The electricity operator in this department is Elfeo. Residential prices level off after 1998 while
commercial prices drop more than 10% between this year and 2000, illustrating the dwindling
effect of subsidization as it is used less intensively in Oruro and throughout Bolivia.
As stated earlier, some phasing out of cross subsidization has indeed occurred. However, a
complete termination of this practice has not happened due to public outcry at the possibility of
higher tariff rates for a commodity the bolivian population (i.e., households) has grown
accustomed to get very cheap.
Some authors (Salamanca, J., 2001, Estache, A., et.al., 2001) have shown evidence that supports
the widely held belief that subsidies of public utilities do not necessarily benefit the poor but
rather the middle class. A significant degree of cross subsidization in distribution tariffs among
consumer categories in the city of La Paz has been in place for years, but it is the smaller, well-
off residential consumer, that is being subsidized by medium-sized commercial businessess. It is
also generally the case that in many countries subsidization of electricity consumption increases
as the income of households rises, a situation that has been referred to as “regressive“ in nature.
A final note about subsidies: reliable data on the scale and amount of subsidies utilized by every
operator over time is hard to come by, not least because since the passage of Law 1604 the
Superintendency of Electricity has as one of its explicit principles “efficiency in the assignment
and utilization of resources for the supply of electricity at minimum cost“ (Article 3, clause b of
the Electricity Law). Implied in this principle is that subsidization ought to be discontinued in
order to make efficient use of resources in the industry. Since neither the Superintendency nor the
operators have any incentives to explicitly show that in their respective ways they are not
conducting themselves efficiently, it is not surprising that the amount and scale of subsidy
utilization does not appear neither in the financial statements of the operators nor in those of the
Superintendency.
Quality14
Quality indicators are a new development in Bolivia’s electricity industry. They appeared when
the Superintendency of Electricity started requiring operators to comply with a set of specified
guidelines. Because of the late start, data on the subject is recent. Here, data from the so-called
“transition period“15 will be utilized, which comprises observations for 4 different semesters:
14 This section draws heavily on analysis carried out by KPMG Bolivia during 2002.
15 The transition period refers to the 2-year period (1998-2000) in which the industry agreed on across-the-board
quality indicators and when the enterprises began to comply with the agreed quality guidelines.
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