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 7: Challenges and Opportunities in Electricity Service Provision for Urban BOP Communities

Simone Lawaetz and Connie Smyser

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


* Simone Lawaetz and Connie Smyser BACKGROUND As slum communities expand with increased urban growth, there is a growing market for service provision. The number of slum dwellers is expected to rise to 1 billion (one out of three city dwellers) by 2010 and this could double by 2022. In some countries, such as Brazil, Pakistan and Kenya, there are more children growing up in slums than non-slums. Households at the base of the pyramid (BOP) devote about 7 percent of their expenditures on energy, with this share slightly increasing as incomes diminish. (BOP households are defined as households earning less than US$3000/year in local purchasing power parity.) In Africa, Eastern Europe and Latin America, energy ranks third in BOP household expenditures, following food and housing. In Asia, energy ranks second, surpassing housing. Globally, the BOP households total about 4 billion people and constitute a $5 trillion global consumer market, of which energy’s portion is $220 billion and growing (Hammond et al., 2007). Historically, electric utilities have expected low or negative returns from expanding service to low-income customers, given their relatively low consumption levels and the added problems and costs of electrifying these mostly informal areas. However, as slums have grown, utilities have increasingly focused on these areas to reduce their commercial and technical losses as well as fulfill any universal service requirement policies. With increasing experience, utilities are acquiring knowledge on effective ways to improve relations with communities, prevent theft and dramatically increase collections, realizing the market potential of...

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