The LP Gas Rural Energy Challenge

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

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

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

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

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)

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

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.

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 High taxation Minimum purchase volumes often high Alternative may be seen as free or very low cost (firewood) Lack of consumer credit Irregular supply of LP Gas in remote rural areas

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

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

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

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

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.

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 Positive or Negative aspects: Lack of pricise information on regional differences?

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 Avoid « positive aspects »

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 Interest of exchanging info with other markets (“do not reinvent the wheel”)

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

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 Rural Challenge objectives appear incompatible with governments general policy

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

MDG 8: Develop global partnership 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

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

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

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)

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

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)

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)

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

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 carrier—Liquefied 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

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

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

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 Coordinator in each country

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

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