ISLAMABAD: The Cabinet Committee on Energy (CCoE), headed by the Prime Minister, has approved the establishment of an Independent System and Market Operator (ISMO) by merging the Central Power Purchasing Agency – Guaranteed (CPPA-G) and the National Power Control Center (NPCC).
However, the new entity will only come into existence after receiving formal approval from the Federal Cabinet and resolving some issues identified by the National Electric Power Regulatory Authority (NEPRA).
According to sources, the Market Operator (MO) is governed under Sections 23A and 23B, while the System Operator (SO) is regulated under Sections 23G and 23H of the NEPRA Act. Meanwhile, legal, policy, regulatory, and techno-commercial aspects will be thoroughly reviewed to ensure the merger and operationalization align with the applicable policy and regulatory framework. A cost-benefit assessment for the establishment of the ISMO will also be conducted to evaluate how the merger will benefit the power sector compared to the current structure, where the SO and MO operate independently and are required to maintain legal separation from their parent organizations, NTDC and CPPA-G, respectively.
Previously, the regulatory framework, including licenses, Grid Code, Market Commercial Code, and relevant rules and regulations, was developed with consideration for the independent functions of the SO and MO.
The Power Division has proposed a review and adjustment of the applicable regulatory framework to support the successful implementation and operationalization of the ISMO. Specific plans and details for the proposed ISMO, including key features of the Business Transfer Agreements and the human resource and staffing policy/manual, should be finalized to ensure an effective merger. Furthermore, a clear transition plan for existing resources and employees of the SO and MO must be developed prior to the merger to ensure onboarding and inclusiveness of human resources.
The independence of the ISMO Board is critical and should be ensured in accordance with best practices from developed markets worldwide. This will help the ISMO operate as an independent, corporatized, and credible institution, fostering trust among market participants to achieve competitive wholesale electricity market objectives. Additionally, the two functions should be ring-fenced to avoid conflicts of interest between the SO as the technical pillar and the MO as the commercial pillar of the market.
ISMO will gradually eliminate the role of the government as the sole buyer of electricity in the country and transform the electricity market into a multiplayer independent market.
The system will enable electricity consumers to purchase electricity from suppliers other than distribution companies. The entity will enable long-term planning for cost-effective power generation and transmission systems. With the establishment of ISMO, there will be a substantial reduction in the circular debt and electricity rates in the power sector.
The inclusion of experts will be ensured in the board of ISMO.
In his remarks on the occasion, Prime Minister Shehbaz Sharif said steps are being taken on priority basis for reforms in the power sector.
He directed the authorities concerned to take prompt and effective steps to reduce theft and losses in the power sector. He said departmental action should be taken against the employees of distribution companies involved in electricity theft.
The Prime Minister said use of modern technology should be ensured for the reforms of the power sector and to prevent theft.
Sources indicate that the minutes of the CCOE meeting will be presented to the Federal Cabinet for final approval. The Ministry of Law and Justice has already vetted the Power Division’s proposal.
