Switching the lights off: The impact of energy tariff increases on households in the Kyrgyz Republic
Franziska Gassmann
#2012-066
Raising energy prices to cost-recovery tariffs has several implications.
The implicit (quasi-fiscal) subsidization of the energy sector will be
reduced to a large extent. Energy companies will have higher revenues,
and consumers will be faced with a major increase of their energy bills
and potentially high welfare losses. Removing subsidies affects poor
households more as they spend on average a larger share of household
income on energy and because they have fewer options to adjust their
energy consumption. This paper analyses the impact of higher energy
tariffs on households in the Kyrgyz Republic using micro-data from the
Kyrgyz Integrated Household Survey 2009. It aims at answering the
question which households will be most affected by higher energy tariffs
and to what extent mitigation measures, such as lifeline tariffs or
direct cash transfers could soften the impact on poor and vulnerable
households. The analysis focuses on first-order effects and uses benefit
incidence analysis and static micro-simulation to estimate expected
costs and benefits of higher energy prices and the corresponding
mitigation measures. Results suggest that both the type of energy and
the level of connectedness matter. Increasing tariffs for thermal power
used for central heating and hot water mainly affects richer households
in urban areas. Reducing implicit electricity subsidies affects the
whole population due to nearly full country coverage with electricity
connections. Lifeline tariffs for electricity could mitigate the effect
of higher tariffs to a certain extent as long as households have actual
control over their consumption. However, all households would benefit
equally. Direct cash transfers targeted at poor households improve the
targeting performance and lower the costs compared to universal
subsidies.
Keywords: energy subsidy, poverty, social transfers, Kyrgyz Republic
JEL Codes: H23, I38, P22