Why don't rural households pay electricity bills?

Why don't people in rural areas pay electricity bills?

The standard narrative is that enforcement systems are weak; people feel electricity as their entitlement, expect it to be provided free of cost, and hence don't pay. Such narratives, though convincing, mask a large set of other genuine issues that can result in non-payment. 

Before going to the discussion, let's understand the billing system. An electricity bill consists of typically 4-5 line items, depending on the utility.
  • Monthly standard charge: It's minimum charge that has to be paid monthly. You have to pay it even if you don't consume anything during the billing cycle.
  • Charge as per consumption: This is the amount corresponding to the number of electricity units consumed (total number of units consumed x per unit charge).
  • Asset charges: If utility has installed an upgraded new meter in your house, it retrieves that amount in small amounts monthly. This includes any other similar charges.
  • Arrears: It's the pending bill amount that hasn't been paid. Interest is also added to it. Not applicable to everyone
  • Taxes
Coming to the reasons for non payment:

1. Irregular and poor quality power: Remember that you have to pay some amount monthly, even if you don't consume anything. If low voltage power is the norm and electricity is only for few hours a day, it leads to dissatisfied consumers, why should I pay money?

2. Poor customer service: A part of the anger can also be from non responsive customer service. Sometimes, utilities take few weeks to months to repair blown up transformers. However, villages are expected to pay even for this time during which they didn't get power.

3. Irregular power bills: In some states, bills are sent irregularly. Some times once a month and sometimes after 6 months to 1 year and they are expected to pay within 2-3 weeks. When poor households receive bill of 1 year at once, they don't have enough liquidity to pay it.

4. Incorrect power bills: Incorrect power bills is also one of the huge reasons for dissatisfaction and anger. Billing systems of some utilities aren't streamlined. Some times households with just 1 bulb and fan end up getting bills in thousands. There's no reason why people would want to pay such bills.

It is also a common knowledge that some utilities do financial engineering of account books. Utilities have targets to cut transmission and revenue losses. When they can't meet those targets, units which are lost in transmission are divided equally among people, and are added to next billing cycle. Utilities thus transfer the transmission losses to non payment category, shifting the blame to consumers. One month, consumers see their bills suddenly spike. They feel that it's unfair and lose trust in billing system.

5. Transportation costs: Transportation costs to the office to pay bills might not make economic sense!

6. Problems in financial planning:  In discussions on electricity, we often forget the nature of demands that electricity payments impose on the financial planning of the poor.

Electricity is probably one of the only service that the rural poor have to pay for on a regular basis, perhaps monthly or bi-monthly. Monthly or bi-monthly payments aren't an issue for those who receive regular income and hence can plan accordingly. It's not so for people whose income is unreliable - you may earn money this week but not for next 2-3 weeks - you get money only once or twice in an year, hence setting aside something for every month is difficult. 

Further, as discussed, the date of receipt of electricity bills isn't as regular and predictable in some states. You may receive bill this month, next one 1 month later and next one 5 months later. People might not have money at the time they receive the bill. They are then required to pay the bill within 2-3 weeks of receipt of the bill.

What's the solution?

While all of the above seem plausible constraints, we don't know which is the binding constraint. It also says how little we know about electricity payments! There is definitely need for more evidence on these. Welcome RCTs!

Having said that, this problem needs to be approached from the perspective of eliminating alibis. Today, if you demand consumers to pay bill, they may cite the irregular, incorrect bills etc. as issues and justify their non payment. It can be true but it can also be the case that people are just citing some of these constraints as alibis to hide their inner instincts to not pay the bills. 

The first step is to eliminate the possibility of alibis. It means - address the issues of low voltage, irregular bills etc. quickly. Once these are addressed, people don't have any alibis. Utilities are then at better place to demand payment and it also helps build trust among consumers.

One issue still remains - the burden on financial planning of the poor. Pre-paid meters can address this problem effectively. With prepaid meters, households can buy electricity credits (like phone credits) when they have money, in small amounts, without being forced to pay large amounts as per timelines of utilities.

Evidence from South Africa suggests that it can work. For instance, the recharge data in SA shows that the poor recharge often on Fridays or on the days on which they generally receive their wage payment. It thus helps them plan and adjust their finances better.

But isn't installing prepaid meters in each house expensive? Yes, it is. But one can work around it. As trialed in Kenya (12:00), one can install necessary systems at pole level, instead of installing in each household.

Even after doing all this, people might still not pay, due to attitude reasons. It requires a different approach - using behavioural techniques to help them control usage or peer pressure techniques. Bihar is currently using a RLS (Revenue Linked Supply) scheme to increase payments. As per this scheme, electricity supply to a locality depends on the percentage of bill payments from that locality in the previous bill cycle. This hopefully leads to peer pressure and increases bill payments.

In summary, the non payment of revenues in rural areas is not as simple as it sounds. It's not a mere attitudinal problem or just weak enforcement. There are many genuine issues that might be possibly resulting in nonpayment. We need to resolve them to narrow down to attitudinal issues if any, which can be addressed using behavioural techniques.

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