ISLAMABAD – Pakistan is working on electricity market, with the government moving toward a system under which power producers and large consumers will be able to trade electricity directly through a competitive and transparent mechanism.
Federal Minister for Energy Awais Leghari announced that the government would gradually step away from its traditional role of purchasing electricity and then supplying it to consumers through the national transmission and distribution system. Under the existing model, electricity consumed by ordinary users is first purchased by the government and subsequently delivered through the state-run transmission network. Leghari said the new system would eventually change that arrangement, allowing electricity buyers and producers to enter into direct agreements.
“The government will no longer purchase electricity,” Leghari said, explaining that producers and buyers would instead conduct electricity transactions through a transparent mechanism.
The government has now taken a practical step toward implementing the plan. Power Division on Sunday, September 20, issued Requests for Proposals (RFPs) for the country’s first-ever auction of electricity wheeling. Under the plan, 400 megawatts of electricity will initially be offered on a competitive basis, while the total volume is expected to reach 800MW over the next five years.
The auction will take place under the Competitive Trading Bilateral Contract Market (CTBCM) framework. The system will allow eligible industrial and commercial consumers to purchase electricity directly from power generation companies on competitive terms.
The concept is relatively straightforward. Energy expert Aafia Malik explained that a consumer will be able to sign an agreement directly with a power generation company to purchase electricity. The electricity will then be delivered to that consumer using the existing transmission and distribution infrastructure.
The government’s electricity network will continue to carry the power, but the electricity itself can be purchased through a direct agreement between the buyer and generator. The consumer, however, will still have to pay for using the transmission and distribution infrastructure. This cost is generally referred to as a wheeling or line charge.
And this charge could become a crucial factor in determining whether direct electricity purchases actually translate into cheaper power.
The new system will not immediately be available to every Pakistani household. In the first phase, consumers using more than one megawatt of electricity will be eligible. This means the initial beneficiaries will largely be major industrial consumers, including sectors such as:
- Textiles
- Cement
- Fertiliser
- Other large-scale industries
Small industries and ordinary commercial users will not initially qualify because their electricity consumption generally does not meet the one-megawatt threshold. Energy expert Manzoor Ahmed said the first phase involves an auction for up to 400MW, with the programme planned to expand to 800MW over five years.
The initiative is essentially linked to the power-sector liberalisation policy introduced by the World Bank in the early 1990s. He said the reform should have been implemented two or three decades ago but practical progress has only now been made.
Leghari also acknowledged the long history of the proposal, saying governments had wanted to introduce such a system for the past 25 to 30 years, but previous administrations had failed to take practical steps.
Will electricity bills drop?
This is where the picture becomes more complicated. The government has presented the competitive market as a route toward cheaper electricity, particularly for industry.
Leghari said cheaper power would help industries reduce production costs and compete in international markets while lowering one of their biggest operating expenses. But energy experts have warned that simply allowing consumers to purchase electricity directly does not automatically guarantee cheaper bills.
Aafia Malik said the wheeling cost would be one of the most important factors. A large industrial consumer may buy electricity directly from a generator, but it will still have to use the government’s transmission and distribution infrastructure. The cost of using that network must therefore be added to the price of the electricity.
Manzoor Ahmed similarly said it would have to be established whether electricity purchased through the competitive market would actually be cheaper than the electricity currently procured by the government.
Pakistan’s power sector is already struggling under major structural problems, including circular debt, electricity theft, transmission and distribution losses, expensive power plants and huge capacity payments. According to Aafia Malik, the government is expected to pay around Rs1,900 billion in capacity payments to power companies during 2026.
At the same time, electricity consumption from the national grid has declined as more consumers shift toward solar power. However, the reduction in grid consumption does not eliminate the country’s capacity-payment obligations. As a result, grid-connected consumers continue to face an additional burden associated with the declining utilisation of the system.
Despite the government’s ambitious vision, the new system does not offer immediate relief to ordinary household consumers. Aafia Malik said the competitive electricity market is currently designed for large consumers, while households will have to wait several years before the system is expanded to them.
The same applies to small industries and the commercial sector, which will not be part of the first phase. She said that excluding taxes and surcharges, electricity in Pakistan is currently costing around Rs34 per unit, and the new wheeling initiative is unlikely to bring an immediate reduction in household electricity bills.
Leghari, however, has indicated that the government intends to eventually extend the system to ordinary consumers, including households consuming 200 or 400 units.
That would potentially create a much broader electricity market in which consumers could choose among competing power suppliers.
The government’s plan therefore represents a significant change in the way Pakistan’s electricity market is structured. For now, however, the promised transformation is largely aimed at major industrial and commercial buyers. The first test will be whether the 400MW competitive auction can actually deliver electricity at prices that are lower after wheeling charges and other system costs are included.
