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Can poor consumers pay for energy and water? An affordability analysis for transition countries

  • Samuel Fankhauser

    (European Bank of Reconstruction and Development)

  • Sladjana Tepic

    (European Bank of Reconstruction and Development)

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    Low-income households spend a substantial share of their income on utility services such as electricity, heating and water. The difficulty these socially vulnerable consumers have in affording further tariff increases is often used as an argument against tariff reform. However, detailed information on the utility expenditures of different consumer groups and the affordability implications of tariff adjustments is scarce. Much of the available information is based on the analysis of average households. This paper takes a more detailed look at the affordability of electricity, district heating and water for low-income consumers in transition countries. While the available data is incomplete, the paper finds that affordability is a problem for low-income consumers in most countries, in particular in the water sector and in the Commonwealth of Independent States (CIS). The affordability consequences of tariff reform ultimately depend on the speed of tariff adjustments relative to the growth in household income, the level of tariffs needed for cost recovery, the level of effective tariffs at the outset (tariffs adjusted for non-payment) and the demand response to the tariff increase. This paper finds that delaying tariff reform by a few years tends to make little difference to affordability constraints, and may therefore not be an effective way to mitigate the social impact of utility reform.

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    File URL: http://www.ebrd.com/downloads/research/economics/workingpapers/wp0092.pdf
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    Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 92.

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    Length: 31 pages
    Date of creation: Aug 2005
    Date of revision:
    Handle: RePEc:ebd:wpaper:92
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    Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml

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