ESTABLISHING OF A FUND FOR CONNECTING RURAL PEOPLE TO A NATURAL GAS DISTRIBUTION NETWORK (COLOMBIA) GENERAL INFORMATION Purpose Improved livelihood for over 10,000 households through their connection to the natural gas distribution network linked with economic initiatives and support for micro-entrepreneurs Country Colombia Sector Energy Contribution to MDG #1 (eradication of poverty and hunger) #7 (environmental sustainability) Time June 2004 December 2007 PARTNERSHIP BACKGROUND AND OBJECTIVE The Colombian Caribbean Region is one of the poorest regions in the country. Many families are living in extreme poor conditions with inadequate housing, without public utilities (in many cases without water and mostly illegal electricity). These families use LPG, coal or firewood as fuel for cooking. Using such fuels they face financial, environmental and health problems, like respiratory diseases. One solution is to connect those families to natural gas. Natural gas is desirable in the Colombian Caribbean Coast since for some poor communities it can be the only available utility, even over drinking water. The rural communities are, however, difficult to reach and the poor can not afford connection fees. Colombian law forbids gas companies to finance the final connection costs to the users. Despite the fact that local distribution companies provide financing schemes for the connection up to 6 years, the poorest families need some sort of subsidy or financing mechanism to afford the connection fee for the service. The access to reliable, affordable, economically viable and environmentally sound energy service in the Colombian Caribbean Region demonstrates a multilayered problem. In order to expand the access of natural gas service to low income families in rural areas which are in commercial sense difficult to reach, the commitment of several actors is required. Therefore, a PPP was set up meant to benefit low income families in Colombian Caribbean region by giving them access to natural gas. The PPP aims to connect 10.003 families to natural gas, for sustainable social, environmental, and economic benefit. The objective of the PPP is to contribute to the region s development though service of natural gas and social programs (such as the generation of jobs and educational campaign). With the subsidies offered by DGIS, the instalments drop from 7% of low income families to approximately 4% of their income (the financing scheme also offers financing plans to pay the remaining percentage at rates of 2% on average). A part from subsidising the connection fee, the PPP wants to addres some of the issues around life plans and income generation through small businesses. Some of the activities focus on home finance management, use of savings to pay for the connection fee and gas consumption and other basic needs. In addition, the creation of small enterprises for the generation of new work and the change of commercial activities of woodcutters and coal miners are supported. Moreover, the PPP s objective is to conserve the coastal forests by reducing the need for fuel wood, and reduce indoor air pollution and related health problems.
PPP Timescale Submitted final proposal to DGIS based on series of studies (November 2004) MoU signed in June 2005 Implementation phase started July 2005 DGIS funding ended in June 2007 (but DGIS will remain involved until 2010 (?) Exploration Building Maintaining Phase-out PARTNERS INVOLVED The PPP is constituted by Promigas, Gases del Caribe and Surtigas, local natural gas distribution companies of the region, the Promigas Foundation and DGIS. The project is implemented by Promigas. Partner Partner description and motivation Role and contribution to project Promigas S.A. E.S.O. Promigas is the leading natural gas carrier in Colombia. It has been transporting around 60% of the natural gas consumed in the country. Promigas has a nation-wide coverage and presence in natural gas distribution through partnerships with public entities. Provide the infrastructure needed to render service and providing ample financial plans to pay for the balance of the unsubsidized connected fees. Monitor construction/connection works and the social program ( 180.000 (for building up and support 300 family companies) Gases del Caribe and Surtigas Promigas Foundation Local natural gas distribution companies which attend the northern part of the country. Mixed companies with public participation. 49% of Gases del Caribe is in hands of Invercolsa, a public entity and the state-oil company Ecopetrol participates with 14% in Surtigas. Created in 2000, the Foundation s raison d être is to design and implement social Construct and operate the distribution networks, regulation, metering or compression stations and any other work as may be necessary to render the service ( 895.939 (network lying investments) Establish, calculate, invoice, and collect the fees for the service rendered and determinate the price and payment method of the assets and accessory work. Provide customers with financing for the connection ( 94.606 (free two-burner stoves)) Engage in social programs for the beneficiary communities ( 375.000)
DGIS and Royal Embassy of the Netherlands in Bogota programmes to promote social and economic development amongst the most deprived populations in Colombia. DGIS and the Royal Embassy of the Netherlands in Bogotá have a wealth of experience in human development issues and a good network of contacts. Lead the activities of the Surtigas Foundation and Gases del Caribe Foundation. 50 % financial contribution to subsidize a percentage of the gas connection fees ( 1.020.000 (in total) Supervision
ACTIVITIES AND RESULTS The concrete results of the PPP in relation to the objectives are: 1. Economic Development Activities Expected Results Results achieved (February 2008) Construction of the pipeline transmission network and laying of the distribution network Sale connections to households Providing two-burner stoves to those households that are connected to the natural gas service Awarding subsidies to connected households 2. Social Development Family Responsibility Program (families will receive coaching on how to express a life project with emphasis on home economics and the meaning for responsibility) 10.003 households are connected (around 50.000 people); consumers save around 5 per month; 300 small enterprises are supported in their development; increasing income due to new enterprises. 195 local agents received training in the Multiplying Agents Program in Home Economics; improved quality of family-saving schemes. 9.223 households connected to rural gas (around 50.000 people) 1.500 families trained on family finances (300 individuals trained as trainers) Healthy Reading Program (teachers, co-ordinators and psychologists will be trained on how to develop a program that can help students express a life project with emphasis on selfcare and hygiene (including handing over booklets and a library with textbooks for children) Productive Entrepreneurship (coaching and micro-credit lending for small entrepreneurs from the benefited areas) 3. Environmental Development Connecting 10.003 households to natural gas network Education program for 39 schools (around 7.800 students); 39 mobile libraries. Wood cutters and coal miners of the benefited locations with gas connection have been trained; 300 family companies have been created. 0.8 ha forest less deforestation per month (ca. 48ha in 5 years); reduction of respiratory diseases. Healthy readers program beneficiaries: 39 schools, 139 teachers and 11.953 students 543 small businesses received loans and coaching (75% for women heads of family)???
INPUT Goals, motives and resources of individual partners The PPP meant to benefit low income families of the Colombian Caribbean region by giving them access to natural gas. The gas companies aim to expand their business and get closer to their target of 100% coverage of the territory. Challenging to work with the poorest communities (low purchase power, no culture of saving or paying monthly bills, unfamiliar with gas use and its benefits). Objective of DGIS investment is to contribute to alleviate poverty of 10,000 Colombian families. With the subsidies offered by DGIS, the installments drop from 7% to approximately 4% of poor families income. The scheme also offers financing plans to pay the remaining percentage at rates of 2% on average. THROUGHPUT characteristics, dynamism and design. PPP build on Promigas Foundations experience and expertise in research, project design and implementation on the ground. Stakeholder Involvement: o Communities by and large were not directly consulted; their incentive to engage was weak; o Special trainings for wood and coal seller; o local authorities as formal partners excluded. executive committee made up by representatives of each of the organizations involved. Good communication between partners; well defined tasks; experience in working together. was responsive enough to deal with changes. OUTPUT objectives, sustainability and deliverables Partners fulfilled their obligations towards the PPP and often went beyond what was expected of them. Household selection criteria based on the monitor s personal decision. Difficult to say if loans went to the individuals that needed it most. Sustainability: o Families using natural gas have become aware of its health and economic benefits. Most have fully repaid the connection fee after two years; o Distribution companies have now an established consumer base that generates income and a good relationship with the communities they can build upon even further through work with their foundation; o PPP did not include activities to support the creation of some kind of community-based organizations. OUTCOME Impact: direct and indirect contribution of partnership to the MDGs. #1: natural gas is the cheapest source of fuel available generating substantial savings for families (direct impact, strong evidence); strengthening microbusinesses through coaching and lending (direct impact, some evidence) #4 and #5: Uses of natural gas in the houses has reduced respiratory aliments (direct strong impact) #7: Impact on deforestation was less than expected as natural gas replaced largely propane and, in coastal areas, wood is mostly picked (indirect impact, moderate evidence) #8: Capacity transfer for microentrepreneurs, training for teachers and potential to create micro-credit groups (direct impact, some evidence) Spin-off effects: companies involved learned the benefit of having a more efficient relationship with more stable communities; empowerment of some members of the community through micro-credit schemes Process, functional and inter-sectoral upgrading of the natural gas chain in Colombia EFFICIENCY Costs-Benefit: Critical success factors and lessons learned during process. Transaction costs and cost efficiency o This 2.365m project disbursed efficiently with some minor delays at some junctures. It did also incur higher costs due to unforeseen circumstances in the construction part but those costs were absorbed by the business partners; o Rate of reimbursement of loans and repayment of connection fee by families were close to 100%. Critical success factors o Good communication; capacity and experience in working together; committed and experienced partners; o Robust project design based on baseline study; o Close monitoring and documentation. Lessons learned o Concentrate on one of the social investment activities and ensure its sustainability (managing stakeholder expectations and closure); o PPP as opportunity to influence business-society interaction: promote organizational change. EFFECTIVENESS Added value: of partnership to the participants and to the MDGs In this project the cooperation between public and private sector was required to build up a gas network which connects small towns that (financially speaking) are difficult to reach, investments and know-how from a business partner was required. In order to afford the connection fee for the service, the poorest families need some sort of subsidy or financing mechanisms, which is provided by DGIS what allowed connecting the families almost all within 3 years (compared to 6 years without PPP). Presence of public money made private partners more accountable for their investment and social activities. Alternative approach would not have been possible with the same impact. Additional resources were allocated: private partners invested more than budgeted when they encountered technical difficulties on the ground. DGIS money generated interests that were reinvested in the project and meant expanding the initial coverage of the PPP. Evaluations and research carried out by Promigas Foundation was not funded by the project. Possible add-ons for sustainability: providing loans to associations and to local businesses; Involving local authorities and other utility companies in order to create more synergy in the long run.
Public Partner: DGIS RNE Colombia Financing and Supervision Private Partners: Promigas S.A. Gases del Caribe and Surtigas Implementation Civil Partner: Promigas Foundation