Authored by: Thomas B. Smith
ABSTRACT
Electricity theft can be in the form of fraud (meter tampering), stealing (illegal connections), billing irregularities, and unpaid bills. Estimates of the extent of electricity theft in a sample of 102 countries for 1980 and 2000 are undertaken. The evidence shows that theft is increasing in most regions of the world. The financial impacts of theft are reduced income from the sale of electricity and the necessity to charge more to consumers. Electricity theft is closely related to governance indicators, with higher levels of theft in countries without effective accountability, political instability, low government effectiveness and high levels of corruption. Electricity theft can be reduced by applying technical solutions such as tamper-proof meters, managerial methods such as inspection and monitoring, and in some cases restructuring power systems ownership and regulation.
Electricity theft can be in the form of fraud (meter tampering), stealing (illegal connections), billing irregularities, and unpaid bills. Estimates of the extent of electricity theft in a sample of 102 countries for 1980 and 2000 are undertaken. The evidence shows that theft is increasing in most regions of the world. The financial impacts of theft are reduced income from the sale of electricity and the necessity to charge more to consumers. Electricity theft is closely related to governance indicators, with higher levels of theft in countries without effective accountability, political instability, low government effectiveness and high levels of corruption. Electricity theft can be reduced by applying technical solutions such as tamper-proof meters, managerial methods such as inspection and monitoring, and in some cases restructuring power systems ownership and regulation.
THE PROBLEM
An electric power system can never be 100% secure from theft. In many systems the amount of theft is small (1–2%) in terms of the electricity generated. But, the financial loss is high due to the large amount of electricity distributed. Nesbit (2000) noted that, ‘‘In the US, the consensus seems to be that theft costs between 0.5% and 3.5% of annual gross revenues in the US. That seems like a small amount—until you consider that US electricity revenues were in the $280 billion range in 1998.Therefor e, between $1 and $10 billion worth of electricity was stolen.’’ Some power systems may forfeit more than 15% of power generated to various types of theft. A Transparency International (1999) report explains the situation in Bangladesh.
An electric power system can never be 100% secure from theft. In many systems the amount of theft is small (1–2%) in terms of the electricity generated. But, the financial loss is high due to the large amount of electricity distributed. Nesbit (2000) noted that, ‘‘In the US, the consensus seems to be that theft costs between 0.5% and 3.5% of annual gross revenues in the US. That seems like a small amount—until you consider that US electricity revenues were in the $280 billion range in 1998.Therefor e, between $1 and $10 billion worth of electricity was stolen.’’ Some power systems may forfeit more than 15% of power generated to various types of theft. A Transparency International (1999) report explains the situation in Bangladesh.
Electricity theft is a complex phenomenon with many facets. In this article, electricity theft is defined and various types of theft are described. The international scope and trends of theft will be examined. How theft can become institutionalized as part of the political, economic and managerial culture of governance will be noted. Lastly, some methods of dealing with the problem of electricity theft are examined.
CONCLUSIONS
The evidence points to the increasing levels of power theft in many countries and the financial losses for some systems are so immense that the utility is in financial turmoil. Investment in improving the system and adding additional capacity cannot be undertaken, loans and payments cannot be met, and the consumer faces increased electricity charges. Even in efficient systems, theft losses can account for millions of dollars each year in lost revenue. Electricity theft in its various forms can be reduced and kept in check only by the strong and assertive action of power sector organizations.
The evidence points to the increasing levels of power theft in many countries and the financial losses for some systems are so immense that the utility is in financial turmoil. Investment in improving the system and adding additional capacity cannot be undertaken, loans and payments cannot be met, and the consumer faces increased electricity charges. Even in efficient systems, theft losses can account for millions of dollars each year in lost revenue. Electricity theft in its various forms can be reduced and kept in check only by the strong and assertive action of power sector organizations.
The strategy and the action should be based upon a thorough understanding of the specific nature of the theft problem. A strong case can be made that each power system (including consumer’s attitudes and behavior) has its own unique qualities and only by knowing the system and the problem can effective solutions be designed and implemented. Since a high level of power theft is linked with corruption, the analysis cannot be confined to technical and managerial perspectives and needs to be multi-disciplinary in approach.
Theft as an activity in some systems is closely intertwined with governance and with the social, economic and political environment. Corruption and electricity theft thrives off each other. In an overall culture of corruption as a way of life, electricity theft can be reduced to moderate levels by technical/engineering methods. But it is an uphill battle to reduce the electricity theft rate drastically as long as extensive corruption continues. Reduction in power theft and keeping it within reasonable bounds is more likely to be successful in systems with a good governance culture. This is because the theft reduction mechanisms find a friendly environment for initiation and implementation.
As part of generating and sustaining good governance in communities, electric power systems have the opportunity to take the lead in promoting sound corporate governance. The technological innovations make this task easier should the managerial skills and desire exist. Electric power systems can be restructured to make power sector organizations operate in competitive environments where efficiency and effectiveness in service delivery are both virtues and necessities.
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