Sun | Jun 16, 2019

Zia Mian | Electricity for the poor, an unconventional approach

Published:Sunday | June 2, 2019 | 12:23 AM
Zia Mian
Interestingly, the regulators in most countries are not in favour of providing free-of-charge electricity to the poor!
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“Now, more than ever, we need to connect the dots between climate, poverty, energy, food, and water. These issues cannot be addressed in isolation.”

– Ban Ki-moon, Former Secretary General, United Nations.

 

In this article, I shall share with the readers an out-of-the-box approach by a South East Asian country that provides electricity to its underprivileged in order to alleviate poverty. The success of this programme has helped the country to substantially advance its sustainable development agenda.

In July 2009, Secretary of State Hillary Clinton met with the foreign ministers from Cambodia, Laos, Thailand, and Vietnam in Phuket, Thailand. The ministers jointly established the Lower Mekong Initiative (LMI), the objective of which was to promote cooperation in the areas of environment, health, education, and infrastructure development. Myanmar (formerly Burma) joined the initiative in July 2012.

The initiative’s ‘Energy Security Pillar’ sought to increase regional energy security and economic competitiveness through developing unconventional and renewable sources of energy, ensuring access to energy by all, and enhancing interconnectivity in the region.

The Energy Security Pillar centered on:

- Regional energy market developments;

- Power interconnections in the Mekong region (cross-border trade in electricity);

- Energy efficiency, conservation, and alternative energy development (promoting renewables);

- Transparency and good governance (effective regulatory frameworks and harmonisation); and

- Energy research and development (institutional strengthening and database development).

The State Department, through the National Association of Regulatory Utility Commissioners (NARUC), retained my services as an international expert. I was asked to develop a series of interactive workshops on the Energy Security Pillar for the regulators and key policymakers from the LMI member countries.

As the technical consultant and workshop director, I developed and delivered my first workshop to the LMI member countries in Bangkok in 2013.

The key objectives of this workshop were to:

- Review regional tariff issues with a focus on moving to cost-reflective pricing, protection of vulnerable consumers, and pricing of renewable energy;

- Examine interconnections, particularly regulatory and utility cooperation, energy security, cross-border trade; and

- Explore resource-planning strategies, including integrated resource planning, integration of renewables, regional cooperation, and trade in electricity.

CENTRAL TO ENERGY POLICY

During my interaction with the Thai regulators and high-level government officials, I learned that Thailand considered the provision of secure and affordable energy for all as key to its poverty-alleviation programme and was central to its energy policy.

For those who could not afford to pay for electricity (underprivileged or the poor), the Thai government developed an innovative strategy.

Thailand has a total population of 68.6 million (2018) and a land area approximately 47 times the size of Jamaica. In Thailand, age-dependency ratio is about 40 per cent. Youth unemployment (ages between 15 and 24) is 3.7 per cent. In 2017, the total unemployment rate for the country was estimated at 0.7 per cent. As a matter of fact, Thailand relies on three to 4.5 million migrant labourers a year from neighboring countries.

Thailand is not self-sufficient in electricity production and imports electricity from the neighboring LMI countries (mainly hydropower). One hundred per cent of the population is connected to the power grid (2016).

In Thailand, population living below the extreme international poverty line (US$1.90/day/person) has fallen to zero per cent (2015). The country no longer uses the international poverty line as a measure of poverty. It has established its own national poverty line at US$6.20/day/person (based on purchasing power parity index).

Electricity tariffs are regulated by the Office of Energy Regulatory Commission (OERC – established in 2007) and reflect investment base plus public service obligation plus an adjustment for purchased power, and value added tax.

There are eight power consumer categories (with different base tariffs). Residential customers have the progressive rate. Two novel features of the regulatory model are:

a) the establishment of the Power Development Fund (PDF); and

b) the provision of lifeline free electricity to the vulnerable, that is, those below the national poverty line.

In 2011, the government established a state policy under which the underprivileged (the poor below the national poverty line) were to receive 90kWh/month of lifeline electricity free of charge. This threshold remained in effect from July 2011 to May 2012.

In June 2012, the government revised the level of free-of-charge lifeline electricity down to 50kWh/month. This revision reduced the number of beneficiaries from eight million in 2011 to about four million in 2012.

Analysis shows that the population below the national poverty line in Thailand has declined from 12.3 per cent in 2011 to 7.2 per cent in 2015.

Provincial regulators are charged with the task of advising the vulnerable customers on the 50-unit threshold and about their eligibility. Each zone has a committee (Community Development Committees – CDC) that receives consumers’ complaints and also develops information on target zones and individuals that should be eligible for lifeline electricity supply free of charge.

The second component of the model, the PDF, is regulated by the OERC in compliance with the policy framework that was established by the National Energy Policy Council (NEPC).

The money and assets belonging to the PDF are not subject to deposit to the Ministry of Finance’s consolidated fund as state revenue. The state revenue is governed under the law on treasury balances and the law on budgetary procedures.

NOT IN FAVOUR

The OERC is responsible for the receipt, disbursement, keeping, and management of the money of the PDF in conformity with the regulations set forth by the OERC. It keeps the Fund account separate from the OERC budget. The operations pertaining to the PDF are subject to inspection and audit by the Office of the Auditor General of Thailand.

Electricity supply licensees are required to “charge power consumers under the following categories: medium general services, large general services, specific business services, non-profit organisations, temporary power customers, interruptible rate customers, and reserve power customers, according to the power tariff structure, and send contributions to the PDF to compensate electricity supply licensees for having provided services for underprivileged power consumers pursuant to the state policy and at the rate specified by the OERC.”

Contributions to PDF differ by generation sources (coal-based generation pays more because of the environmental impact) and are a direct pass through to the final customers. The main sources of funds are:

- Contributions from electricity industry licensees in accordance with the policy framework;

- Fines collected from electricity industry licensees who violate or fail to comply with regulatory orders;

- Donated money or assets; and

- Interest or any benefit incurred from the money or assets of the Fund.

There are many other developing countries such as Bhutan, India, and South Africa that are also pursuing similar models, with some variations.

Interestingly, the regulators in most countries are not in favour of providing free-of-charge electricity to the poor!

Provision of 50kWh-per-month lifeline electricity is generally sufficient to provide for basic needs of a household and allows the underprivileged consumers the use of

- Up to three 20-watt LED light bulbs each for six hours per day.

- One TV for three hours per day.

- One fan for six hours per day.

- One electric cooker for 1.0 hour per day.

In the next article, we will develop an approach to address the issue of non-technical losses that we face in Jamaica and how we can protect the poor.

- Zia Mian, a retired senior World Bank official and former Director General of the OUR, is an international consultant on energy and information technology. He writes on issues of national, regional, and international interest. Email feedback to mian_zia@hotmail.com or columns@gleanerjm.com.