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Balancing Act: Cutting Energy Subsidies While Protecting Affordability
the specificities of the countries selected and their policy framework to identify feasible policy responses.7
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For a recent analysis of oil prices and their expected impact on the region, see World Bank (2011). The share of electricity expenditure in overall household budgets, plotted along the x-axis of figure 1.1, ranges from 2 percent in Kazakhstan, the Kyrgyz Republic, Tajikistan, and Ukraine to more than 7 percent in Bulgaria, Hungary, Montenegro, and Serbia. Average electricity household tariffs also vary significantly across the region. At the time of data collection, a kWh of electricity cost 17.2 times more in Hungary than in Tajikistan. If we look at a closer comparison, average tariffs in Montenegro stood at 186 percent of neighboring Serbia’s. This report adopts a classification of countries in Eastern Europe and Central Asia that reflects their relationship to the EU, that is, EU member states (EU MSs); CPC countries refers to the countries in the western Balkans (Albania, Bosnia and Herzegovina, Kosovo, the former Yugoslav Republic of Macedonia, Montenegro, and Serbia) and Turkey; and EPOC countries, including countries in the CIS and Georgia. Turkey is closer than other countries in this group to EU member states in terms of its distance from cost recovery and its share of energy spending on electricity. Implementing such an agenda would have important political economy implications. While a detailed treatment of these aspects is outside the scope of this report, an updated look at these issues is provided by Commander (2011). These, of course, change over time, and policies can explicitly be devised to influence them (for example, by investing in renewable sources, countries can change their exposure to international energy prices), but, at any given time, they can be considered predetermined and technical as opposed to policy variables. An essential feature of the case studies is the possibility of incorporating technical details such as the estimated level of cost recovery for different energy sources, specific to each country, as well as the exact tariff structure for the main utilities (electricity, gas, and central heating) that are currently approximated through average residential tariffs.
References Besant-Jones, J. E. 2006. “Reforming Power Markets in Developing Countries: What Have We Learned?” Energy and Mining Sector Board Discussion Paper 12, World Bank, Washington, DC. Commander, S. 2011. “The Political Economy of Energy Subsidies.” With Chiara Amini and Zlatko Nikoloski. Unpublished paper. EBRD (European Bank for Reconstruction and Development). 2010. Transition Report 2010. London: EBRD.