Projected Cost of Electricity after Removal of Energy Subsidy Using an Extended Input- Output Price Model

Successful removal of energy subsidy is contingent on a sound assessment of its implications for electricity generation. While it is easy to calculate the direct increased costs of higher fuel prices on electricity generation, indirect increases in costs of other inputs, e.g. labour and capital, is more difficult to identify. It is natural that taking into account these indirect cost increases, raises the total expected cost of each kilowatt of electricity. In this paper we use an expanded input output table model to internalize impact of energy subsidy removal on all inputs used in electricity generation and supply. The study indicates that the cost of each kilowatt hour of electricity will rise to between 1400 and 1700 Rials, substantially higher than foreseen increased electricity prices.