Power Sector : Effective Regulation not Regulatory Burden

Currently, there are more than 20 institutions, not including distribution and generation companies, involved directly in the power sector. There are several institutions with overlapping functions (Figure 1). At least three organisations National Electric Power Regulatory Authority (NEPRA), Central Power Purchasing Agency (CPPA) and Pakistan Electric Power Company (PEPCO), are responsible for monitoring and regulating the management and operations of distribution companies.

Similarly, Private Power Infrastructure Board (PPIB), Alternative Energy Development Board (AEDB) and NEPRA, apart from seven provincial departments, have powers directly and indirectly to facilitate and guarantee the technical compliance of private generation companies. The Board of Investment (BOI), though not involved directly in the power sector, performs similar functions.

Institutional bulk of the administrative burden, power sector challenges in the form of inefficiencies, institutional disconnections in the management and the priority of issues are increasing.

Fig. 1. Power Sector Institutional Profile

The number of organisations regulating or monitoring the power sector is unwarranted in Pakistan; in comparison to countries with the relatively better-performing power sector, e.g., Bangladesh and the Philippines (Table 1). Not only number of organisations is less in these countries, but all are also performing different functions.

Table 1

Source: Oxford Business Group (2021)[1] and ADB (2020)[2]

REGULATING AND MONITORING DISTRIBUTION COMPANIES

Pakistan Electric Power Company (PEPCO) was established in 1998. After the unbundling of WAPDA, PEPCO was made responsible for the restructuring and preparation for privatisation of the state-owned generation (GENCOs) and distribution companies (DISCOs) in due course. But unfortunately, its centralised control over the operations of the unbundled companies made the boards and management of these separated companies ineffective.

In 2011, the Government of Pakistan (GOP) approved the dissolution of PEPCO; and the functions were first transferred to National Transmission and Dispatch Company (NTDC) and later to Central Power Purchase Agency (CPPA). However, the functions of PEPCO, in the real sense, were not transferred to CPPA. The Power Division, Ministry of Energy (PD-MoE)[3] took the administrative role earlier performed by PEPCO.

In the current setup, CPPA is playing the role of ‘single buyer’ on behalf of DISCOs. However, in its assigned functions, it is also authorised to monitor distribution companies. CPPA registered with NEPRA as a market operator in 2018. It has the mandate to play the role of a Central Coordinator by NEPRA to facilitate the implementation of the Competitive Trading Bilateral Contract Model (CTBCM) by April 2022.

The Cabinet Committee on Energy (CCOE), on the recommendation of the PD-MoE, has decided to revive PEPCO with the new name Power Planning and Monitoring Company (PPMC) and shift its headquarters from Lahore to Islamabad. As stated in the National Energy Policy 2021, this new institution would be responsible for monitoring the performance of DISCOs. As reported in newspapers[4], PPMC will have a sovereign mandate to get donor support for capacity building to perform its duties effectively. 

Table 2

PEPCO Funding—Examples

Source: Financial Statements

Additionally, the funding for the PEPCO now PPMC is and will be paid by DISCOs in the form of fees. DISCOs are already short of the investment required for the up gradation/ maintenance of their infrastructure. The fee DISCOS are paying (along with free electricity to PEPCO employees) could be used in the long-overdue investments.

NEPRA statutorily is an autonomous regulatory authority with a mandate to regulate/ monitor power sector companies. What good PEPCO in the new name PPMC would do to the DISCOs, which NEPRA can’t do?

Moving Forward

• By law, DISCOs are independent corporate entities with Independent Boards. Its operations and reforms (if required) are the responsibility of company management and board. There is no need for any other institution (PPMC or CPPA) to manage, monitor, or regulate its financial, commercial, and operational affairs.
• The Independent Board, minus the influence of bureaucracy[5], guide the company management to develop a business model for the company, and ensure the fulfilment of service standards set by the regulator, i.e., NEPRA.
• Let DISCOs grow independently_ financially, administratively outside the umbrella of PEPCO or PPMC. In other words, from donor influence. Give necessary powers to NEPRA to regulate distribution companies.
• In future, CPPA will act as a market operator; only when the wholesale market is functional[6]. Otherwise, it is also an administrative burden.

[1] https://oxfordbusinessgroup.com/overview/powerful-shift-year-disruption-allows-government-re-evaluate-priorities-and-chart-new-path-future

[2] https://www.adb.org/sites/default/files/linked-documents/49423-005-ssa.pdf

[3] Earlier Ministry of Water and Power.

[4] https://www.dawn.com/news/1651283

[5] Malik, A. (2021) Corporate Governance in the State-owned Electricity Distribution Companies, PIDE Knowledge Brief, 2021 (Forthcoming).

[6] It is yet to be seen, given complexities in the generation and distribution sector.