Supporting the Policy Environment for Economic Development

Cost Reflective Tariffs Discussion Paper

A customer tariff structure is a mechanism for users to pay either a public utility or a private sector provider for the costs of generating and delivering electricity to them. Although this sounds simple, setting customer tariffs for the power sector is a complex issue with broad social, economic, and environmental implications. It is also a highly technical issue that can require significant and potentially costly data collection and analysis for establishing tariffs, and administrative costs for implementation. This discussion paper provides a concise summary of the key considerations and decisions facing any country establishing a customer electricity tariff structure. It describes the trade-offs among the different financial, social, economic, and environmental objectives that are inherent in all tariff structures. It can help Mozambique to determine how to create a tariff structure that will balance objectives of universal access, enable Electricidade de Mocambique (EdM) to restore financial health, facilitate economic growth, and protect the environment.

The Key Concepts section presented above is critical to understanding the discussion presented in the body of this paper. In order to present a streamlined and concise summary of issues, the fundamental Key Concepts are explained fully in the preliminary section and then used in context within the paper. The first usage of a Key Concept in the paper will be highlighted to assist readers in referring back to the full explanation as needed. All readers are encouraged to read the Key Concepts section thoroughly.

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