Academic journal article Journal of Southeast Asian Economies

A New Electricity Tariff in Brunei Darussalam: Welfare Implications for Households

Academic journal article Journal of Southeast Asian Economies

A New Electricity Tariff in Brunei Darussalam: Welfare Implications for Households

Article excerpt

I. Introduction

Brunei is endowed with an abundance of oil and gas resources that have accounted for more than half of its GDP and more than 90 per cent of exports and government revenue over the past two decades. As is the case with most resource-dependent nations, Brunei faces both a "curse" and a "blessing". The "curse" is a heavy reliance on the oil and gas sectors and the "blessing" is the ability to fund a large public sector, maintain an extensive welfare system and invest heavily in health, education and infrastructure from the wealth accumulated from such resources. In order to maintain political stability and social harmony, the government has focussed on developing far-reaching social welfare programmes to protect poor and vulnerable groups. However, Brunei's extensive and universally subsidized programmes have placed a heavy fiscal burden on the government. For example, subsidies go towards providing free education, affordable healthcare, low-cost housing and staple foods, low-cost electricity and petroleum products and generous pensions.

Energy subsidies remain a sensitive matter, especially since prices have climbed to historical highs. Energy delivery at below-cost prices drains resources that could be invested into improving generation, transmission and distribution systems. Recent public awareness programmes, for example a one-day campaign on life without fuel subsidies was held on 24 May 2010 to educate people on energy conservation and the high costs of subsidies, are possible signs that subsidies will inevitably be reduced in scale and scope, if not eliminated completely (Masli 2010; Shahminan 2011). However, the government has emphasized that subsidy rationalization must take into account "[the] people least able to cater for themselves" (Government of Brunei Darussalam 2007, p. 21). A redesign of tariff schemes or an increase in energy tariffs is not necessarily disadvantageous to the poor, since the freed resources can be reinvested into upgrading infrastructure and improving the quality, reliability and coverage of electricity supplies; or towards developing new social assistance programmes to support poor households.

Lawrey and Pillarisetti (2011) have estimated that fuel and electricity subsidies in 2006 cost the government B$262 million and B$286 million, respectively. Almost all of Brunei's electricity is powered by natural gas turbines, consuming about 10 per cent of total gas production (Energy Division 2007). Prior to 1 January 2012, the primary electricity tariff scheme was based on the Declining Block Tariff (DBT) structure, which indirectly discouraged energy savings since the average cost per kWh decreases with greater consumption. Given the relatively high volume of gas production used in power generation, the DBT structure is an outdated tariff scheme that does not promote energy conservation and is clearly not in line with Brunei Darussalam's Long-Term Development Plan which aims to "develop an energy policy that accords proper priority to [the] oil and gas industry" (Government of Brunei Darussalam 2007, p. 18). The government has since taken significant steps towards electricity tariff reforms by abolishing the DBT structure in the residential sector, which was in place since 1969. This has been replaced by an Increasing Block Tariff (IBT) structure, which charges a lower rate up to a pre-determined consumption threshold, and a higher rate for consumption above this threshold. In essence, all households continue to enjoy a low rate as long as their consumption remains under the pre-determined threshold. The IBT is expected to incentivize energy savings as the average cost per kWh increases with greater consumption.

The rest of this paper is organized as follows: section II details the electricity tariff structure in Brunei and discusses the new residential Increasing Block Tariff scheme. Section III provides an overview of Brunei's residential electricity consumption trends and household expenditure patterns. …

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