Sarhan, AA; (1991) Equity and efficiency considerations in electricity pricing: the case of Egypt. Doctoral thesis , University of London.

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Abstract

This thesis analyses the issue of electricity pricing in the residential sector of Egypt and shows that the upsurge in consumption that took place since the mid Seventies in this particular sector was mainly due to the tariff policies of the government which did not reflect the true economic costs of supply. Since residential consumers have not been getting correct signals to guide consumption decisions so far, an alternative tariff structure is necessary to prevent the future loss of economic efficiency and associated social welfare. However, although such a tariff structure will have to satisfy the criterion of economic efficiency, in that it would have to reflect the associated marginal costs, there are other objectives that have to guide electricity tariff policies, especially in developing countries. The most notable is the equity objective which tries to ensure that the poor segments of the population receive electricity at affordable prices, i.e., at life-line rates. Additionally however, in Egypt, as in many other developing countries, tariff structures are usually unable to raise enough revenues from the rich at the upper-end of the tariff to subsidize the consumption of the poor. Furthermore, the rich quite often get the benefit intended for the poor through the life-line rates. In spite of successive electricity price increases by the Egyptian government in the last few years, the tariff structures have been unable to raise enough revenue to cover deficits and thus have jeopardized the financial viability and autonomy of the electricity sector. The last part of this thesis examines several alternative tariff structures for the residential sector, based on several different initial conditions, and measures the impact of each on consumption, expenditure, and revenue. The major contribution is thus, a methodology to assess and evaluate the welfare loss entailed by the implementation of any tariff structure which policy-makers could use to guide future tariff policy decisions.

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