By: Saeed Chaudhry
Towards liberalization or a set of new challenges, the Government of Pakistan is going to implement the country’s first Competitive Trading Bilateral Contract Market (CTBCM) within the next two months, a move that could potentially transform the energy landscape of the nation. This shift was confirmed by Federal Minister for Energy, Sardar Awais Ahmad Khan Leghari, during a meeting with a high-level World Bank delegation headed by Ousmane Dione, Regional Vice President for the Middle East, North Africa, Afghanistan, and Pakistan. The introduction of the CTBCM marks a departure from Pakistan’s traditional, centralized electricity market, which has long relied on governments controlled power procurement.
Under the new policy framework, electricity generators and large consumers will be able to engage in direct, bilateral contracts, bypassing the government as the sole buyer of electricity.
This market based approach is designed to promote competition, enhance efficiency, and increase transparency in the power sector, which has for decades been plagued by inefficiencies, circular debt, and unsustainable subsidies. The CTBCM policy aims to restructure the sector by reducing the government’s role to that of a regulator while empowering private stakeholders to play a larger role in energy trading. Central to this model are mechanisms such as “wheeling charges” fees that allow the use of national transmission and distribution networks by third-party generators and consumers. These reforms are expected to introduce a more dynamic and responsive energy market while encouraging innovation and private investment. Over time, distribution companies (DISCOs), which have long been criticized for poor performance and political interference, will either be restructured or gradually privatized under the new regime.
The need for such a sweeping reform is rooted in the longstanding crisis within Pakistan’s power sector. The country has been grappling with deep structural issues: overcapacity on the generation side, long-term “take-or-pay” contracts with independent power producers (IPPs), and a ballooning circular debt crisis that has now crossed PKR 2.5 trillion. In many instances, the government continues to pay for electricity that is never consumed, while consumers experience unreliable service and soaring electricity bills. The CTBCM policy is seen as a corrective measure to reduce the government’s financial burden and improve the overall efficiency of the system. By introducing market competition, policymakers hope to create a level playing field that can drive down power costs, particularly for large-scale consumers, while fostering the entry of new, possibly renewable, energy producers.
One of the major advantages of this policy is its potential to lower electricity tariffs. With multiple suppliers competing in an open market, prices are likely to come down at least for industrial and commercial users who will be able to negotiate contracts directly with power generators. This could significantly benefit Pakistan’s industrial sector, which has long suffered from high energy costs, limiting its competitiveness in global markets. In addition to economic efficiency, the policy is expected to enhance energy security by reducing reliance on a few major suppliers and enabling greater diversity in energy sources. Moreover, the liberalization of the electricity market is likely to attract both foreign and domestic investment, particularly from clean and renewable energy sectors. With clearer rules, greater transparency, and less bureaucratic red tape, international investors may find Pakistan’s power sector more appealing than ever before.
However, despite these promising prospects, the policy is not without its challenges. One of the primary concerns is market readiness. Pakistan’s energy sector infrastructure both technical and institutional is not yet fully equipped for a completely liberalized environment. Most DISCOs are financially and operationally weak, and regulatory institutions like NEPRA will need substantial capacity building to effectively monitor and guide the new market structure. Furthermore, equity concerns loom large. While large consumers may benefit from lower tariffs through private contracts, small scale users and residential customers could face higher costs, especially if cross subsidies are withdrawn. There’s also a risk that rural or less profitable regions may be underserved by private suppliers who are driven primarily by profit.
Another pressing issue is the need for strong regulatory oversight. Without effective monitoring mechanisms, there is a danger of market manipulation, price collusion, and opaque practices by dominant players. Ensuring transparency and accountability in the early phases of implementation will be essential to prevent the emergence of new monopolies or exploitative behaviors. Additionally, Pakistan’s energy sector is already tied up in legacy contracts and overcapacity problems. Moving to a competitive market may lead to stranded costs investments that cannot be recovered under the new system. Determining who will bear these costs either the government, the companies, or the consumers. This will be a contentious and politically sensitive issue ahead.
Transitioning to such a radically different market model will require careful management. A rushed implementation without adequate planning and safeguards could destabilize the energy sector and erode public and investor trust. Conversely, delays or policy reversals could dampen the confidence of private players and foreign investors, who are already cautious due to Pakistan’s volatile regulatory environment.
International support, particularly from the World Bank, is likely to play a crucial role in the policy’s success. The World Bank has been a longstanding advocate of power sector reforms in Pakistan and has pledged continued support for initiatives that aim to make energy systems more reliable, sustainable, and investment-friendly. During the recent meeting, Ousmane Dione acknowledged the importance of energy for economic development and assured Pakistan of the World Bank’s backing in its efforts to establish a competitive and transparent power market.
In conclusion, Pakistan’s Competitive Energy Market Policy represents a significant and ambitious leap toward modernizing a long-troubled sector. If executed with care, coordination, and commitment, it holds the potential to unlock substantial economic gains, reduce fiscal burdens on the state, and bring Pakistan’s energy sector closer to international best practices. However, the path ahead is fraught with complexities. Ensuring success will depend on robust institutions, regulatory clarity, protection for vulnerable consumers, and a transparent implementation strategy. As the country embarks on this critical transition, the CTBCM policy stands as both a symbol of reform and a test of Pakistan’s ability to deliver transformative change in one of its most crucial sectors.
