Rural Electricity Supply: Commodity or an Entitlement?

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By Sonakshi Saluja

 

Under Prime Minister Modi’s Saubhagya scheme, many rural households in India have got an electricity connection; however, it is no surprise that there is still a significant lack in the quality of electricity supplied to these consumers. These households not only lack uninterrupted long hours of supply, they also face frequent blackouts. Additionally, as per World Bank’s report (2014) firms are facing an average of 14 days of outages in a typical month.

 

Unreliable electricity supply and lack of trust on the ability of the distribution companies to provide unrestricted and quality supply proves as a major obstacle when it comes to evaluating the optimum price for electricity in India. Government should be cautious while making alterations to the existing tariff system as it can be met with substantial resistance and backlash. While the price mechanism is distorted in itself, a survey, published in a report by Center on Global Energy Policy (CGEP), was conducted by Johannes Urpelainen, Brian Blankenship and Jason Wong in rural Uttar Pradesh, India, to examine the factors that influence stated willingness to pay for better service (i.e., more hours of power per day) among rural households.

 

The survey, which comprised of 960 households in 120 villages across 12 districts of the state in the summer of 2017, revealed that there are two major hindrances that need to be addressed while calculating the ideal charges for electricity. Firstly, in rural parts of India, there is substantial income inequality and poverty, and hence, it was possible that many consumers treat electricity as an ‘entitlement’ i.e. should be provided to them for free. Secondly, many consumers, who are actually able to pay more than the current price for better services, in general, do not trust their electricity providers and are not convinced that this will result in improved quality of electricity supply.

 

The results of the survey indicated that indeed the general levels of trust among the consumers remain low, and that entitlement plays less of a role as to whether households are willing or not to contribute to improved electricity quality. Thus, low willingness to pay remains a major obstacle to pricing reform.

 

Regarding satisfaction with the then quality of electricity supply, 76 per cent of the respondents thought that theft was a key reason for poor electricity supply, followed by too much demand (69.8 per cent), and poor maintenance (68.6 per cent). However, only 43 per cent of the respondents thought that the lack of investment was driving poor quality supply.

 

When asked about entitlement, i.e. whether or not everyone should receive free electricity, respondents agreed that electricity should be provided for free for low-income people, but not for everyone. An income-dependent sense of entitlement was observed and that that electricity should be a commodity for those who can afford it but should be considered a public good for the poorest populations.

 

Thus, based on the outcomes of the survey, the following recommendations were proposed by the authors, to better foster public support for increasing payments in return for better services:

 

  1. Building trust: It is crucial that utilities build up trust with the households in the community, and across agents. As trust is strongly associated with higher willingness to pay for better electricity, delays in service improvements and a lack of community support for pricing reform reduces consumer’s willingness to pay for better quality. We cannot expect citizens to contribute or make efforts to participate if the background level of trust remains low. This can be achieved if the utilities make credible promises and reduce service delays, or first deliver service improvements before collecting increased payments.
  2. Curbing thefts: As majority of the respondents reported theft as a significant obstacle to quality electricity supply, reducing incentives for theft is important for rural electricity reform. Proper enforcement while needed can be difficult to implement, thus a potential solution is to focus on the katiyamen and on the officials who check the villages for theft activities. A proper system should be in place to prevent accepting bribes and instead reward ones who report katiyamen. This will help in dis-incentivizing katiyamen. In addition, it is also needed that the consumers feel included in the legal grid system such that they feel a sense of ownership of using electricity responsibly. The current incentive structures are set up in a way that the offending households can bribe or bypass the proper process, creating these collected rents—the gap between the willingness to accept illegal payments and the punishment for the resident.
  3. Poverty alleviation: In the survey it was observed that the average willingness to pay for extra hours of electricity tends to be very low—at 40 rupees for four more hours, on average. As continued poverty remains a significant hindrance, poverty alleviation must be taken into account in electricity reform.

 

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Sonakshi Saluja (@SonakshiSaluja) is the India Program Manager at the Initiative for Sustainable Energy Policy (ISEP).

 

Photo credit: Sonakshi Saluja