Can-poor consumers pay for energy and water? An affordability analysis for transition countries

Low-income households spend a substantial share of their income on utility services such as electricity, heating and water. The difficulty of these socially vulnerable consumers to absorb further price increases is often used as an argument against tariff reform. However, detailed quantitative information on the affordability of tariff adjustments for low-income consumers is actually quite scarce. Much of the available information is based on households. This paper takes a more detailed look at the affordability of electricity, district heating and water for low-income consumers in transition countries. While the available data are incomplete, the paper finds that affordability is a problem for low-income consumers in most countries, in particular in the water sector and in the Commonwealth of Independent States (CIS). The affordability consequences of tariff reform ultimately depend on the speed of tariff adjustments relative to the growth in household income, the level of tariffs needed for cost recovery, the level of effective tariffs at the outset (tariffs adjusted for non-payment) and the demand response to the tariff increase. The paper finds that delaying tariff reform by a few years makes little difference to affordability constraints, and may therefore not be an effective way to mitigate the social impact of utility reform. (c) 2006 Elsevier Ltd. All rights reserved.