Cost Recovery and Financial Viability of the Power Sector in Developing Countries: Insights from 15 Case Studies

55 Pages Posted: 31 Jan 2020 Last revised: 4 Feb 2020

See all articles by Joern Torsten Huenteler

Joern Torsten Huenteler

World Bank

Denzel J. Hankinson

World Bank

Nicole Rosenthal

World Bank

Ani Balabanyan

World Bank - Energy and Extractives Global Practice

Arthur Kochnakyan

World Bank

Anshul Rana

World Bank

Vivien Foster

World Bank

Date Written: January 30, 2020

Abstract

This paper analyzes power utilities in 15 jurisdictions to understand the determinants of success for reforms aimed at improving financial viability and cost recovery in the power sector and the impacts of these reforms on metrics of sector performance. The analysis finds that electricity tariffs are rarely high enough to cover the full costs of service delivery, even where the cost of service is low, and that few countries adequately manage volatile costs and maintain cost recovery levels over time. Almost everywhere, power utilities often impose a substantial fiscal burden and contingent liabilities on government budgets. Over the past 30 years, cost recovery levels have increased on average, but progress has been uneven, with over half of the case study jurisdictions experiencing a decline compared with the pre-reform period. The record of reforms of price formation, especially tariff setting through regulatory agencies, is mixed. On average, countries that have made more progress on utility governance and decision making perform better on cost recovery. The paper concludes with proposed modifications to the conceptual framework underpinning the economic analysis of power sector reforms as well as immediate, practical implications for understanding cost recovery as part of the overall power sector reform agenda.

Suggested Citation

Huenteler, Joern Torsten and Hankinson, Denzel J. and Rosenthal, Nicole and Balabanyan, Ani and Kochnakyan, Arthur and Rana, Anshul and Foster, Vivien, Cost Recovery and Financial Viability of the Power Sector in Developing Countries: Insights from 15 Case Studies (January 30, 2020). World Bank Policy Research Working Paper No. 9136, Available at SSRN: https://ssrn.com/abstract=3528861

Joern Torsten Huenteler (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Denzel J. Hankinson

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Nicole Rosenthal

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Ani Balabanyan

World Bank - Energy and Extractives Global Practice

1818 H Street, NW
Washington, DC 20433
United States

Arthur Kochnakyan

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Anshul Rana

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Vivien Foster

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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