low prices, while CM ensured energy sec­urity by in­­centivising investment in flexible generation and de­­ma­nd-side res­po­nse. This bo­­-

osted ad­­van­cement in en­­ergy storage and ope­ned the market to agile startups like Octopus Energy and Bulb, challenging the monopoly of the Big Six. EMR also shaped the green industrial revolution in the UK, creating up to 250,000 jobs during the 2010s. Despite early setbacks, the UK’s reforms drove RE growth and reduced energy costs.

Pakistan can learn lessons from the UK and other countries implementing similar reforms. CTBCM is Pakistan’s best bet to bring competition to the power sector. It can boost industrial competitiveness by enabling RE procurement, aligning with global policies like the Carbon Border Adjustment Mechanism. The model will also attract private investments in RE and grid upgrades, enabling Pakistan to meet its climate targets and minimise system losses. CTBCM’s implementation demands short-term sacrifices but promises long-term recovery with a proven blueprint for competition, efficiency and sustainability. The alternative — persisting with a fiscally draining monopoly — restrains industrial growth and derails climate commitments. The UK’s example shows the journey is arduous, but the destination — a market-driven power sector — is worth it. For Pakistan, the time to act is now.

The writer is a researcher at the think tank Renewables First.

Published in Dawn, May 6th, 2025