Impacts of electricity tariff subsidies to households

Abstract

Energy has become the life line of any economy and most vital instrument of socioeconomic development of a country. Eighty percent of the present global primary energy demand is fulfilled by fossil fuels and the fuel reserves are limited. Hence, the energy prices are increasing and are subsidized for Low Income households. Ceylon Electricity Board (CEB) is the sole author of electricity business in Sri Lanka (SL). Its tariff is also highly subsidized for consumption up to 90 units in Domestic and Religious tariffs through “Increasing Block Price” (IBP) tariff structure. Cost of electricity has drastically increased due to lesser rain and the increase of high cost thermal contribution for power generation in Sri Lanka since 1996 and CEB has been posted to loss maker since 2000. This situation was aggravated by continuing tariff subsidies. Total domestic consumer base at the end of 2010 was around 4 million and analysis of consumption patterns shows that 3.2 million (80%) families out of the total have consumed below 90 kWh per month where highest tariff subsidy is incorporated. Can this entire 3.2 million families in Sri Lanka be really poor? Main objective of this research is to find that the users below 90 kWh are really poor by a field survey of random consumer sample. The other objectives are to study the present domestic tariff structure and its subsidy and to propose recommendations for tariff revisions for economically viable electricity industry. Literature review of published tariffs of regional and global countries revealed that most of their domestic tariffs are IBP and few countries give direct payments also for electricity subsidy. Present CEB tariff has higher overall bills for commercial and high end domestic consumers than regional countries. The bills of Domestic consumers of CEB below 90 kWh are lower than most of the regional countries. Literature on tariff studies revealed that IBP tariff has conservational, re distributional and demand elasticity impacts. The sample field survey of 50 households was carried out in Dehiwala area to ascertain the income and family status of electricity consumers who consume below 90 kWh per month. Survey results revealed that the income of the majority (78%) is above two times of Colombo district poverty level income of Rs. 3469/= per head per month. Only 8% was detected below poverty level (BPL) since they have no regular incomes or jobs. Only one family was found receiving samurdhy benefits. As per the survey results there is no evidence to prove that low unit users are low income families. Also IBP tariff has totally failed to filter the real low income families. Further analysis of the results by tariff block wise revealed that different income families are scattered in all the blocks. More rich and very rich families in 0 to 30 unit block. Hence Real LICs cannot be found even by reducing the subsidy level of tariff below 90 units. Finally it is recommended to eliminate the IBP structure of domestic tariff, and make reasonable cost reflective flat tariff in steps. Subsidy should be limited to real low income households who identified by Island wide survey and paid as direct government subsidy Dehiwala area can be considered only for high population density and congested municipal area. Therefore more surveys should be done in semi urban and rural areas for moderate and generalized solution for the whole country.