Transforming Pakistan’s Power Sector: The Role of CTBCM in Building a Sustainable Future
a simple guide to fixing the bleeding power sector that has plagued pakistan for 30 years or more
Pakistan's power sector is burdened by chronic inefficiencies:
1. financial instability, and persistent supply-demand imbalances.
2. The system is plagued by circular debt, high costs of production, and ineffective subsidies that exacerbate rather than alleviate structural issues.
3. Circular Debt and Financial Inefficiencies:
3.1. Pakistan’s circular debt, exceeding PKR 2.3 trillion, arises from a flawed system of cross-subsidies, delayed payments, and inefficiencies in the transmission and distribution network.
3.2. High production costs, compounded by capacity charges paid to Independent Power Producers (IPPs), create an unsustainable financial burden on the system.
4. Ineffective Subsidy System:
4.1. The current subsidy regime, based on cross-subsidies between consumer categories, lacks transparency and disproportionately benefits high-consuming households while excluding those most in need.
4.2. Agricultural and industrial consumers are often subsidized at the expense of domestic and commercial users, distorting market signals and creating inefficiencies.
5. Regressive Pricing Structure:
5.1. The slab-based tariff system, designed to provide relief to lower-income households, often results in inequitable outcomes. High-income households consuming within the lower slabs also benefit, defeating the purpose of targeted assistance.
6. Governance and Accountability Issues:
6.1. Regulatory bodies like NEPRA have limited authority to enforce compliance, while political interference in distribution companies (Discos) and policy implementation undermines institutional autonomy.
6.2. Centralized control by ministers and secretaries stifles innovation and reduces operational efficiency in power utilities and regulatory entities.
Early adoption of CTBCM
The CTBCM represents a paradigm shift in Pakistan’s power sector, introducing a competitive market structure where electricity generators (GENCOs) and consumers engage in direct bilateral contracts. By fostering competition, CTBCM aims to optimize pricing, improve efficiency, and enhance transparency. Here’s how CTBCM can address key issues:
Elimination of Subsidies and Cross-Subsidies:
Under CTBCM, electricity pricing will reflect market dynamics, effectively removing the need for cross-subsidies within the system. This will create a level playing field, where each consumer pays the actual cost of the power they consume.
Subsidies will no longer distort market signals, as financial assistance for vulnerable groups will be channeled through targeted programs like the BISP.
Transparent Pricing Mechanism:
CTBCM will eliminate the existing slab-based pricing model, replacing it with a uniform, market-driven pricing system. Consumers will benefit from transparent electricity bills based on negotiated contracts or market rates.
Wheeling Charges and Cost Efficiency:
The system will introduce marginal cost-based wheeling charges for using the transmission network, ensuring that legacy costs are not passed on to consumers. This will make power transmission more affordable and incentivize efficient energy use.
Integration of IPPs:
Older IPPs will transition to the CTBCM framework, waiving capacity charges and aligning their operations with the market-based system. This will reduce financial strain on the power sector while encouraging investment in new and renewable energy projects.
Subsidy Reform Through BISP
The elimination of subsidies within the power system necessitates a robust mechanism to support vulnerable populations. The Benazir Income Support Program (BISP) provides an effective platform for targeted financial assistance, ensuring that subsidies reach those who truly need them.
Direct Cash Transfers:
Instead of subsidizing electricity tariffs across the board, the government can provide direct cash transfers to eligible households under BISP. This approach ensures that assistance is targeted and avoids leakages in the subsidy system.
Transparent Eligibility Criteria:
Using BISP’s existing framework, beneficiaries can be identified through transparent and data-driven mechanisms, ensuring that subsidies are distributed equitably.
Promoting Efficiency and Accountability:
By removing subsidies from the power sector and linking them to BISP, the government can improve fiscal accountability and encourage energy efficiency among consumers.
Sequenced Approach to Reform
To ensure a smooth transition to CTBCM and effective subsidy reform, a phased and well-coordinated strategy is essential:
Immediate Actions (0-1 Year)
Launch CTBCM Framework:
Establish the legal and operational infrastructure for CTBCM, including regulations for bilateral contracts and market operations.
Strengthen NEPRA’s Authority:
Empower NEPRA to oversee the transition to CTBCM and enforce compliance among market participants.
Separate the ministry from NEPRA.
Prevent civil servants from crossing over to NEPRA.
Make budget staffing independent of ministry.
NEPRA out of tariff setting and oversees wheeling pricing system and the finances of the system.
Engage Stakeholders:
Conduct consultations with IPPs, Discos, and consumer groups to ensure buy-in and alignment on the CTBCM framework.
Short-Term Measures (1-3 Years)
Introduce Marginal Cost-Based Wheeling:
Set transparent wheeling charges based on marginal costs, ensuring affordability and efficiency in electricity transmission.
Integrate IPPs into CTBCM:
Transition older IPPs to the market-based system, eliminating capacity charges and fostering competition in power generation.
Pilot BISP-Linked Subsidies:
Launch pilot programs to channel electricity subsidies through BISP, testing the effectiveness of direct cash transfers.
Medium-Term Reforms (3-5 Years)
Eliminate Cross-Subsidies:
Phase out cross-subsidies entirely, ensuring that all consumer categories pay market-based tariffs.
Expand Renewable Energy Integration:
Encourage investments in renewable energy projects to reduce generation costs and enhance sustainability.
Enhance Grid Infrastructure:
Modernize transmission and distribution networks to support the increased wheeling transactions under CTBCM.
Long-Term Structural Changes (5+ Years)
Fully Implement CTBCM:
Ensure that all market participants operate within the CTBCM framework, achieving complete market liberalization.
Institutionalize BISP Subsidy Model:
Scale up the BISP-linked subsidy program to cover all eligible households, ensuring equitable and efficient assistance.
Promote Public-Private Partnerships:
Foster collaboration between public and private sectors to drive innovation and investment in the power sector.
Eliminate the meter reader and late payment:
Prepaid Meters: A Game-Changer for Revenue Collection
Prepaid electricity meters represent a transformative solution to many of Pakistan’s power sector problems. These meters allow consumers to pay for electricity in advance, similar to prepaid mobile phone services. This simple shift in the payment model brings several benefits:
Improved Revenue Collection:
Prepaid meters eliminate issues related to delayed or non-payment of bills, ensuring that utilities receive revenue upfront. This reduces financial strain and improves cash flow for power companies.
Enhanced Transparency:
Consumers can monitor their electricity usage in real time, promoting energy conservation and preventing billing disputes.
Reduction in Theft:
Prepaid meters are tamper-proof and equipped with advanced security features, making it significantly harder for individuals to bypass the system.
Ease of Use:
Consumers can top up their meters through multiple channels, including mobile apps, retail outlets, or online platforms, making the system convenient and accessible.
Countries such as South Africa and India have successfully implemented prepaid meter systems, resulting in significant reductions in theft and revenue losses. For Pakistan, a phased rollout of prepaid meters, starting with high-loss areas, can yield immediate benefits while setting the stage for nationwide adoption.
Smart Grids: Modernizing Infrastructure for Efficiency
A smart grid is an advanced electricity network that uses digital technology to monitor, manage, and optimize the flow of electricity from generation to consumption. For Pakistan, transitioning to a smart grid system offers multiple advantages:
Real-Time Monitoring and Control:
Smart grids enable utilities to monitor electricity flows in real-time, identifying inefficiencies, faults, or theft as they occur.
Load Balancing:
By dynamically adjusting electricity supply to match demand, smart grids prevent overloading and reduce outages.
Integration of Renewable Energy:
Smart grids facilitate the seamless integration of renewable energy sources like solar and wind, ensuring a more sustainable energy mix.
Improved Reliability:
Advanced sensors and automated systems can detect and address faults quickly, minimizing downtime and improving service reliability.
While implementing a smart grid requires significant investment, the long-term benefits in terms of efficiency, reliability, and cost savings make it a critical component of Pakistan’s power sector reform.
Theft Detection Systems: Combatting Energy Losses
Power theft is a pervasive issue in Pakistan, contributing to high T&D losses and financial instability in the sector. Technology-driven theft detection systems can help utilities combat this problem effectively:
Automated Meter Reading (AMR):
AMR systems enable remote monitoring of electricity meters, identifying irregularities that may indicate theft or tampering.
Artificial Intelligence and Machine Learning:
AI-powered systems can analyze consumption patterns to detect anomalies, flagging potential cases of theft for further investigation.
Drones and Thermal Imaging:
Utilities can deploy drones equipped with thermal cameras to inspect power lines and detect unauthorized connections.
Tamper-Proof Meters:
Advanced meters with built-in tamper detection mechanisms can alert utilities to any attempts at manipulation.
Several countries, including Brazil and Bangladesh, have leveraged these technologies to significantly reduce power theft. For Pakistan, prioritizing high-theft areas for the deployment of such systems can deliver quick wins while building momentum for broader adoption.
Digital Platforms for Consumer Engagement
Technology can also enhance consumer engagement, fostering a more cooperative relationship between utilities and customers. Key measures include:
Mobile Apps for Billing and Payments:
Digital platforms allow consumers to view bills, make payments, and monitor usage from their smartphones, improving convenience and transparency.
Real-Time Alerts:
Notifications about outages, usage thresholds, or payment deadlines keep consumers informed and reduce disputes.
Energy Conservation Tips:
Apps and online platforms can provide tailored advice on reducing electricity consumption, promoting sustainability.
Grievance Redressal Systems:
Digital portals can streamline the process of lodging and resolving complaints, enhancing consumer satisfaction.
Energy Storage Systems: Building Resilience
Energy storage systems, such as advanced batteries, are another critical technology for improving the reliability of Pakistan’s power sector. These systems store excess electricity generated during periods of low demand, releasing it during peak times or outages. Benefits include:
Reduced Load Shedding:
Energy storage ensures a stable power supply even during demand surges or generation shortfalls.
Support for Renewable Energy:
Storage systems address the intermittent nature of solar and wind energy, enabling greater reliance on renewables.
Cost Savings:
By reducing the need for expensive peak-time generation, energy storage systems lower overall electricity costs.
Implementing Technology Reforms: A Sequenced Approach
The transition to a technology-driven power sector requires a phased and strategic approach:
Immediate Actions (0-1 Year):
Immediately develop the software and the required hardware for prepaid meters and let people buy their own meters. A small percentage of poor people may have to be given a meter and discos should budget and develop that.
Short-Term Measures (1-3 Years):
Expand the deployment of prepaid meters and smart grids to additional regions.
Integrate AI-driven theft detection systems across high-theft areas.
Begin integrating energy storage systems into the grid.
Medium-Term Reforms (3-5 Years):
Establish a nationwide smart grid infrastructure, enabling real-time monitoring and control.
Scale up renewable energy integration supported by advanced storage solutions.
Develop robust data analytics capabilities for utility management.
Long-Term Goals (5+ Years):
Achieve full national coverage of prepaid meters and smart grid systems.
Institutionalize the use of AI and drones for theft detection and infrastructure monitoring.
Transition to a fully digital, consumer-centric power sector.
Power sector governance
At the heart of the problem lies the composition of the boards that oversee power sector entities, which are often populated by businesspeople, bureaucrats, or politically appointed individuals. These appointments, driven by vested interests, have resulted in a lack of technical expertise, accountability, and long-term strategic vision. For meaningful reform, professionalizing the governance system of the power sector is paramount. This requires a radical shift in how board members are selected and empowered, ensuring that appointments are based on merit, expertise, and impartiality.
The Case for Professionalizing Boards
Professionalizing the boards that govern Pakistan’s power sector entities involves two critical principles:
Exclusion of Businesspeople and Bureaucrats:
Business interests often conflict with the public good, leading to decisions that prioritize short-term financial gains over systemic improvements.
Bureaucrats, while skilled in administration, often lack the technical expertise needed to address the complex challenges of power generation, distribution, and regulation.
Inclusion of Competent Experts and Civil Society:
Boards should comprise qualified engineers, academic experts, consumer representatives, and respected members of civil society.
These individuals bring diverse perspectives, technical knowledge, and a commitment to public welfare, ensuring balanced and forward-looking decision-making.
This transformation ensures that governance in the power sector is driven by expertise and impartiality, not by political or commercial interests.
Redesigning the Appointment Process
A professionalized board structure can only function effectively if the appointment process is transparent, independent, and free from political interference. The Prime Minister, relevant ministries, or other political actors should have no role in appointing board members. Instead, a robust mechanism should be established to ensure impartiality and competence:
Independent Oversight by NAB:
The National Accountability Bureau (NAB) should conduct comprehensive conflict-of-interest checks on all prospective board members.
This ensures that appointees have no vested interests in the power sector and are free from any affiliations that could compromise their independence.
Merit-Based Selection Process:
A transparent selection process should be overseen by an independent panel comprising experts from academia, engineering, and governance.
Candidates must meet strict criteria related to technical expertise, ethical standards, and their ability to contribute to the board's strategic objectives.
Self-Perpetuating System:
Once professionalized, the board system should be designed to perpetuate itself by nominating and vetting future members.
This ensures continuity, minimizes external interference, and builds a culture of institutional integrity.
Composition of Professionalized Boards
To effectively govern Pakistan’s power sector, boards should have a balanced composition of stakeholders who represent both technical expertise and public interests. The following categories should be prioritized:
Engineers and Technical Experts:
Power sector engineers with extensive experience in generation, distribution, and infrastructure should form the core of the board.
Their technical knowledge ensures that decisions are based on sound engineering principles and industry best practices.
University Professors and Academics:
Professors specializing in energy systems, environmental science, or public policy can provide research-driven insights and foster innovation.
Their inclusion bridges the gap between theoretical advancements and practical applications in the power sector.
Consumer Representatives:
Representatives from consumer advocacy groups or large-scale energy users should be included to ensure that the interests of the public and industries are safeguarded.
They can also promote transparency in pricing and service delivery.
Civil Society Members:
Respected members of civil society, with proven track records in governance or advocacy, bring an unbiased, ethical perspective to board deliberations.
Their inclusion ensures that broader social and environmental considerations are factored into decision-making.
Operational Autonomy and Accountability
Professionalized boards must be empowered with operational autonomy to make independent decisions. At the same time, robust accountability mechanisms should be in place to maintain public trust and ensure alignment with the power sector's long-term goals:
Operational Autonomy:
Boards should have the authority to set strategic objectives, approve budgets, and oversee key operational decisions without interference from ministries or political actors.
This includes the ability to hire and fire executives based on performance metrics.
Transparent Reporting Mechanisms:
Regular reporting to an independent regulatory body like NEPRA ensures that boards remain accountable to the public and stakeholders.
Reports should include detailed financial statements, progress on key projects, and performance evaluations.
Conflict-of-Interest Safeguards:
NAB or a similar independent entity should regularly audit board activities to ensure compliance with ethical standards and prevent misuse of authority.
Eliminating Political Influence
One of the greatest threats to the power sector's governance is the undue influence of political actors. Professionalizing boards is only effective if accompanied by measures to eliminate this interference entirely:
No Role for Political Appointees:
Ministers, secretaries, or any government officials should be excluded from board positions to maintain the integrity of governance.
This ensures that decisions are made in the best interest of the power sector, not based on political expediency.
Independent Governance Structures:
Regulatory bodies like NEPRA should be empowered to enforce governance standards, ensuring that boards operate independently and transparently.
Depoliticizing Oversight:
Oversight mechanisms should be managed by independent, non-partisan entities to prevent political favoritism or manipulation.
Expected Benefits of Professionalized Boards
Improved Decision-Making:
Boards composed of experts and stakeholders will make informed decisions that align with the power sector’s technical, financial, and social needs.
Enhanced Efficiency:
Technical expertise and strategic oversight will minimize inefficiencies in generation, transmission, and distribution, reducing costs and improving service quality.
Public Trust:
Transparent and merit-based governance will rebuild public confidence in the power sector, encouraging greater cooperation and investment.
Sustainability:
Long-term, self-perpetuating governance structures will ensure the sector remains resilient to future challenges, free from political or
Transforming Pakistan’s Power Distribution Sector: Building Independent and Efficient Discos
Pakistan’s power distribution sector, managed by Distribution Companies (Discos), is riddled with inefficiencies, financial mismanagement, and governance challenges. Most Discos are currently state-owned entities struggling with high transmission and distribution (T&D) losses, poor revenue collection, and frequent political interference. To address these challenges and secure the financial and operational sustainability of the power sector, Discos must transition into independent, commercially viable entities. Over time, this transformation should aim to position Discos for privatization through public listing on stock markets, with strategic ownership structures ensuring professional management and long-term stability.
Making Discos Independent Commercial Entities
The first step toward reforming Discos is to establish them as autonomous, commercially driven entities, free from bureaucratic and political control. This involves reorienting their goals toward profitability, efficiency, and accountability.
Operational Autonomy:
Discos must be granted full autonomy to make operational and strategic decisions, including tariff structures, hiring practices, and investment priorities.
Political interference in management, board appointments, and day-to-day operations must be eliminated.
Profitability as a Mandate:
Each Disco must operate with the explicit mandate of achieving profitability within a defined timeframe.
Financial health should be a non-negotiable criterion for management performance evaluations, with failing entities subject to management changes or restructuring.
Splitting Discos for Efficiency:
Larger Discos should be split into smaller, region-specific entities to improve focus, accountability, and customer service.
Smaller Discos can cater to localized needs, enabling better revenue collection and more targeted investments in infrastructure.
Path to Financial Health and Professional Excellence
To achieve financial sustainability, Discos must adopt modern business practices, attract top talent, and incentivize performance through competitive compensation structures.
Hiring the Best Professionals:
Discos must be empowered to recruit highly qualified professionals with expertise in power distribution, finance, and management.
Competitive salaries and performance-based bonuses should be offered to attract and retain top talent, fostering a culture of accountability and innovation.
Reducing T&D Losses:
Investments in modern infrastructure, such as smart grids and prepaid meters, can significantly reduce T&D losses.
Technology-driven theft detection systems and efficient billing mechanisms should be deployed to enhance revenue collection.
Performance-Based Management:
Management teams should be incentivized through bonuses linked to key performance indicators (KPIs), such as loss reduction, customer satisfaction, and profitability.
Failing to meet these targets should trigger management reviews and, if necessary, changes in leadership.
Improved Customer Service:
Discos must prioritize customer-centric initiatives, including reliable service delivery, transparent billing, and responsive grievance redressal mechanisms.
Enhanced customer satisfaction will drive higher revenue collection and foster trust in the system.
Preparing Discos for Stock Market Listing
The long-term goal of transforming Discos is to prepare them for privatization through public listing on stock markets. This requires building a financially healthy and well-governed structure that can attract investment while ensuring public trust.
Financial Transparency:
Discos must adopt internationally recognized accounting standards and undergo regular audits to establish financial credibility.
Clear and transparent reporting of financial performance is essential to attract investors and build market confidence.
Strategic Ownership Structures:
To ensure stable and professional management, a significant portion of Disco ownership should be held by mutual funds, pension funds, and other institutional investors.
These entities bring long-term financial stability and expertise, aligning shareholder interests with operational excellence.
Gradual Relaxation of Ownership Rules:
Initially, ownership rules should ensure that a majority stake remains with institutional investors to prevent undue influence by short-term or speculative shareholders.
As Discos achieve financial health and operational stability, ownership rules can be relaxed, allowing broader participation in equity markets.
Market Preparation:
Before listing, Discos should establish a track record of profitability, efficient operations, and customer satisfaction.
Regulatory frameworks must be developed to oversee the transition and ensure investor confidence.
Policy and Regulatory Support
The transformation of Discos into independent, market-ready entities requires strong policy and regulatory support to create an enabling environment for success.
Regulatory Autonomy:
NEPRA must be empowered to regulate Discos independently, ensuring fair competition and preventing monopolistic practices.
Tariff structures must be rationalized to reflect actual costs while protecting vulnerable consumers through targeted subsidies.
Investment in Infrastructure:
Government support for infrastructure upgrades, such as modernizing the grid and deploying advanced metering systems, is essential for improving Disco efficiency.
Public-private partnerships can be leveraged to accelerate investment in critical infrastructure.
Depoliticized Governance:
Boards overseeing Discos should comprise professionals from engineering, academia, and consumer advocacy, with no involvement of bureaucrats or political appointees.
Transparent appointment processes, overseen by independent panels, will ensure competent and unbiased governance.
Incentivizing Public Listing:
Policy incentives, such as tax benefits or matching grants, can encourage Discos to pursue public listing as a means of raising capital and enhancing credibility.
Expected Benefits of Reform
The transformation of Discos into independent, commercially viable entities offers numerous benefits for Pakistan’s power sector and the economy at large:
Financial Sustainability:
Profit-oriented operations will eliminate the need for perpetual government bailouts, reducing fiscal pressures and freeing up resources for other development priorities.
Enhanced Efficiency:
Professional management and advanced infrastructure will minimize losses, improve service delivery, and optimize resource utilization.
Increased Investment:
Public listing and ownership by institutional investors will attract domestic and foreign capital, fostering innovation and growth.
Better Consumer Experience:
Reliable service delivery, transparent billing, and responsive customer support will build trust and satisfaction among consumers.
Economic Growth:
A stable and efficient power distribution sector will support industrial growth, attract investment, and contribute to overall economic development.
Contributors.: Nadeem Ul Haque and Afia Malik