الألواح الشمسية في دبي. (Shutterstock.com/Alexey Stiop)
Ask any expert about the top energy priorities for the Middle East and North Africa (MENA) region and you will likely hear about how the region is in desperate need of energy reforms – pricing reforms to be specific.
Knowing the power sector realities in MENA, we can't argue with that. After all, these reforms may well be the lifeline needed by countries across the region to create an enabling environment for new, sustainable, and resilient energy infrastructure projects. Such projects can help kick start the region’s troubled economies, especially after the COVID-19 crisis, creating much needed job opportunities that will boost purchasing power and help reverse the economic downturn.
The emphasis on energy sector reforms, which are the bedrock of the transition toward a sustainable energy future, is accurate; however, we believe that they also need to factor in the economic and political context of the concerned countries.
The implementation of energy sector reforms in the MENA region has often encountered wide public disapproval, and in some cases, has also led to social unrest. The pressing socio-economic realities of countries in the region are a major challenge causing resistance to reforms for fear of negative impact on people’s livelihoods. That is why, the region needs to focus on more effective public engagement and move beyond an “economics first” stance.
Citizen engagement is key to overcoming this resistance. Engaging the public can increase trust in government institutions and raise awareness about how the lack of reforms is harming society at large. We can see from the results of past pricing reform efforts in the region that, where countries have engaged in meaningful citizen engagement efforts, they have been instrumental in the success of reform attempts. The cases of Morocco or Egypt are notable examples.
The baseline for the citizen engagement process is awareness. Citizens must be informed of the negative impacts of subsidies and the subsequent pressure on the financial health of their country. The second layer above this baseline is trust: trust that the government will use savings efficiently, protect the most vulnerable groups, and implement reforms that will ultimately lead to a win-win scenario where citizens have access to better services without impacting the government’s financial health.
There is no doubt that pricing reforms are a crucial part of any reform program in the region, but the order of reform steps makes a difference.
When pricing reforms are discussed, often the first thing that comes to mind is a tariff increase. But in many cases, the reflex to increase tariffs – what the average consumer pays for energy services – before tackling other reforms can be counterproductive.
When we fully consider the realities faced by power utilities in the region, we reach the conclusion that there are other, more pressing reforms that need to be undertaken first.
There are three reasons for this.
First, the inability on the part of utilities to recover their costs is usually not only due to lower tariffs, but also stems from systemic inefficiencies that include technical and non-technical losses. The focus on pricing and tariff reforms could overshadow other important measures, such as boosting the efficiency and quality of service improvements.
Second, there are other options that can be utilized before increasing tariffs. These could include differentiating between residential and commercial customers and introducing dynamic tariffs, which vary with peak or off-peak usage of electricity.
Third, pricing reforms are much easier when combined or preceded by tangible improvements in services and social protection measures to mitigate their impact on the more vulnerable groups, including women and female-headed households, as well as an effective communication and citizen engagement strategy.
Pricing reforms often have a differentiated impact on women. This mainly stems from the pronounced differences between men and women in terms of energy needs and priorities, the roles they assume in society and households, and the gap with regards to income and economic empowerment. As women are typically responsible for managing the household, especially in developing countries, tariff adjustment is also likely to impact them by influencing their energy use patterns. For example, women may opt to do certain tasks manually to save energy or shift their work schedules. Therefore, it is crucial to take women’s voices into account when engaging with the public for a successful energy transition.
Before raising tariffs, there should be a focus on lowering costs through lowering technical and organizational inefficiencies and by winning over customers with demand-side reforms that are beneficial for them. Reforms must be preceded by genuine citizen engagement efforts alongside other enabling conditions.
What are your thoughts on this topic?
The Energy Sector Management Assistance Program (ESMAP) is a partnership between the World Bank and 19 partners to help low- and middle-income countries reduce poverty and boost growth through sustainable energy solutions. ESMAP’s analytical and advisory services are fully integrated within the World Bank’s country financing and policy dialogue in the energy sector. Through the World Bank Group (WBG), ESMAP works to accelerate the energy transition required to achieve Sustainable Development Goal 7 (SDG7) to ensure access to affordable, reliable, sustainable and modern energy for all. It helps to shape WBG strategies and programs to achieve the WBG Climate Change Action Plan targets.
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