Evaluation of the financial impact of electricity subsidy on the returns of tubewell owners and water buyers under declining watertables in Balochistan, Pakistan

Abstract

This study examines the financial impacts of electricity subsidy on tubewell owners and water buyers, and proposes alternative subsidy policy options that could balance the efficiency and equity. The results suggest that the subsidy plays a key role in stabilising production by providing financial incentives to tubewell owners to stabilise extraction cost under the declining watertables. The removal of subsidy will have considerable financial implications on tubewell owners, as well as water buyers. Considering the equity concerns and possible social and political turmoil, in the short run the study proposes that subsidy on electricity may be reduced to 50% to avoid social unrest and political repercussions. However, in the long run, to achieve efficiency and sustainability, the study suggests: (i) adoption of more appropriate cropping patterns suitable with local climatic conditions; (ii) adoption of most suitable and highly efficient irrigation techniques and technology; (iii) improved long-term ground water security through groundwater recharge via construction of dams; and (iv) strengthening of water markets system and institutional infrastructure.