A market in name only
EDITORIAL: The Power Division's latest invitation for stakeholder comments on the long-touted Competitive Trading Bilateral Contract Market (CTBCM) would be laughable, were the state of Pakistan's power sector not so dire. For years, the same reforms have been announced, reannounced, and endlessly recycled through public consultations and draft directives.
Now, yet again, the country is being told that competitive electricity trading is just around the corner — with a token 800MW to kick-start liberalisation. The irony is staggering. In a sector drowning in circular debt, inefficiencies, and wilful defaulters, this obsession with process over outcome has become a cruel joke.
The National Electricity Plan (NEP) 2023–27 was never going to be a silver bullet. But when some of its key directives, like #87, are being reworded not to enable reform, but to better structure cost recovery for legacy failures, the intent becomes transparent: this isn't liberalisation; it's rearranging the furniture while the house burns. The Power Division's proposed amendment now seeks comments on how to allocate stranded costs — the inevitable fallout of prior bad planning — onto new market participants. This, at a time when the International Monetary Fund is pressing for efficiency in distribution companies, not further bureaucratic entanglements.
Why is this model, already discussed to death, being thrown back into public consultation? What more is there to extract from stakeholders who, in many cases, are the very reason the sector is where it is today? The answer lies in a systemic addiction to appearances. These consultations serve primarily to project the illusion of progress, of inclusion, of reform through consensus. But consensus with whom? Several of these 'stakeholders' are themselves serial defaulters, culprits behind the power sector's financial rot, and habitual opponents of reform whenever it threatens their rent-seeking arrangements.
The circular debt continues to spiral, now breaching Rs2.4 trillion, while technical losses remain high and recovery ratios pitiful. Despite all the planning documents, task forces, and workshops, the fundamentals refuse to improve. This should prompt a reckoning with the assumptions underpinning the CTBCM itself. Instead, we get redrafted directives and a fresh round of comments — this time with a five-year window for liberalisation and complex caveats for cost recovery, hedging, and hybrid sourcing. Meanwhile, the market stays inert, confidence erodes, and industrial consumers remain hostage to poor governance and predatory pricing.
The Power Division's new language emphasises 'balancing financial viability, affordability, and competition.' These are admirable goals, but impossible to achieve in a sector where the price of electricity includes embedded costs for idle capacity contracted under take-or-pay agreements, pilferage, bloated payrolls, and cross-subsidies. Penalising new entrants into the market by saddling them with stranded costs is not liberalization — it's a deterrent. It creates disincentives for investment, distorts price signals, and entrenches the worst aspects of the current system under the guise of reform.
The concerns raised by the Korangi Association of Trade and Industry (KATI) are therefore not incidental. They strike at the core contradiction of the CTBCM process: a competitive market cannot function when its rules are retrofitted to protect incumbents. Making new entrants shoulder the costs of past mismanagement — particularly when they had no hand in creating it — undermines the very purpose of transitioning to open access. It's little surprise that the private sector remains wary of participation, and even less surprising that reform fatigue has set in.
What's even more worrying is the Power Division's willingness to caveat reforms with broad exemptions, conditionalities, and budget-dependent subsidies that render the new model barely distinguishable from the old. If open access is contingent on fiscal space, third-party consultants, and future frameworks yet to be written, then it is neither open nor accessible. It's policy theatre.
Pakistan's power sector does not need more discussions. It needs decisions — backed by enforcement. It needs accountability for the billions in capacity payments, theft, and non-recovery. And it needs a clear break from the model of state-managed dysfunction dressed up as market reform. Until that happens, the CTBCM — however well-packaged — will remain a market in name only.
Copyright Business Recorder, 2025
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
7 hours ago
- Business Recorder
Power tariff hike: Govt reaches ‘understanding' with IMF
ISLAMABAD: The government and the International Monetary Fund (IMF) have reportedly reached an understanding that electricity tariffs will be increased through annual rebasing from July 2025 if the power sector's revenue requirements exceed the allocated subsidy envelope of Rs 1.036 trillion for fiscal year 2025–26, well-informed sources in the Finance Ministry told Business Recorder. This understanding was reached during discussions between Pakistani authorities and the visiting IMF mission held from May 14 to 24, 2025. 'Within the Rs 1.036 trillion envelope, sufficient subsidy will be allocated to ensure zero circular debt flow in FY26. The Petroleum Development Levy (PDL)-financed Prime Minister's package—amounting to Rs 182 billion—will be counted toward the FY26 subsidy,' the sources added. Reduced hydropower, costly fuels: Govt warns of potential hike in power bills Both sides also agreed that any additional financial needs will be met through tariff adjustments during the July rebasing exercise while maintaining a progressive power tariff structure, the sources maintained. According to sources, the IMF emphasized the importance of fiscal discipline, with subsidy levels expected to remain within 0.8% of GDP. These subsidies will be linked to credible targets for stock clearance and loss reduction. The Power Division has been directed to take all necessary steps to implement the measures agreed upon with the IMF. The government had earmarked Rs 1.190 trillion for the power sector for FY2024–26. However, the Power Division has also secured approval for additional subsidies to keep the circular debt flow within the limit agreed with the Fund. The Finance Division has revised and communicated provisional Indicative Budget Ceilings (IBCs), allocating Rs 636.136 billion for sector subsidies under the recurrent budget for FY2025–26, up from the earlier allocation of Rs 400 billion. As the detailed breakdown of the revised subsidy for FY2024–25 is not available, it remains unclear whether the full allocation has been utilized by the Power Division or if deviations occurred. Sources within the Power Division believe that subsidies for FY2025 may exceed Rs 1.2 trillion, driven by growing support for residential consumers and persistent circular debt obligations. 'A sharp increase in protected consumer categories—those consuming less than 200 units per month—is driving higher subsidy needs, as more consumers adjust their consumption or install solar panels to stay within the protected threshold,' the sources said. Cross-subsidy pressures are also rising, as declining industrial and commercial consumption reduces the contribution of higher-paying users to the overall system. The government also plans to clear up to Rs 541 billion in circular debt stock during FY2025, as part of a broader six-year debt reduction strategy. 'Subsidy allocations remain a contentious issue, particularly concerning the treatment of PDL proceeds and their role in budget financing,' the sources continued. Tariff rebasing and further adjustments remain under government consideration to close the subsidy gap. However, political sensitivities and lobbying from industrial stakeholders are limiting policy flexibility. The successful implementation of the Circular Debt Workout and Action Plan (CDWAP) and the ongoing restructuring of Pakistan Holding Limited's (PHL) debt are seen as critical to reducing future interest costs and stabilizing circular debt flows. Additionally, the Finance Division has directed the Power Division to strictly follow mandatory instructions issued to all Principal Accounting Officers (PAOs), heads of departments, and related entities when preparing budget estimates for each cost center and account head. Copyright Business Recorder, 2025
Express Tribune
a day ago
- Express Tribune
Caution urged on foreign advice
Listen to article Amid Pakistan's heavy reliance on foreign consultants to run its economy, an independent think tank has advised the government to choose a path between a truly home-grown economic model and a foreign lender-driven policy agenda. The Tola Associates policy advice came in the middle of a major shift in national tariff policy, where foreign consultants are advising a complete opening of the economy. However, the concerned economic ministries oppose this due to potential adverse implications for businesses and jobs. Pakistan's economy is currently bipolar, and policymakers must choose between home-grown recipes and the International Monetary Fund's (IMF) policy prescriptions, according to the report released on Thursday. The report suggests that home-grown policies should aim to keep policy rates closer to the inflation rate to reduce debt servicing, maintain the currency at its true value, stimulate growth, and reduce the fiscal deficit. In contrast, the IMF's policies focus on monetary tightening, import-led growth, and tariff reduction, which have consequently led to high inflation and suppressed economic growth, the report stated. The government has agreed on a plan to lower import tariffs by almost half over the next five years. In the first year alone, this would result in a Rs200 billion negative impact on revenues. While the IMF has no objection to the steep reduction in import revenues, it is unwilling to allow much-needed relief to all segments of the salaried class. The relief for the salaried class may not even cost Rs100 billion, nearly half the fiscal cost of liberalising the economy — a move that also carries employment risks. The Tola Associates report stressed that next year's economic strategy must prioritise introducing targeted policy measures for industrial development. These include rationalising interest rates for industrial borrowers, reducing electricity tariffs, abolishing export financing schemes on semi-finished and finished goods, and implementing a balanced tariff structure on raw materials. Encouraging import substitution and offering performance-based subsidies — particularly in key sectors such as textiles, leather, and engineering goods - is critical, the report added. However, past experiences suggest that import substitution policies have shown limited results, and the country must shift toward implementing export-focused policies. The report also highlights how efficient crop production could enhance exports by an estimated $2.2 billion. Increasing cotton yields, boosting rice exports, and reducing input costs to return to wheat surplus status were among the key recommendations. Based on its estimates, the report stated that if the current account deficit stays within the government's FY25 target of 0.4% of GDP, the exchange rate should ideally stabilise around Rs272 per US dollar. Including incorporated valuation adjustments for FY25, the rate should not exceed Rs282, it added. However, market fundamentals indicate that the rupee is under pressure, with importers struggling to find adequate dollar liquidity at reasonable rates. Major players like Pakistan State Oil (PSO) and Pak Arab Refinery Company (PARCO) are being forced to pay higher interbank rates. According to Tola Associates' estimates, Pakistan can achieve a current account surplus of 0.1% of GDP by improving cash crop yields in the next fiscal year. If that surplus is realised, the currency could appreciate by up to Rs23, leading to a 4.6% drop in inflation. This, in turn, would create room to reduce interest rates, cut debt servicing costs, and open up significant fiscal space, the report added. Pakistan can substantially bring down interest rates in the next fiscal year to single digits. A 1% reduction in the policy rate could lower the debt servicing cost by Rs515 billion. Aligning interest rates with inflation could allow for a 4.6% rate cut, saving up to Rs2.4 trillion in interest expenses, according to the report.
Business Recorder
a day ago
- Business Recorder
Policy issues in EFF programme — I
Pakistan's Extended Fund Facility (EFF) programme with International Monetary Fund (IMF), which as per one of its benchmarks also forms the basis of the upcoming federal budget, suffers serious flaws in terms of prescribed policy, and objectives. Together with the other recently negotiated Resilience and Sustainability Facility (RSF) programme, the EFF programme targets putting the country on a sustainable macroeconomic, economic growth, and green economy-based resilience against climate change and 'Pandemicene' phenomenon path. The problem is that for achieving these three objectives, it prescribes neoliberal and over-board monetary and fiscal austerity policies, which during the last four decades or so, have not only proved to be counter-productive to achieving the goals that have been stated above, but have also increased income inequality, and poverty, and diminished political voice, and overall weakened the quality of democracy. Moreover, as indicated, the upcoming federal budget, and provincial economic policies and budgets under the overall 'National Fiscal Pact' all need to continue to get aligned with these policy prescriptions under the EFF programme. While analysing the recently released 'IMF Country Report No. 25/109' there are a number of policy prescriptions that need to be pointed out to highlight the alignment of policies with neoliberal, over-board austerity framework, and how they are counter-productive to achieving the much-needed stated goals, especially in a world strongly punctuated by polycrisis, in particular the fast-unfolding climate change crisis, and the likely, and related 'Pandemicene' phenomenon. To start with, serious ongoing geopolitical tensions in the Middle East, Ukraine-Russia conflict, and heightened tensions between two nuclear-armed countries Pakistan and India, and the fast-increasing global warming, and likely risks of another pandemic are significant, posing significant downward risks to the EFF programme. For instance, with regard to global warming, according to the recently released 'WMO [World Meteorological Organization] global annual to decadal climate update 2025-2029' report, 'It is likely (86% chance) that global mean near-surface temperature will exceed 1.5°C above the 1850-1900 average levels for at least one year between 2025 and 2029. It is also likely (70% chance) that the 2025-2029 five-year mean will exceed 1.5°C above the 1850-1900 average.' Moreover, while global warming at the back of fast-unfolding climate change crisis continues to increase, with it the probability of the related 'Pandemicene' phenomenon likely also continues to rise. It is important to note that not much has improved in terms of preparedness mainly in terms of public health, making resilient aggregate supply chains, and making meaningfully supportive patent law/intellectual property rights (IPRs) under the current World Trade Organization (WTO) regime for better preparing against these existential threats. A significant cause of all of this continues to be neoliberal, and over-board austerity policies, which is shocking, given the lack of preparedness this policy had caused, as revealed by Covid-19 pandemic, and the global aggregate supply shock that struck in the wake of the pandemic. An August 15, 2024 'Foreign Affairs' magazine published article 'The world is not ready for the next pandemic' indicated – and the findings of which unfortunately still hold strong after almost a year since its publication, as not much has changed in terms of policy response where, for instance, no significant effort has been made by IMF in terms of its policy prescriptions in its programmes with recipient countries, including Pakistan –as follows: 'Less than five years after the outbreak of COVID-19, the world remains vulnerable to another pandemic. Over the past five months, a mutated strain of the H5N1 influenza virus detected in dairy cattle poses a potential risk for a pandemic-causing virus. Yet governments and international organizations have done far too little to prepare for such a scenario, despite the lessons they should have learned from the global battle with Covid-19.' Two more economic trends globally need to be understood to bring proper context to whatever little semblance of most probably short-term natured macroeconomic stability achieved domestically under the EFF programme, and that is, firstly, the negative impact of tariffs, geopolitical tensions, and climate change crisis on one hand, and the over-board monetary-, and fiscal austerity policies coming through their respective transmission pathways, and resulting in lower aggregate demand, reduced aggregate supply correspondingly, and overall low growth globally. For instance, the June 2025 report titled 'OECD [Organization of Economic Co-operation and Development] Economic Outlook: tackling uncertainty, reviving growth' highlighted the likely negative impact of tariffs imposed by US on global economic growth as 'The global outlook is becoming increasingly challenging. Substantial increases in barriers to trade, tighter financial conditions, weaker business and consumer confidence and heightened policy uncertainty will all have marked adverse effects on growth prospects if they persist. Higher trade costs, especially in countries raising tariffs, will also push up inflation, although their impact will be offset partially by weaker commodity prices. Global GDP growth is projected to slow from 3.3% in 2024 to 2.9% this year and in 2026…There are substantial risks to these projections, with the scale and duration of the expected downturn remaining highly uncertain.' Secondly, the windfall gains from a very low price of oil internationally – crude oil falling from the usual highs traditionally of around $100 per barrel to around $60 per barrel – in terms of producing positive impacts for balance of payments, in particular import payments, and imported-, and in turn, cost-push inflation all receiving a dent. A June 5, Bloomberg published article 'Oil stalls as traders weigh Saudi output push, summer demand' pointed out in this regard: 'Oil remained stuck near $65 a barrel as signs Saudi Arabia is seeking another big production increase at next month's OPEC+ meeting offset the outlook for summer demand.' Hence, macroeconomic stability achieved under the EFF programme has significant attribution from low oil prices, which is at best a transitory influence because it does not suit the interests of oil producers beyond the short-term like reportedly punishing certain members of OPEC+. A May 31, Bloomberg published article 'OPEC+ agrees on third oil supply surge despite Russia's qualms' pointed out in this regard: 'OPEC+ agreed to surge oil output for the third month in a row despite reservations from key member Russia, doubling down on a historic policy shift that has sent crude prices sinking.…Officials say the supply hikes reflect Saudi Arabia's desire to punish over-producing members like Kazakhstan and Iraq, recoup market share lost to US shale drillers and other rivals, and satisfy President Donald Trump's desire for cheaper oil. …Oil briefly crashed to a four-year low under $60 a barrel in April after the Organization of the Petroleum Exporting Countries and its allies first announced that they would bolster output by triple the scheduled amount. …While Brent futures have since recovered to trade near $64 a barrel, the International Monetary Fund estimates the Saudis need prices above $90 to cover the lavish spending plans of Crown Prince Mohammed bin Salman. The kingdom is contending with a soaring budget deficit, and has been forced to cut investment on flagship projects such as the futuristic city, Neom.' Sustained macroeconomic stability and economic growth on the contrary require strong non-neoliberal, non-austerity based institutional, organizational, and market reforms. Structural reforms being suggested – in line with the traditional neoliberal, and over-board austerity-based outlook of the IMF – like seeing government as mainly reacting to market failures, and regulating loosely and, in turn, the direction of reforms pushing towards reducing government's footprint, rather than rationalizing its role, which could mean overall increasing its footprint if need be. While there are arguments on both sides of greater role of private sector in running the economy, that view has continued to sideline, especially in the wake of the misgivings that were exposed by the Global Financial Crisis 2007/08, and then in the wake of the Covid pandemic in the shape of lack of resilience created over decades under the neoliberal assault, along with little institutional provisions being placed under trade rules; for instance, to push for provision of vaccines as a global public good. Quite shockingly, such lessons have not been reflected through EFF programme thinking that continues to be the flagbearer of neoliberal thinking. Also, it is no hidden fact that the success of the Scandinavian countries or China for instance has been at the back of a strong state sector protecting the rights of its demos from the profit-motive excesses of the private sector by public sector playing a significant role in market creation, through adopting counter-cyclical policy framework, and in pushing towards greater productive and allocative efficiencies. Yet, without making anywhere near similar effort by the public sector, both in terms of improved institutional capacity, and providing needed levels of investment, there is a strong emphasis under the EFF programme to push for greater privatization, whereby the demos will be left virtually at the whims of private sector, given lack of capacity of the government to regulate private sector, at the back of years of under capacitation through lack of investment in education in general, and by following an ever-increasing practice of outsourcing more technical aspects of service delivery. Hence, this begs the question as to how can a government that has not properly run a certain affair like railways, or steel mills, has the capacity, and knowledge to regulate the private sector intoboth efficiently running these affairs, and also not jeopardize public welfare aspects by over-emphasizing profit interests? —To be continued Copyright Business Recorder, 2025
