Subsidies & Financing: OBA Output-Based Aid for Energy Access in SSA Picture: iidevelopment GmbH 2007 Dakar 2011 Kilian Reiche On behalf of GPOBA (Global Partnership for Output-based Aid) The World Bank
Output-Based Aid for Energy Access in SSA 1. What s the buzz? What is Output-Based Aid (OBA, RBF, RBA, PBA, RBSD, ) and what s in it for you? 2. OBA for SSA Electrification Practitioners: Implementation Challenges 3. GPOBA energy projects and how to access GPOBA services and funding
1. Basics What is OBA about?
Defining Output-Based Aid OBA is a performance-based subsidy to facilitate poor households access to basic services that is payable upon achievement of measurable results. [GPOBA in lieu of many] Output-Based Aid OBA Results-Based Financing RBF Results-Based Aid RBA Performance-Based Aid / FDI PBA Results-Based Service Delivery RBSD OBA comes in many flavours don t be confused. In OBA for access these subtleties don t matter much. What matters are the specific implementation challenges of ACCESS OBA! 4
Six Core Concepts of OBA and its benefits 1. Targeting of subsidies to reach the poor 2. (Ac)countability (of the service provider) [ OBA Benefit = effectiveness ] 3. Output definition, verification and monitoring [quantitative clarity, transparence, benchmark] 4. Using incentives to serve the poor [ stick and carott] 5. Innovation and efficiency [ OBA Benefit] 6. Securing sustainability of the service [ pay late. BUT: conflict with (ac)countability] 5
Output- Based Aid (OBA) Results-Based Financing Menu of Instruments Performance- Based Road Contracting Output-Based Disbursement Results-Based Financing in Health Carbon Finance Conditional Cash Transfers Programmatic Instruments Access to basic infrastructure and social sectors Pro poor Service providers reimbursed through subsidy for pre-financing of outputs Combines construction, rehabilitation, and maintenance in one contract Service provider paid a fee by Govt based on quality of road Improvement in efficiency of assets, eg, reduction in NRW Explicitly links cost of output (unit cost) to amount of financing Govt typically provides prefinancing Includes a number of resultsbased approaches, such as incentive payments to health workers, health insurance, CCTs, and OBA. Reduction in carbon emission Incentive payment for desirable behavior Paid to poor hhs Achievem ent of programm atic results Independent verification of outputs prior to disbursem ent Independent verification of outputs
Any Aid (FDI) is a Subsidy, Subsidy Flow helps understand OBA better! 1. Objectives: Growth Environment Equity (fairness) 2. Funding 3. Institutional Setup 4. Recipient Beneficiaries 5. Type direct vs indirect soft loan vs grant 6. Selection Competition Procurement Economics 7. Amount Timing Disbursement Criteria 8. Regulation Enforcement Monitoring Adjustments Resource Allocation 9. Performance many criteria Effective, Efficient, Sustainable, Robust, Tax Sector Levy Windfall Fund Ministry Municip. Providers Users Multipliers Alternatives
Typical OBA Structure Contract Levels Matter contract 2b Municipality contract 2a Company Accountable Provider Government Financial Intermediary Pre-finance (1) contract 1 Subsidy (4) Output Delivered = Connections installed, services delivered (2) DONOR Subsidy Fund Independent Verification Agent (IVA) (3) contract 3 User Targeted poor communities not yet connected 1 = RBA 2 = RBF or RBSD 3 = neglected
Results-based approaches Results-Based Aid Performance-Based Incentives (e.g. Cash-On-Delivery Aid, REDD+) Programmatic Financing (e.g. Program for Results lending P4R) Results-Based Financing Capital Support (e.g. Output-Based Aid) Revenue Support (e.g. Advance Market Commitments) Prizes Macro-level outcomes Micro-level outputs
2. Challenges OBA meets electricification
OBA in the Context of Development Assistance OBA Objective: Contract for an output as closely related to desired outcome/impact as possible Design Inputs Build, Operate OBA Outputs Independently verified (Intermediate) Outputs Outcomes Development Impacts Output specification Service provider selection OBA Outputs include Water connection made & service provided Solar Home System installed & maintained Medical treatment provided
OBA meets Electrification OBA Challenge: Contract for an output as closely related to desired outcome/impact as possible 1. Access Frontier (learn from LCR what universal means): Weak Players Financial + Technical Capacity Can we let a local sme or coop do a complicated first ever offgrid concession hands-off, without TA? and not pay them at the end, should they fail? Should we let them pre-finance the deal if we have the better credit access and conditions? Can we ask for PPI - if they want 40% EIRR due to risk? 2. Output Definition: Access RE [kwh]: Year2012, Rwanda 3. Quantification and performance focus: Sustainability Vs Countability (Speed!!)
OBA meets Electrification Find the Right Balance! OBA Type: Project Provider Argentina Nicaragua Bolivia Output VII Market development conditions Output VI Complementary services Output V Environmental benefits Output IV User satisfaction Output III Application / use Output II Service quality Output I Connection
Output Levels of SHS Programs Inputs-->Outputs Description Example Payment Input1 Project's RE Component SHS Component with x$ financing Input2 Offgrid Service Provider operating Concessionnaire selected Upon signature Output I SHS coverage increase 2000 SHS installed OBA I: x% against installations achieved Output II Output III Output IV Primary energy service quality good and user Secondary energy-based services improved (MDG impact) Replication - local market developed 2000 users with better & cheaper el. service More reading hours, water pumped, lumenhours Local Technicians trained, New service providers active OBA II: x% against aftersales performance OBA III difficult, feasible for water pumping. OBA IV: x% against local market development targets Output V Output VI Outcomes --> Development Goals Global Environmental Benefit - e.g. reduce CO 2 emissions Complementary Services improved (MDG impact) Quality of Life, Income, Employment, Productivity increased x t of CO2 abated over 20 years SME trained, MFI service improved 100 new jobs in area Bank Mission Poverty Alleviation GDP & HDI increased OBA V: PCF/CDCF annual payment against CO2 abated OBA VI: Usually separate component with parallel OBA mechanism
OBA meets Electrification Find the Right Balance! 4. Implementation Challenges. For example Well-Balanced TENDER (efficiency) a) Input-Output: project provider user b) Well informed choice: creativity winner s curse (in/out) c) Efficiency: control capital costs (15/80/5%) d) Tender Document: watertight simple e) Quality: equipment system service (Ah) f) Risks: government operator user (battery) g) Poll: Bank!
OBA meets Electrification Find the Right Balance! DRIVERS Public pressure in donor countries to show results Client countries desire for greater autonomy Greater transparency and accountability Focuses minds on delivery and valuefor-money LIMITATIONS Complementary approach not a silver bullet Issue of prefinancing and capacity to deliver Lack of reliable indicators Data collection and auditing Challenge of setting the incentive
3. About GPOBA
What is GPOBA? GPOBA is a partnership established in 2003 by the UK (DFID) and the World Bank Other donors are IFC, Netherlands (DGIS), Australia (AusAID), and Sweden (Sida) Mandate is to fund, design, demonstrate, and document Output- Based Aid (OBA) approaches to improve delivery of basic infrastructure and social services to the poor in developing countries Portfolio of 30 OBA pilot projects ($130.7 million) Over 2 million beneficiaries reached worldwide 18
THE GPOBA Portfolio - Snapshot GPOBA Share of Funding by Region (Total = US$ 130.7 m) GPOBA Share of Funding by Sector (Total = US$ 130.7 m) 17% 42% AFR EAP 41% 2% 36% Education 14% ECA Energy LAC Health 11% 2% 14% MNA SAR 4% 17% Telecom Water 19
Bangladesh: Rural Electrification and Renewable Energy Development Objective: Increase access to electricity, broaden the range of electrification options and create alternatives to state-led provision of electricity services GPOBA grant will provide over 315,000 households and 5,000 enterprises with access to electricity through solar home systems (SHS) and renewable energy minigrids 20
Ethiopia: Dealing with the Last Mile Paradox in Rural Electrification Objective: Accelerate the pace of connections in electrified areas in rural Ethiopia and foster energy efficiency GPOBA grant supports the stateowned utility company in connecting and providing loans to 229,000 customers, including 2 compact fluorescent lamps per household Subsidies based on connections and sustained services 8,000 household connections so far 21
Ghana: Solar PV Systems to Increase Access to Electricity Services Objective: Increase electricity access through renewable energy technology for poor households in remote regions of Ghana GPOBA grant will provide15,000 households with electricity through solar home systems (SHS) as well as solar lanterns Dealer model" promotes free market entry and competition to accelerate SHS market development in Ghana Subsidies based on SHS installations Nearly 4,000 households have benefitted so far 22
Kenya: Expansion of the Kenyan Electricity Grid into Slum Areas Objective: Increase electricity connections in slum areas and apply technical solutions to the challenges of implementation GPOBA grant will subsidize electricity connections for around 66,000 households in Kenya s largest slum (Kibera, Nairobi) as well as other informal settlements Innovative design accommodates those with variable incomes, eliminates internal wiring and reduces theft opportunities Subsidies based on household connections and 6 months operation 23
Results-based financing: ESMAP examples Revenue support (think EU PV FITs) Objective Catalyze market for a product Catalyze market for a service Instrument Commitment to purchase up to 10,000 bio-briquettes at $500/tonne for 3 years [AMC] $20 per live mini-grid connection per quarter for 4 years
Services Provided by GPOBA Technical expertise to TTLs on: How to incorporate OBA in project design Use of other results-based financing techniques in project design How to design and structure OBA Facilities Subsidy funding for OBA projects Training/Advisory services for donors and governments to set up OBA projects and facilities 25
Eligibility Criteria for GPOBA Funding The project falls within the priority infrastructure and social sectors of GPOBA Clearly defined and measurable outputs The project explicitly targets the poor population Most performance risk shifted to the provider by paying only on the delivery of outputs Be widely replicable and scalable, with preference given to government-supported scale-up
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