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Electricity protests: Losing trust and unplugging the refrigerator

22 May 2013 - {{hitsCtrl.values.hits}}

Matthew Arnold’s famous poem, Dover Beach, ends with a rather despairing couplet, “Swept with confused alarms of struggle and flight, / Where ignorant armies clash by night.”
The increase in electricity tariffs has united a wide array of trade unions, civil society and political parties in a protest that manifested on the streets yesterday. There have been so many sudden changes announced to the electricity tariffs in the last couple of months and it is now difficult to tell whether the protest is a metaphorical case of Dover Beach with “confused alarms” and “ignorant armies” or whether the latest numbers and events surrounding the revision can still justify the protest. The question bears analysis.

What were the grounds for protest?
Originally, opposition to electricity tariffs was based on three main arguments: (1) the public shouldn’t pay the price for CEB mismanagement; (2) supply side corrections could be used, instead of burdening consumers, to reduce the losses of the CEB (3) the poorest consumers were disproportionately burdened by the new cost recovery pricing structure. Do these grounds still pertain?

What do numbers say?
The latest tariff structure, following the May Day speech of the President, makes no increase to the total cost for those consuming up to 60 units a month. Furthermore, it reduces the increase, from the previously adopted proposal, for most consumers. Those who pay more under the newest proposals, compared to the previously adopted, are those consuming between 257 and 300 units, and those consuming above 410 units.
The new proposals increase the cost for those in the 257-300 band and reduce it for those between 301 and 410 units; suggesting that the pricing structure of at least one of these proposals was not very logical.
Furthermore, while the lowest consumers are spared, the Sri Lankan public is still facing significant increases in electricity consumption costs. Consider a consumer who consumes 61 units, his or her electricity bill will increase by 80 percent under the latest tariff revision. The percentage increase gradually decreases to about 21 percent as consumption reaches 400 units.

Unplugging refrigerator
A refrigerator is fast becoming a basic necessity in Sri Lankan households. Government statistics generally place food costs at more than 30 percent of household expenditure, and food price inflation has been recently quite high in Sri Lanka. Preserving food in a refrigerator saves not only time but also money. Even a small refrigerator will consume over 30 units a month.
Therefore, any household with a refrigerator can quickly reach the 60 unit mark in electricity consumption. In 2011 Nielsen found that 55% of Sri Lankan households owned a refrigerator. This means that most Sri Lankan households could face a steep increase in their electricity bills, even while the poorest (without refrigerators) are spared. But this increase is also less (coming down to 20 percent) for the very high consuming households (above 410 units), probably with air-conditioners.
The numbers then have this to say: those having the strongest case to protest should be those with refrigerators, but without air-conditioners. Not the poorest of the poor, nor the upper middle-class, but very much the lower middle classes.

Not numbers but still economics
There is another explanation for the snowballing protests that does not have to do with numbers but has everything to do with economics. This relates to institutions and public trust.
The manner in which the electricity tariff revisions have been conducted has provided grist to the mill of public concerns about mismanagement by the CEB and apathy towards the public by the Public Utilities Commission of Sri Lanka (PUCSL); in lazily burdening the public, instead of working with the CEB to solve supply side issues. Once institutions are seen to be out of tune with their obligations and the public begins to lose trust, whatever the numbers say doubts and disease can propel protests.
PUCSL: P for “Public” or “President”
Responding to the PUCSL’s invitation, over 300 submissions were made, written and oral, by consumer groups, industry, think tanks and technical experts, on the deficiencies in the proposed increase. The PUCSL ignored all these views and essentially approved the exact same tariffs as proposed by the CEB. But a political speech by the President on May Day requesting specific concessions was met with great obeisance. None of the excuses trotted out to the public about why that precise tariff increase was necessary and correct seemed trustworthy any more as the CEB and PUCSL moved with alacrity to conform to the call of the President.

The 13th chime of the clock
The public could justifiably be concerned: “If this concession was always possible, why did it have to wait the President’s speech?” The concerns were then further complicated by events. On May 7 the CEB made proposals to align with the President’s speech, but they did no align. Under these proposals those consuming between 30 and 60 units still faced an increase in their bill. On May 9 the PUCSL made a drastic revision not only to the tariff rates, but also to the tariff structure, abandoning the newly adopted “volume differentiated method” and reverting to the “increasing block method”.
This had been asked for in public submissions, but not done. And, it was not requested by the President. So what prompted the sudden and drastic change? Furthermore, while the President had called for reductions to the bill of those consuming less than 180 units the new tariff went much further and reduced costs for those consuming upto 410 units (except for those between 257 and 300 for whom it was increased).
Like the 13th chime of the clock that puts into doubt all that has gone before it, these sudden drastic changes, resulting errors, and illogical distribution of cost increases cancompound to cast doubt on the institutional competence and undermine public trust.
In the light of the analysis, of not just the numbers, but also the process and events, yesterday’s protestors had reasons that economists can understand and explain. If such snowballing protests are to be pre-empted in the future, government institutions would do well to pay more attention to the confidence that they command with the public.
(Verité Research provides strategic analysis and advice for governments and the private sector in Asia. Comments are welcome on [email protected])

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Electricity protests: Losing trust and unplugging the refrigerator

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