Key message 1 – Electricity access is seen as a right in developing countries

In much of the developing world, electricity is perceived as a right. In other words, there is a widespread belief that everyone deserves power regardless of whether they are willing or able to pay for it. Understanding how to remove this perception, while at the same time ensuring the poor can access lifeline supplies, requires gathering detailed data on consumer perceptions.

For example, surveys carried out by EPIC and IGC researchers in Bihar, India (see Figure 1), show the vast majority of customers do not believe they will be penalised for not paying their bills, tampering with meters, stealing electricity, or bribing bill collectors – all of which are illegal activities. These attitudes stand in contrast to how consumers in developing countries view payment for private goods, such as cell phones. While it is up for debate whether cell phones are as important as electricity, we find that the poor spend three times more on cell phones than on electricity, 1.7% versus 0.6% of total expenditures. These small shares suggest the gap between electricity usage and payment is driven by the norm of non-payment rather than budget constraints. When governments discuss electricity in terms of being a right, and tolerate widespread non-payment, theft, or bribery, they risk cementing this social norm within citizens at all income levels, rendering it impossible to recover the costs of power, and thus impossible to supply energy.

A look at electricity tariff structures around the world reveals the size of subsidies provided to customers. Across all income ranges, prices follow a “step” function, with distributors charging less for consumers who use small amounts of power and marginal price increases corresponding to the amount of electricity used.

The first step in this tariff structure is often called the ‘lifeline’ tariff, which provides low-quantity consumers with power at only a fraction of the cost of production. Unfortunately, because most consumers in low-income countries are low-quantity consumers, electricity distribution companies are thus destined to lose money even if consumers pay all their bills. This makes it challenging for these companies to buy and supply more power, predictably resulting in widespread outages.

The perception that electricity is a right affects payment rates for both poor and rich consumers. As an example, Figure 2 utilises administrative billing data from Bihar and plots the collection rate against monthly electricity consumed, averaged across each month in 2018 for the subset of households that actually receive bills. Bill collection rates in Bihar were generally under 50% across all consumers and roughly flat across the income distribution, suggesting that bigger consumers are just as delinquent on their electricity bills as smaller ones.

More than half of losses come from households using more than 100 KwH per month, despite them making up a small share of domestic consumers in Bihar. This finding suggests there are large customers who are administratively known to the utility, but who neglect payment and perpetually accumulate debt. This points to the conclusion that de facto low prices (due to subsidies, theft, and non-payment) are available to all and are the accepted and agreed upon policy of the state underscoring that this is not a matter of an expensive redistribution program but a feature of the entire electricity market. This has farreaching consequences for electricity access and the quality of supply in developing countries.

Figure 1: Local revenue sources