Ensuring sustainable access for the poor through internal revenue generation – electricity

1. Ensuring sustainable access for the poor through internal revenue generation – electricity Brasilia 2006 Kate Bayliss "Financing access to basic utilities for all" December 2006

2. Overview • A bit of background • Context • Internal Revenue Generation tools • Policy implications "Financing access to basic utilities for all" December 2006

3. Background • 1.6bn people in the world do not have access to electricity. • The majority of these live in rural areas in sub-Saharan Africa and South Asia. • In Africa, more than 526m people do not have electricity – more than 75% of the population. • In Brazil around about 5% of the population does not have access to electricity (ESMAP 2005). "Financing access to basic utilities for all" December 2006

4. Background • Access largely overlooked in the 1990s as countries around the world implemented major reforms of the electricity sector. Reforms typically included unbundling, deregulation, liberalisation and privatisation. • “Privatization and deregulation of energy networks does reduce costs and thus increases the affordability of connections and extending grids provided there is competition” World Bank 2000. "Financing access to basic utilities for all" December 2006

5. Background – disappointing results • “The most outstanding social impact of power sector reforms is the inability of reforms to increase access to electricity among the poor after 15 years of reform” Afrepren 2005. • “The Latin American experience shows that the poor are often the last to benefit from increased access due to reform” Chisari, Estache and Waddams Price 2001 "Financing access to basic utilities for all" December 2006

6. Electricity is important for poverty reduction • Education (lighting, ICT, Teacher Training) • Health (refrigeration, lighting for safe procedures, operations) • Household safety • Gender balance • Economic development "Financing access to basic utilities for all" December 2006

7. Rural electricity - issues • Low rates of access. • The unconnected are those with least income. • High cost of service delivery due to dispersion. • Little commercial incentive for any distributor to provide service. "Financing access to basic utilities for all" December 2006

8. Urban electricity - issues • Higher rates of access than rural and lower cost of extension. • Problem is ability/willingness to pay. • High levels of illegal connections. • Social exclusion. • Little commercial incentive for any distributor to provide service. "Financing access to basic utilities for all" December 2006

9. Weak capacity • Decentralisation  independent electricity distributors. •  some areas with low income, high unemployment and low consumption. • Cost recovery difficult and regional inequality exacerbated potentially. • Weakest distributors are those with most need and yet are those least likely to be able to obtain funding. "Financing access to basic utilities for all" December 2006

10. Internal Revenue Generation: Tariffs • Prices have increased in most countries following electricity sector reforms with a shift to ‘marginal cost pricing’. • “In all circumstances, prices should be set at a level which allows energy providers to recover the long run marginal cost of delivering the service including a fair return on investment.” World Energy Council (2001). "Financing access to basic utilities for all" December 2006

11. Internal Revenue Generation: Tariffs • But what costs do you cover? • Independent Power Producers?, • Currency fluctuation?, • Leakages and shortages?, • Private sector profits? • And what is a ‘fair return’? • And how can you tell what the costs are? "Financing access to basic utilities for all" December 2006

12. Internal Revenue Generation:Revenue Collection • Reduce system losses • Illegal connections • Technical faults • Billing errors • Enforce payment • Prepayment meters. • Disconnection for non-payment. • Community support – ease of payment, community agents etc. "Financing access to basic utilities for all" December 2006

13. Internal Revenue Generation: Subsidies • Consumption subsidies are problematic • they benefit the better off that already have connection; • The poor do not have low consumption • Subsidised connections are preferred. • But there is evidence of low levels of affordability for consumption. • But effective targeting is difficult. "Financing access to basic utilities for all" December 2006

14. Cost Reduction • Within utility • Reduce leakages • Improve productivity • By consumers • Encourage more energy efficient usage • Cheaper technology such as off-grid systems in rural areas "Financing access to basic utilities for all" December 2006

15. Policy implications • Middle income countries may be able to finance increased access through IRG. Poor countries cannot. • Need a national strategy and coordinated participatory approach. • Support poor users eg through billing systems and payment mechanisms. • Need a new approach to subsidies to meet the needs of the poor. "Financing access to basic utilities for all" December 2006

16. Its not just about the connection • Need to consider local development impact for sustainability. • Social inclusion policies to be coordinated in urban areas. • Electricity is necessary but not sufficient for poverty reduction. "Financing access to basic utilities for all" December 2006

17. Thank you Obrigada "Financing access to basic utilities for all" December 2006