PD gives IMF its assurance

MUSHTAQ GHUMMAN

ISLAMABAD: The Power Division has assured the International Monetary Fund (IMF) that it would not accept any new generation capacity without availability of transmission infrastructure, sources told Business Recorder.

“We will carefully review whether there is need for any additional capacity in the near term, and will not enter into any further capacity commitments without a prior commitment for new transmission infrastructure and once that line and existing capacity is fully utilized at peak time,” the sources quoted Power Division as making commitments with the Fund during recent interactions.

On fundamental cost-reducing reforms, Power Division has recognised the need to continue and accelerate cost-side reforms to address the sector’s fundamental challenges and are moving forward, with the assistance of the World Bank, ADB, and other development partners.

Power Division has shared the following agenda stating it has taken the necessary policy and financial prerequisite steps, with the support of the World Bank, to privatise three DISCOs (IESCO, GEPCO, and FESCO) (end-January 2025 SB), and hired a financial advisor in February, which will help improve performance, efficiency, and governance, addressing significant drivers of power sector CD accumulation and thus the need for higher tariffs. Due diligence is now being carried out and we will begin the first bidding for these three DISCOs by end-December 2025. Power Division is also moving ahead with the process to privatise three additional DISCOs, and to seek concessions for the private management of three additional DISCOs, which we expect to proceed through 2026.On the issue of shifting captive power to the electricity grid, Power Division has stated that to further encourage CPPs to move to the electricity grid the government has finalised and shared with all CPPs a service level agreement which sets a performance standard, as prescribed by NEPRA, of uninterrupted electricity supply for CPPs that connect to the grid, including penalties for DISCOs that are not able to meet this standard.

Power Division has made strong progress in restructuring the National Transmission and Dispatch Company (NTDC) into three entities, which will allow for more efficient power transmission, boosting sector viability: the Independent System Operator and Market Operator (ISMO), which will assume the NTDC’s system operator function; the Energy Infrastructure Development Management Company (EIDMC), which will be responsible for projects and development, will be operational by end-August 2025; and the National Grid Company (NGC), which will take over responsibility from NTDC for operating and maintaining the grid and transmission lines, including further restructuring, will be complete by end-December 2025 .

Power Division is moving forward with plans to improve generation efficiency and performance by privatising at least two GENCOs (Nandipur and Guddu 747). It is expecting that necessary prior actions will be completed by end-April 2025 to enable the start of the process to hire a financial advisor by end-May 2025, with bidding for Nandipur targeted for January 2026; Complete the transition to a competitive electricity market: The government is approaching the operationalization of the Competitive Trading and Bilateral Contract Market (CTBCM), which will enable bulk power consumers to purchase electricity from DISCOs or a competitive supplier of their choice, with the ultimate aim of lowering wholesale market prices for consumers. NEPRA is considering licensing requests, transfer agreements, and service level agreements with relevant power sector bodies and the government is determining costing, including the wheeling charge. At the outset, 800 MW will be allowed in the market until 2031, in line with IGCEP capacity planning; this and the level at which the wheeling charge is set will ensure sufficient capacity remains on the grid. The transition will be carried out in and responsible manner to minimise the impact on consumers and the budget.

A key step in this process will be to build upon the IGCEP and TSEP (2024-34), including a recent update, to mandate an increased share of cheaper renewable energy in the generation mix. Projects following from this effort will be on a least cost basis; we envision the elimination of a significant a significant portion of surplus, unused capacity through this effort.

Given the excessive cost pressure caused by the capacity payments required on existing generation plants when not in use, and consistent with government’s efforts to revisit PPAs, Power Division will carefully review whether there is need for any additional capacity in the near term, and will not enter into any further capacity commitments without a prior commitment for new transmission infrastructure and once that line and existing capacity is fully utilised at peak time.

The government will continue to refrain from netting out cross-arrears they are independently audited); using “non-cash” settlements (e.g., payables against the reimbursement of on-lent loans to DISCOs); and issuing government guarantees except where there is a need to substitute an existing guarantee on maturity.