Residential Electricity Consumers and Increasing Block Pricing Policy in Pakistan: Evidence Based on Household Level Primary Data

Abstract

The purpose of this paper is to explore the efficacy of increasing block electricity pricing (IBEP) which was imposed in 2013 by the Pakistani government. The main objective of this policy is rational resource allocation and to lower the cross-subsidization to the residential sector by two other major sectors such as commerce and industry. The study is based on primary data which is collected through questionnaires from four tehsils of district Sargodha in rural as well as the urban regions. About 54.6% of households understand the electricity price scheme (IBEP) while urban users are more aware as compared to rural but urban electricity consumption is higher due to high use of home appliances. By using the regression model the elasticity of residential electricity consumption is estimated for heterogeneous consumers. The upper blocks of electricity consumption are more sensitive to price increases (e.g., the elasticity of the first to fourth block is -0.391, -0.988, -1.229, -0.955 respectively) except in the fifth block (-0.489) which indicates that higher income group pays more attention to the standard of living. The increase in the number of trees also affects the price elasticity of residential electricity use and positively influences saving behaviour. The policy which was implemented from a welfare point of view has achieved its target to a certain extent. Future guidelines for the up-gradation of electricity pricing reform in the residential sector are thus proposed.