Lessons Learned Note 17 / June 2018 Improving Electricity Access for Low-Income Households in Zambia Project Components Development Challenge OBA subsidies were paid to ZESCO once connections to Zambia is a lower middle-income country that has made low-income households and micro and small enterprises significant socioeconomic progress over the past to the electricity network were verified. Technical decade, with economic growth averaging 5.7 percent assistance was extended to help ZESCO identify and 2011 per capita income reaching US$1,160. Despite eligibility of MSEs and provide analysis of energy robust annual growth, poverty is widespread and is efficiency. persistently higher among women. Economic growth Project Partners has had a small impact on overall poverty reduction because much of the benefits of growth have accrued An important way to achieve effective results is to to those who already live above the poverty line. In define clear roles for the project stakeholders under the 2014, during project preparation, 47 percent of people contractual agreement. The project defined the were living in urban and peri-urban areas and only 3 following roles for each project stakeholder: percent in rural areas had access to electricity. A grant agreement was signed between ZESCO, the implementing partner, and GPOBA to provide The Project and Its Partners connections to about 22,000 low-income households In 2015, the Global Partnership on Output-Based Aid and 5,000 MSEs in the targeted areas using an output- (GPOBA) approved a US$4.95 million grant to increase based subsidy for the connection fee. To verify the access to grid-based electricity services for 22,000 low- connections reported by ZESCO, an independent verification agent (IVA) was hired. The Ministry of income households and 5,000 micro and small Mines Energy and Water Development (MMEWD) enterprises (MSEs) in urban and peri-urban areas provided project oversight for the government of through use of targeted subsidies, with the aim of Zambia. reaching low-income communities who would otherwise have gone unserved. The project was expected to benefit approximately 140,000 people. Subsidies were disbursed based on the Based on the results-based financing (RBF) component result of connecting low-income households and MSEs of the Increased Access to Electricity Services (IAES) to the national grid infrastructure through standard project launched in 2008, the project was implemented household connections and offering the targeted consumers energy-efficient compact fluorescent lights by Zambia Electricity Supply Corporation Limited (CFLs). The subsidy was expected to be 86 percent of (formerly known as ZESCO) - the national utility - and the cost ($175) for standard connections and 82 percent was co-financed by the World Bank’s International of the cost ($210) for enhanced connections, with Development Association (IDA) and the European beneficiaries contributing the balance of $28 and Commission. The IAES project had a connection fee $46.60, respectively. Beneficiaries were identified subsidy (CFS) program, which ultimately connected through geographic targeting of low-income 80,000 low-income households to the national grid at a communities. subsidized rate. Funding was disbursed against specific project milestones achieved, linking funding to actual results achieved. All currency amounts are in US$ unless otherwise noted. Results • The GPOBA project exceeded its target, extending independent verification of connections. Thus, ZESCO energy access to 32,843 households (about 150 had strong incentives to connect low-income percent of original GPOBA target) and 5,117 micro and households to the network. It also had the small enterprises, benefiting approximately 200,000 implementation capacity to do so. ZESCO prefinanced residents in low-income townships. Together, the the extension program and was reimbursed after the IAES and GPOBA Connection Fee Subsidy programs outputs were independently verified. 3 managed to connect over 113,200 low income households and more than 5,100 MSEs in low income ZESCO proactively used the short-term gains of areas to the grid. Therefore, over a five-year period the depreciation of the local currency to (2012-2016) the CFS program succeeded in providing finance additional network connections. The access to electricity services to more than 600,000 subsidy reimbursement was set to be paid in US dollars, beneficiaries. and the Zambian kwacha depreciated 90 percent against the US dollar over the life of the project. • The project successfully mobilized consumer Although ZESCO's costs in kwacha increased because of contributions of 18 percent of the total project cost inflation and imported inputs, ZESCO used the gains (about $900,000) generated by the currency depreciation to connect an • In addition to increasing electricity access throughout additional 10,000 households to the network. 4 the country by approximately 1.3 percent (an increase to 5 percent in relation to existing electricity access), Valuable consumption data about consumers nearly one in every six newly electrified household was captured by tasking the Independent started a business. Verification Agent (IVA) to monitor the electricity consumption of connected households. The • The success of IAES CFS in providing access to low- IVA found the median consumption to be 145 kWh per income households has encouraged other month for connected households and 40 kWh per cooperating partners to join the program, increasing month for micro and small enterprises. The data can overall access in Zambia. In addition to the support help inform the design of new projects, help ZESCO provided by the Swedish International Development plan an electrification strategy that can yield a positive Cooperation Agency (SIDA) through the GPOBA grant economic return, and help assess the financial viability facility to scale up the connection fee subsidy of connecting low-income townships to the national program, the European Union also agreed to provide grid. last- mile connectivity in the Lusaka region. Lessons Learned 5 To support the uptake and roll out of ready boards, ZESCO needs to be more sensitive to 1 the needs of users, find ways to meet their The success of IAES CFS and GPOBA connection needs for multiple sockets and power points within fee subsidy initiatives clearly demonstrated that their homes and businesses, and undertake an high connection fees are a major barrier to access awareness campaign. No enhanced connections with to electricity services in Zambia, and that connection ready boards were made under the project. However, subsidies could encourage wider access to electricity and site visits suggest that ready boards could be useful help low-income communities benefit from grid electrifi- because they would save the consumer the expense of cation. using electricians to perform very basic wiring within 2 the premises. Some premises had one bulb and one Shifting the financial and operational risk to a socket, which a ready board could cover. However, client with strong implementation capacity having the ready board with light sockets and power and providing incentives to connect low- points at a single location connected to the meter may income households yielded positive results. The not be ideal for consumers. Such connections need to output-based project reimbursed ZESCO after be extended to other points in the premises. Part of the World Bank Group, the Global Partnership on Output-based Aid (GPOBA) provides innovative financing solutions that link funding to actual results achieved. Our results-based financing (RBF) approaches provide access to basic services like water and sanitation, energy, health and education for low-income communities that might otherwise go unserved. By bringing together public and private sector funders to maximize resources, and designing effective incentives for service providers, we give people the chance for a better life. Visit www.gpoba.org to learn more.