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Is cost recovery a feasible objective for water and electricity ? The Latin American experience

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  • Foster, Vivien
  • Yepes, Tito
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    Abstract

    Given the relatively small segment of the population that faces genuine affordability problems in Latin America, there appears to be a promising case for using targeted subsidies to reconcile the cost recovery objective with social protection concerns. Social tariff schemes of various kinds are already widespread in Latin America, but they suffer from a number of design flaws. Increasing block tariff (IBT) structures are the most prevalent form of social tariffs in the region. These are likely to be more successful in the electricity sector than in the water sector because the correlation between consumption and income is much stronger in the case of electricity than water. Moreover, IBT structures in electricity tend to be much better designed than in the case of water, with lower fixed charges, lower subsistence blocks, and steeper gradients. A number of more sophisticated social tariff schemes are also being applied that combine consumption criteria with some form of socioeconomic screening. These are generally found to perform better than IBTs, although they also present significant room for improvement.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3943.

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    Date of creation: 01 Jun 2006
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    Handle: RePEc:wbk:wbrwps:3943

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    Keywords: Infrastructure Economics; Town Water Supply and Sanitation; Public Sector Management and Reform; Regional Governance; Urban Governance and Management;

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    1. Prema-chandra Athukorala & Sarath Rajapatirana, 2003. "Capital Inflows and the Real Exchange Rate: A Comparative Study of Asia and Latin America," Departmental Working Papers, The Australian National University, Arndt-Corden Department of Economics 2003-02, The Australian National University, Arndt-Corden Department of Economics.
    2. Pablo Mejia-Reyes & Denise Osborn & Marianne Sensier, 2010. "Modelling real exchange rate effects on output performance in Latin America," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 42(19), pages 2491-2503.
    3. Vivien Foster & Maria Caridad Araujo, 2004. "Does infrastructure reform work for the poor? A case study from Guatemala," Policy Research Working Paper Series 3185, The World Bank.
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    Cited by:
    1. Bernard Tenenbaum & Ada Karina Izaguirre, 2007. "Private Participation in Electricity : The Challenge of Achieving Commercial Viability and Improving Services," World Bank Other Operational Studies 10686, The World Bank.
    2. Yusuf, Shahid & Nabeshima, Kaoru & Wei Ha, 2007. "What makes cities healthy ?," Policy Research Working Paper Series 4107, The World Bank.
    3. Auriol, Emmanuelle & Blanc, Aymeric, 2009. "Capture and corruption in public utilities: The cases of water and electricity in Sub-Saharan Africa," Utilities Policy, Elsevier, Elsevier, vol. 17(2), pages 203-216, June.
    4. Banerjee, Sudeshna & Wodon, Quentin & Diallo, Amadou & Pushak, Taras & Uddin, Elal & Tsimpo, Clarence & Foster, Vivien, 2008. "Access, affordability, and alternatives: Modern infrastructure services in Africa," MPRA Paper 27740, University Library of Munich, Germany.
    5. Monteiro, Henrique, 2008. "Evolution of cost recovery levels in the Portuguese water supply and wastewater industry 1998-2005," MPRA Paper 11490, University Library of Munich, Germany.
    6. Katharina Gassner & Alexander Popov & Nataliya Pushak, 2008. "Does the Private Sector Deliver on its Promises? Evidence from a Global Study in Water and Electricity," World Bank Other Operational Studies 10611, The World Bank.
    7. Briceno-Garmendia, Cecilia & Shkaratan, Maria, 2011. "Power tariffs : caught between cost recovery and affordability," Policy Research Working Paper Series 5904, The World Bank.
    8. Tan, Jeff, 2012. "The Pitfalls of Water Privatization: Failure and Reform in Malaysia," World Development, Elsevier, Elsevier, vol. 40(12), pages 2552-2563.

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