The impact of unbundling of DISCOs on electricity prices in Pakistan /

Abstract

Pakistan started power sector reforms in the late 1980s by introducing structural, institutional, and policy reforms. These reforms aimed to restructure the vertically integrated structure, formation of an independent power regulator, and attracting private investment to the power generation sector. This paper analyses the impact of unbundling of distribution companies from the vertically integrated system on electricity prices. We have used Economic and Financial Analysis on electricity prices as an indicator between 2008-2018. Based on the results of the analysis, we can see that even though the power purchase price of electricity is reduced by 52.11%, the average consumer tariff of all PEPCO-based distribution companies has increased by 15%. On the other hand, KESC only private utility has increased consumer tariff by 19%. Also, cost reflectivity shows that most of the time, price change has transferred from generation to consumers, but still, due to high distribution charges, consumers end up paying higher rates. The study concludes with different reasons that contribute to high cost and suggests the need to increase the competition in the distribution sector through privatization and establishing wholesale and retail electricity market, which is part of the liberalization process initiated in1980s.