Pakistan orders halt to high-cost power purchases in energy sector reform

Federal Minister for Energy Awais Leghari has directed an immediate halt to electricity purchases that exceed the national least-cost benchmark, as part of efforts to reform power procurement and reduce the burden on consumers.

According to the directive, distribution companies (Discos) have been instructed to stop buying electricity from Small Power Producers (SPPs) and Captive Power Plants (CPPs) at rates higher than the approved tariff structure. The decision follows a review that found several utilities purchasing electricity outside the prescribed economic merit order, potentially increasing overall electricity costs.

The minister has also launched a formal inquiry into the matter to determine responsibility and ensure accountability within the system. Authorities will examine how and why off-merit electricity purchases were approved and whether procedural violations occurred.

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Energy officials have been instructed to strictly follow rules set by the National Electric Power Regulatory Authority, including its Grid and Distribution Codes, which govern pricing and dispatch mechanisms in the power sector.

The ministry has further directed Discos to coordinate with the Independent System and Market Operator to ensure that all electricity procurement from SPPs and CPPs follows Economic Merit Order (EMO) principles. Under this system, power generation must be dispatched based on the lowest incremental cost to ensure efficiency and affordability.

In a follow-up order, the Power Division barred any off-merit electricity purchases without prior approval from the relevant system operator. It emphasized that all power off-take must strictly comply with the national merit order framework.

Officials say these measures are aimed at improving transparency, reducing inefficiencies in electricity procurement, and lowering the financial pressure on consumers amid ongoing energy sector reforms.