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PSIA Energy Tajikistanresearch funded by UNDP Bureau for Europe and the CIS

Lilit Melikyan and Hasmik Ghukassyan

Almaty13 April 2011

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Growing household energy insecurity in Tajikistan

Changes in apparent electricity consumption* (2007 = 100)

Annual household electricity inflation rates

2006 2007 2008 2009 201090919293949596979899

100

2007 2008 2009 2010

35%

97%

59%

38%

* Generation minus exports. Source: State Statistical Agency.

Tajikistan’s energy sector: Some numbers to consider

1 million: An estimate of the number of people who spend much of the winter without electricity, heat

10%: Although nearly three quarters of the population lives in rural areas, they only account for 10% of electricity consumption

$2.2 billion: The financing gap associated with Tajikistan’s programme for building large hydropower plants, new electricity transmission infrastructure

Electricity: Barqi Tojik

Vertically integrated state monopoly Hydropower dominates generation assets Collections: From 54% (2004) to 72% (2009)

Technical and commercial losses: From 19% (2004) to 14% (2009)

Household tariffs:◦Cross-subsidized by other users◦Committed to raise them

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A public-private partnership in Gorno Badakhshan◦ 25 year concession◦ Shareholders: IFC and Aga Khan Development Foundation

Service: More than 90% of 29,000 households receive electricity from Pamir Energy

Difficult start but strong progress◦ Average supply per day: 23.5 hours◦ Losses: down to 20% (from 39%)

Tariffs: ◦ More rapid growth than at Barqi Tojik◦ Lifeline scheme funded by SECO (around $5million)

expiring end of 2011 Subsidy scheme: for up to 200 kWh per month in

winter and 50 kWh per month in summer, the consumers pay 0.25 ¢/kWh

Electricity: Pamir Energy

Source: Pamir Energy Information note

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National poverty rate Extreme poverty rate 4 or more children

53%

17%

62%

47%

72%2007 2009

Income poverty trends

Source: State Statistical Agency

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Natio

nal

Dusha

nbe

Villa

ges

92%

93%

94%

95%

96%

97%

98%

99%2007 2009

National Dushanbe Villages

390

419

364357

477

327

2007

2009

Link between grid connections, electricity supplies has been broken

Average monthly household electricity consumption (kWh)

Share of households using electricity

Source: State Statistical Agency

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Wood Electricity Dung Coal Other

40%

26%

17%13%

4%

44%

32%

10%12% 12%

2007 2009

Half the population heats with wood and dung . . . With impli-cations for health, deforesta-tion

Share of households heating with various fuel sources

Source: State Statistical Agency

Reliable electricity supplies: Estimated benefits

Income-poverty elasticity estimate in 2010-2012 PRSP suggests that higher GDP growth could lift 120,000 people out of poverty

One megawatt of additional installed capacity in small hydropower plants creates 40 “green jobs” (UNDP-Tajikistan)

In other countries, extensive use of diesel generators has been found to reduce GDP by up to 40%

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International affordability benchmarks (share of household expenditures devoted to energy

spending)

Electricity Heat Water

World Bank 10-15% 3-5%

WHO 10%

UNECE 15%

UK gov’t 10% 3%

US gov’t 6% 2.5%

How much household spending on energy is too

much?

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National Dushanbe

34%

26%

40%

32%

Average

Poorest quintile

Rural Other urban

35%32%

38%

55%Average

Poorest quintile

Is household energy spending

at “unaffordable” levels?

Share of household expenditures devoted to energy, 2009 data. Source: State Statistical Agency.

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National Poor Non-poor

59%

63%

56%

After food and energy spending, what’s left over?

Official survey data imply that food + energy expenditures absorb 100% (or more) of many household budgetsSource: State Statistical Agency

Share of household spending

devoted to food (2009)

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Simulation of impact of raising household electricity tariffs from $0.019 kWh (at present) to $0.034/kWh

Assumptions:◦ No reduction in volume of electricity consumed◦ No change in other energy prices, quantities◦ No change in real household incomes

Results: share of poor household expenditures devoted to:◦ Electricity rise to 8% ◦ Energy overall rise to 56%

Implications:◦ Even more pressures on household budgets◦ Can social policy mitigate this impact?

What happens if electricity tariffs rise to cost-recovery

levels?

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Quarti

le 1

(poo

rest

)

Quarti

le 2

Quarti

le 3

Quarti

le 4

Quarti

le 5

(wea

lthie

st)

23%27%

20%18%

12%

World Bank research Only 0.5% of

GDP devoted to social protection in 2009

Household electricity and gas subsidies are included

Only half of this share is received by poorest households (1st, 2nd quartiles)

Poverty rate only reduced by 0.3%

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The debate: Cash transfers versus lifeline tariffs

Our simulation indicates that a lifeline would lift more people out of severe poverty than other social assistance policies◦ This is consistent

with other research results for small countries with high poverty and connection rates

Under scenario 3 the extreme poverty rate would fall by 5% (from 20.2% 19.1%)

Average monthly electricit

y consum-

ption(kWh)

Baseline

2009 7.5

dirham per kWh

Scenario 1

2011 tariff at 9.9

dirham per kWh

Scenario 2

Cost recovery level 13.1

dirham per kWh

Scenario 3Cost

recovery level (13.1

dirham/kWh) with

lifeline (100 kWh at 1.0313

dirham/kWh)

All households

357 2.0% 2.7% 3.6% 2.6%

Poor 332 2.8% 3.9% 5.3% 3.7%

Very poor 339 3.6% 5.2% 7.2% 5.1%

Not poor 373 1.7% 2.2% 2.9% 2.1%

Share of electricity expenditures in total household expenditures, by poverty level, under different tariff scenarios

Assumptions: a) household electricity consumption remains unchanged; b) households consume the same amount of electricity under different tariffs; c) household incomes remain unchanged; andd) lifeline limits are applied to all households.

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Social assistance to mitigate the impact of energy prices

World Bank/EC-led reform: ◦ Proxy-means

testing◦ Improved

management Two-year pilot

Khatlon oblast (until 12/2012)

Annual allocations will be 400 somoni ($91), paid out quarterly through Amonat bank

Characteristic Used for urban

households Used for rural

households Household size * * Gas oven * Generator * Electric radiator * * Refrigerator * Satellite dish * * Car or truck * * Computer * Household head’s employment sector * Household Head’s Education * Housing Roof Material * * Number of Children under 15 * * Oblast * * No of disabled of 1st category and disabled children in the household1

*

Total Number of Variables 11 9 Source: Robert van Leeuwen (Team leader), EU/ Mott MacDonald , “Presentation of the PMT system in Tajikistan” , November 2010.

Indicator composition of Tajikistan’s proxy means testing pilot

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Combine:◦ The present system◦ A lifeline tariff regime◦ Some categorical targeting

A recent ADB study finds that many features of Tajikistan’s existing assistance programme could be combined with such a scheme, thereby facilitating its introduction

Introducing cash transfers is advised—but, in the

meantime?

Connection subsidies (gas and electricity)

Subsidies or vouchers to encourage the use of clean fuels (e.g., LPG)

Subsidies for energy efficient household appliances, insulation, and other energy-saving technologies—possibly via vouchers—could be considered

Potentially assistance with firewood harvesting

Transitional scheme?Other social assistance measures

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Enabling legislation/regulations need to be adopted for:◦ The 2010 Renewable Energy law◦ Energy efficiency legislation

National Heating strategy . ◦ Resolve uncertainties regarding”

Extent of rehabilitation or expansion of the central heating system

Other alternatives: Centralized: (electricity, piped gas) Decentralized (LPG)

Financing for energy efficiency, decentralized renewables:◦ UNDP-proposed trust fund◦ Credit lines through local banks to fund renewables

 

Other policy recommendations

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Improve energy poverty component of living standard survey data

Conduct willingness-to-pay surveys regarding possible tariff increases

Use computable general equilibrium, macroeconomic models (e.g., PAMS) to more fully model the impact of tariff, other policy changes.

Apply social cost benefit analysis

Research recommendations

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Thank you....