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Socially Inclusive Electricity Tariffs in South Asia to Reduce Energy Poverty – Subsidy Structuring, Successes and Failures Dr Dr Tila ilak Si Siyambala lapitiya 1

Th This is presentatio ion is is based on a stu tudy conducted for r th the Asia sian Develo lopment Ba Bank. The comple lete publi lication is is title titled: TARIFF APPRAISAL STUDY Balancing Sustainability and Efficiency wit ith in inclusive access Tilak ilak Siy iyambala lapit itiya ADB So South Asi sia Work rkin ing P Paper Se Serie ries No 60, 2018 ISS ISSN 2313-5867 (p (pri rint), 2313-5875 (ele (electronic ic) Can an be downloaded fr from: https: s://www.adb.org/publi lications/tariff-apprais isal-study 2

Stu tudy Obje jective To examine socially inclusive electricity tariffs in six countries of South Asia Bangladesh Bhutan India Maldives Nepal Sri Lanka 4

Contents • Electricity regulatory status, laws, and practice • Customer classification and tariffs • Baseline tariffs, subsidies, and features of social inclusion • Challenges to implement preferential tariffs • Efficient electricity use and implications for tariff setting • Policy and regulatory environment for renewable energy development • Application of tariffs and charges beyond lifeline tariffs • Lessons for developing member countries on socially inclusive tariffs 5

Review of Electricity Regulatory Status, Law, and Practice • General: All 6 countries have a regulatory commission or an equivalent, and have a process that offers at least a limited degree of transparency in tariff determination. None have implemented truly cost-reflective tariffs. • Many countries have retained some traditional principles and practices • Providing gross subsidies to electricity industry • Setting tariffs to facilitate cross-subsidies across customer groups • Providing relief to low-income customers • Pricing electricity based on the purpose of use as against the voltage of supply • Most countries have unbundled the vertically integrated utilities to separate corporate entities. • Electricity utilities are increasingly required to be technically and financially independent. 6

Review of f Customer Cla lassifi fication and Tariffs • Customer categories such as households, agriculture, industry, commercial, and public services such as street lighting and water pumps were considered. • Six states in India were included in the study. • Assam, Gujarat, Kerala, Madhya Pradesh, Maharashtra, and Tamil Nadu • Electricity tariffs to household, commercial, and industrial customers were compared. • Household customers were divided based on monthly electricity consumption; commercial – contract demand; and industrial – maximum demand 7

Review of f Tariffs As of of Oct ctober 2015 Average Unit Price ( US cents/kWh) at Unity Power Factor TamilNadu, India Pradesh, India Gujarat, India Maharashtra, Assam, India Kerala, India Bangladesh Maximu Sri Lanka Maldives Electricity m Pakistan Madhya Bhutan Nepal Usage Demand India Customer Class (kWh/mth) (kW) 30- 4.74 0.00 7.39 2.47 3.92 4.23 6.03 0.00 20.32 3.81 1.95 1.57 Household Small 90- 5.36 1.80 7.95 4.64 5.73 7.16 8.04 1.08 20.32 7.04 5.32 3.68 Medium 180- 6.15 2.68 7.95 5.22 6.85 8.42 10.12 2.74 21.03 8.16 12.38 4.34 Large 600- 8.21 4.04 7.95 6.65 12.26 9.69 15.06 7.41 23.76 10.06 21.30 8.15 Very Large 1000- 12.48 5.66 11.37 7.91 9.73 8.84 17.45 12.53 30.77 11.00 12.09 11.50 Commercial Small 58000 180 10.28 4.73 11.38 8.45 9.12 10.29 21.96 13.62 33.81 10.33 14.02 13.58 Medium 600000 1500 10.14 4.73 11.38 8.74 8.92 10.31 20.43 13.62 33.87 10.05 13.17 11.63 Large 5,000 - 9.88 5.66 7.38 7.58 9.58 9.86 8.86 9.66 33.25 8.83 6.81 10.40 Industrial Small 65,000 180 9.98 4.73 10.39 7.15 10.30 11.13 13.61 11.21 33.82 8.14 8.81 9.82 Medium 270,000 600 9.86 4.73 10.24 7.70 10.30 12.50 12.09 11.21 33.86 7.97 8.46 9.77 Large Very Large 1,050,000 2250 9.69 3.71 10.24 7.67 10.30 12.50 12.09 11.21 33.87 7.10 8.46 9.72 8

All countries provide “life - line” tariffs to households Comparison of Average Electricity Price for Household Customers As As of of Aug August 2019 9

Commercial customers pay “exorbitant” rates in in some countrie ies Comparison of Average Electricity Price for Commercial Customers As As of of Aug August 2019 10

In Industrial Tariffs are Moderate Comparison of Average Electricity Price for Industrial Customers As As of of Aug August 2019 11

Baseli line Tarif iffs, Su Subsid idie ies, and Features of So Socia ial l In Inclu lusio ion Electricity Subsidies by Category as of October 2015 • Tamil Nadu provides a 100% subsidy to handloom weavers • States of Kerala and Maharashtra provide subsidies for below poverty line (BPL) customers • Subsidies are provided for agricultural customers in the studied Indian states except Madhya Pradesh 12

Baseline Tarif iffs, , Subsid idie ies, and Featu tures of Social In Inclusion • Significantly subsidised electricity is provided to small households/low users • Bhutan provides subsidies to low voltage rural customers of all categories. (Free to very small rural households) 13

Baseline Tarif iffs, , Subsid idie ies, and Featu tures of Social In Inclusion Gender Analysis of Tariff Structures and Subsidies • None of the countries offer any special tariffs to customers based on gender. • Andhra Pradesh in 2008 and in Maldives in 2015 discussed to provide gender based subsidies, but they have not been implemented. • Nepal, Sri Lanka, and the states of Assam, Maharashtra, and Tamil Nadu in India offer concessionary tariffs to rural or domestic industries (or small industries), where women are likely to be the dominant beneficiaries. • Tamil Nadu offers a special tariff for handlooms (free electricity). About 53% of handloom workers are women. 14

Challenges to Im Implementation of f Preferential Tariffs • Policies on subsidies vs market pricing • Mechanism employed to target subsidies • A study on Cape Verde, Rwanda, and Sao Tome and Principe shows that subsidized connections would strongly target poor compared with consumption subsidies • Need comprehensive analysis of the cost of supply, share of subsidies targeted by socially inclusive tariffs, and alternative tariff structures including VDTs • Poor definition of subsidized customer groups • Fully targeted subsidies are difficult to implement because, a regular assessment of customer’s financial status is required. 15

Challenges to Im Implementation of f Preferential Tariffs • Subsidies committed by the government: how do they finance it? • Bhutan – Allocates subsidies by foregoing the royalty due to the government from hydro power plants • Assam – State government commitment in subsidies is included in the revenue calculation • Madhya Pradesh – Cross subsidy is limited to ±20% of the average cost of supply, does not rely on government subsidies • Sri Lanka – Tariff decisions are silent on the subsidy commitment by the government, the government subsidy not received adds to the financial loss of the utility • Bangladesh and Nepal – Subsidies are operational, but require further documentation of the costs of supply, and to clearly identify how the subsidized customer costs are financed 16

Beneficiary ry Targeting is is Poor in in Many Countries: Sri i Lanka sit ituation in in 2016 17

Chall llenges to Im Imple lement Preferential Tarif iffs Summary of Electricity Prices in Selected Asian countries As of August 2019 Average Unit Price in USCts (unity p.f.) Madhya Pradesh, Tamil Nadu, India Electricity Maharashtra, Max. Assam, India Kerala, India South Korea Bangladesh Philippines Usage Singapore Malaysia Sri Lanka Pakistan Thailand Vietnam Customer Class Deman Bhutan Nepal India India (kWh/mth d (kW) ) Household Small 30 - 4.71 0.00 7.43 3.94 4.25 6.06 0.00 5.19 3.79 1.57 17.91 17.47 5.71 1.95 9.59 6.44 Medium 90 - 5.33 1.77 7.99 5.76 7.19 8.09 1.09 5.19 6.99 3.70 16.99 17.47 5.01 5.32 10.92 6.54 Large 180 - 6.11 2.63 7.99 6.88 8.46 10.17 2.76 5.19 8.11 4.35 16.76 17.47 7.25 12.38 11.68 7.08 Very Large 600 - 8.15 3.96 7.99 12.33 9.74 15.14 7.45 9.20 9.99 8.18 19.23 17.47 24.14 21.30 13.27 9.56 Commercial Small 1,000 4 12.39 5.55 11.43 9.78 8.89 17.54 12.59 11.77 10.92 11.55 17.35 17.47 7.82 12.09 13.70 10.38 Medium 58,000 232 10.20 4.64 11.44 9.17 10.34 22.07 13.69 11.58 10.26 13.63 16.01 16.21 8.69 14.02 13.20 10.10 Large 600,000 2400 10.07 4.64 11.44 8.96 10.36 20.54 13.69 11.58 9.98 11.67 15.55 14.69 8.59 13.17 12.77 9.36 Industrial Small 5,000 20 9.81 5.55 7.42 9.63 9.91 8.91 9.71 10.44 8.77 10.44 15.59 17.47 7.15 6.81 14.17 6.95 Medium 65,000 260 9.91 4.64 10.44 10.35 11.19 13.68 11.27 10.84 8.08 9.86 14.82 16.21 6.93 8.81 13.20 6.66 Large 270,000 1080 9.79 4.64 10.29 10.35 12.56 12.15 11.27 10.63 7.92 9.81 14.99 16.10 8.82 8.46 12.77 6.45 Very Large 1,050,000 4200 9.62 3.64 10.29 10.35 12.56 12.15 11.27 10.07 7.05 9.76 13.83 15.33 8.43 8.46 12.38 6.29 18