Water, Electricity, and the Poor: Who Benefits from Utility Subsidies?
Utility subsidies to consumers of water and electricity services are often justified as a mechanism for making services affordable for the poor. After all, an estimated 1.1 billion people in the developing world lack access to safe water, 2 billion are without electricity, and 2.4 billion without sanitation. But critics object that such subsidies can work against improving quality of service to existing consumers and extending access to unconnected households. Financially strapped utilities are often inefficient, provide low-quality services, and lag behind in expanding networks. During the 1990s, experts urged that water and electricity services should charge enough to fully cover costs. Households could spend 10-50 percent more on water and electricity without major effects on poverty levels, but in many countries much larger price increases are needed to recover costs. A substantial proportion of the population of lower income countries may find it difficult to pay the full cost of services.