Pakistan has opened the bidding process for its first 400 MW electricity wheeling auction, marking an initial move away from the traditional single-buyer model.
Under the new system, large consumers, particularly industrial users, will be able to seek electricity directly from power producers through bilateral contracts instead of relying entirely on government procurement.
For decades, the government has effectively acted as the central buyer of electricity. It purchased power from generators under long-term arrangements and supplied it through distribution companies to consumers.
In a detailed post on X, economist and Federal Minister for Power’s adviser Ammar H. Khan explained how the new system works, what it could change in Pakistan’s power market, and what reforms could follow the 400 MW auction.
In simple terms, an industrial consumer that needs 50 MW could approach an electricity producer and negotiate a deal for that supply. The government would not need to be a party to the transaction. Khan describes this as an initial move toward a competitive electricity market in which power producers compete for customers rather than selling their output primarily through a central government buyer.
The basic model works as follows: a large electricity consumer identifies a supplier and negotiates a bilateral power purchase agreement; the supplier uses the existing transmission and distribution network to deliver electricity to the buyer; the parties pay a wheeling or Use of System Charge for using that network; and available network capacity is allocated through competitive bidding under the new auction mechanism.
The electricity still has to travel through the national transmission and distribution network. Those wires are operated by distribution companies and the National Grid Company, meaning a producer cannot simply send electricity to a customer without using the existing network.
The producer or buyer therefore pays a wheeling or Use of System Charge for access to the network, similar to paying a toll for using a motorway. Nepra has approved variable wheeling charges ranging from Rs. 6.23 to Rs. 19.62 per unit for participating bulk consumers, depending on their category, along with a fixed grid charge of Rs. 1 per kilowatt per month.
The 400 MW auction is essentially a way of deciding who gets access to the available capacity. The government has set a base level for the auction, while participants will compete for the available capacity. Khan argues that competitive bidding can help determine a market clearing price and allocate limited network capacity to those with the greatest willingness to pay.
The current framework provides for 800 MW to be auctioned over five years, with 400 MW being offered in the first phase.
The model could eventually allow an independent power producer to sign a direct contract with an industrial buyer without requiring the government to enter into another long-term power purchase agreement. That would potentially reduce the government’s role as the central purchaser of electricity and shift more procurement decisions toward individual buyers and sellers.
Khan, however, says the 400 MW auction is only an initial step. One possible future development would be the entry of competitive suppliers that aggregate electricity from multiple smaller sources.
For example, a supplier could potentially purchase excess electricity from a large number of solar installations, combine that supply, and sell it to customers at an agreed market price. Such a system would require further development of the competitive market framework.
Another issue is the cost of using the transmission network. Khan has argued for more location-based Use of System Charges instead of the current flat rate, so charges better reflect the actual cost of moving electricity.
Khan also questioned whether consumers should finance new large power projects through electricity bills, arguing that projects with major water benefits could instead be funded through the government budget or water charges.
He said future power projects should also be assessed carefully as solar and battery storage continue to change how consumers generate, store, and use electricity.
