Pakistan electricity market reform Introduction
Pakistan is taking a significant step toward transforming its power sector by introducing a competitive electricity market that will allow consumers to choose their preferred electricity supplier. This landmark reform, revealed by Power Division Secretary Dr. Fakhar Alam Irfan during a briefing to the National Assembly’s Standing Committee on Power, marks a crucial milestone in the government’s long-term goal to create a more efficient, transparent, and consumer-driven energy system.
Dr. Irfan emphasized that the shift toward competition will not only ensure fairer electricity pricing but also improve operational performance, attract private investment, and eventually help tackle the country’s persistent circular debt problem.
Pakistan electricity market reform A Major Step Toward Power Sector Liberalization
For decades, Pakistan’s electricity market has operated under a single-buyer model, where the government purchases power from producers and sells it to distribution companies (DISCOs). This system has often been criticized for inefficiency, mismanagement, and lack of competition.
Under the new framework, the country will gradually transition toward an open electricity market — a model already adopted successfully in countries like the UK, Turkey, and India. Once implemented, consumers will be able to choose which power supplier they buy electricity from, fostering competition that should lead to better service and more reasonable prices.
Dr. Fakhar Alam Irfan explained that the Competitive Trading Bilateral Contract Market (CTBCM) initiative is central to this transformation. The goal is to establish a market where producers and buyers interact directly, reducing the government’s role as an intermediary and improving transparency in billing and tariff structures.
Pakistan electricity market reform Circular Debt: The Biggest Challenge
Despite positive progress, Pakistan’s power sector continues to face one of its most persistent problems — circular debt. This issue, which arises when power producers are not paid on time due to revenue shortfalls from distribution companies, has become a serious threat to the country’s financial stability.
During his briefing, Dr. Irfan revealed that the power sector suffered Rs600 billion in financial losses in 2024. However, due to recent reforms, that figure has been reduced to Rs397 billion this year, with hopes for further improvement in the coming fiscal cycles.
He added that although losses exceeding NEPRA’s (National Electric Power Regulatory Authority) targets don’t immediately impact consumers, they eventually contribute to circular debt — a burden the federal government must absorb through the annual budget.
According to energy experts, circular debt has a domino effect: it discourages investment, delays maintenance, and leads to frequent load-shedding and high consumer tariffs. By allowing open market competition, Pakistan hopes to reduce inefficiencies and encourage timely payments, ultimately addressing one of the root causes of this recurring issue.
Pakistan electricity market reform Policy Focus: Protecting Low-Loss Feeders
Another key directive shared by Dr. Irfan during the session was the protection of efficient feeders — the electricity supply lines that have losses below 20 percent.
He warned against shutting down these low-loss feeders, stating that doing so could harm both consumers and government revenue.
“When low-loss feeders are closed, it affects revenue collection and disrupts supply to consumers who are already paying their bills responsibly,” he noted.
This approach reflects a data-driven strategy to differentiate between efficient and inefficient regions, rewarding communities with lower theft and better bill recovery rates by ensuring more stable power supply.
Pakistan electricity market reform Karachi’s Power Crisis: A Continuing Concern
Committee member Shahida Rehmani voiced serious concern about the ongoing electricity crisis in Karachi, Pakistan’s largest city and economic hub. Despite being a metropolis of over 20 million people, Karachi remains entirely dependent on K-Electric, a single private power distributor.
Rehmani criticized the slow pace of infrastructure development and weak implementation of government promises to improve Karachi’s electricity supply.
She emphasized that despite repeated assurances of upgrades and better management, load-shedding and power outages remain frequent, severely affecting businesses and daily life in the city.
Experts believe that once Pakistan’s electricity market opens up, K-Electric’s monopoly could face competition from new suppliers, potentially improving efficiency and reducing costs for consumers in Karachi and other major cities.
Pakistan electricity market reform The Growing Role of Solar Energy
During the same committee session, officials also briefed members on the rapid expansion of solar energy across Pakistan. With increasing affordability and accessibility, solar power adoption has surged in both urban and rural areas.
While this trend is a positive sign of public interest in renewable energy, it also presents new challenges for the national grid. As more consumers shift to solar systems, grid-based electricity demand is declining, putting pressure on distribution companies to manage surplus capacity and fixed costs.
Currently, electricity supplied through the national grid includes around Rs14 per unit in capacity charges and Rs9 per unit in taxes, making it significantly more expensive than solar-generated electricity. This price disparity highlights the need for reforms that can make grid power more cost-effective and sustainable.
Analysts argue that while solar energy growth is beneficial, the government must balance grid stability and renewable integration to avoid financial losses for distribution companies that still rely on fixed payments to power producers.
Pakistan electricity market reform Expected Benefits of the Reform
If implemented successfully, the open electricity market reform could transform Pakistan’s power sector in several key ways:
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Consumer Empowerment: Citizens will gain the right to select their preferred electricity provider, encouraging competition and service improvement.
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Lower Tariffs: Increased competition is expected to drive down prices over time, benefiting households and industries alike.
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Reduced Circular Debt: A transparent billing system and direct contracts between producers and buyers could help eliminate financial bottlenecks.
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Private Investment: Liberalization will attract new investors to Pakistan’s power market, boosting technological innovation and employment opportunities.
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Energy Efficiency: Better management, improved infrastructure, and accountability mechanisms will enhance the reliability of the national grid.
Pakistan electricity market reform Conclusion
Pakistan’s journey toward an open electricity market signals a historic transformation of its energy landscape. By empowering consumers, promoting competition, and addressing chronic inefficiencies like circular debt, the country is setting the foundation for a modern, transparent, and sustainable power system.
While challenges such as grid management and policy enforcement remain, the reform marks a decisive shift toward energy independence. With continued political commitment and regulatory oversight, Pakistan’s electricity market reform could become a model for regional economies seeking to balance affordability, efficiency, and environmental responsibility.
