Salman Zaheer

8/8/2019 Salman Zaheer

1/17

ENERGY & SUSTAINABLEDEVELOPMENT

Salman Zaheer

The World Bank

IRADe Energy Conclave 2006

Rural Electricity Services:Institutional Arrangements for

Sustainability

New DelhiJuly 28, 2006


2/17

Structure of Presentation

Three Major Challenges of RuralElectrification and how some

countries have addressed themHigh Cost of ElectrificationPolicy & RegulationSupervision & Service Quality

Indias approachEvolving World Bank Engagement


3/17

Rural ElectrificationChallenges and Impacts

Challenges Impact

High Cost of ElectrificationDispersed Load - Low load factor Low incomes & household demand

Uncertain commercial demand

G ood economics Risky financials ??Opportunity for economic & social betterment, but:

Cost recovery uncertain => Subsidy dependence

Asymmetrical power of suppliers & consumersPolicy & Regulation

Socio-political factors vs economicFarm supply vs income diversification

Low domestic tariff (often flat rates)Supply rationing as primary

instrument of demand managementHigh politicization => strongconsumers resist metering & tariffs

G ood economics G ood Politics??Constraint to commercialization - financial viability

60% labor force in farm-related jobsLoss-making consumers w/o voice => poor serviceSupply decisions get further politicized

Misreporting of subsidized power supply

Supervision & Service QualityFrontline has limited say in networkdesign or flexibility to match bulksupply with demand

U ncertain Responsibility & AccountabilityUncertain quality and suitability of rural networkOperator-Builder blame each other for poor O&M


4/17

Rural ElectrificationChilean Experience

Challenges Action(s)

High Cost of Electrification

Private discoms bid for O ne time capital subsidySubsequent operations on commercial basis (no revenue subsidy)

L ower tech standards possible - to reduce capital costN on-exclusive concessions - to increase competitionD emand driven approach to enhance financial sustainability

Community participation in project identification10% of project cost from consumers (wiring/metering/service line)

Policy andRegulation

Household access/consumptionCommercial/industrial off-takeCost-recovery rural tariff set by regulator = Generation cost +Distribution margin. Rural tariff higher than urban tariff

Supervisionand servicequality

D iscoms have commercial incentives for access & reliable supplyL ocal G overnment (LG) approves & monitors projectsCentral Electricity Regulator provides capacity support to LG

Central Electricity Regulator monitors overall program performance


5/17

Rural ElectrificationChilean Experience

Results and L essonsCoverage: 53% => 76 % in 7 years with private financing

Service quality and financial sustainability achievedCost of expansion 30% lesser than program estimatesInstilling commercial incentive for improving access andservice was the key feature of the program ;Demand driven nature supports future financial viability

Competition for viable rural businesses kept costs down, reducedfiscal burden, attracted private financing


6/17

Rural ElectrificationBangladesh Experience

Challenges Action(s)High Cost of Electrification

Rural Electrification Board sets standards, aggregates design &construction, facilitates formation of rural electric coops (PBS);Lower tech stds allowed

Concessional long term loansSlightly subsidized bulk power / limited revenue subsidy for 5 yearsD emand driven approach supports financial sustainability

Selection/prioritization of schemes based on economic criteriaPBS responsible for construction supervision, O&M, managementConsumer membership and contribution to project cost

Policy andRegulationIncrease household access and improve social indicatorsIncrease commercial activityTariffs - set by REB in consultation with PBS - 40% higher than urban


Coops governed by community - good quality and commercial stdsREB reviews performance against Performance Target AgreementsEmployee Bonus & capital funding (expansion) linked to performance


7/17

Rural ElectrificationBangladesh Experience

Results and lessonsSince 1980 67 PBSs serving 3.5 million customers established

Connections increased from 0.7 million in 1992 with over 0.5million new connections being added now (vs 0.2 m in 1990s)

Sound technical and commercial performance achieved dueto community involvement and despite higher than urban tariff Other than the larger PBS, most PBSs operate at a loss anddepend on operating cross-subsidy from REBIn recent years increasing politicization and pressure todilute economic criteria

REB-PBS model needs updatingGrowing gap between demand and supply an additional problem


8/17

Rural ElectrificationThailand Experience


O ffice of Rural Electrification ( O RE) formed within ProvincialElectricity Authority (PEA) for grid extension, studies and load promotionTech stds set by PEA construction by OREConcessional long term loans / slightly subsidized bulk power (cross-subsidy from urban consumers)Villages identified in National Plan - PEA:

Prioritizes villages based on economic/financial returnsFurther prioritization based on extent of consumer contribution ;


Increase in household access and productive use extensiveproductive use promotion by PEATariff set by National Government on advice from rate committee in

consultation with PEA. Higher than urban tariff Tariff set to cover PEA cost and raise self-financing for investment.Cross-subsidy from urban/industrial/commercial to rural households


Monitoring by PEA which in turn is monitored at national level


9/17

Rural ElectrificationThailand Experience

Results and lessonsAccess: 1 0% in 1972 => 8 0% in 1992; 97% villages electrifiedV illages contributed substantially to capital cost (based onpaying capacity) to ensure rapid electrification

25% villages contributed 30% of project cost, including fromindividuals and local development funds

PEA financed a major part of the program through internalresources (in some years 40 70%) and raised commercial

loans for some schemesStrict use of financial criteria in prioritizing schemes helped makethe program sustainableSound technical, commercial and financial performanceachieved


10/17

Rural Electrification

Guatemala ExperienceChallenges Action(s)High Cost of Electrification

Rural discoms have service obligation within 200mt of existing grid.Non-exclusive concession for other areasNational regulator sets tech stds low-cost technology allowed

O utput based capital subsidy scheme - $650 paid to discoms for each eligible household connection 20% up-front; 80% after independent verificationSelection of villages for electrification by discoms with Governmentencourages financial viability

Policy and

Regulation

Increasing household access

Tariff set by national regulator allows recovery of full generation costplus a distribution margin set as price capConsumer tariff varies according to cost of supplyConsumption < 300 kWh per month subsidized through a social tariff for which discoms get revenue subsidy from Government.

Supervision

and servicequality

Public-owned company I ND E, responsible for electricity supply

outside Guatemala City, responsible for oversightIndependent verification of all aspects of rural program


11/17

Rural ElectrificationGuatemala Experience

Results and lessons122,000 new rural connections made between May

1999 and May 2002Commercial incentive to serve rural consumer ensured;Output based aid helped ensure utility performancebefore receiving subsidy;

A criticism against the program has been that subsidywas made available only to existing discoms therebyrestricting alternate supply providers


12/17

Rural ElectrificationIndia : RGGVY


90% grant for program costs; 100% grant for connecting BPL familiesREC as nodal financing agency to channel GoI fundsREC defines program design & implementation parametersCPS U services available for project formulation and implementation

Enabling provision in N ational Electricity Act 2 003 allows alternateservice providers Panchayats, User associations, NGOs, franchisees


Increase household access, productive use and social indicators(modified from earlier limited farm supply focus)Tariff setting by SERCs may be deregulated for off-grid compositegeneration & supply systems

Responsibility for financial sustainability - through tariff & revenuesubsidy as required - remains with SERCs


O verall supervision by REC (reporting to MoP, GoI)D istribution licensee responsible for quality of service

Act provides for D istrict Committees to clear projects & monitor quality of supply/service


13/17


14/17

RE Challenge - Transitioning fromvicious cycle, where customer is aliability .

Supply rationingInadequate O &MPoor supply & service quality

Rising Incentive for theft & collusion

FU RTHER D ETERI O RATI ON IN :Tariff collectionFinancial conditionAbility to contract additionalpower

More electricityneeded to meetincreasing demand

BU

TL ow cost recoveryD eclining ability tocontract new power


15/17

to a virtuous cycle, where customersprogressively become assets .

Enhanced prospects for attractingcredible service providers/franchiseesAssured supply to full cost paying

customersRationing for subsidized customers or mechanisms for targeted subsidiesIncreased economic activity, employment& local incomes

Increased prospects for contracting additional power from grid and local sourcesMaintain service quality andfinancial viability

At least self-sustaining O &Mcosts recoveredfrom customersMechanisms for self-regulation benchmarking, etc .


16/17

World Bank Program beingidentified selective & strategic

State-level power reform k ey bottlenec k in sustainablesector development

C apacity building for governance & regulatory effectivenessRural energy services for inclusive growth

Village Energy Security Program - cooking & lighting optionsDistributed Generation to improve last mile electricity services

P ower Transmission System DevelopmentLink power generation (including clean hydro) with load centers

Promote competition - attract investment into generationG eneration expansion and emission reduction1,500 MW of hydropower (out of plan 16,000 MW) and 1,000 MW of thermal plant R&M (out of potential 2 0,000 MW)Strengthen institutional capacity and show case good practices


17/17

THANK YOU!

Documents

Salman Zaheer