ISSUE 04 JUNE 2013 IMPACT this issue Productive Uses for Rural Electrification KEY ACHIEVEMENTS 19,900 producers Electrification Program Helps Boost Incomes assisted in 14 regions in Rural Peru Small enterprises invest US$ 14 million in electri- In recent years, the Government of Peru Former Energy and Mines Minister Pedro cal equipment (vs. target has made remarkable strides in extend- Sánchez Gamarra said the inclusion of a pro- of US$ 1.8 million) ing electricity service into rural areas. A ductive uses program in the rural electrifica- 2007 census found that only 30 percent tion project reflected an awareness that, in Electricity usage by of rural households had access to elec- rural areas, electricity was primarily being producers totals tricity—one of the lowest rates in Latin used to power lights and small appliances in 18.8 GWh/yr America. Over the next four years, the the home. government more than doubled this num- ber through a multi-faceted national pro- “Once the Rural Electrification Project had gram spearheaded by the Ministry of En- connected new areas to the grid, we found ergy and Mines (MEM). that usage rates were generally very low,” Mr. Sánchez said. “This is where the impetus for One component of Peru’s successful strategy a ‘Productive Uses’ program came from.” was a US$ 144 million Rural Electrification Project. Launched in 2006 with US$ 50 mil- ‘Productive Uses’ programs help local entre- lion in World Bank financing and US$ 10 mil- preneurs in rural areas use electricity to mod- lion from the Global Environment Facility ernize their production methods and add val- (GEF), the government-led project included ue to their products through additional pro- an innovative program to help small rural en- cessing. They also provide help to small busi- terprises take advantage of income- nesses to strengthen technical and manage- generating opportunities afforded by the avail- ment skills and access capital from existing ability of electricity. sources. “Productive uses was very im- portant because in many rural areas people were still doing a lot of work manually. Using motorized equipment freed them up to do other more pro- ductive activities.” “While making elec- Pedro Sánchez Gamarra tricity available in Former Energy and Mines Minister rural areas immedi- ately improves the wellbeing of com- “While making electricity available in rural areas immediately improves the wellbeing of communities munities through through better lighting and communications, putting it to use in production often requires an extra ef- better lighting and fort,” said Ms. Janina Franco, an Energy Specialist with the World Bank’s Latin America and Caribbean communications, Region and the Team Leader for the Rural Electrification Project at the World Bank. putting it to use in To introduce this concept in Peru, a US$ 4 million Pilot Program to Increase Productive Uses of Elec- production often tricity was included as one component of the Rural Electrification Project. By early 2013, the Productive requires an extra Uses Program had helped nearly 20,000 small producers to improve their production using electricity. effort.” ESMAP played a key role in this successful outcome by financing a total of US$ 225,000 of technical Ms. Janina Franco assistance from 2008-2011 that brought international experience to help design the Productive Uses Energy Specialist Program and build the capacity of the MEM project team, the non-governmental organizations (NGOs), World Bank Latin America and Caribbean Region and the electricity distribution companies that implemented it. ESMAP’s support enabled the Productive Uses team to adapt lessons from two World Bank-assisted Rural Electrification Projects in Indonesia that pioneered a Business Development Services (BDS) ap- proach to promoting productive uses in which PLN, the national electricity utility, reached out to small rural businesses through a team of NGOs. Using a marketing strategy that addressed issues such as tariff barriers and quality of service, the Indonesia projects helped over 66,000 enterprises. The Productive Uses Program in Peru targeted geographical areas that shared common characteris- tics: a low load factor on the distribution network; a range of collective or individual production units that might benefit from electricity; availability of basic supporting infrastructure and complementary pro- grams; and an electricity distribution company committed to supporting productive uses of electricity. Following the Indonesia BDS model, the Productive Uses Program in Peru launched its initial activities in Cusco in 2008, Junín in 2009, and Lima Provinces in 2010. Competitively selected NGOs— Soluciones Practicas (in consortium with S&Z) in Cusco, Swisscontact in Junín, and Desco in Lima— were contracted to help local enterprises to identify appropriate electrical equipment, conduct market assessments, prepare business plans, access existing sources of finance, and link with suppliers and buyers. Other assistance included helping businesses analyze the profitability of equipment and elec- IMAGES tricity infrastructure investments, and prepare applications for new connections . Page 1 Edwin Huffman / ©World Bank Page 2 ©Hemera The NGOs attracted participation in the scheme by launching community mobilization activities such as Page 3 ©Photos.com Page 4 ©iStockphoto “electricity fairs” that brought together small enterprises, equipment suppliers, distribution companies, and finance organizations. Desco used community theatre and outreach to schools to create enthusiasm for the program. Ms. Franco cited the example of a collective mill in Piura in north- western Peru whose 1,000 members had long processed their Soluciones Practicas, near Cusco, helped 1,466 families adopt grain by hand. The productive promotion program helped the farm electrical equipment to process cereals, coffee, cocoa, and baked workers purchase mechanized equipment and worked with a local goods, as well as produce handicrafts, and wood and metal items. distribution company to install a transformer and electricity lines The benefits included faster processing times, lower costs, and an that connected the cooperative to the grid. increase in the quantity and quality of products. The result was a “win-win” scenario in which the cooperative tripled In Junín, Swisscontact worked mainly with cooperatives focusing its output and the electricity company enjoyed a source of new on coffee production and grain milling. revenue. In Lima Provinces, Desco targeted water pumping for agriculture, By 2011, the Productive Uses Program had expanded beyond the ceramics, and dairy products. In one project, Desco worked with a initial three areas into Arequipa, Puno, San Martin/Loreto, Piura, group of 46 farmers in Piedra Grande to help them invest in new Tumbes, Lambayeque/Cajamarca Norte, La Libertad/Cajamarca grid-connected electric pumps that were operated by safe, above Sur, Ancash, and Ucayali. ground switches. Under the Program, more than 19,900 producers in 14 regions Previously, to operate the diesel or gasoline pumps, the farmers were assisted by 8 competitively selected NGOs. The small enter- descended into a well to turn the pumps on and off up to six times prises had invested more than US$ 14 million in electrical equip- a day, facing the risks of working at depth and in a confined space ment, far exceeding the US$ 1.8 million target envisioned in the full of carbon monoxide. This resulted in fatal accidents, the most World Bank’s Project Appraisal Document (PAD). The increase in striking involving a family that in a single event lost five members electricity usage by the producers participating in the Program also trying to rescue stranded relatives, one after another. surpassed expectations, at 18.8 GWh/year against the PAD target of 18 GWh/year. Ms. Franco said the success of the Productive Uses Program hinged on the active participation of the country’s electricity distri- Former Energy and Mines Minister Pedro Sánchez Gamarra said bution companies, with whom the NGOs worked closely to demon- the Productive Uses Program enabled small businesses to find strate how the improved productivity of small rural enterprises more lucrative ways to spend the average workday. could raise electricity usage levels and make its provision more cost effective. “Productive uses was very important because in many rural areas people were still doing a lot of work manually,” he said. “Using “The program enabled the distribution companies to appreciate the motorized equipment freed them up to do other more productive upside of rural electrification rather than viewing the downsides— activities, to work on expanding their businesses rather than just the large distances and rugged terrain separating isolated commu- producing things by hand.” nities, the high cost of installing equipment, the low-level consump- tion rates in most rural households,” she said. As evidence of its success, productive uses of electricity were specifically mentioned as a priority by Peru’s premier when he set out his government’s objectives in his first speech to Congress in August 2011. In April of the same year, the World Bank approved a US$ 50 million loan to continue supporting the government’s electrification efforts through the Second Rural Electrifica- tion (RE2) Project. The RE2 Project is expected to contribute to the government’s objective of increasing the national electrification rate to 88 percent by 2020. Based on the success of the first Productive Uses Program, the scheme will be continued in RE2 and is expected to assist an additional 5,000 rural producers by the close of its activities in 2015. ESMAP MISSI ON Ms. Franco said one of the important lessons of the work in Peru has been that well- designed rural electrification projects can promote local development, as well as expand The Energy Sector Manage- energy access. ment Assistance Program (ESMAP) is a global “The government now recognizes that rural electrification is about more than just con- knowledge and technical as- necting people, it also involves facilitating the economic development to make the elec- sistance program adminis- tricity system sustainable,” Ms. Franco said. “And how can it be made sustainable? By tered by the World Bank. It improving the productivity and incomes of the populations that use them.” provides analytical and advi- sory services to low- and She also noted that the technical support provided through ESMAP had played a critical middle-income countries to role in the success of this innovative program, together with the efforts of the Ministry of increase their know-how and Mines and Energy, NGOs, distribution companies, and, most importantly, the producers institutional capacity to themselves. achieve environmentally sus- tainable energy solutions for poverty reduction and eco- nomic growth. ESMAP is funded by Australia, Austria, Denmark, Finland, France, Germany, Iceland, Lithuania, the Netherlands, Norway, Sweden, and the United King- dom, as well as the World Bank. IMPACT Issue 04 June 2013 The World Bank 1818 H Street, NW Washington, DC, 20433 USA www.esmpa.org esmap@worldbank.org