Price-based subsidy fails to protect low, middle-income Pakistanis, says World Bank paper

The existing price-based subsidy fails to protect low and middle-income households from high electricity costs while it is disproportionately benefiting rich households in Pakistan, says World Bank paper.
Despite cuts in tariffs on heavy users, electricity subsidies in Pakistan continue to be poorly targeted. Low-income households, especially slum residents and BISP beneficiaries, use illegal electricity (called kunda/hook system/electricity theft) as a way to cope with increasing electricity costs, states the WB Policy Research Working Paper titled "Residential Electricity Subsidies in Pakistan."
Price-based subsidies will only favour the poor if recorded electricity consumption is closely tied to overall welfare. This is evidently not true in the case of Pakistan, either because electricity usage patterns are similar across households or because the current system of metering does not accurately captures consumption. According to the paper, though electricity subsidies were introduced as a form of social safety net in Pakistan, the analysis of household survey and billing data demonstrates that they continue to be regressively targeted, and that many poor households remain exposed to high bills, especially in the summer months. Subsidies are often introduced in the name of helping the poor, but implemented in isolation from other social protection programmes, mainly due to the mapping of implementation responsibilities within government.
Going forward, subsidies and their reforms should be part of the broader dialogue on social protection in Pakistan, and considered as one of a set of antipoverty interventions, the paper recommended. The qualitative assessment findings indicate that electricity is central to the lives of low-income and lower middle income households and that households struggle with electricity costs and they resort to coping mechanisms such as reducing necessary expenses on food, health and child care to afford electricity bills.
Despite efforts to improve service delivery, load shedding and electricity outages still negatively impact on households' economic and social well-being. Women are more affected by load shedding and by the household's efforts to manage electricity expenses because they are on average the main users of electrical appliances and spend more time in the home, the paper argued.
The majority of consumers does not trust their bills and believes that their bill amounts do not reflect their actual consumption. Almost none of the respondents were aware that the government provides electricity subsidies. Overall, the negative attitude of respondents towards the electricity service is a result of frustration with unreliable supply and perceptions of poor sector governance.
Despite struggling to afford electricity, respondents appear willing to pay higher prices provided service quality improves and governance problems are addressed. However, most respondents are sceptical that such improvements will take place. When governments undertake subsidy reforms, they have two main levers to help households adapt to higher prices: (i) compensating households for the price increase; (ii) and encouraging households to adjust their consumption patterns.
It further states that seasonal fluctuations further distort the functioning of subsidies, exposing poor households to higher per unit cost for electricity in the summer, when their consumption is highest, and providing unwarranted assistance to rich households in the winter months.
It is evident from the electricity consumption analysis that price-based subsidies are not an effective mean of targeting assistance to the households that need it the most. Pakistan already has a demonstrably better targeting mechanism. The NSER contains 'poverty scores' for almost all households in the country, effectively ranking them from the poorest to the richest. The registry, indexed by CNIC number, is already used for targeting in over 30 programmes in Pakistan. The NSER allows the government to select any subgroup of the population based on their welfare level; therefore assistance could be directed to any subgroup of the population, the paper maintained.