The LP Gas Rural Energy Challenge

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The LP Gas Rural Energy Challenge
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Introduction

• Access to affordable, reliable energy services is
  a prerequisite for sustainable development and
  for achieving the Millennium Development Goals
• Two billion people worldwide lack access to
  electricity and a further two billion people
  depend on traditional fuels (wood, dung) for
  cooking and heating
• Energy distribution to rural areas is often
  difficult or not in place

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What is the LP Gas Rural Energy Challenge?

• A Public Private Partnership (UNDP/WLPGA)
• Address lack of access to clean energy through
  the use of LP Gas
• Improve living standards
• Contribute to achieving the Millennium
  Development Goals
• Create viable and commercially sustainable LP Gas
  markets in rural / suburban areas of developing
  countries
• for domestic consumption
• for industrial productive uses
• Through identifying and addressing barriers to
  rural market development

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The WLPGA - Members and Partners

• 150 member organisations headquartered in 50
  countries worldwide
• WLPGA unites international and local, private and
  state companies involved in one, several or all
  activities of the LP Gas industry.
• Producers, marketers, shippers, equipment
  manufacturers, distributors, national and
  regional LP Gas associations and consulting firms
  are all represented.
• WLPGA has many partners at a global level
  including
• The World Bank
• The United Nations Development Programme
• The United Nations Environment Programme
• The International Energy Agency

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LP Gas- The product

• A readily available, clean-burning, modern energy
  carrier Liquefied Petroleum Gas (LPG) is one
  option to support sustainable rural development
• LPG has demonstrated health and environmental
  benefits compared to traditional fuels
• LPG is critical for household and productive uses
• However, availability of fuel, canister size,
  financing of first costs, refilling costs and
  transportation are constraints to LPG use by poor
  people

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Why did we form a partnership?

• Complementary competencies and resources
• Global reach
• Experience with partnerships
• Access to the worlds major private sector
  companies
• Comparative advantages as partners
• e.g. LP Gas is a privately traded good that
  depends on public sector determined policies
• Different entry points (profit vs. non-profit) ?
  same goal (improved standard of living)

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Expectations and Indicators

• UNDP creates awareness and mobilizes financing to
  address clean fuels issues
• Establishment of new, viable markets for LP Gas
  delivery and consumption
• Rural people increase access to LP Gas and
  appliances
• Development of markets that adhere to both good
  safety and good business practices
• Lessons learned from public-private partnership
  are publicized and replicated

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Programme plan

• First key step for the partners was the selection
  of 6 countries for multi-stakeholder workshops
• Ghana Honduras Morocco South Africa Vietnam
  and China
• Objectives of these workshops are
• Initiate dialogue between all stakeholders
  (public sector, private sector and consumers)
• Agree priority actions to remove barriers to
  development
• Identify projects to demonstrate feasibility of
  rural market development.

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• Multi-stakeholder workshops held in
• Ghana (August 2003)
• Honduras (September 2003)
• South Africa (April 2004)
• Morocco (May 2004)
• Vietnam (October 2004)
• China (July 2005)
• Similar Partnership Outcomes
• Interestingly, despite cultural diversity, the 6
  workshops highlighted similarities in terms of
  barriers

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Barriers

• Low density of LPG target population
• Low purchasing power and even sometimes barter
  communities
• Need for local credit facilities
• Inadequate cylinder size
• Lack of safety culture and poor enforcement of
  regulations
• Strong competition of cheaper alternative energy
  sources (sometimes subsidized)
• Inadequate energy State policy to stimulate LPG
  development (sometimes driving major players
  away)
• Weakness of LPG distribution networks in remote
  rural area

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Outcomes

• Workshop recommendations
• To set up a transversal national LPG industry
  association
• To initiate a transparent dialogue with the
  State, on structure, incentives, safety and law
  enforcement levels, to create convergence of
  interests
• To develop affordable and appropriate appliances
• To activate current local micro-credit facilities
• To seek and tap bilateral/multi-lateral funding
• To test recommendations in field project samples

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Outcomes in South Africa
A First Pilot Project
Local LPG marketers are involved in a large scale
pilot project, to demonstrate opportunity/feasibil
ity to local government

• Description of pilot project
• Provide 250,000 poor suburban households
  currently using kerosene with small LP Gas
  cylinders
• Demonstrate feasibility to government and
  evaluate consumption/cost/investment
• Develop an approved cooking appliance switching
  fund

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Outcomes in South Africa
Current Status
3 million invested by Private Sector on new
(small) cylinders, logistics and business
development 60 million fund available from state
utility for switching to LP Gas Phase 1 target
(end August 2006) 500,000 new LP Gas fueled
households Phase 2 target 3 million households
by 2009
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Outcomes in Morocco

• WS established need of specific credit modalities
  adapted to rural households
• 3 key industry players joined forces with
  microfinance institution
• Extreme pressure on forests additional incentive
  to promote a switch from fire wood to LP Gas
• Microfinance pilot to be launched in 2006
• Focus on small scale commercial use of LP Gas
• Communal hamams (baths)
• Communal baking ovens
• Coffee/tea shop
• Drying fruits etc.

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Learning Process
More accurate evaluation of environment variables

• Lack of precise information on regional
  differences, social classes, purchasing power,
  internal migration,
• Rural households consumption habits
• Examples Cylinder size, role of retail credit,
  specific rural applications, different
  perceptions of risk, widespread use of
  alternative energies (firewood, candles,
  batteries, dung,)
• Differences in time/urgency perception

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Learning Process

• More accurate evaluation of the limits of
  players
• Willingness of Private Sector to risk capital
• The budget/treasury limitation of the States
• The capacity of States to implement large scale
  new projects
• The existence of competitive energy lobbies
• The lack of local consumer associations

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Learning Process

• More accurate evaluation of how to efficiently
  organize the selection and implementation of the
  projects
• Necessity of exchanging info in a more
  transparent way (government ? private)
• Necessity to reinforce the local LP Gas industry
  association
• Interest of exchanging info with other countries
  (do not reinvent the wheel)
• Need to integrate all the actors of the (direct)
  supply chain in the talks and/or in the industry
  association

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Future Challenges Possible Solutions

• Different objectives for UNDP, WLPGA,
  governments, industry
• No local permanent operational staff (? lack of
  time)
• Slow pace leading to reduced interest/involvement
  
• from all participants

Initiative from UNDP and/or local industry
associations to hire a local operational
coordinator
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Future Challenges Possible Solutions

• Rural Challenge objectives could appear
  incompatible with governments general policy
• Local industry association to start an early and
  long term negotiations with government with
  backing of UNDP-WLPGA
• Difficulty for UNDP/WLPGA to identify funding for
  large scale key pilot projects
• Necessity for UNDP/WLPGA to look for alternative
  multilateral / bilateral, private / public
  funding

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Energy for Sustainable Development

• 1.6 billion live on less than 1/day
• 2.6 billion live on less than 2/day
• 2.0 billion people worldwide lack access to
  electricity
• 2.0 billion depend on traditional fuels (wood,
  dung) for cooking and heating
• Access to affordable, adequate energy services is
  a prerequisite for sustainable development

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Energy and the MDGs
Energy
MDG 8 Develop global partnership
MDG 2 Achieve universal primary education
MDG 1 Eradicate extreme poverty and hunger
MDG 4 Reduce child mortality
MDG 5 Improve maternal health
MDG 3 Promote gender equality and empower women
MDG 7 Ensure environmental sustainability
MDG 6 Combat HIV/AIDS, malaria and other diseases
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Rural Energy Challenges

• Access to electricity and the services it
  provides (illumination, mechanical power,
  cooling) is extremely limited
• Majority of heat energy needs come from
  traditional biomass (cooking, heating,
  agricultural processing) such as wood,
  agricultural residues, charcoal and dung
• Family energy needs met largley by women and
  girls
• Fuel and water collection limit girls
  participation in school, impact literacy,
  fertility and economic options
• Low levels of public services (education, health,
  etc) impacted by lack of energy
• Rural jobs and agricultural value added limited
  by lack of energy

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Rural Energy Solutions

• Access to electricity especially decentralized
  systems both renewable and conventional
• Access to modern fuels higher efficiency, more
  heat, less local pollution LPG is one option
• Government policies must target rural
  energisation and link to other sectors
• Subsidies should target access not consumption
  business models can really help
• Focus should be on services not supply

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Energy for Subsistence

• Energy is key for meeting basic needs
• Domestic uses (heating and cooking)
• Household tasks (water pumping, grinding and
  milling)
• Productive purposes (brick and ceramics firing,
  metal working, fish smoking)
• Social services (health care, education)

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WEA Findings on Rural Energy

• Technology is necessary, but is not the only
  ingredient for increased energy equity
• New institutional measures
• Financing to cover initial capital costs of
  devices and equipment
• Energy initiatives are most successful when
  combined integrated with other policies
• Local populations must be involved in making
  decisions about energy systems

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Women and Energy

• Lack of access to energy affects women and girls
  disproportionately
• Health carrying tens of kilos of fuelwood over
  long distances indoor air pollution
• Literacy girls are kept from school
• Fertility illiteracy increases family size
• Safety household fires, personal attack
• Economic opportunities heat using activities
• Energy policy gender neutral or gender blind?
• (see Generating Opportunities, UNDP 2001)

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Two Distinct Energy Issues

• Electric energy
• Key for providing services such as lighting,
  access to communication tools (radio, phones,
  internet)
• Clean fuels (e.g. Liquefied Petroleum Gas)
• Reduces drudgery (less time collecting fuelwood)
• Also frees time for productive purposes
• Health benefits (reduces indoor air pollution)
• Environmental benefits (reduces deforestation)

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WSSD Government Agreements

• Support the transition to the cleaner use of
  liquid and gaseous fossil fuels, where considered
  more environmentally sound, socially acceptable
  and cost effective
• Assist through public-private partnerships, the
  access of the poor to reliable, affordable,
  economically viable, socially acceptable and
  environmentally sound energy services

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The LPG Challenge

• Use of traditional fuels results in respiratory
  disease from indoor and local air pollution,
  drudgery, reduced productivity, land degradation,
  and constrained income-generation
• A readily available, clean-burning modern energy
  carrierLiquefied Petroleum Gas (LPG)is one
  option to support sustainable rural development
• LPG has demonstrated health and environmental
  benefits compared to traditional fuels
• However, availability of fuel, financing of first
  costs, and refilling costs are constraints to LPG
  use

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A Public-Private Partnership

• Issue Affordability
• UNDP Strengths
• expertise on financing mechanisms
• capacity building to support governments in
  policy development
• collaboration with local organisations to
  stimulate investment and employment generation

• Issue Availability
• LPG Industry Strengths
• expanding storage capability for imported LP Gas
  to capture shipping economies of scale
• addressing recurring user costs through
  investment in the production of smaller, more
  affordable bottles

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Expectations and Indicators

• UNDP creates awareness and mobilizes financing to
  address clean fuels issues
• Establishment of new, viable markets for LP Gas
  delivery and consumption
• Rural people increase access to LP Gas and
  appliances
• Development of markets that adhere to both good
  safety and good business practices
• Lessons learned from public-private partnership
  are publicized and replicated

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Next Steps

• Identify further pilot countries
• Define clear and feasible projects based on
  workshop findings
• Secure project financing from private and public
  sources
• Hire a local coordinator in each selected country
  
• Execute projects and scale up
• Monitor and report on progress
• Transfer knowledge

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Conclusions

• LP Gas is a readily available, clean-burning,
  modern energy carrier
• Safety and affordability for consumer is key
• Whilst allowing for suitable distributor margin
• Taking account of alternative traditional fuels
• Progress is measured differently by the
  stakeholders
• Private Sector vs Public Sector priorities can be
  different
• Success will come from recognising a win-win-win
  solution is both possible and necessary

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• LP Gas Rural Energy Challenge
• www.undp.org/energy
• www.worldlpgas.com