ISLAMABAD (Lord Media): The government has introduced a two-tier business model for privatised power distribution companies. Under this plan, successful bidders will retain infrastructure but can auction electricity sales, billing, and collection to private contractors, including legacy capacity payments.

The model, pending approval from the power sector reform steering committee and the federal cabinet, aims to regulate only the buyer of distribution companies, termed the supplier of last resort. Faisalabad, Gujranwala, and Islamabad companies are currently up for sale.

Third parties, called competitive suppliers, can operate in a deregulated manner after purchasing the legacy capacity costing consumers Rs1.7 trillion annually. This model will not immediately reduce electricity costs, which include a Rs17 per unit idle capacity charge, but may lower tariffs in the medium to long term.

The proposal seeks to remove legacy independent power producer contracts from power purchasing, fostering a competitive supply market and introducing market efficiencies and private investment, according to a Privatisation Commission official.

The uniform tariff regime will apply only to the original buyer, with the market otherwise deregulated. The government may implement this model for the Faisalabad Electric Supply Company by early next year.

Post-privatisation, the Central Power Purchasing Agency-Guaranteed (CPPA-G) will auction capacity contracted on FESCO’s behalf to private suppliers. Successful bidders will assume CPPA-G’s role as buyers from the national power pool and as counterparties to customers.

CPPA-G’s existing contracts with independent power producers will remain unchanged, but new agreements will allocate supply and customers to third parties. The second tier will handle electricity procurement, customer management, billing, and collections.

Protected consumers will continue to benefit from regulated tariffs, with existing cross-subsidy arrangements preserved to avoid fiscal burdens. The government plans to transfer contracted supply and customer base to third parties to shift legacy contract risks.

Multiple private suppliers will replace CPPA-G as the single buyer, creating a competitive market. Potential buyers have shown interest in acquiring idle capacity, according to a commission official.