Dakar 2011

Kilian Reiche

On behalf of GPOBA (Global Partnership for Output-based Aid) The World Bank

Subsidies & Financing: OBA

© Picture: iiDevelopment GmbH 2007

Output-Based Aid for Energy Access in SSA

1. What’s the buzz? What is Output-Based Aid (OBA, RBF, RBA, PBA, RBSD, …) and what’s in it for you?

2. OBA for SSA Electrification Practitioners: Implementation Challenges

3. GPOBA energy projects and how to access GPOBA services and funding

Output-Based Aid for Energy Access in SSA

1. Basics – What is OBA about?

Defining Output-Based Aid

“OBA is a performance-based subsidy to facilitate poor households’ access to basic services

that is payable upon achievement of measurable results.” [GPOBA in lieu of many]

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Output-Based Aid OBA Results-Based Financing RBF Results-Based Aid RBA Performance-Based Aid / FDI PBA Results-Based Service Delivery RBSD

OBA comes in many flavours – don‘t be confused. In OBA for access these subtleties don‘t matter much. What matters are the specific implementation challenges of ACCESS OBA!

Six Core Concepts of OBA and its benefits

1. Targeting of subsidies to reach the poor

2. (Ac)countability (of the service provider) [OBA Benefit = “effectiveness”] 3. Output definition, verification and monitoring [quantitative clarity, transparence, benchmark] 4. Using incentives to serve the poor [stick and carott]

5. Innovation and efficiency [OBA Benefit]

6. Securing sustainability of the service [pay late. BUT: conflict with (ac)countability]

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Results-Based Financing Menu of Instruments

Output-Based Aid (OBA)

Performance-Based Road Contracting

Output-Based Disbursement

Carbon Finance

Programmatic Instruments

Results-Based Financing in

Health Conditional Cash Transfers

• Access to basic infrastructure and social sectors

• Pro poor

• Service providers reimbursed through subsidy for pre-financing of outputs

• Independent verification of outputs

• Combines construction, rehabilitation, and maintenance in one contract

• Service provider paid a fee by Govt based on quality of road

• Improvement in efficiency of assets, eg, reduction in NRW

• Explicitly links cost of output (unit cost) to amount of financing

• Govt typically provides pre-financing

• Includes a number of results-based approach-es, such as incentive payments to health workers, health insurance, CCTs, and OBA.

• Reduction in carbon emission

• Incentive payment for desirable behavior

• Paid to

poor hhs

• Achievement of programmatic results

• Indepen-dent verificat-ion of outputs prior to disbursement

1. Objectives: Growth – Environment – Equity (fairness)

2. Funding 3. Institutional Setup 4. Recipient – Beneficiaries 5. Type – direct vs indirect – soft loan vs grant 6. Selection – Competition – Procurement Economics 7. Amount – Timing – Disbursement Criteria 8. Regulation – Enforcement – Monitoring – Adjustments 9. Performance many criteria… Effective, Efficient, Sustainable,

Robust, …

Resource Allocation

Fund

Ministry

Municip.

Tax

Sector Levy

Windfall

Providers Users Multipliers

Alternatives

Any Aid (FDI) is a Subsidy, Subsidy Flow helps understand OBA better!

Source: Reiche et al (GTZ 2009)

Typical OBA Structure – Contract Levels Matter

Targeted poor communities not yet connected

Municipality

Accountable Provider

Subsidy Fund Financial Intermediary

Subsidy (4)

Pre-finance (1)

Output Delivered = Connections installed,

services delivered (2)

Independent Verification Agent (IVA)

(3)

User

Company

DONOR Government § contract 2a

§ contract 3

§ contract 1

§1 = RBA §2 = RBF or RBSD §3 = neglected

§ contract 2b

Results-based approaches

Results-Based Financing

Capital Support (e.g. Output-Based Aid)

Results-Based Aid

Prizes

Performance-Based Incentives

(e.g. Cash-On-Delivery Aid, REDD+)

Programmatic Financing

(e.g. Program for Results lending – P4R)

Revenue Support (e.g. Advance Market Commitments)

Macro-level outcomes

Micro-level outputs

2. Challenges – OBA meets electricification

OBA in the Context of Development Assistance

OBA Objective: Contract for an output as closely related to desired outcome/impact as possible

Design Development

Impacts (Intermediate)

Outcomes Outputs Build, Operate

•Output specification •Service provider selection

OBA “Outputs” include •Water connection made & service provided •Solar Home System installed & maintained •Medical treatment provided

OBA “Outputs” Independently

verified Inputs

OBA meets Electrification “OBA Challenge: Contract for an output as closely related to

desired outcome/impact as possible”

1. Access “Frontier” (learn from LCR what “universal” means): Weak Players Financial + Technical Capacity Can we let a local sme or coop do a complicated “first ever” offgrid concession hands-off, without TA? …and not pay them at the end, should they fail? Should we let them pre-finance the deal – if we have the better credit access and conditions? Can we ask for PPI - if they want 40% EIRR due to risk?

2. “Output” Definition: Access – RE [kWh]: Year2012, Rwanda

3. Quantification and performance focus: Sustainability Vs Countability (Speed!!)

Output I – Connection

Output II – Service quality

Output III – Application / use

Output IV – User satisfaction

Output V – Environmental benefits

Output VI – Complementary services

Output VII – Market development conditions

BoliviaNicaraguaArgentinaOBA Type: Project Provider

Output I – Connection

Output II – Service quality

Output III – Application / use

Output IV – User satisfaction

Output V – Environmental benefits

Output VI – Complementary services

Output VII – Market development conditions

BoliviaNicaraguaArgentinaOBA Type: Project Provider

OBA meets Electrification Find the Right Balance !

Output Levels of SHS Programs Inputs-->Outputs Description Example PaymentInput1 Project's RE Component SHS Component with

x$ financingInput2 Offgrid Service Provider operating Concessionnaire selected Upon signatureOutput I SHS coverage increase 2000 SHS installed OBA I: x% against

installations achieved Output II Primary energy service

quality good and user 2000 users with better & cheaper el. service

OBA II: x% against aftersales performance

Output III Secondary energy-based services improved (MDG impact)

More reading hours, water pumped, lumenhours

OBA III difficult, feasible for water pumping.

Output IV Replication - local market developed

Local Technicians trained, New service providers active

OBA IV: x% against local market development targets

Output V Global Environmental Benefit - e.g. reduce CO2 emissions

x t of CO2 abated over 20 years

OBA V: PCF/CDCF annual payment against CO2 abated

Output VI Complementary Services improved (MDG impact)

SME trained, MFI service improved

OBA VI: Usually separate component with parallel OBA mechanism

Outcomes --> Development Goals

Quality of Life, Income, Employment, Productivity increased

100 new jobs in area

Bank Mission Poverty Alleviation GDP & HDI increased

4. Implementation Challenges. For example Well-Balanced TENDER (efficiency) a) Input-Output: project – provider – user b) Well informed choice: creativity – winner’s curse (in/out) c) Efficiency: control – capital costs (15/80/5%)

d) Tender Document: watertight – simple e) Quality: equipment – system – service (Ah) f) Risks: government – operator – user (battery) g) Poll: Bank!

OBA meets Electrification Find the Right Balance !

DRIVERS • Public pressure in

donor countries to show ‘results’

• Client countries’ desire for greater autonomy

• Greater transparency and accountability

• Focuses minds on delivery and value-for-money

LIMITATIONS • Complementary

approach – not a silver bullet

• Issue of pre-financing and capacity to deliver

• Lack of reliable indicators

• Data collection and auditing

• Challenge of setting the incentive

OBA meets Electrification Find the Right Balance !

3. About GPOBA

What is GPOBA?

• GPOBA is a partnership established in 2003 by the UK (DFID) and the World Bank

• Other donors are IFC, Netherlands (DGIS), Australia (AusAID), and Sweden (Sida)

• Mandate is to fund, design, demonstrate, and document Output-Based Aid (OBA) approaches to improve delivery of basic infrastructure and social services to the poor in developing countries

• Portfolio of 30 OBA pilot projects ($130.7 million)

• Over 2 million beneficiaries reached worldwide

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THE GPOBA Portfolio - Snapshot

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42%

14% 2%

11%

14%

17%

GPOBA Share of Funding by Region (Total = US$ 130.7 m)

AFR

EAP

ECA

LAC

MNA

SAR

2% 36%

17% 4%

41%

GPOBA Share of Funding by Sector (Total = US$ 130.7

m)

Education

Energy

Health

Telecom

Water

Bangladesh: Rural Electrification and Renewable Energy Development

• Objective: Increase access to electricity, broaden the range of electrification options and create alternatives to state-led provision of electricity services

• GPOBA grant will provide over 315,000 households and 5,000 enterprises with access to electricity through solar home systems (SHS) and renewable energy mini-grids

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Ethiopia: Dealing with the “Last Mile” Paradox in Rural Electrification

• Objective: Accelerate the pace of connections in electrified areas in rural Ethiopia and foster energy efficiency

• GPOBA grant supports the state-owned utility company in connecting and providing loans to 229,000 customers, including 2 compact fluorescent lamps per household

• Subsidies based on connections

and sustained services • 8,000 household connections so

far

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Ghana: Solar PV Systems to Increase Access to Electricity Services

• Objective: Increase electricity access through renewable energy technology for poor households in remote regions of Ghana

• GPOBA grant will provide15,000 households with electricity through solar home systems (SHS) as well as solar lanterns

• “Dealer model" promotes free market entry and competition to accelerate SHS market development in Ghana

• Subsidies based on SHS installations • Nearly 4,000 households have benefitted

so far

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Kenya: Expansion of the Kenyan Electricity Grid into Slum Areas

• Objective: Increase electricity connections in slum areas and apply technical solutions to the challenges of implementation

• GPOBA grant will subsidize electricity connections for around 66,000 households in Kenya’s largest slum (Kibera, Nairobi) as well as other informal settlements

• Innovative design accommodates those with variable incomes, eliminates internal wiring and reduces theft opportunities

• Subsidies based on household

connections and 6 months operation 23

Results-based financing: ESMAP examples

Revenue support (think EU PV FITs)

Objective Instrument Catalyze market for a product

Commitment to purchase up to 10,000 bio-briquettes at $500/tonne for 3 years [AMC]

Catalyze market for a service

$20 per live mini-grid connection per quarter for 4 years

Services Provided by GPOBA

Technical expertise to TTLs on:

How to incorporate OBA in project design Use of other results-based financing techniques in

project design How to design and structure OBA Facilities

Subsidy funding for OBA projects

Training/Advisory services for donors and

governments to set up OBA projects and facilities

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Eligibility Criteria for GPOBA Funding

• The project falls within the priority infrastructure and social sectors of GPOBA

• Clearly defined and measurable outputs • The project explicitly targets the poor population • Most performance risk shifted to the provider by

paying only on the delivery of outputs • Be widely replicable and scalable, with preference

given to government-supported scale-up

Thank You!!