Getting Electricity Methodology

Doing Business records all procedures required for a business to obtain a permanent electricity connection and supply for a standardized warehouse. These procedures include applications and contracts with electricity utilities, all necessary clearances from other agencies and the external and final connection works. Data are collected from the electricity distribution utility, then completed and verified by independent professionals such as electricians, electrical engineers, electrical contractors and construction companies. In some cases regulatory agencies are also contacted. The electricity distribution utility surveyed is the one serving the area (or areas) in which warehouses are located. If there is a choice of distribution utilities, the one serving the largest number of customers is selected. The data in this year’s report cover 140 economies based on contributions from 567 respondents.

To make the data comparable across economies, several assumptions about the warehouse and the electricity connection are used.

Assumptions about the warehouse
The warehouse:

  • Is located in the economy’s largest business city.
  • Is located within the official limits of the city and in an area in which other warehouses are located (a nonresidential area).
  • Is not located in a special economic or investment zone; that is, the electricity connection is not eligible for subsidization or faster service under a special investment promotion regime. If several options for location are available, the warehouse is located where electricity is most easily available.
  • Is used for storage of refrigerated goods.
  • Is a new construction (that is, there was no previous construction on the land where it is located). It is being connected to electricity for the first time.

Assumptions about the electricity connection
The electricity connection:

  • Is a permanent one.
  • Is a 3-phase, 4-wire Y, 140-kiloVolt-ampere (kVA) connection.
  • Is the length considered to be the most likely. The connection is overhead or underground, whichever is more common in the economy and in the area in which the warehouse is located.
  • Involves the installation of only one electricity meter. The monthly electricity consumption will be 0.07 gigawatthour (GWh).
  • The internal electrical wiring has already been completed.

Procedures
A procedure is defined as any interaction of the company employees or the company’s main electrician (that is, the one who did the internal wiring) with external parties, such as the electricity distribution utility, electricity supply utilities, government agencies, other electricians and electrical firms. Interactions between company employees and steps related to the internal electrical wiring, such as the design and execution of the internal electrical installation plans, are not counted as procedures. Procedures that must be completed with the same utility but with different departments are counted as separate procedures.

The company employees are assumed to complete all procedures themselves unless the use of a third party is mandated (for example, only an electrician registered with the utility is allowed to submit an application). If the company can, but is not required to, request the services of professionals (such as a private firm rather than the utility for the external works), these procedures are recorded if they are commonly done. For all procedures, only the most likely cases (for example, more than 50% of the time the utility has the material) and those often followed in practice for connecting a warehouse to electricity are counted.

Time
Time is recorded in calendar days. The measure captures the median duration that the electricity utility and experts indicate is necessary in practice, rather than required by law, to complete a procedure with minimum follow-up and no extra payments. It is also assumed that the minimum time required for each procedure is 1 day. Although procedures may take place simultaneously, they cannot start on the same day (that is, simultaneous procedures start on consecutive days). It is assumed that the company does not waste time and commits to completing each remaining procedure without delay. The time that the company spends on gathering information is ignored. It is assumed that the company is aware of all electricity connection requirements and their sequence from the beginning.

Cost
Cost is recorded as a percentage of the economy’s income per capita. Costs are recorded exclusive of value added tax. All the fees associated with completing the procedures to connect a warehouse to electricity are recorded, including those related to obtaining clearances from government agencies, applying for the connection, receiving inspections of both the site and the internal wiring, purchasing material, getting the actual connection works and paying a security deposit. Information from local experts and specific regulations and fee schedules are used as sources for costs. If several local partners provide different estimates, the median reported value is used. In all cases the cost excludes bribes.

Security deposit
Utilities require security deposits as a guarantee against the possible failure of customers to pay their consumption bills. For this reason security deposits are most often calculated as a function of the estimated consumption of the new customer.

Doing Business does not record the full amount of the security deposit. Instead, it records the present value of the losses in interest earnings experienced by the customer because the utility holds the security deposit over a prolonged period, in most cases until the end of the contract (assumed to be after 5 years). In cases in which the security deposit is used to cover the first monthly consumption bills, it is not recorded. To calculate the present value of the lost interest earnings, the end-2008 lending rates from the International Monetary Fund’s International Financial Statistics are used. In cases in which the security deposit is returned with interest, the difference between the lending rate and the interest paid by the utility is used to calculate the present value.

In some economies the security deposit can be put up in the form of a bond: the company can obtain from a bank or an insurance company a guarantee issued on the assets it holds with that financial institution. In contrast to the scenario in which the customer pays the deposit in cash to the utility, in this scenario the company does not lose ownership control over the full amount and can continue using it. In return the company will pay the bank a commission for obtaining the bond. The commission charged may vary depending on the credit standing of the company. The best possible credit standing and thus the lowest possible commission are assumed. Where a bond can be used, the value recorded for the deposit is the annual commission times the 5 years assumed to be the length of the contract. If both options exist, the cheaper alternative is recorded.

In Belize in June 2009, a customer requesting a 140-kVA electricity connection would have had to put up a security deposit of 22,662 Belize dollars in cash or check, and the deposit would be returned only at the end of the contract. The customer could instead have invested this money at the prevailing lending rate of 14.1%. Over the 5 years of the contract this would imply a present value of lost interest earnings of BZ$10,923. In contrast, if the customer had been allowed to settle the deposit with a bank guarantee at an annual rate of 1.75%, the amount lost over the 5 years would have been just BZ$1,983.

Limits to what is measured
The methodology has limitations that should be considered when interpreting the data. First, the collected data refer to businesses in the economy’s largest business city and may not be representative of regulation in other parts of the economy. Second, the measures of time involve an element of judgment by the expert respondents. When sources indicate different time estimates, the time indicators reported represent the median values of several responses given under the assumptions of the standardized case. Finally, the methodology assumes that the business has full information on what is required and does not waste time when completing procedures. In practice, a procedure may take longer if the business lacks information or is unable to follow up promptly. Alternatively, the business may choose to disregard some burdensome procedures. For both reasons the time delays reported could differ from the responses of entrepreneurs reported in the World Bank Enterprise Surveys.

Feedback from governments and utilities on methodology is welcome and will be used as input in further refining the methodology.