For most of Pakistan’s history, an industrial undertaking that needed electricity had only one real choice. It bought power from its local distribution company, and the distribution company received power bought centrally by the government through the Central Power Purchasing Agency. The regulator set the price, and the factory had no say in where its electricity came from.
This is now starting to change. On September 20, 2026, the Independent System and Market Operator (“ISMO”) invited proposals for Pakistan’s first “wheeling auction”. The deadline for proposals is November 20, 2026. The Power Minister has called it a historic step. In my view, it is a real start, but it is a small one, and some of its rules deserve a closer look.
The new system is called the Competitive Trading Bilateral Contract Market (“CTBCM”). The basic idea is simple. A large consumer, with a load of 1 MW or more, can sign a contract directly with a power producer or a licensed supplier and agree its own price. The electricity still travels through the national grid and the local distribution network, so the buyer pays a charge for using these wires. This is usually called the wheeling charge or the use of system charge.
The idea is not new. Plans for a competitive power market go back to the early 1990s. NEPRA approved the CTBCM model in December 2019 and its detailed design in November 2020. After that, the project was delayed for years, mainly because the government, the distribution companies, industry and the regulator could not agree on the level of the wheeling charge.
The last two years have seen much faster progress. In April 2025, NEPRA transferred the market operator and system operator licences to ISMO, a new company set up for this purpose. In October 2025, NEPRA approved the Market Commercial Code, which contains the detailed rules of the market. In December 2025, the Cabinet Committee on Energy decided that the government would not sign any further power purchase agreements. In March 2026, NEPRA declared that the market had formally started from January 22, 2026. Finally, in September 2026, NEPRA decided uniform grid charges for all distribution companies, including K-Electric, and these were notified in October.
Under the government’s Framework Guidelines for Wheeling Auctions 2025, a total of 800 MW will be auctioned over five years. The first auction offers 400 MW. No single participant can receive more than 20 per cent of the total, which is 160 MW, cumulatively across all auctions over the five years. Bidders offer a bid value in rupees per unit, and the highest bids win. Solar and wind bidders must also install battery storage of at least 10 per cent of their firm capacity.
The most important detail is in NEPRA’s decision on grid charges, which sets two different price lists. Take an industrial consumer connected at 11 kV, known as a B-3 consumer. If it wins in the auction, it pays Rs 6.23 per unit to use the grid. If it uses open access outside the auction, it pays Rs 19.17 per unit. The difference, Rs 12.94 per unit, is called the stranded cost. A fixed charge of Rs 1 per kW per month and the debt servicing surcharge apply in both cases.
Stranded cost is the cost of power plants that the government has already contracted and must pay for, even when their electricity is not needed. According to reported figures, Pakistan has more than 46,000 MW of installed capacity, but supply barely exceeds 27,000 MW in peak summer. When a large consumer leaves the grid, the payments for this spare capacity remain, and the other consumers have to carry them. The government’s approach is to make most open-access users pay this cost, while auction winners avoid it. As I read the auction papers, a winner pays its bid value for one year and then pays only the lower charge.
There is a lot to welcome here. For the first time, an industrial undertaking can choose its supplier and the source of its power. A textile mill could, for example, buy solar or wind power to meet the expectations of its foreign buyers. Producers will have to compete for customers. And the government is stepping back from buying all the country’s power itself.
But there are also concerns. First, the market is very small. 800 MW over five years is a small share of a system with more than 46,000 MW of capacity, although Power Division officials argue that it still reaches over 30 per cent of eligible bulk consumers. Second, the large gap between the two price lists means that, in practice, the auction decides who gets cheaper access to the grid. Two similar factories on the same network could pay very different charges for the same service. Third, the key choices, such as the 800 MW limit, the one-year payment and the absence of any limit on bids, were made by the Federal Government in its guidelines. NEPRA said that these points were not open to review by the regulator. A market works best when people trust that an independent regulator sets the rules.
What should happen next? I would suggest four things. First, the government should publish a clear timetable for growing the market beyond 800 MW and for lowering the 1 MW limit, as countries such as Brazil, Turkey and India have done with their own limits. Second, it should publish the full figures behind the stranded cost, including how long it will be charged and who will pay it. Third, ISMO should publish the results of each auction in a form the public can understand. NEPRA has already required ISMO to publish summary data after each round. Fourth, once the trial period ends, similar consumers should pay similar charges.
CTBCM has taken more than thirty years to arrive. The first auction is a real achievement, and the people who worked on it deserve credit. But the real test will be the second and third auctions. If the market grows and the rules are seen as fair, Pakistan’s industry may finally get a real choice. If it stays small and complicated, it may become one more reform that looked better on paper than in practice.
