Reforming energy subsidy in Kuwait: maximizing net benefits and equity compliance

Abstract

The net benefits and public acceptance of a proposed reform to the current subsidization of energy in the State of Kuwait were investigated in this study. The proposed subsidization suggests that the government pays the consumers the subsidization cost in advance and in exchange for raising the subsidized tariffs to total price. The consumption will likely be reduced by a rate equal to the overconsumption due to the current subsidized tariffs relative to the income. The net benefits are expected to be maximized and shifted to a pseudo-equilibrium point where both the governments and the consumers will be better off financially. The public acceptance of the proposed strategy was examined using 274 voluntarily one-to-one interviews for gasoline and 121 for electricity and water. Also, a utility meters reading program was conducted on 90 houses out of the 121 interviews for utilities. The interviews for gasoline and utilities indicated 57% and 66% of the respondents see no equity in the current subsidization, 55%, and 80% admitted to overuse, 11% and 21% average of the consumption, and 67% and 66% of the respondents were willing to adopt the new strategy. The consumer is expected to save 912 USD/year from gasoline and 8,198 USD/year from utilities. The estimated net benefits are 5,841 million USD annually, with 62% attributed to utility benefits and 38% to gasoline benefits.