Ensuring Sustainability of
Access to Utilities for All
Girish Sant
Prayas Energy Group, Pune – India
• Summary of Discussion Paper
• Additional Issues
• Suggestion for Consultations
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Introduction
• In 1990s’ arguments of economic efficiency used
to reduce subsidies
– Result was increases in prices, poor hurt the most
– Yet, tariffs still well below costs. For developing
countries – in 39% cases water tariffs do not even cover
O&M, 30% do not cover capital costs. In electricity, it
is 50% and 44%
• Data highlights the challenge of making basic
services accessible and affordable for all
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Reasons for Subsidies
• Equity considerations
• Cost structure of basic utilities
– High common costs difficult to allocate
– High capital costs
– Mismatch between Marginal Cost and Average
Cost
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Lessons about Subsidies
 Increased acceptance that subsidies may remain
 Question is how to limit / target them and make
them efficient?
 Keep tariffs simple but maintain economic
incentives
 Tune to local context
 Explore output/performance based subsidies
Only a section of population pays for subsidies
(through tariff, taxes, or reduced services)
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Subsidy tools …1
• Cross-subsidy: Usually from urban/industrial to
rural/residential
 Need to be contained within a band
 Tariff of High paying consumers need to be below alternate
sources, or
 Limit set by allocation of low cost resources (such as old dam)
• Direct subsidy by government (central/state/local)
 Can have large welfare impact (through budget
allocations). Indian case – 1.5% of GNP
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Subsidy tools …2
• Consumption v/s connection subsidy:
 Consumption subsidy can be regressive (poor may not
be connected) [ agri subsidy in India]
 Connection subsidies can help increase access (thus
reach poor). However, benefits can be constrained by
cost of expansion & obstacles such as poor not having
property title
• Incentive based subsidy: Linked to performance (can
be targeted to poor, better allow private participation)
 Similar to output based aid. Problems are:
 Difficult to design – bad design can lead to perverse incentives
 Requires administrative strengthening [Delhi e.g.]
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Invoicing and Collection
• Getting people to pay is a challenge due to:
– History of non-payment
– Inconvenient payment locations
– Organizational/administrative problems
• Strategies
– Prepaid meters
– Payment only for properly functioning utilities
– Franchisee/Village/Community Committee
responsible for collection
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Interlinkages – Example from India
• Flat tariff to agriculture since late 1980s
– Resulted in utility hiding its inefficiency ($ 2-3
Billion / yr misallocated)
– A small fraction of consumers benefited – it set
up a economy that is difficult to disturb
– Government subsidies increased – as crosssubsidy is reduced by regulators
– Issues of utility efficiency and cost reduction
through good planning yet to be addressed …
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Tax Revenue as security for debt
• Since government financing is the most important
aspect – need for increased discussion on
– Ways to increase government resources
– Efficient use and proper allocation government budget
• Special allowances / concessions need to be
classified as subsidies – rationalization can be a
gold mine!
• Need for cautious forecasts – errors can be costly,
result in unsustainable decisions by governments
in desperation
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PART II:
Additional Critical Issues
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Impact of other issues on affordability
• Inappropriate schemes
– Low cost options or alternate scheme design
can be ignored
– Scheme for services that are a not priority of
the majority
• Inefficiency in delivery
• Inefficiency in utilization
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Examples Inappropriate Schemes…1
Urban Dev & Costal Environment Management Project
of ADB (Karwar, Karnataka, India)
75% (of $ 24 Mn) spent on piped water, but:
– Local body had a revenue of $ 0.6 Mn/yr !
– Only 15-20% (of 20,000) families needed water
– Critical problem of sanitation, sewage (potentially
polluting water source for 80%) was not addressed!
– Alternative low cost option of water from close-by river
not explored (public barrier of potential radiation leak
in river not addressed)
• Result = incomplete scheme with heavy financial burden!
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Examples Inappropriate Schemes…2
• Several local bodies refusing to take over water supply
schemes (under Water-self governance scheme of WB) in
Maharashtra (India), despite 90% capital subsidy! Even
O&M costs are perceived as unaffordable by local bodies
• Rural electrification in India – under pressure for quick
results – system optimization ignored, no level playing
field for distributed generation, no effort to help poor use
efficient lamps. If this is done:
– Supply cost ($/kWh) can be reduced,
– Consumption (kWh / month) can be reduced,
 Gap in ‘cost’ & ‘willingness to pay’ can be reduced
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Implications of such shortcomings
• People do not get what they want
• People are expected to pay high cost
– Priority services not delivered  barrier to
development
– Lack of ownership of projects,
– Large gap in revenue & costs
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Genesis of the problem
• Top down design, implementation – without
real involvement of users
• Large dependence on urban / external
consultants
• At times vested interests, including local
elites support high cost schemes (kickbacks, fascination for grandeur, etc.)
• Lack of space / process for marginalized
groups to voice their opinion, priorities.
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Part III:
Suggestion for Consultations
Proposed agenda for consultations…1
• Communicate menu of options (for tariff
design, subsidy targeting, etc.) to policy
makers and civil society
– Real life examples may help
• Help them move towards consensus on
appropriate options
• Bring focus on increase and appropriate use
of government funding
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Proposed agenda for consultations…2
• Explore ways to ensure that least-cost
systems, for priority service are taken up.
–
–
–
–
Identify priority needs (esp. of poor)
Identify menu of options to meet the needs
Identify paying capacity / willingness
Give voice to ‘under-privileged’ as they should
be the focus of development efforts
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Conclusion
Meeting MDGs requires that
• Process and institutions come up with
schemes that are desired by people & are
affordable
• Such institutions and process should be
implementable under present political
milieu
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Girish Sant
Prayas Energy Group – Pune, India
girish@prayaspune.org
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T&D Losses,Theft hidden under Agri use
(e.g. Maharashtra)
60%
% of Energy Available
50%
40%
30%
20%
10%
0%
1975
1980
1985
T&D loss
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1990
Agri.
1995
2000
Unmetered Share
22
Rapid reduction in cross-subsidy in
Maharashtra power sector
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Large Increase in Government Subsidy
Grown
Grownto
toaaquarter
quarter of
of expenses
expenseson
on
All
Allsocial
social services
services (that
(thatincludes
includes
1750
1500
Revenue
Revenue&&Capital
Capitalexpenses
expenseson
on
Education,
Education,Medical,
Medical,Water-supply
Water-supply//
sanitation,
sanitation,Housing,
Housing,Urban
Urbandevelopment,
development,
Labor
Laborwelfare,
welfare,Social
Socialsecurity,
security,etc.)
etc.)
Million Euros
1250
1000
750
500
250
0
1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02
AP
Gujarat
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Karnataka
MP
Rajasthan
24
900
800
700
600
500
900
800
700
BYPL
600
NDPL
MUs
MUs
Problems of Monitoring and Control
400
300
200
100
0
500
400
300
200
100
02-03An
0-200
03-04
201-400
0
04-05
02-03An
03-04
04-05
1200
> 400
1000
800
MUs
Random changes in consumption
pattern in domestic consumption –
case of Delhi !
600
400
200
BRPL
Little action by RC.
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0
02-03An
03-04
04-05
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High energy
demand forecasts
Search for finance
(from Govt and
Private Sources)
High energy
intensity
To expand centralised
generation
Wastage, Financial
Losses
Need for subsidy,
No accountability
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Ignore cheaper options of
DSM and De-centralised
generation
High cost
of power
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