Ensuring Sustainability of Access to Utilities for All

1. Ensuring Sustainability of Access to Utilities for All Girish Sant Prayas Energy Group, Pune – India

2. Summary of Discussion Paper • Additional Issues • Suggestion for Consultations FES-UN meeting

3. 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 FES-UN meeting

4. 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 FES-UN meeting

5. 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) FES-UN meeting

6. 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 FES-UN meeting

7. 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.] FES-UN meeting

8. 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 FES-UN meeting

9. 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 cross-subsidy is reduced by regulators • Issues of utility efficiency and cost reduction through good planning yet to be addressed … FES-UN meeting

10. 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 FES-UN meeting

11. PART II: Additional Critical Issues FES-UN meeting

12. 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 FES-UN meeting

13. 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! FES-UN meeting

14. 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 FES-UN meeting

15. 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 FES-UN meeting

16. 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 (kick-backs, fascination for grandeur, etc.) • Lack of space / process for marginalized groups to voice their opinion, priorities. FES-UN meeting

17. Part III:Suggestion for Consultations

18. 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 FES-UN meeting

19. 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 FES-UN meeting

20. 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 FES-UN meeting

21. Girish Sant Prayas Energy Group – Pune, India girish@prayaspune.org FES-UN meeting

22. T&D Losses,Theft hidden under Agri use (e.g. Maharashtra) FES-UN meeting

23. Rapid reduction in cross-subsidy in Maharashtra power sector FES-UN meeting

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25. Problems of Monitoring and Control Random changes in consumption pattern in domestic consumption – case of Delhi ! Little action by RC. FES-UN meeting

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