Assessment on Public Private Partnership (PPP) for Reaching Universal Clean Cooking in Federal Nepal

Duration 2018
Address Surkhet, Pokhara, Janakpur, Kathmandu
Partner Organization AEPC
Project Description Biomass from fuel wood, agricultural residues and animal dung dominates Nepal's energy supply. WHO has revealed that indoor air pollution is the fourth major cause of deaths amongst poor and least developed countries. Improved cook stoves (ICS) have higher efficiency compared to traditional biomass cook stoves thereby significantly reducing indoor air pollutants and fuelwood use, leading to improved health and reduced drudgery for women and children. Nepal has been promoting ICS for long and that effort gained momentum after the establishment of the Alternative Energy Promotion Centre (AEPC) in 1996. Development partners, including the World Bank, have been assisting the government in this effort.  The government has set an ambitious target of achieving “Clean Cooking Solutions for All (CCS4ALL) with a goal of replacing all traditional biomass cookstoves with at least Tier 3 and above clean cooking solutions (CCS) by 2030.
Even though electricity is acknowledged as having the potential to be the main cooking solution in Nepal, the huge investment required to strengthen the electricity generation, transmission and distribution systems means this will take many years to be a reality. LPG is totally imported contributing to the drain of Nepal's foreign currency reserve and resulting in acute shortages when the import supply is curtailed for any reason. Thus, it is not seen as a sustainable clean cooking option for Nepal. Biogas is another clean cooking option for rural Nepal and has been widely installed. However, with many rural families losing their young and productive members to urban and foreign employment, livestock rearing has declined leading to decreased feed for biogas plants and consequent abandonment of biogas plant in many areas. Therefore, the promotion of tier 3 and above cookstoves as clean cooking solutions for the foreseeable future is seen as a robust transitional strategy for universal clean cooking until electric cooking can become a reality.
Nepal has been promoting mud and metal improved cookstoves which only meet the criteria for tier 1 and 2 cook stoves. Tier 3 and above biomass-based improved cookstoves (T3 ICS), which also require processed fuel have mainly been promoted for demonstration purposes in Nepal till now. These stoves are mostly imported from neighboring countries. Processed fuels are also mostly imported. T3 ICS have higher benefits but are also costlier. Therefore, to promote their widespread use in Nepal, prices need to be reduced and affordable financing needs to be put in place such that T3 ICS options are widely adopted, including disadvantaged families.
The current federal constitution of Nepal allocates renewable energy development mandate to local governments. Therefore, a public-private partnership approach for T3 ICS promotion with local governments in the lead is needed. However, local governments will need assistance to develop capacity, build institutions and setup systems and processes related to planning, quality assurance, subsidies and monitoring and evaluation. Specialized federal governmental agencies like AEPC will be crucial in providing such support. In this approach the private sector will deliver the services, government will create the enabling environment, non-governmental organizations will create awareness and help the government to monitor and evaluate the sector and development partners will provide technical and financial assistance. This will be a continuation of the approach that AEPC has adopted successfully up to now. However, good quality assurance mechanism to test and certify T3 ICS will be needed, promotion of processed fuels will need to be supported, the roles of local, state and federal governments will need to be synergistically aligned, and there must be a rethinking of the incentive structure for all stakeholders to promote clean cooking solutions.
This document is an assessment to scope the parameters for promotion of biomass based clean cooking solutions. The assessment is based on literature review and stakeholder interactions. It analyses the current clean cooking ecosystem including demand, supply chain, enabling environment and stakeholders. Based on the analysis, the document presents an outline of a 5-year clean cooking program to disseminate over half a million T3 ICS and supporting the infrastructure and systems required for this dissemination. It also recommends some immediate next steps.
Most rural households still use solid biomass as the primary fuel for cooking, whereas urban households are highly dependent on LPG. Population growth, increasing urbanization and rising middle class incomes in the coming decades will be major drivers for clean cooking solutions. Projections in the Investment Prospectus suggest that even though there will be adoption of LPG and electricity for cooking, close to 4.5 million households will still depend on solid biomass stoves in 2030 for cooking. Most of these households will be in the rural areas. Nepal's SDG 7 target is to achieve universal cooking with electricity. However, it still envisages about 30% households relying on solid biomass for cooking in 2030. Therefore, these figures suggest that there is significant potential of biomass-based cooking stoves as the transitional strategy for promoting clean cooking until universal electricity cooking becomes a reality. However, to increase demand for clean cooking solutions in the form of T3 ICS, barriers related to low awareness about the benefits of these stoves, low availability of these stoves in Nepal and their low affordability due to high costs need to be addressed.
The value chain of CCS includes production/manufacture, importing, marketing, distribution, and after sales service of both stoves and fuel. It also includes research and development. At present, there are no companies manufacturing T3 ICS in Nepal. Few private companies produce briquettes and charcoal mainly for heating and commercial purpose but there are still no commercial pellet producers in Nepal. Some T3 ICS and all required fuel are imported, but these are mostly for demonstration purposes or for urban use. Consequently, there does not exist a strong value chain for T3 ICS in Nepal. Marketing for such stoves and the after sales service is almost non-existent. Limited knowledge base on these devices and fuels, the high capital investment for manufacturing, reluctancy of financial institutions to provide credit financing and the high cost of establishing a distribution channel in remote rural Nepal are some of the major barriers for the T3 ICS value chain development. Research and development in clean cooking solutions is also very limited in Nepal and is only specifically focused on device development. R&D in fuels is almost non-existent.
The government has many policy incentives for improved cook stoves, but they are not exclusively geared towards T3 ICS. Incentives such as tax breaks and funds for investment and innovation have been identified as being needed. Consequently, there is currently no obligations or incentives for the private sector to specifically promote T3 ICS in Nepal. Furthermore, the required quality assurance mechanism also does not exist. Stakeholder coordination also needs to be significantly improved among the sector players and with key stakeholders in other related sectors like health, education, environment, forestry, enterprise development etc.
In the current scenario, the major stakeholders of CCS are federal government, state governments, local governments, development partners, academic/research institutions, the private sector service providers, banks and financial institutions and the users.  Federal government needs capacity building on providing technical support to local governments, state governments need to be empowered to carry out facilitation and coordination between federal and local governments for effective program implementation and local government needs capacity building in carrying out critical functions like awareness programs, demand collection, quality assurance and monitoring to ensure sustainability. Development partners can play significant role in bringing global technical and financial resources to Nepal. The private sector will need further capacity enhancement in developing, expanding and upscaling of T3 ICS, Banks and financial institutions need to be supported to help them provide loans to the private companies and users. Users need more awareness raising and access to affordable financing. Research and academic institutions need support to upgrade their R&D efforts to include T3 ICS and associated fuels. Lastly but as importantly, there needs to be better linkages and coordination with ministries, agencies and institutions in other related sectors like health, environment, education etc.
Given the above analysis and findings, the proposed 5-year program will have the objective of promoting and supporting a PPP guided service delivery to achieve universal clean cooking solutions under a federal structure in Nepal. Specifically, it will work to enhance demand for clean cooking solutions especially focusing on disadvantaged and marginalized households, strengthen value-chain for efficient supply of high quality and competitive CCS, foster an enabling environment for PPP guided investment in CCS and increase efficiency and effectiveness of stakeholders for PPP service delivery. The program will have a target to support the deployment of about 577,000 T3 ICS with the required associated processed fuels.  The first year will be a preparatory phase, year two will be for piloting, year 3 will focus on national uptake of cook stoves, year 4 will focus on aggressive outreach and year 5 will be for transitioning to a more market-based approach.
The proposed program will support to operationalize the Constitutional mandate to local governments regarding renewable energy. It will also support government's goal of providing clean cooking solutions for all by 2030, its commitments towards SDG 7 and SDG 12 and the related targets in the Sanitation and Hygiene Master Plan. It will also help implement the government's BEST and Investment Prospectus.
The program will have four components. The first component will be to create demand for T3 ICS and processed fuels through carrying out awareness, behavior change and marketing campaigns and help enhance affordability by reducing cost of technology and supporting the design and implementation of innovative financing models. The second component will strive to strengthen the clean cooking solution value chain actors through capacity building and increasing private sector investment in sourcing/distribution/marketing and after sales services for both cook stoves and fuels. It will also work towards providing access to finance for increasing investment by the private sector and developing sectoral linkages and network for collaborative CCS promotion. Finally, it will also support innovation in product design and development:  The third component will help create an enabling environment for the above efforts by facilitating federal government to provide incentives and external financing, state governments to play a coordinating and facilitating role and local governments to prioritize clean cooking solution promotion in annual planning, formulating appropriate policies and incentive mechanisms including R&D and developing infrastructures for quality assurance and coordination mechanisms. The fourth component will enhance capability, accountability and coordination among stakeholders through capacity building initiatives. The component will also work to strengthen collaboration and coordination among stakeholders
The program will have a cross cutting objective related to gender and social inclusion. It will also ensure effective monitoring and evaluation of the program outputs, outcomes and objectives.
For program implementation, AEPC can work as the implementation agency. However, key stakeholders in the RE other related sectors can work closely to detail out the specific roles, responsibility and coordination mechanism for implementation. The implementing agency will facilitate coordination among all stakeholders, provide technical assistance to local governments, conduct monitoring and evaluation and ensure quality assurance. Development partners will provide the mutually agreed technical and grant support. The program implementation can be either local government centric, where local governments take the lead role to mobile the private sector and other stakeholders, with support from the implementation agency or it can be private sector centric, where the private sector, in close collaboration with the local governments and implementing agency mobile the other stakeholders. The second modality may be a game changer in the sector, However, the private sector is reluctant to take on this role without an adequate enabling environment related to simplification of processes and added incentives in place.
The program funding can be in phases. Thus, up-front resource commitment is not mandatory for the entire program period. In addition, based on the complexities encountered in program implementation, the approach can be modified as needed. Both grant and loan assistance are expected to flow from development partners to the local governments through the federal government.  The loan assistance will be repaid either by federal government withholding a portion of the renewable energy development budget from the federal to the local government each year to be then used for repayment of loans. Alternatively, the loan can flow from the federal government to CREF and then to financial institutions to be repaid as per the usual practice adopted by financial institutions. The second option is more direct and easier to implement. However, it may mean that the financing could be more expensive for the borrowers and this will have to be looked into in more depth during detailed program document preparation phase.
Based on several assumptions regarding prices, subsidies, costs and other financial parameters related to both the cook stoves and processed fuels, the total program budget will be just over USD 49 million. This includes USD 17. 3 million government subsidies, USD 10.4 million private investment and user equity, USD 6.9 million from other financial resources and USD 14.4 million for technical assistance and other grants. It will be important to note that, in addition, consumers will buy over USD 91 million worth of fuels (mostly pellet) over the 5 years of program implementation.
Finally, some immediate next steps are recommended to be implemented immediately, as a precursor to or in parallel with the detailed program document development. These include formulating and implementing an extensive CCS awareness and outreach program in selected municipalities, assisting in the drafting of masterplans and strategy papers for selected (R) municipalities for CCS promotion, conducting live demonstrations of clean cooking solutions in select (R) municipalities, conducting detailed feasibility study of pellet manufacturing in Nepal, and carrying out a cost benefit analysis of T3 ICS over biogas, LPG and electric cooking solutions. The outputs from these activities will be important inputs to the detailed program design and implementation process.
Project Status Closed

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