sometimes used in oil‐exporting countries (for example in the Islamic Republic of Iran), with all households at least in principle able to access the compensation. Targeted cash transfers, on the other hand, remain one of the most preferred safety net tools available for energy subsidy reform. The experience of Indonesia (see Box 1) illustrates that targeted cash transfers can reduce the population’s opposition to subsidy reform, and help assist those most in need. In Pakistan, the largest cash transfer program is the Benazir Income Support Programme (BISP), a targeted program which reaches over 5 million households. The monthly payment to beneficiaries has been increased by 50% since 2013, likely offsetting the bulk of the adverse impact of the 2013 subsidy reform (Walker et al., 2014).

# **III. Distributional Incidence of Electricity Subsidies**

<mark>We begin by examining the incidence of subsidies using household survey data, updating findings from an earlier survey presented in Walker et al. (2014). Figure 1 shows how the current residential tariff structure concentrates subsidies on households with low to moderate monthly electricity consumption. However, the incidence of these subsidies depends on the patterns of consumption by welfare level.</mark> <mark>To examine this relationship, we use data from the 2013‐14 Pakistan Survey of Living Standards (PSLM) to construct total monthly household consumption per capita for each household (a measure of welfare). Figure 2 shows the breakdown of monthly electricity consumption by slab for each decile of household per capita expenditure. While there is a clear difference in consumption across deciles, the graph shows that the vast majority of households except in the top decile consume less than 300 kWh/month, and therefore continue to benefit from subsidies even after the 2013 reforms. However, since the total subsidy provided to households with moderate consumption (between around 150 and 300 kWh/month) is greater than that for households below 150 kWh/month, the bulk of subsidies still goes to better‐off households.</mark> One potential shortcoming of the above analysis is that the survey asks about total electricity consumption over the preceding month. Self‐ reports may be inaccurate, or may include expenditure on other forms of electrical power such as batteries or uninterrupted power supplies. In order to corroborate these findings, we now examine actual billing data.

Data on monthly electricity consumption, along with other household details, were obtained for 325,926 households from three electricity distribution companies (DISCOs): Gujranwala Electric Power Company (GEPCO), Faisalabad Electric Supply Company (FESCO) and Islamabad Electric Supply Company (IESCO).<sup>4</sup> These DISCOs together serve almost 38 percent of Pakistan’s residential electricity consumers.<sup>5</sup> The three DISCOs also cover a significant share of northern Pakistan and include a mix of semi‐urban, rural and urban areas. For this analysis IESCO, FESCO and GEPCO each provided a 10‐15 percent random

> 4 Other DISCOs were approached for inclusion in the analysis, but data could not be sourced with the right specifications in time for this study.

> 5 For a breakdown of billing data please refer to the Appendix.

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