Simulating impacts of reducing subsidies to Kuwait’s electricity sector

Journal article

Kuwait’s electricity is among the cheapest in the world, and it is the most highly subsidized sector in the country. Indeed, it is so highly subsidized that the sector generates electricity and almost distributes it to users for free. The extremely generous subsidy is intended to serve as a means of allocating welfare transfers to resident businesses and households. The government owns a vertically integrated monopoly – managing the entire supply chain from electricity generation to retail. In recent years, however, it has become increasingly clear that this welfare-oriented electricity production and distribution has had adverse economy-wide effects, specifically conflicting with other policy priorities such as environmental protection and appropriate resource allocation. There is growing awareness among policy makers and researchers that the existing policy is not sustainable. The necessity for economic reforms in wider areas of public utilities management is rooted in recent shifts in economic development strategies, as well as in initiatives related to regional integration among GCC member countries. Given mixed results from public utility reforms in many countries, uncertainties surrounding the effects of regulating the Kuwaiti electricity sector have caused some apprehension among the public. This article will shed some light on the likely impacts of the envisaged reform and summarizes some of our main conclusions from a forthcoming study, whose objective is to quantify economy-wide impacts of public utility reform that may start by targeting the reduction of electricity subsidies. The study is based on a computable general equilibrium (CGE) model which simulates the possible economy-wide impacts of reducing electricity subsidies.

Authors: Gelan, A

• Publication status: Published
• Peer review status: Peer reviewed
• Publisher: Oxford Institute for Energy Studies
• Journal: Oxford Energy Forum
• Issue: 96
• Pages: 32-35
• Publication date: 2014-06-16
• DOI: https://www.oxfordenergy.org/publications/oxford-energy-forum-issue-96/
• ISSN: 0959-7727
• Language: English
• Keywords: OIES