Abstract

This paper reviews Pakistan’s electricity market and identifies the problems faced by the sector to suggest policy options to improve its operational and financial performance. Pakistan’s electricity market was restructured through WAPDA Act, 1998 however the market is still facing issues in its generation, transmission and distribution segments. The institutional development was planned to strength the technical and administrative efficiency of the sector which could not be achieved with overlapping of functions between different authorities. This has resulted in distorted tariff determination process due to political interests and excessive cross subsidization. The electricity market reforms created investment opportunities for private sector which enhanced the installed generation capacity but due to poor operational management and inefficient fuel mix, the generation sector did not benefit from this expansion. The administrative failures of distribution companies create hurdles in bills collection from end users while mismanagement compromises customer services due to which majority of DISCOs do not meet the performance standards determined by NEPRA. Our analysis proposes that policy makers need to ensure the autonomy of NEPRA in decision making process. The policy actions should focus on administrative and financial strengthening of generation, transmission and distribution network companies to improve the performance of the market in a sustainable manner.