Maintaining Utility Services for the Poor

Book excerpt: Prior to the dissolution of the communist state, utility prices were driven by political priorities in Central and Eastern Europe and the former Soviet Union. Utility prices were kept artificially low until the early 1990s. When the cost of these across-the-board price subsidies became unaffordable, one government after another decided to bring residential tariffs closer to supply costs. The resulting price adjustment process, however, turned out to be more painful than originally expected. Required large increase in the prices of utility services coincided with a decrease in household income. The household income decline paralleled increasing income polarization. As a result of these two trends, the percentage of the poor within the overall population reached alarming proportions in many countries. Paying utility bills became a major challenge for the rapidly growing army of poor households. Some governments simply pressured utility managers to be lenient with households who did not pay their utility bills. By the middle of the 1990s, most governments recognized that they could not afford leniency. They started to experiment with various subsidy schemes aimed at low income households. To help decision makers choose the best mechanism that suits their specific needs and priorities, 'Maintaining Utility Services for the Poor' provides a conceptual framework and methodology for the evaluation of utility subsidy mechanisms. It also presents the results of applying this methodology in Poland and Russia.