Power sector reforms

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The government is looking into reforming the electricity pricing system as a means to address complaints from consumers, producers and distributors alike, and is also negotiating with the IMF to reduce prices by as much as Rs12 per unit. The aim is to deal with some of the inefficiencies in the power sector while rationalising costs and pushing for more adoption of alternative energy sources.

As part of the reforms, the Independent System Market Operator (ISMO) will replace the current Central Power Purchasing Agency (CPPA), which buys electricity and sells it to distribution companies. Success would be measured by its ability to streamline operations, reduce inefficiencies and ultimately create a more robust market structure. If things work out, further efforts to privatise underperforming power distribution companies (Discos) are also expected.

The power secretary has recently highlighted that cost reduction will be a priority in all future projects - the opposite of the 'spare no expense' approach to increasing energy production that eventually led to a power surplus, but also contributed to the economic crisis of the past few years. The government is also renegotiating contracts with at least 16 independent power producers to cut average tariffs, which is the easiest way to cut prices for consumers while staying compliant with the IMF's loan conditions since the IMF is more concerned with subsidies and tax receipts and is usually ready to accept non-coercive price reductions.

However, the government still has to tackle problems such as excess capacity due to the increasing adoption of alternative energy sources and widespread power pilfering and other line losses. While the former is a federal issue, the latter requires coordination between Islamabad and the provinces, which is problematic since one incumbent chief minister literally encouraged power theft and led raids on grid stations a few months ago.