# **3.3. How Does This Paper Analyze Cost Recovery and Financial Viability?**

19. The paper analyzes the power sector reform journey from the late 1980s and 1990s through the period 2010-17 of 17 jurisdictions<sup>8</sup> (14 countries and 3 Indian states) that represent a wide diversity of geographies, income levels, and approaches to reform. The analysis consisted of three steps:

1. **Post-reform cost-recovery level of electricity tariffs (2010-17) at the country/state and utility levels.** Data on tariff levels during 2010-17 (or a subset of years) were collected for all 17 jurisdictions on the country / state-level and the utility level and compared to corresponding estimates of six cost recovery levels (A1-A3 and C1-C3<sup>9</sup> ). The total sample of the utility-level analysis includes 18 majority publicly-owned and 7 privately-owned utilities. Where possible, the analysis included actual cash collected besides the billed revenue. The data was compiled from the financial statements of all utilities in the sector to obtain a full picture of cost and revenues in the jurisdictions, complemented with information on indirect government support (e.g., in the form of subsidized fuels). Exceptions were made for independent power producers and small power producers, the cost of which were approximated by the electricity purchase cost of the off-taking utility. The only two cases where such a holistic picture of costs and revenues in the sector was not possible were the Dominican Republic, where the analysis focused only on the utility Edesur, and Morocco, where the analysis relied on a previous study by The World Bank (2017) for information on full-cost recovery levels in the sector. All data presented in the paper is expressed in 2017 US$ to adjust for inflation. An overview of data compiled for the case studies, the years covered, and the data sources is provided in Table 2.

2. **Pre-reform cost-recovery level of electricity tariffs (1980s-1990s).** Data on tariff levels during the 1980s and 1990s were collected for all 17 jurisdictions and compared to LRMC estimates, which reflect the long-run marginal cost of supply that would need to be covered to expand the system, taking into account shadow prices for inputs such as fuels, labor and capital. Comparable LRMC estimates are available for most countries for the 1980s and 1990s, when the World Bank financed numerous LRMC studies across the world. For 12 jurisdictions, the tariff and cost data are for 1987 and based on The World Bank (1990) and based on a strictly comparable methodology. For two further jurisdictions, the data is based on the same LRMC methodology but for different years, 1991 (Tanzania) and 1993 (Vietnam) (The World Bank, 1993c, 1995). For the remaining three cases, the assessment compares tariffs and current cost-of-service estimates (as opposed to LRMC) for 1991 (Senegal), 1994 (Ukraine), and 2003 (Tajikistan) (The World Bank, 1994, 1998, 2004). The results of this second analytical step provide a baseline for the assessment of reform impacts and allowed to assess if countries were able to raise tariffs or reduce costs compared to the pre-reform period; which types of sector reforms and other factors were

> 8 The cases are Colombia, Dominican Republic, Egypt, Arab Rep., India (Rajasthan, Andhra Pradesh and Odisha), Kenya, Morocco, Pakistan, Peru, Philippines, Senegal, Tajikistan, Tanzania, Uganda, Ukraine, and Vietnam. 9 Externalities were not assessed as part of C3 because of data availability issues.

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