Is Cost Recovery a Feasible Objective for Water and Electricity? The Latin American Experience

Is Cost Recovery a Feasible Objective for Water and Electricity? The Latin American Experience

Given the relatively small segment of the population that faces genuine affordability problems in Latin America, there appears to be a promising case for using targeted subsidies to reconcile the cost recovery objective with social protection concerns. Social tariff schemes of various kinds are already widespread in Latin America, but they suffer from a number of design flaws. Increasing block tariff (IBT) structures are the most prevalent form of social tariffs in the region. These are likely to be more successful in the electricity sector than in the water sector because the correlation between consumption and income is much stronger in the case of electricity than water. Moreover, IBT structures in electricity tend to be much better designed than in the case of water, with lower fixed charges, lower subsistence blocks, and steeper gradients. A number of more sophisticated social tariff schemes are also being applied that combine consumption criteria with some form of socioeconomic screening. These are generally found to perform better than IBTs, although they also present significant room for improvement.

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Bibliographic Details
Main Authors: Yepes, Tito, Foster, Vivien
Language:English
Published: World Bank, Washington, DC 2006-06
Subjects:AVERAGE TARIFF, AVERAGE TARIFFS, BLOCK TARIFF, CAPITAL COSTS, CAPITAL MARKETS, CONSUMERS, COST OF SERVICE, COST RECOVERY, CROSS-SUBSIDIES, CUBIC METER, CUBIC METERS, ELECTRICITY SERVICES, ELECTRICITY TARIFF, ELECTRICITY TARIFFS, GROWTH RATES, INCOME, INFRASTRUCTURE FINANCING, INFRASTRUCTURE SERVICES, LARGE CITIES, LATIN AMERICAN, LITERS PER CAPITA PER DAY, LOWER COST OF SERVICE, MAINTENANCE COSTS, MAINTENANCE EXPENDITURES, POOR HOUSEHOLDS, POWER, PRIVATE CAPITAL, PRIVATE SECTOR PARTICIPATION, PUBLIC, PUBLIC INFORMATION, PUBLIC SERVICES, PUBLIC WORKS, RESIDENTIAL CUSTOMERS, RESIDENTIAL TARIFFS, SERVICE PROVISION, SUB-SAHARAN AFRICA, TARIFF CHANGES, TARIFFS FOR WATER, URBAN AREAS, USER CHARGES, UTILITIES, UTILITY SERVICES, WATER SECTOR, WATER SERVICES, WATER SYSTEMS, WATER TARIFF, WATER TARIFFS, WATER UTILITIES,
Online Access:http://documents.worldbank.org/curated/en/2006/06/6858828/cost-recovery-feasible-objective-water-electricity-latin-american-experience
https://hdl.handle.net/10986/8421
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Summary:Given the relatively small segment of the population that faces genuine affordability problems in Latin America, there appears to be a promising case for using targeted subsidies to reconcile the cost recovery objective with social protection concerns. Social tariff schemes of various kinds are already widespread in Latin America, but they suffer from a number of design flaws. Increasing block tariff (IBT) structures are the most prevalent form of social tariffs in the region. These are likely to be more successful in the electricity sector than in the water sector because the correlation between consumption and income is much stronger in the case of electricity than water. Moreover, IBT structures in electricity tend to be much better designed than in the case of water, with lower fixed charges, lower subsistence blocks, and steeper gradients. A number of more sophisticated social tariff schemes are also being applied that combine consumption criteria with some form of socioeconomic screening. These are generally found to perform better than IBTs, although they also present significant room for improvement.

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