The federal government has ordered an independent investigation into off-grid electricity purchases made by power distribution companies, following concerns that some utilities procured high-cost power in violation of the country’s economic merit order.
The move comes at a time of widespread public frustration over rising electricity prices and recurring loadshedding, placing fresh scrutiny on how power is sourced and dispatched across Pakistan.
Costly power bought outside the national grid
In an official statement, the government said several distribution companies, commonly known as Discos, had been purchasing electricity from small power producers and captive power plants through bilateral arrangements at rates higher than the national tariff.
These transactions were carried out outside the national grid and without routing supply through the independent system and market operator, raising concerns about transparency and compliance with established dispatch rules.
To ensure the integrity of the inquiry, authorities have so far withheld the names of the Discos involved as well as the volume of electricity procured.
Ministerial action and regulatory compliance
Power Minister Awais Leghari took notice of the issue after it surfaced during a stock-taking exercise involving distribution companies and the market operator.
Following the review, the minister ordered the immediate discontinuation of off-merit power procurement and directed that all future electricity purchases strictly comply with the Nepra grid code, distribution code, and other regulatory requirements.
He also instructed authorities to ensure that small power producers and captive plants are included in dispatch decisions only when they meet least-cost criteria, as defined under the national economic merit order.
New instructions for distribution companies
In line with the minister’s directions, the power division has issued formal instructions barring all Discos from procuring electricity from small power producers without prior approval from the market operator.
Off-take from such plants will now be permitted only when their electricity falls within the prevailing national merit order, which is calculated on the basis of incremental generation cost under the prescribed mechanism.
Why the merit order matters
Energy experts say adherence to the economic merit order is critical for keeping electricity tariffs under control. Procuring power outside this framework can significantly raise overall system costs, which are ultimately passed on to consumers.
The investigation is expected to determine whether violations contributed to higher electricity bills and to recommend corrective measures to strengthen oversight in Pakistan’s power sector.
