Region: Global
Country: Global / Non-Specific
Topics: Pro-poor
Keywords: Legal issues, Subsidy
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Document Details:
Utilities often fail to recover through tariffs the costs of operation and maintenance, let alone investment in infrastructure. There is a common perception that tariff increases are politically untenable and so utilities become subsidized out of general taxation, whether there is a deliberate policy to this end or, as is often the case because the service provider cannot balance its books at the end of the fiscal period.
However, this type of subsidy through taxation tends to benefit the better off as it is only a benefit to existing consumers , irrespective of their ability to pay, or are aimed at larger users. It is the poorer areas that are less likely to have access to such services and are likely to be paying more for the services to alternative providers, such as bottled water or taxi services. If it is deemed necessary to provide subsidies then these should be linked to improvements in service or targeted at the poorer customers. General subsidies do not tend to be closely accounted for or be given in exchange for increased efficiency, and so there is little incentive for improvements in service delivery or improved efficiency.
Related Information:
Other Mechanisms Supporting Pro-Poor Services Delivery
Updated: August 25, 2020