Aggregate numbers based on both connected and unconnected households may mask important variations and distributive dimensions. Focusing only on households that are connected and have positive expenditures on gas and energy products reveals a number of important patterns (see Item B in Table 4): First, the expenditure shares of gas and energy products are large when the calculations are restricted to households that are connected and have positive expenditures of gas and energy products.<sup>13</sup> On average, for these households, gas products and electricity account for 5 to 6 percent of households budgets. As for central heat, spending amounts to about 13 percent of household budgets in large cities.

Second, whether the expenditure patterns are progressive or regressive depends on the energy product and geographic location (see Items B1 to B3 in Table 4). For example, central gas expenditures in large cities are a greater burden on poor households. In small towns and rural areas, however, richer households spend a larger share of their income on central gas. On the other hand, expenditure on LPG is consistently more burdensome for the poor, accounting for at least 10 percent of the budgets of the poorest quintiles. Central heating, on the other hand, is mostly a consumption item in large cities and is neither clearly progressive nor regressive. Electricity expenditures are more burdensome for poorer households across all locations.

_What is the short-term distributional impact of the gas price increase?_ The impact on households of higher energy tariffs is modeled under two different scenarios. In the first, natural gas and central heating prices are increased by 37.5 percent to reflect a natural gas price of $110/mcm up from the $80/mcm price that prevailed until early 2006. Electricity prices under this scenario are assumed to increase by 30 percent given the importance of gas in electricity generation.<sup>14</sup> In the second scenario, where the price of imported natural gas is expected to increase to $160/mcm, central gas and heating tariffs are expected to increase by 100 percent while electricity tariffs rise by 80 percent, proportional to the gas price increase. Because the impact is largely a function of expenditure levels and shares, the expected distributional effects are consistent with variations in consumption levels and expenditure shares documented in the previous section.

In absolute terms, the effect of the price increase is generally progressive. Increasing gas, electricity, or central heating tariffs would cause bills of richer households to grow by a greater absolute amount than those of poorer ones, because of the higher intensity of energy use (except for LPG) among richer households.

> 13 One of the fundamental problems in dealing with household budget data is the treatment of missing values. Implicitly, the second set of calculations (Item B in Table 4) also includes households that are connected but having missing expenditure information. The Methodology assumes that these households have expenditure levels equal to the average expenditure of the reporting households.

> 14 The assumption of a 30 percent increase is consistent with the relative share of fuel in the production cost of gas-fired power plants supplying electricity to Moldova. This is also consistent with the price increase requested by one of the main electricity suppliers at the end of 2005.

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