Designing a National Rural Electrification Program in Yemen

Transcription

1 Designing a National Rural Electrification Program in Yemen Paul J. Clark Vice President NRECA International Programs Operationalizing Rural Electrification Funds Panel Sustainable Development Week World Bank February 21, 2008

2 A Familiar Challenge Electric sector dominated by a SOE, undergoing gradual, difficult reform. RE attached to Public Electricity Corporation (the SOE) as a last resort. Project decisions largely in response to political pressure. Tariffs well below cost of service; RE a drag on PEC s financial recovery. Disjointed donor efforts to introduce renewable energy on a project-by-project basis with no capable champion. Result: only 1 in 5 rural households have electricity today. Order of the day: Move RE out of PEC, rationalize investment planning, develop a model that can rapidly increase coverage, apply least-cost service options including renewable energy.

3 NRECA International NRECA has developed electrification systems since 1963 providing electricity to 100 million people in over 40 countries. Grid-connected and off-grid, but mainly grid. Focus on national and local institutions and institutional capacity building for a sector approach, not projects. Typical model: Non-profit cooperatives under a national specialpurpose agency. Results: High degree of standardization/replication & scale, good billing and collections discipline, relatively high penetration rates. Results: Difficulties in transitioning to reduced dependency on government.

4 Yemen s Electrification Strategy GoY aims: Develop sustainable rural electrification. Achieve national coverage. Program development sequence: Multiple-component strategy development launched in National RE Strategy Study completed early 2007 (NRECA). Renewable-energy aspects under separate consultancies. Develop enabling system, (underway). Basic thrust: Shift from PEC ad hoc project approach to developing scaled, regulated rural electric/energy utilities using a standardized model. Actively engage communities in program implementation. Integrate off-grid with grid under single service provider model

5 National Yemen RE Strategy Study Key Outcomes: New autonomous RE agency to consolidate all RE functions (REA). Capital investment plan for 27 distinct rural electric service territories of no fewer than 10,000 consumers each. Territories to be served by independent service providers formed as sustainable businesses, authorized by REA for funding based on longterm plans with intermediate service expansion, and licensed by independent utility regulator. Starting with interconnection of isolated diesel mini-grids, service territories to integrate grid service with off-grid options to consumers not eligible under standard service extension policy. Pilot electric cooperative project identified for development in Ibb Governorate. Off-territory program under different business model relying primarily on solar home systems.

6 Definition of Service Territories

7 Program Implementation Phase I: Five years, establishing 12 service providers, estimated cost of $123 million. Start with a single demonstration project to test the model (including cooperative model). Phase II: Five years, establishing 15 more cooperative service territories, estimated cost of $175 million. Phase III: Continued expansion of services and new territory development. Currently four donor agencies interested in participating, in addition to World Bank.

8 Ibb s 4 Service Territories

9 Ibb-1 Demonstration Project

10 Diagram of Current PEC System

11 Institutional Design Options & Issues Status quo, with measures to improve on SOE performance in RE management. Pro: obvious choice for sponsor, less political resistance Con: RE is different from urban service Rural electrification fund (REF) with grant- making capacity to respond to valid offers. Pro: low overhead, short administrative tail Con: existence of capable takers is critical, and not automatic Rural electrification agency (REA) as a more proactive agent with funding but also emphasis on local capacity building. Pro: If right solution found - rapid & standardized build-out is likely Con: Can be difficult to achieve the authority/enablement balance; requires significant investment in institutional support and technical assistance.

12 Yemen RE Institutional Framework Ministry of Electricity Government/ Donors Regulatory Agency Policy setting Rural Electrification Agency program management Program financing RE Fund financing Tariffs, quality of service, environmental review Project identification, project analysis, technical oversight, standards, & licensing Project selection, financing, & monitoring Service Providers Cooperatives, contractors, or renewable energy service providers

13 Institutionalizing Sound RE Principles REA as a full-service single-purpose advocate/enabler complete with funding + technical assistance. Service providers (rural electric utilities) to be mentored as project implementers, operating within rigorous guidelines. Oversight by both REA and independent utility regulator. REA and service providers to be governed by prescribed, transparent rules and procedures. Corruption checks: funds management and procurement at arms length from REA operations.

14 REA Functions REA will: Define service territories and prepare initial electrification plans. Assist in formation of service providers (probably cooperatives, but other forms possible), and authorize. Assist in developing management teams. Assist service providers in comprehensive range of planning, operating, and reporting systems. Make loans & grants to build distribution infrastructure and engage SHS contractors. Assist service providers in preparing license & tariff applications (to regulator). Monitor service providers to benchmark/track performance, measure impacts, assure GoY investment returns.

15 Organizing to Serve the Market Effectively Service territories vs. projects Scale is important for sustainability. RE is a staged process requiring long-term, (declining) government support in a predictable system. Focus will be on the service provider Decentralization, integrating beneficiary populations are key to succeeding in Yemen. Downstream super-providers are envisioned. Addressing the off-territory market Greater opportunity for non-traditional players Devise a model that can transition to full service territory/provider system.

16 Organizing for Good Governance & Transparency Government policy must be clear and enabling. REA must have sufficient legal authority. (Working through legal/legislative process has been challenging.) How to deal with regulatory functions? REA acts as virtual regulator through its funding approval conditions and loan covenanting. Utility regulator approves licenses, tariffs following REA methodologies; polices territory disputes, public safety, etc. Electric cooperatives are to a large extent self-regulating. Procurement and funds management Initially, to be handled by independent PMU/PAUs Procurement can be transferred to the service providers later on.

17 Structuring Program Finance Loans vs. grants, or both? Only nominal capital expected from beneficiaries Commodity loans, with long-term maturities and low interest gives REA leverage, builds credit history. Limited use of grants on a needs basis for start-up costs, other purposes The need for a separate RE Fund Not essential, but recommendable - to assure compliance with project funding and disbursement rules and protect financing reflows A paper entity; can be outsourced to commercial bank as fiduciary agent Effective use of subsidies Capital financing terms, wholesale power terms (lifeline rate) Needs criteria: user demographics, poverty indicators Consumer financing for service connections & house-wiring

18 Planning for Long-term Sustainability Encouraging market-based behaviors Set tariffs at cost of service, adequate for debt service margins and reserves, with separate rates for each service provider. Accurate operating data record keeping and reporting is vital and facilitates performance monitoring and correction. Recruit personnel to meet position needs and evaluate performance on job criteria and goals; compensate to retain good staff and use employee incentives. Accustom service providers to meet their financial obligations and to seek their own financial survival. Outsourcing to private sector providers Train and certify contractors (engineering, construction, SHS installations and servicing) Encourage development of common-service super-providers REA s evolving role Plan REA for declining, staged functionality and establish sunset timetable in charter/bylaws.

19 Conclusion: Key Success Factors Effective apex agency to manage and oversee program implementation and provide support to service providers Economic scale Effective user participation in governance Cost-based tariffs and commercial operating principles On-going access to concessionary capital financing Access to affordable and stable power supply Service provider accountability