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Are Subsidies Decisive in the Provision of Energy to the Urban Poor?  The Cases of Kerosene and Electricity in Ethiopia

Bereket Kebede  

Centre for the Study of African Economies (CSAE) and St Antony’s College, Oxford University and Department of Economics, Addis Ababa University  


Abstract

The objective of this paper is to examine if kerosene and electricity subsidies are significant in making the fuels accessible to urban poor households in Ethiopia.  The purchasing power of households, as measured by energy expenditures, is compared to costs of kerosene and electricity use.  The empirical results indicate that subsidies cover only a small part of the overall costs of kerosene and electricity.  In addition, urban poor households seem to have the purchasing power to access kerosene and electricity without subsidy (probably with a small shortfall in the case of electricity).  The main problem is related to upfront fixed costs, particularly for electricity.  Given the limitations of subsidy (e.g., leakage to non-targeted groups, distortion of relative prices, wasteful consumption), the results imply spreading out fixed costs over bills and/or providing credit facilities are better and sustainable methods of reaching the urban poor.

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