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					 Ensuring Sustainability of
 Access to Utilities for All
           Girish Sant
Prayas Energy Group, Pune – India
• Summary of Discussion Paper
• Additional Issues
• Suggestion for Consultations

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• 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

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             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

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          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
 Tune to local context
 Explore output/performance based subsidies
Only a section of population pays for subsidies
  (through tariff, taxes, or reduced services)
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                   Subsidy tools …1
• Cross-subsidy: Usually from urban/industrial to
    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

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                   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.]
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          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
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 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 …
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   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
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        PART II:
 Additional Critical Issues

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 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

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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!

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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

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 Implications of such shortcomings
• People do not get what they want
• People are expected to pay high cost

  – Priority services not delivered  barrier to
  – Lack of ownership of projects,
  – Large gap in revenue & costs

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          Genesis of the problem
• Top down design, implementation – without
  real involvement of users
• Large dependence on urban / external
• 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.
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          Part III:
Suggestion for Consultations
 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
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 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

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Meeting MDGs requires that
• Process and institutions come up with
  schemes that are desired by people & are
• Such institutions and process should be
  implementable under present political

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           Girish Sant
Prayas Energy Group – Pune, India

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                              T&D Losses,Theft hidden under Agri use
                                                                                  (e.g. Maharashtra)

% of Energy Available





                          1975           1980      1985            1990           1995      2000
                                                T&D loss   Agri.          Unmetered Share

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Rapid reduction in cross-subsidy in
    Maharashtra power sector

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Large Increase in Government Subsidy
                1750    Grown to a quarter of expenses on
                        Grown to a quarter of expenses on
                        All social services (that includes
                        All social services (that includes
                        Revenue & Capital expenses on
                         Revenue & Capital expenses on
                1250    Education, Medical, Water-supply //
                         Education, Medical, Water-supply
                        sanitation, Housing, Urban development,
                         sanitation, Housing, Urban development,
Million Euros

                1000    Labor welfare, Social security, etc.)
                         Labor welfare, Social security, etc.)



                        1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02

                  AP            Gujarat      Karnataka        MP         Rajasthan
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   Problems of Monitoring and Control
                  800                                      800
                  600                                      600


                  400                                      400
                  300                                      300
                         02-03An     03-04   04-05           0
                                                                  02-03An    03-04      04-05

                        0-200      201-400   > 400         1200


Random changes in consumption

pattern in domestic consumption –                          400

case of Delhi !                                            200
Little action by RC.                                              02-03An   03-04    04-05

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                                  High energy
                                demand forecasts

                                                         Search for finance
                                                          (from Govt and
   High energy                                            Private Sources)

                                                                        To expand centralised

Wastage, Financial
     Losses                                                          Ignore cheaper options of
                                                                      DSM and De-centralised

                 Need for subsidy,                 High cost
                 No accountability                 of power

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