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Customers spend more on telecom services than electricity, water: Local survey

08 Jun 2022

  • Researchers recommend cost-reflective tariffs to communicate true service costs to customers
  • Propose detailed study of effectiveness of Govt. subsidies in reaching low-income households
BY Ruwan Laknath Jayakody Customers pay more on the telecommunication service than for other essential services such as electricity and water, a local survey found. This finding was made in an article on the “Study on household expenditure on utility services in Sri Lanka” authored by M.T.A.P. Wickramarathna and C. Gamage (both attached to the Ceylon Electricity Board’s [CEB] Broadlands Hydropower Project) and published in the Sri Lanka Energy Managers’ Association Journal 24(2) in December 2021. Utility services mean basic amenities such as electricity, water, sewage services, telecommunication, gas, petroleum, and transportation services provided by public or private companies. Reliable utility services are vital for any country. Electricity and water services are considered important as they are basic requirements. The electricity and water services are provided by public corporations. The telecommunication service is provided by companies with both public and private owners, as well as fully privately owned companies. Customers must pay for utility services in proportion to their consumption. With regard to utility service providers concerning electricity, the CEB has the statutory obligation to “develop and maintain an efficient, co-ordinated and economical system of electricity supply for the whole of Sri Lanka”. Accordingly, Sri Lanka has, per the CEB’s Annual Report for 2020, achieved near 100% electrification by providing access to electricity for every citizen. The Lanka Electricity Company (Pvt.) Ltd. is a distribution entity. With regard to utility service providers concerning water, the National Water Supply and Drainage Board (NWSDB), per its Corporate Plan for 2020-2025, is responsible for providing safe drinking water and sanitation. The NWSDB supplies pipe borne water to 40% of the population across all nine Provinces, mainly in urban areas. With regard to utility service providers concerning telecommunication, there are three fixed-line operators, five mobile phone operators, and 11 internet service providers. The telecommunication sector in Sri Lanka has recorded higher growth in the recent past with the total fixed-line and mobile telephone density increasing up to 142 per 100 persons, with an upward trend being recorded in the use of both voice and data. Concerning utility sector subsidies, electricity and water supplies are priced below cost, while the telecommunication service is competitively priced. For water and electricity, most households pay for consumption at rates that are less than the cost of generation due to the lack of cost-reflective pricing. Subsidies are justified based on the need to ensure that essential services remain affordable to the poorest in the society. W. Wijayapala and T.N. Kankanamge's “Assessment of the impacts of electricity subsidies in Sri Lanka” reveals that subsidies on electricity also flow to unintended persons owing to loopholes in defining the eligibility criteria, and hence propose modifications. The electricity tariff is not cost reflective, hence the service provider, the CEB, is experiencing a huge loss annually, and in 2020, a net loss of Rs. 62.5 billion. The main reason for this loss is the Government’s policy of not revising the tariff since 2014. The CEB offers the electricity tariff at a price lower than the actual cost at the selling point, to consumers at a low consumption level in the domestic category and most of the other categories excluding the general purpose category. Hence, per the CEB's Annual Report for 2020, the high end consumers in the domestic category and general purpose category have to bear a part of this cost in excess. The annual profit and loss of the CEB, the NWSDB, and Sri Lanka Telecom PLC (SLT) for 2020, 2019, and 2018 are as follows: 
  • CEB: 2018 – Rs. 30 billion, 2019 – Rs. 97.4 billion, 2020 – Rs. 62.5 billion
  • NWSDB: 2018 – Rs. 569 million, 2019 – Rs. 1.2 billion, 2020 – Rs. 529 million
  • SLT: 2018 – Rs. 4.9 billion, 2019 – Rs. 6.3 billion, 2020 – Rs. 7.8 billion
The electricity tariff has six categories; namely, domestic, religious, general purpose, industrial, hotel, and government. In 2020, the average cost at the point of sale, according to the CEB's Statistical Digest Report, was Rs. 21.21 per kilowatt-hour (kWh) while the average selling price was Rs. 16.72 kWh. Domestic electricity consumers who consume less than 90 units, get electricity for Rs. 10 per kWh or lower. For religious institutions, the maximum electricity price is Rs. 9.40 per kWh. The industrial and government categories also see subsidised electricity prices. For the financial year of 2020, the loss and deficit of the CEB due to the subsidies provided was Rs. 79 billion. Water tariff structures do not discriminate between low users and high users; however, low-income Samurdhi holders get a special tariff. On the other hand, a majority of low income or rural households in Sri Lanka do not have pipe-borne water connections. Although the essential services – electricity and water – are provided at a subsidised price, the telecommunication service is provided at competitive prices in Sri Lanka. Wickramarathna and Gamage’s study examined the average monthly household expenditure on utility services, in order to study expenses on utility services, and the overall survey being conducted to also analyse its relationship to the monthly income and to propose improvements to make Government subsidies more effective. A field survey was conducted in 2020, covering seven provinces with a total of 1,350 participating customers’ responses collected online from households. Data collected included monthly household electricity, water, and telephone bills (both fixed line and mobile), and the monthly household income levels.  The average monthly data were as follows: 
  • North Western Province: Electricity – Rs. 1,693, telecommunication – Rs. 2,955
  • Sabaragamuwa: Electricity – Rs. 917, water – Rs. 335, telecommunication – Rs. 921
  • North Central: Electricity – Rs. 1,492, water – Rs. 394, telecommunication – Rs. 1,827 
  • Southern: Electricity – Rs. 2,174, water – Rs. 1,542, telecommunication – Rs. 2,652 
  • Western: Electricity – Rs. 1,913, water – Rs. 1,054, telecommunication – Rs. 1,909 
  • Central: Electricity – Rs. 559, water – Rs. 355, telecommunication – Rs. 1,325 
  • Uva: Electricity – Rs. 1,535, water – Rs. 902, telecommunication – Rs. 1,925 
Accordingly, the average levels were: Electricity – Rs. 1,485, water – Rs. 655, telecommunication – Rs. 1,931. According to the share of average expenditure on water, electricity, and telecommunication services incurred by the households responding to the survey, 48% of the household expenditure for utility services is for the telecommunication service, whereas 36% is for electricity, while expenditure on the water service stands at about 16% of the expenditure on utility services. All seven provinces show the same pattern of expenditure, with the highest expenditure being incurred for the telecommunication service. Respondents to the survey were requested to state the range of their monthly income, as an index from one to four (one – less than Rs. 30,000, two – Rs. 30,000-60,000, three – Rs. 60,000-90,000, four – over Rs. 90,000), and the expenditure for the utility services across different income levels was studied with the share of the expenditure on electricity, water, and telecommunication services depending on the income levels. The pricing structure, according to Wickramarathna and Gamage, implies that there is an electricity subsidy for households if the usage is equal to or less than 90 kWh within a 30-day period, regardless of their income. The survey data were analysed to find the number of households receiving an electricity subsidy for each province, and it was found that 30% of households in six provinces receive an electricity subsidy (share of household customers receiving a subsidy for electricity: Uva – 34%, Central – 82%, Western – 34%, Southern – 14%, North Central – 33%, Sabaragamuwa – 78%, North Western – 57%). Wickramarathna and Gamage recommended therefore that a cost-reflective tariff be implemented in order to communicate the true costs of these services to the customers. Furthermore, Wickramarathna and Gamage also proposed that the effectiveness of Government subsidies in reaching low income households be studied in depth. In conclusion, while Sri Lanka’s electricity and water suppliers are Government owned corporations, and the Government subsidises these services in order to ensure that electricity and water services remain affordable to customers, the existing electricity and water tariffs are not cost-reflective, and moreover, as Wickramarathna and Gamage observe, the customers who receive such a subsidy do not really value the subsidy for which the relevant Government corporations incur large losses.  Hence, with the above mentioned survey which was conducted to study the household expenditure on utility services, revealing that households spend more on the telecommunication service (voice and data) compared to on electricity and water, which are the main essential services.  Thus, there is a dire need to price electricity and water at cost-reflective levels so as to enable the said Government corporations to minimise financial losses, and also to improve the quality of the services provided to the consumers.  


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