ISLAMABAD: Pakistan’s power regulator has approved the registration of the Central Power Purchasing Agency (CPPA-G) as a Special Purpose Agent (SPA), a key step in the country’s long-delayed electricity market reforms, but curtailed its future role by strictly limiting it to managing pre-existing contracts.
The decision, detailed in a determination by the National Electric Power Regulatory Authority (NEPRA) dated October 2025 and seen by Reuters, marks a pivotal shift for the CPPA-G, which has acted as the single buyer of electricity for the national grid for over a decade.
The newly approved framework transitions the CPPA-G from a central procurement body to an administrator of “Legacy Contracts” – Power Purchase Agreements (PPAs) and Energy Purchase Agreements (EPAs) signed before the commencement of the Competitive Trading Bilateral Contract Market (CTBCM), a date known as the Commercial Market Operation Date (CMOD).
NEPRA explicitly rejected a proposal from the CPPA-G to include future “strategic” projects within its mandate. The regulator stated that any projects conceived after the CMOD “must be treated strictly in accordance with the applicable policy and regulatory framework prevailing at the relevant time,” meaning they will be negotiated directly between power distribution companies (DISCOs) and generators.
“This transition towards bilateral procurement is not incidental, rather a deliberate cornerstone of the CTBCM design, aiming to instill commercial discipline, strengthen accountability, and align procurement decisions with the financial performance” of the DISCOs, NEPRA said in its 102-page determination.
Key Reforms and Resolutions
The approval follows nearly three years of consultations and addresses numerous contentious points raised by stakeholders, including DISCOs and K-Electric. Key decisions include:
- Phased Capacity Charge Reform: NEPRA mandated a shift from the current “non-coincidental” peak demand calculation to a “coincidental peak” method within a year, establishing a fairer system. This will eventually lead to a “commercial allocation factor-based methodology” as envisaged under the market design, ensuring DISCOs pay capacity charges that better reflect their actual contribution to the national grid’s peak demand.
- Bilateral Contract Settlement: The regulator firmly stated that future bilateral contracts signed by DISCOs after the CMOD will be settled directly between the contracting parties, without the involvement of the SPA. This is intended to foster financial autonomy and responsibility among DISCOs.
- Ancillary Services and Imbalances: A 12-month transition period was approved, during which the CPPA-G, as SPA, will incorporate ancillary service charges and imbalance settlements into DISCOs’ invoices. After this period, the Market Operator (now the newly created Independent System and Market Operator of Pakistan – ISMO) will invoice DISCOs directly.
- No Separate Escrow Account: NEPRA rejected a proposal to create a separate escrow account between the SPA and the Market Operator for legacy contract imbalances, stating that the credit cover mechanisms in the Market Commercial Code are sufficient and a separate arrangement would be discriminatory.
- Payment Priorities: A formal mechanism for allocating funds to generators in case of persistent payment shortfalls from DISCOs was incorporated into the Agency Code, moving it from an internal procedure to a binding regulatory requirement.
Background and Objective
The CTBCM reforms aim to dismantle Pakistan’s single-buyer model, which has been plagued by circular debt, inefficiencies, and a lack of competition. The reforms are designed to introduce a competitive wholesale market where DISCOs independently contract for power, promoting price discovery and financial discipline.
The CPPA-G’s new role is confined to ensuring the “smooth administration and settlement” of the legacy power purchase agreements, a significant portfolio of existing generation capacity. Its registration is valid for ten years.
The move is seen as a critical, albeit long-awaited, step towards modernizing Pakistan’s power sector, though its success hinges on the ability of DISCOs to transform into commercially viable and operationally efficient entities capable of managing their own power procurement.