Magnitude and Distribution of Electricity and Water Subsidies for Households with Private Connections in Addis Ababa, Ethiopia

This paper presents the first detailed analysis of the combined effects of increasing block tariff (IBT) structures for both electricity and water in an urban area of a developing country. In Addis Ababa, an IBT has been used to calculate households' monthly bills for electricity and water services. This study estimates the magnitude of combined water and electricity subsidies received by households with private connections to both the electricity grid and the piped network water in 2016, and it evaluates the distribution of these subsidies among wealth groups. Customer billing data supplied by utility companies are matched with socioeconomic information collected through a household survey. Results show that the combined subsidies are large. The average household receives a subsidy of USD 26 per month, about 6% of household income. The findings also show that both electricity and water subsidies under the IBT disproportionately accrue to richer households. The poorest quintile receives 12% of the total subsidies for electricity and water services, while the richest quintile receives 31%. The IBT used in the water sector performed worse in terms of targeting of subsidies to poor households than the IBT used in the electricity sector.