09 Financial Aspect for Subt a in Able

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    9-2

    To overcome such a difference between the costs and willingness to pay and thedistortions in existing PLN electricity tariff, one should think of a set of supportingmeasures to make the rural electrification projects financially sustainable and fair aswell.

    9.2 CHARGES AND COSTS OF RURAL ELECTRIFICATION PROJECTS

    9.2.1 Charges

    The charges for rural electrification project will be composed of i) periodical ormonthly payments for electric energy, ii) one time payments for service opportunity,and iii) unscheduled payments for unscheduled maintenance or repair. The first item isthe recipients payments for electricity supplied. The second item is often referred to asthe connection fees which is collected when electricity services begin. The last itemwill be required when the project facility is in trouble. All of these costs are expected to

    be recovered from the power recipients. The power recipients could be of households,

    any community facilities, and enterprises using electricity within the community.Unfortunately, the typical villagers are not usually rich enough to pay for full costrecovery for rural electrification project.

    9.2.2 Valuation of Charges

    The recovery of three types of charges of a rural electrification project will depend onthe level of electricity tariff, which should be established by the villagers concerned anddepends on their willingness to pay. However, this does not imply setting up a grosslyhigh tariff without discretion. The tariff should be agreed by the villagers throughdiscussions about the need for project sustainability, and their own capacity to pay.

    The Study suggests the following prices for electricity:

    Energy fee: Rp. 25,000/household/month or 10% of villagers income.

    Connection fee: Twelve times of the monthly energy fee (desired to save money outof villagers salary to be paid on participatory construction)

    Unscheduled payment for repair/maintenance: No required. (It is more important toraise the energy fee up to the villagers capacity to pay.)

    0

    200,000

    400,000

    600,000

    800,000

    1,000,000

    1,200,000

    1,400,000

    0% 20% 40% 60% 80% 100%Village Sample

    Rp./

    HH.Month

    0

    10,000

    20,000

    30,000

    40,000

    50,000

    60,000

    70,000

    0%

    Rp./

    HH.Month

    Max. Rp. 1,281,500/HH.MonthMin. Rp. 36,500/HH.Month

    Ave. Rp. 312,700/HH.Month

    (Note) 77 samples.

    Figure 9.2-1 Non-Electrified Villagers Income

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    According to the Rural and Social Surveys conducted for the South Sulawesi, East NusaTenggala and West Tenggala Provinces, the average family disposable income rangedfrom Rp.36,500/month to Rp.1,281,500/month in 2002, as shown Figure 9.2-1. Theaverage income is Rp.312,700/month/household.

    The expenditures of the households on alternative sources of lighting can be taken torepresent their willingness to pay for the future electricity. As a proportion of theirincome, the expenditures on alternative lightening sources range from 4% to 20% asshown in Figure 9.2-2.

    For these non-electrified villages, the average monthly expenditure on alternativelighting sources such as kerosene lumps is as high as Rp.25,670/household/month withthe lowest and highest bounds of Rp.5,925/household and Rp.64,400/householdrespectively. The monthly expenditures for the alternative lighting sources are given inFigure 9.2-3.

    The Rural and Social Surveys found that average family size and working familymembers of a household in rural areas are 5.81 persons and 1.91 persons, respectively.

    0%

    5%

    10%

    15%

    20%

    0% 20% 40% 60% 80% 100%Village Sample

    ShareofExpendituretoHHs'Income

    Max.Rp.20.26 % to HHs Income

    Min. Rp. 4.45 % to HHs Income

    Ave. Rp. 8.21 % to HHs Income

    (Note) 77 samples.

    Figure 9.2-2 Non-Electrified Villagers Expenditure

    Ratio for Alternative Lighting

    0

    10,000

    20,000

    30,000

    40,000

    50,000

    60,000

    70,000

    0% 20% 40% 60% 80% 100%Village Sample

    Rp./

    HH.Month

    0%

    5%

    10%

    15%

    20%

    0%

    ShareofExpendituretoHHs'Income

    Max. Rp. 64,400/HH.Month

    Min. Rp. 5,925/HH.Month

    Ave. Rp.25,670/HH.Month

    (Note) 77 samples.

    Figure 9.2-3 Non-Electrified Villagers Expenditurefor Alternative Lighting

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    9.3 COSTS

    9.3.1 Definition of Costs

    There are a lot of costs associated with promoting a rural electrification project at everystage and every phase of the Project Initiation, Project Development, and Project

    Operation discussed earlier. However, one should have a clear definition on what goesinto the project cost and what does not, so that consistency and transparency can beensured throughout the project promotion. Costs are assumed to be borne by associatedstakeholders. That is, costs specifically related to the promotion activities for a specificrural electrification project are the only ones counted as part of the project costs. Thisconcept is illustrated graphically in Figure 9.3-1 and further discussions are made inChapter 7 in the Guidelines, which have been separately prepared during the Study.

    The project cost items are therefore defined as costs specifically required for the ProjectDevelopment, Community Preparation, Project Implementation, and Project Operation.In principle, wages or other direct and indirect costs for governmental staff cannot becounted as part of the project costs, although they are likely to be incurred with variouskinds of services to the project. Possible cost items that may be counted as part of the

    project costs are listed in Table 9.3-1.

    Figure 9.3-2 illustrates likely disbursements of a project.

    GOIDistrictVillage

    Daily O&M

    Expression of Interest

    Reconnaissance

    Feasibility Assessment

    Prioritization

    Support and Monitoring

    Project Implementation

    Community Preparation

    Project Development

    Project

    Operation

    Project

    Development

    Potential Survey &

    Campaign

    Coordination and

    Advice based on

    Five-year Rolling

    Plan

    Project

    Implementation

    Project Initiation/

    Rural Electrification

    Planning

    Figure 9.3-1 Cost Items Counted for Rural Electrification

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    Table 9.3-1 Possible Cost Items

    Project Phase Activity Possible Cost Items To Be Counted

    Specialists' Fee for engineering services

    Costs of investigations for hydrology, wind, etc.Project

    Initiation

    Project

    Development

    Taxes

    Specialists' Fee for engineering services

    Costs of capacity buildingCommunity

    PreparationTaxes

    Costs of land acquisition

    Specialists' Fee for engineering services

    Cost of contractor procurement

    Facility cost exclusively for power system

    Training costs

    Cost of new enterprises

    CapitalCost

    Project

    DevelopmentProject

    Implementation

    Taxes

    Costs of daily operation and maintenance

    Management costs

    Unscheduled repair costs

    Scheduled replacement costs

    OperationCost

    Project

    OperationProject Operation

    Taxes

    9.3.2 Valuation of Project Costs

    (1) Project Costs of Micro-hydro Power Systems

    As discussed in Chapter 8 of these Guidelines, the major component of the total projectcosts for a micro-hydro power system is the facility cost, which is mainly composed of

    civil construction cost and cost of equipment and installation. The facility cost mayfluctuate widely ranging from $2,000/kW to $7,000/kW. From the financial point of

    Engineering Fee

    Construction Cost

    (Capital Cost)

    Unscheduled Repair Cost

    Scheduled Replacement Cost

    Daily O&M Cost

    Years

    Cost

    Commissioning

    Construction

    Engineering

    Schedu

    ledReplace

    Engineering

    Unscheduled

    Repair Cost

    Figure 9.3-2 Example of Disbursements Required

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    view, however, one should make strongest effort to reduce the unit facility cost toaround $4,000/kW or less. Such cost reduction seems possible for most cases, when oneutilizes local technologies, local materials, and local human resource.

    Table 9.3-2 shows three alternative examples of potential life cycle costs for a

    micro-hydro power system. Life cycle costs are derived over the whole economic life ofa project in present value terms, discounted at 10%. In other words, all costs streams ofover the economic life of the project, assumed to be 20 years, including capitalinvestments, annual operations and maintenance and repair and replacement arediscounted to bring them to a common basis in present value terms. This techniqueenables the planner to compare the average incremental costs (AIC) of any number ofalternative projects in terms of their unit costs of supply. The example in table 10.2-2shows these unit costs can be subdivided into each major component of costs for ease ofcomparison.

    The example represents a case of 22.2 kW of the installed capacity with the unit facility

    costs at $2,000/kW, $4,500/kW, and $7,000/kW, which correspond to the low, average,and high unit facility costs, respectively.

    The unscheduled repai