17

**<u>Table 7 Affordability vs. reform policies in 2002</u>**

||**(st**<br>|<br>**andard deviation**<br>|**Average**<br>**; number of ob**<br>|**servations)**<br>||
|---|---|---|---|---|---|
||**1**|**2**|**3**|**4**|**5**|
||**Without IRA**<br>**Without PPI**|**With IRA**<br>**Without PPI**|**Without IRA**<br>**With PPI**|**With IRA**<br>**With PPI**|**All**<br>**countries**|
|Electricity price for households (2000<br>U.S. cents/kWh/10,000 GDP per<br>~~capita)~~|132<br>(89; 7)|48<br>(78; 20)|..<br>..|44<br>(40; 24)|58<br>(70; 51)|
|Electricity price for industry (2000<br>U.S. cents per kWh/10,000 GDP per<br>~~capita)~~|159<br>(127; 7)|41<br>(61; 20)|..<br>..|40<br>(40; 24)|57<br>(76; 51)|
|Price of Local Phone Call (2000 U.S.<br>cents/10,000 GDP pc)|84<br>(104; 16)|146<br>(172; 36)|69<br>(147; 10)|132<br>(283; 41)|123<br>(214; 103)|
|Monthly Residential Subscription Fee<br>(2000 U.S. dollars/10,000 GDP per<br>~~capita)~~|46<br>(68; 19)|65<br>(78; 37)|29<br>(36; 10)|51<br>(53; 41)|53<br>(64; 107)|
|Monthly Industrial Subscription Fee<br>(2000 U.S. dollars/10,000) )GDP per<br>|65<br>(65; 19)|78<br>(77; 37)|65<br>(100; 9)|68<br>(59; 41)|71<br>(70; 106)|
|~~capita~~<br>Source: Authors’ calculations using data from EIA,<br>- For some indicators, coverage in 2002 is not as g<br>conclusions.<br>- IRA refers to the existence of an independent reg|ERRA, OLADE, and S<br>ood as the one for prev<br>ulatory agency, and PP|AD-ELEC.<br>ious years. Thus, for s<br>I refers to the existenc|ome groups samples<br>e of private participati|are too small to d<br>on.|raw significant|

This basic data analysis implies that electricity prices are lower in reformed economies than in economies that have not adopted either of the reforms we are examining. In telecoms, countries that have not reformed have average lower local prices than countries that have reformed. This reflects improvements in cost recovery but also tariff rebalancing, on which most telecoms reforms placed heavy emphasis. With rebalancing, cross-subsidies from international calls to local calls, for example, tend to disappear. Interestingly, the basic data analysis suggests that the lowest costs for local calls are found in countries that have increased private sector participation without adopting regulatory agencies. In other words, the basic data analysis suggests that the presence of an IRA in the telecoms sector is associated with a worsening of affordability.

# **5.3 Econometric analysis**

The marginal effects of reforms on affordability, computed from the econometric results, are reported in the lower part of Table 8. They confirm some of the observations from the basic data analysis. First IRAs are not equally effective across sectors or users (Table 8, line 14). Establishing an IRA in electricity was significantly associated with reduced prices for households, but not for industry. For telecoms, the presence of an IRA was associated with an increase in the average cost of a local call but had no effect on subscription fees.

PPI affected almost all of the prices we looked at (line 15). However, those effects were different from the ones suggested by the basic data analysis. In electricity, private participation was associated with an increase in end-user prices for households (negatively affecting affordability) but had no effect on industrial prices. In telecoms private participation was associated with higher residential and business monthly subscription fees but lower prices for local calls, consistent with the rebalancing policies discussed earlier.