The electricity sector in Bangladesh hasbeen facing unprecedented challenges, with severe capacityconstraints and sector subsidies that quadrupled from 0.2percent to 0.8 percent of gross domestic product (GDP)between 2010 and 2012, driving the government's fiscaldeficit deeper. This policy note examines the poverty anddistribution impact of one such reform-residentialelectricity tariff increases-along with their fiscalimplications. A challenge of such adjustments is how tominimize their impact on the poor and vulnerable. Usinghousehold survey data, this report studies thedistributional and fiscal implications of the residentialtariff adjustments between March 2010 and March 2012 on toinform policy dialogue on the provision and targeting ofelectricity subsidies. Electricity subsidies are defined asthe difference between the cost of supplying a unit ofelectricity and the tariff the end-user is charged for agiven unit. Between 2010 and 2012, real cost of supplyincreased almost 20 percent. This policy note focuses onjust one part of a much broader and complex system ofconnected energy policies. The policy implications of thisanalysis should only be considered in light of this broadercontext. In particular, this note does not study in detailthe complex issues of generation and operational efficiency(in transmission and distribution). Second, this note doesnot study the political economy of tariff and subsidyreform. Tariff increases have been a source of socialunrest, and planned increases could generate additionalunrest. It will be important for the government to considerthe political economy of further reform carefully. Movingforward, both of the new slab systems being discussed couldrelieve the fiscal burden of subsidies.
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