[Stoves] Clean-stove response for India ...was Re: Off-topic news: World Bank opinion piece on LPG

Tue Jul 11 21:56:23 CDT 2017

Dear Paul:

1. I am delighted to see any promise of LPG being given a competitive run,
and thank you for focusing the attention on India, where sucha discussion
is immediately relevant to (a) Kirk Smith's new recommendation for
increasing public expenditures on LPG (your post a few days ago) and (b)
the Draft National Energy Policy for India
<http://niti.gov.in/content/draft-national-energy-policy-public-comments>,
promulgated by its Niti Ayog (formerly the Planning Commission, now
National Institution for Transforming India) and open to public comments
until this Friday, 14th July. I will follow up with posts on both subjects
and urge everybody on this list to submit comments to the GOI and cc this
List and GACC .

2.  I happen to agree with the authors - two of them from the Global LPG
Partnership, one a former staffer at the UN Foundation - that "In the
absence of targeted subsidies, LPG will not be the solution for the world’s
poorest people." Subsidies don't fall from the sky, they have to be
justified, and there are too many "not the poorest" who haven't yet
transitioned to LPG and electricity.

Ergo, we can drop the first half of their sentence and declare "LPG will
not be the solution for the world's poorest people."

To me, it only means the *anti-poor bias* in the readymade solution that
LPG is made out to be. I too have nothing against the lower middle class in
Indian cities getting to LPG - my family started around 1967 and gave up
charcoal entirely only around 2008, with kerosene in spare when the LPG
refill didn't happen in time (until electricity filled the emergency gap).
But it is clear to me that the subsidy requirements for biomass and coal
phaseout - as is being advocated by Kirk Smith and NITI for India at least
- are high and their efficacy unpredictable.

Bear in mind that the price of household LPG in India is FIXED, not
market-determined, as is that for kerosene and non-household ("commercial")
LPG. There is a benchmark of "international price" (or import parity
price), on which a retail price is determined every month, but then the
household LPG is adjusted for what is euphemistically called
"under-recovery by oil marketing companies" (losses on that particular
product), which is variable, and the direct subsidy paid by the government
to the subsidized household, which too is variable. The idea of
"commercial" LPG price setting is that the private oil companies don't make
a loss on their supplies. If the public sector companies get the same price
for the non-subsidized LPG, at least they are not making additional losses.

Confused? Welcome to India. In short, LPG is subsidized by the Government
of India by i) direct payment to the consumer, and ii) forcing the public
sector oil companies to take a loss. Depending on the computed "import
parity price" of LPG and the money available for direct subsidies, the oil
companies run a loss.

As elsewhere, the oil companies are vehicles for political favors and
price/quota manipulation. This has been going on for decades. From what I
can tell, the average subsidy to household LPG is about USc 15/kg and the
under-recovery of oil companies somewhat less, but these can vary.
Together, for some 100 million households with subsidized LPG, the
difference between a reference retail price and actual payment by the
consumer is about USc 25/kg/.

And that, only because India is a significant LPG producer and the
fluctuations in world LPG prices are cushioned by government price fixing.
Again, my guesstimate is that the reference retail price for household LPG
before subsidy and oil company losses is computed at about USc 60-65/kg and
after some 20-25 USc/kg subsidy and losses marketed at 40-45 USc/kg.

What does this mean? Only that even "targeted subsidies" will not be
affordable to governments in reaching "the poorest" when the bulk retail
cost is *not 65 USc/kg but well in excess of $2/kg. *Even the "middle
class" will not be able to afford it without subsidies.

Which means, in my view ,"LPG subsidies cannot but be an instrument to take
the middle class household load off the electricity distribution
companies".

(I had shouting matches about these 15-20 years ago, but then colleagues
came around to the view that at the margin, cooking and water heating
demand was turning to electricity, taxing the weak distribution systems.
But that is another matter.)

3. In conclusion, *LPG subsidies are not the answer* except for the urban
upper middle class in most countries. Until LPG prices fall further or
governments can get richer.

The bias against "solid fuels" is deeply embedded in the policy adventurers
of recent generation. With the Indian Advanced Biomass Cookstoves (ABC)
program aborted - as reported by Up in Smoke two years ago - new
technologies and supply models have to come to the rescue.

Still, I happen to agree with Kirk Smith on his second epiphany -- that
biomass stoves need a supply chain. Another problem is that small-scale
financing is not managed well by national governments or national
governments. This is precisely the niche opportunity for technology
innovation -- not just new business models for better charcoal stoves --
that GACC ought to have focused its attention on and taken the risk.

4. I had read about your Deganga project and while I am not competent to
judge on operational performance, if the consumers are happy and able to
generate the revenues you need to continue and expand, that to me is
satisfactory result.

I hope you press GACC not just for Spark+ grants but also to stop marketing
LPG -- oil companies don't need GACC or Kirk Smith to market for subsidies
-- and instead propose a program for Junto and other "cooks like gas"
options

I hope my answer meets your expectation. I repeat -- there is no way that
every poor household will be able to make a complete transition to LPG and
electricity (or outsourcing the cooking) unless costs fall below those to
India (unlikely) and the government can justifiably subsidize such
transition before reaching tax revenue per capita of about $500 per year
for all expenses of the government, before loans and grants (also
unlikely).

Those "implementation scientists" who are dreaming of Tier 4 stoves (as of
now, just LPG and electricity) are only in the business of selling dreams
for research grants. You are different -- asking for implementation grants.
Good luck.

Nikhil

PS: Back in 2012, I had prepared a draft concept note for a non-negotiable
"energy voucher" scheme with liberalized electricity and LPG markets (of
course biomass fuels and stoves are non-regulated) with the idea that these
vouchers can be flexibly used for pico-PV products, LPG stoves and
cylinders, LPG fuel, pressure cooker, efficient electrical appliances, AND
advanced biomass stoves that have proven acceptable to the users. Nothing
came of that concept, but I still believe not only that LPG needs
competition from alternatives but also that national oil companies ought to
get in the business of biomass and solar stoves. What use is making losses
or depending on fickle governments and donors if you can brand and sell
your own competing device with perfect liberty in pricing (against your own
loss-making product!)

------------------------------------------------------------------------
Nikhil Desai
(US +1) 202 568 5831 <(202)%20568-5831>
*Skype: nikhildesai888*

On Tue, Jul 11, 2017 at 6:57 PM, Paul Anderson <psanders at ilstu.edu> wrote:

> Nikhil and all,
>
> Your meaningful comments below were NOT "off-topic" for this Stoves
> Listserv.  And my reponse here certainly is "on-topic" and responds to your
> statement:
>
> "Clean energy" has so far bypassed the poor, and the risk is, so will this
> "clean fuel" mania. Unless biomass stove community gets its act together
> and offers a competitive choice. Kirk Smith's challenge is loaded.
>
> Juntos Energy Solutions NFP (Not For Profit) is offering a competitive
> choice.  I have submitted it's proposal to the GACC program for Spark+
> (currently being evaluated) and to other places in the search for
> assistance for implementation.   The attached document is exactly what I
> sent to GACC Spark+, except for deletion of some confidential information
> about business negotiations currently in progress.
>
> You can also read this as a partial update on the "Case Study.. . Deganga"
> found at   www.drtlud.com/deganga2016 .   This document is being placed
> at the drtlud.com website.   This is a major success story, and it is
> time to scale-up.
>
> I have nothing against LPG stoves reaching additional tens of millions of
> households.  But LPG authorities (Kirk Smith and the LPG organization) and
> the World Bank's May 2017 publication cited by Nikhil (below) have stated:
>
>    In the absence of targeted subsidies, LPG will not be the solution for
> the world’s poorest people.
>
> The proposal by Juntos NFP DOES include poorest of the poor.  And it will
> give LPG a run for its money  in terms of acceptance and financial
> viability and very clean combustion (which will get even better).
>
> Looking forward to comments.
>
> Paul   (Executive Director of Juntos NFP)
>
> Doc  /  Dr TLUD  /  Prof. Paul S. Anderson, PhD
> Email:  psanders at ilstu.edu
> Skype:   paultlud    Phone: +1-309-452-7072 <(309)%20452-7072>
> Website:  www.drtlud.com
>
>
>
>
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