Lilit Melikyan and Hasmik Ghukassyan Almaty 13 April

Changes in apparent electricity consumption* (2007 = 100) Annual household electricity inflation rates 2 * Generation minus exports. Source: State Statistical Agency.

 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

 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

 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 5 Source: Pamir Energy Information note

6 Source: State Statistical Agency

7 Average monthly household electricity consumption (kWh) Share of households using electricity Source: State Statistical Agency

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 Income-poverty elasticity estimate in 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%

International affordability benchmarks (share of household expenditures devoted to energy spending) ElectricityHeatWater World Bank10-15%3-5% WHO10% UNECE15% UK gov’t10%3% US gov’t6%2.5% 10

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

12  Official survey data imply that food + energy expenditures absorb 100% (or more) of many household budgets Source: State Statistical Agency Share of household spending devoted to food (2009)

 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? 13

14  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 (1 st, 2 nd quartiles)  Poverty rate only reduced by 0.3%

 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 electricity consum- ption (kWh) Baseline dirham per kWh Scenario tariff at 9.9 dirham per kWh Scenario 2 Cost recovery level 13.1 dirham per kWh Scenario 3 Cost recovery level (13.1 dirham/kWh) with lifeline (100 kWh at dirham/kWh) All households %2.7%3.6%2.6% Poor3322.8%3.9%5.3%3.7% Very poor3393.6%5.2%7.2%5.1% Not poor3731.7%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; and d) lifeline limits are applied to all households. 15

 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 Indicator composition of Tajikistan’s proxy means testing pilot 16

 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 17  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

 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  18

 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 19

Thank you