reform level. The design of the cash transfer program that was implemented in November 2012 along with a detailed discussion of options for improvement can be found in Araar et al (2013).

# **3.2 Electricity**

Three scenarios for electricity tariffs reforms Three scenarios are explored in simulating the impact of reforms in electricity tariffs (table 12). The first scenario assumes no change in the tariff policy and simply applies tariffs planned for implementation in 2015. According to this scenario, tariffs will increase slightly for consumers from the top fifth, six and seventh blocks. The second scenario is the most radical reform scenario, implying a full removal of subsidies. Within this scenario we present two reform options. According to the first one – labelled as “flat” reform, – tariffs for all consumers become flat, i.e., equal to the cost recovery level at JD 0.164 per kWh. This implies a huge burden on the poorer households with the lowest electricity consumption because the prices they faced were the lowest. The second sub-scenario -- labelled “progressive” reform – mimics the first sub-scenario in terms of the _average_ impact on wellbeing, but uses a completely different approach to tariff increase.<sup>7</sup> Under this sub-scenario, the burden of subsidies elimination is disproportionately placed on the shoulders of the richest households who experience the highest increase in electricity tariffs. Given that scenario two is quite severe – leading to more than a doubling of prices for many brackets – and likely very difficult to implement, we simulate a third scenario with quasi progressive increase in tariffs for all consumers keeping tariffs on the first two blocks subsidized.<sup>8</sup> This scenario, however, does not fully eliminate the electricity subsidies.

**<u>Table 12. Different scenarios for electricity tariff reforms</u>**

|KWh|Current<br>||**Scena**<br>2015 t|**rio 1**<br>riff||**Scen**<br>full eli<br>ofsu|**ario 2**<br>mination<br>bsidies||**Scena**<br>Sem<br>rri|**rio 3**<br>i-<br>inr|
|---|---|---|---|---|---|---|---|---|---|---|
|per month|tariff<br>2014|subsidy||s|f|I<br>lat|I<br>progr|I<br>essive|pogessv<br>in ta|cease<br>riffs|
||||final|%|final|%|final|%|final|%|
|1-160|0.033|0.113|0.033|0.0|0.146|341.5|0.056|70.0|0.036|10|
|161-300|0.072|0.074|0.072|0.0|0.146|102.3|0.144|100.0|0.09|25|
|301-500|0.086|0.06|0.086|0.0|0.146|69.4|0.232|170.0|0.146|69|
|501-600|0.114|0.032|0.114|0.0|0.146|27.8|0.365|220.0|0.228|100|
|601-750|0.152|0|0.175|15.1|0.146|-3.9|0.502|230.0|0.304|100|
|751-1000|0.181|0|0.209|15.5|0.146|-19.3|0.615|240.0|0.362|100|
|>1000|0.259|0|0.285|10.0|0.146|-43.6|0.907|250.0|0.518|100|

Source: Official tariff instructions replacing electricity tariff instructions 17/6/2012. Notes: Subsidies are calculated based on 2012 cost recovery tariff from National Electricity Report (NEPCO, 2012).

> 7 Strictly speaking second sub-scenario does not fully eliminate subsidies since consumers from the first block still continue to be subsidized and tariffs on others are not raised by enough to offset this subsidy.

> 8 People in the third bracket also may be subsidized if their consumption in the third bracket is low.

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