Footnote:
Belarus
Europe and Central Asia
English
en_US
Description:
The Government of the Republic of Belarus (GoB) plans to increase district heating (DH) tariffs to cost-recovery levels and gradually phase out subsidies, replacing them with social assistance programs. Residential DH tariffs in Belarus are currently at roughly 10-21 percent of cost-recovery levels. DH subsidies are highly regressive, add costs to business, and create significant fiscal risks and macroeconomic vulnerabilities. The purpose of this report is to analyze the social, sectoral, and fiscal impacts of the proposed tariff reform, and to identify and recommend measures to mitigate adverse impacts of DH tariff increases on the households. The analysis shows that: 1) the burden of higher DH tariffs will fall most heavily on low-income groups; 2) the current system of subsidies is unfair, benefitting wealthy customers more than the poor; 3) cross-subsidies undermine the competitiveness of industries in Belarus; and underpriced residential heat places an increasing fiscal burden on the GoB and risks macroeconomic instability. The analysis shows that a negative social impact is manageable if a tariff increase is accompanied by countervailing measures to compensate for the loss of purchasing power, in particular of the poor, through targeted social assistance and energy efficiency programs. The rest of the report is organized as follows: Section 1 describes the GoB's plans for the sector. Section 2 analyzes the principal challenges in the sector that necessitate tariff reform. Section 3 discusses tariff reform options and the likely impact of pursuing each of these options. Section 4 concludes by recommending a reform action package that includes customer communication and engagement, social protection measures and investments in energy efficiency. The appendices contain material supporting the analysis in each section