Private Utilities and Poverty Alleviation

Private Utilities and Poverty Alleviation

Market Initiatives at the Base of the Pyramid

Edited by Patricia Márquez and Carlos Rufín

Drawing on cases from electricity distribution and other infrastructure industries, and from experiences spanning Asia, Africa and Latin America, this book examines new business models to bring basic utility services to the four billion people comprising the base of the socio-economic pyramid.

Chapter 6: Prepaid Meters in Electricity: A Cost–Benefit Analysis

Ariel A. Casarín and Luciana Nicollier

Subjects: development studies, development economics, economics and finance, development economics, industrial economics, public sector economics


Ariel A. Casarín and Luciana Nicollier The concerns for universal service in utilities have motivated firms and regulators to identify technological and regulatory options aimed at encouraging access, and making it easier for consumers to pay for their services. In both cases, Latin America has pioneered the adoption of innovative mechanisms.1 The improvement of access to infrastructure services has led to industry restructuring, private sector involvement and consequential regulatory reforms. Higher access rates have then been encouraged with the identification and imposition of connection targets, the creation of community involvement and microcredit programs, as well as the use of new technologies. Following this, higher levels of affordability have been sought with the use of instruments that ease the burden of bills via cost and tariff cutbacks, and the introduction of alternative payment means. Indeed, most efforts to secure higher levels of affordability have consisted of mechanisms aimed at reducing the cost of services, either affecting their quality or reducing their demand. Other efforts, however, have targeted the adoption of various subsidy schemes, either directly or through tariff structures (Gómez-Lobo and Contreras, 2003). In general, experiences with policies that adopt alternative payment methods for utilities have been scarce. The simplest alternative which is often suggested consists of increasing the frequency of billing to low-income users.2 However, a disadvantage of this mechanism is that it would increase administrative collection costs, which would ultimately result in higher tariffs (Estache et al., 2002). Since the middle of the 1990s, and probably following...

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