NOTE NUMBER 13 April 2017 LESSONS LEARNED e Global Partnership on Output-Based Aid Decentralized Electricity for Universal Access in Bolivia SECTOR CONTEXT AT PROJECT the provision of electricity under the framework of the Government’s universal access strategy. The grant PREPARATION recipient was the Ministry of Services and Public Works, In 2004, at the time of appraisal, the poverty rate in with implementation by the Project Coordination Unit rural areas of Bolivia, where approximately one-third of the IDTR. The project’s aim was to increase access to of the population live, was 82 percent. Less than half renewable electricity for households, micro-enterprises, of the rural population had access to electricity, and the majority of schools and health centers in rural areas were not electrified.1 The provision of infrastructure RESULTS ACHIEVED services was therefore an urgent necessity but also costly. In 2003 the World Bank approved a After initial delays associated with political changes $20 million credit as the first phase of a ten-year and institutional challenges, the project closed very Adaptable Program Loan package for Decentralized strongly in 2013, exceeding its original targets. A OBA Lessons Learned Infrastructure for Rural Transformation (IDTR), a major successful bidding process succeeded in achieving Series is a forum component of which focused on rural electrification. a lower subsidy level per unit, making possible the for discussing and This project developed an innovative model for installation of a larger number of SHS and Pico-PV disseminating project off-grid rural electrification through public-private systems than planned. insights at the conclusion partnerships: medium-term service contracts (MSCs) yy Installation of 7,700 SHSs for dispersed, low- of projects in supporting for electricity provision through solar home systems income, rural households, schools, clinics, and the delivery of basic (SHSs) for dispersed rural population, in which the micro- and small enterprises (including 126 systems services to the poor. service provider was responsible for the operation for public buildings not initially included in the GPOBA is a partnership and maintenance of the SHSs during its initial years. project design). established in 2003 In 2006, the Government of Bolivia (GoB) launched yy Distribution of 5,705 Pico-PV systems for lighting by the UK (DFID) and a strategy for universal access to electricity, which and basic communication services for the poorest the World Bank. Its recognized the need to mobilize both public and households. other donors are the private sector financing and expertise. The GoB was International Finance interested in exploring MSCs as the lead mechanism yy Consolidation of output-based service contracts Corporation (IFC), the for the off-grid window of its Universal Access Fund. between government and private sector service Netherlands (DGIS), providers as a mechanism for electrification of poor, Australia (DFAT), THE PROJECT AND ITS dispersed households under the new universal and Sweden (Sida). access policy; the project involved eleven contracts For more information PARTNERS (eight for SHSs, two for Pico-PV systems, and one visit www.gpoba.org The GPOBA project, which was approved in 2007, for public schools) with two service providers who or email us at built on the experience of the IDTR project. It was are now well established in rural areas and in a gpoba@worldbank.org. comprised of grants totaling $5.2 million to support position to continue providing their service. Supporting the delivery of basic services in developing countries schools, and clinics in remote, rural areas of Bolivia through output- of grant proceeds (e.g., the selection of bids based on the based service contracts and subsidies to private sector providers for lowest subsidy requirement per unit) is an effective way of the sale, installation, and after-sales service of at least 7,000 SHSs. The taking advantage of what the market can offer, reducing subsidy subsidy was originally set at $650 per SHS unit (61 percent of project requirements while increasing the scope of an electrification costs for a typical 50Wp system for households, and 69 percent of project. In this project, the average subsidy for an SHS was a typical school system). Users would pay: (i) upfront fee of $50; reduced to $479 from the original $650 estimate, a result of the (ii) repayment of remaining system costs, either in cash or through bidding process (subsidies for Pico-PV units were reduced from micro-credit of approximately $335; and (iii) replacement of battery $150 to $20, as municipalities and departmental governments of about $65 if the battery failed before the project ended. User covered a significant part of the cost). 3 payments were verified regularly on a random sample basis, with Flexible project design can help to maximize the penalties for providers who overcharged. The user was responsible benefits of the electrification effort, but benefits and for replacement of batteries and spare parts for the rest of the system’s costs must be balanced. In projects such as this one, the estimated 20-year operation. User contribution was estimated based limited economic capacities of households in dispersed rural on a demand survey, assessing willingness-to-pay and the IDTR areas constitutes a major constraint and often requires the experience. However, it was expected that subsidies could be reduced support of local governments. However, between one locale through the competitive bidding process. and another, there may be variations in local governments’ willingness and capacity to support electrification efforts. The A sub-component of the project consisted of a pilot to facilitate degree of local support for financing of off-grid solutions market development of Pico-PV systems by providing incentives for should therefore be carefully assessed during project companies to offer PV systems below 20Wp for basic lighting and preparation, along with households’ financial means and communication services via existing sales points. These systems were willingness-to-pay, and a project design adopted that can aimed at populations who could not afford subsidized SHSs. The respond effectively to the particular conditions found in each project set a target of 2,000 Pico-PV systems, with subsidies of $150 community. In addition, the process of pre-qualifying bidders per unit, covering market development costs and half of the average in this project did not initially attract enough competition, price for a the system. Given supply and demand uncertainties, and bidding conditions were adjusted, reducing the service flexibility was built in to the project, so that subsidy amounts could contract period to two years and lowering risks to the service be adjusted as needed. A third component of the project provided provider. A new bidding process succeeded in achieving a for technical assistance (TA) for transaction support, coordination, lower subsidy level per unit, thus enabling a larger number of and supervision; this was consistent with best practices for off-grid SHS and Pico-PV installations. However, this amendment in the electrification, which indicates that such projects require substantial service contract from four years to two may imply a trade-off TA if they are to succeed. between effective project implementation and sustainability. 4 The project was restructured to adapt to new organizational Adequate training of customers in the use of SHSs conditions, allow more time for its completion, take account of is essential to full attainment of the benefits of lower-than-estimated subsidy costs for SHSs, and reduce the after- electrification. Experience in both the IDTR and the GPOBA sales service period. projects has made clear the importance of familiarizing customers with the correct use and primary maintenance Lessons Learned of photovoltaic equipment in order to enable them to take full advantage of electrification. This training should be incorporated into the obligations of service providers and 1 Local government commitment from the early stages of a rural electrification effort is key to effective project design. The active involvement of departmental governments other entities responsible for monitoring longer-term operation and maintenance. and municipalities was key to the successful implementation of the project, providing important information on communities’ requirements, challenges related to poverty levels, and 5 An OBA approach complemented by medium-term service contracts incorporates efficiency incentives and helps guarantee adequate electricity service during financing. Specifically, municipalities and local governments a specific period; however, achieving longer-term covered a percentage of costs users were unable to pay, with sustainability may require additional approaches. user contributions—which had been estimated at $390 per The project succeeded in installing a large number of SHSs unit—reduced to an average of approximately $100 per unit. in remote areas and guaranteeing operation over a two-year The mobilization of these additional resources to offset the period following installation. However, long-term sustainability limited means of users was instrumental in the project meeting its of SHSs—i.e., after four to five years, when most batteries objectives. Involvement of local entities from early in the project will need replacing—may require a project design oriented design stage can also help to ensure that local interests continue to towards greater involvement of local communities and/or be aligned with long-term objectives of rural electrification efforts. the long-term involvement of a utility or electricity service provider. 2 A well-designed bidding process has the potential to reduce subsidy requirements and enhance the results of a rural electrification project. A competitive bidding As of 2015, the percentage of Bolivia’s rural population with access to electricity 1 process that incorporates incentives to maximize the leveraging has risen to 72.5 percent. (source: World Bank) The case studies are chosen and presented by the authors in agreement with the GPOBA program management team and are not to be attributed to GPOBA’s donors, the World Bank Group, or any other affiliated organization, nor do any of the conclusions represent official policy of the aforementioned organizations.