Skip to content

Electricity Tariff Reforms and Energy Poverty Implications

5 September 2018, 2 PM. Associate Professor Dr Romeo Pacudan presented the study results of the project sponsored by the Economic and Research Institute of the ASEAN and East Asia (ERIA) on the theme of energy poverty in Asia. The Brunei case study analyzes the energy poverty implications of electricity tariff reforms.

Energy pricing policies in Brunei are similar to those in other energy exporting countries which set prices below market rates. If pricing policies of energy-exporting countries could be a reference for Brunei, it is important to note that the Gulf Council Countries (GCC) have recently introduced fuel pricing reforms to curtail substantial amounts of national budgets that were spent annually to maintain low energy prices.

Studies in Eastern European countries showed that during the transition period from centrally planned to market economies, the introduction of electricity pricing reforms had affected consumers’ welfare and pushed poor households and vulnerable members of the society towards energy poverty. Energy poverty in the context of developed countries refers to the ability to afford the energy one needs; for developing countries, this refers most often to lack of access to energy services. The concern of energy poverty in Brunei, if any, would be like that of developed countries rather than those of developing countries. At present, energy poverty does not exist in the country but this may change with fuel pricing reforms.

Dr. Pacudan presented his analysis of a scenario that residential electricity tariff rate be increased to short-run marginal cost (SRMC) of electricity generation. His study results show that with the existing increasing block tariff (IBT) structure, welfare losses and the increase in electricity expenditures would be high for non-poor households; for those living in urban areas and for those engaged in white-collar jobs, and it would have been the reverse had the government not introduced tariff rate structure reforms in 2012. Despite the increase of electricity expenditures, it would however remain below 5% of household income – far lower than the energy poverty threshold level of 10%. The tariff structure reform, therefore, shielded the lowest-income households from potential impacts of subsidy removal.

His research study concludes that the restructuring of residential electricity tariffs in 2012 shielded the poor and other vulnerable members of the society from potential impacts of subsidy removal and was an important tool for redistributing wealth in the country. In addition, current policies being pursued or elaborated by the government could also mitigate impacts of potential subsidy removal, such as improving supply-side and demand-side efficiency levels and incentivising households to invest in solar PV systems.

© Copyright 2018, Institute of Policy Studies, Universiti Brunei Darussalam