if recorded electricity consumption is closely tied to overall welfare. This is evidently not true in the case of Pakistan—either because electricity usage patterns are similar across households, or because the current system of metering does not accurately capture consumption. Seasonal fluctuations further distort the functioning of subsidies, exposing poor households to higher per‐unit costs for electricity in the summer, when their consumption is highest, and providing unwarranted assistance to rich households in the winter months. To address these drawbacks with the present system, in this section we look at how targeting can be improved, and how to make energy affordable while encouraging users to stay within the formal system.

# **_Improved targeting_**

It is evident from the electricity consumption analysis that price‐based subsidies are not an effective means of targeting assistance to the households that need it the most. Pakistan already has a demonstrably better targeting mechanism. The NSER contains ‘poverty scores’ for almost all households in the country, effectively ranking them from poorest to richest. The registry, indexed by CNIC number, is already used for targeting in over 30 programs in Pakistan. The NSER allows the government to select any subgroup of the population based on their welfare level; therefore assistance could be directed to any subgroup of the population.

The matching exercise conducted for this paper was in effect a preliminary test of the applicability of this targeting mechanism to electricity subsidies. Using the CNIC records in the DISCO billing databases, NADRA was able to match poverty scores to almost half of the 350,000 households. The match rate is impressive given that the NSER was constructed in 2010 and many households did not have a CNIC at the time. A higher match rate could be achieved if the NSER is updated, an exercise which the Government of Pakistan is currently undertaking. To be sure that records can be matched, households could be required to report in person to the DISCO office with their national ID card and a recent electricity bill. They would identify themselves using the biometrics stored in the card, and the CNIC number would be used to look up their poverty score and make an instant determination of eligibility for assistance.<sup>15</sup> For renters, a tenant would be entitled to claim a subsidy even if the bill is in the name of a landlord, but the subsidy would be limited to one per family, with families encouraged to re‐register at their new address if they move. NADRA could provide the technical support to implement such a targeting system through DISCO offices or another government post. To limit subsidies to one per family, a central database of beneficiaries would need to be developed.

A simpler alternative, which might work well if the objective is to eliminate the richest households only, would be to apply exclusion filters to determine eligibility. For example, households with registered land, payers of income tax, holders of bank accounts, and so on, could be identified by CNIC and excluded from the benefit. Further analysis would be needed

> 15 NADRA has the capacity to access the NSER database in real time, and the CNIC is equipped with biometric identification capabilities.

18