World Bank Document · The present report is substantially based on the material presented in the University's report, which was submitted to the Bank in April 197L. 1Je thus owe

P.U. Report No. RES 5

lXTEfNATIONAL BANK FOR RECONSTRUCTION AND D ~ ~ - T ~ . u v T

......................................... - INTEXNAnONAL DEVTLOPMENT ASSOCIATION

RESEARCH WORKING

PAPERS SERlES

COSTS AND BEXEFITS OF R W ?ZECTRIF'ICATION

- a case s tudy in El Salvador -

Central Projec ts S ta f f Public U t i l i t i e s Department

This paper i s one o f a s e r i e s issued by the Public U t i l i t i e s Department f o r the Lnformation and guid- ance of Bank s t a f f working in t he power, water and wastes, and telecommunica~ions sec tors . It may not be published o r quoted as representing t h e views of the Bank Group, and the 3ank Groap does not accept respons ib i l i ty f o r i t s accuracy o r completeness.

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ABSTRACT

This stu* first estimates the overall costs and f inancial returns to a program, which began in 1962 of elect-g k a l areas in E l Salvador. It then analyses the f inancial and e c o n d c returns fo r projects senring 1 2 cormunities which d i f fe r in several respects, including the type and level of output i n l aca l agriculture, llvlng standards, quality of social and e c o n d c infrastructure, and costs of service. This enables some conclusions to be drawn regarding the factors which make f o r successful projects. A methodology fo r estimating economic benefits i s developed; and a large sanple of households, small businesses, farms and agro-industries - both with and without e lec t r ic i ty - are studied so that benefits can be estimated, and the factors which explain people's response determined.

Overall, peaple have responded well t o the Fnvestments; t h i s i s ref lec ted ' in generally high growth ra tes of demand from households and from consumers using e lec t r i c i ty for productive purposes. But response, costs and economic benefits vary markedly fmm one place t o another; moreover, a large fraction of the rural popdation (so f a r not connected) are too scattered, or l iving in cornunities too small for extension of service to them to be economically justified, It is concluded that the= are three conditions which make for successful projects: -

(a) a Meh load density (by rura l standards)., since this keeps costs down; (b a good potential demand from households and comrce ; and (c) a good potential demvld from f m s and agro-industries. These conditions are generally met, i t is believed, i f the e lec t r i f ica t ion projects are clearly related t o development programs aimed a t raising productifity and output i n rural areas.

The study was in i t ia ted following the 1972 World Bank Sector Working Paper on Electric Power, and was financed by the Bank's Research Committee,

Prepared by: Dennis Anderson (Public U t i l i t i e s ~ e p a r h e n t ) In Collaboration with: Mario Bicard, Maria Luisa Calderon Sol,

Antonio Orellana (consultants , Universidad Centroamericana ~ o s e ' Simeon ~an'as)

February 28, 1975

READER'S GUIDE

This research project required a good deal of f a c t finding and a t tent ion to deta i l , , maklng the report larger than w e had wished. For the eneral reader, i t is hoped t ha t the Abstract, Introduction, and the Summary

%d Conclusions ( a t the end of the report) w i l l prorlde a suff ic ient guide. The spec ia l i s t reader might note t ha t most of the chapters - e .g. those on theory, costs, demand. projections, household studies, and the s tudies of agro-industries - can be read independently, with little cross-reference to other chapters.

This report i s the r e su l t of a joint study between Universidad Centroarmericana Jose Simeon Cafias, San Salvador, and the DRD. We wish to of fe r pa r t i cu la r thanks t o the Rector, .Mr. Achaerandio, and his Deputy Mr. Mayorga, f o r t he i r help and cooperation throughout the study and f o r putt ing the University's f a c i l i t i e s a t our disposal.

The present report i s substantial ly based on the material presented i n the University's report, which was submitted to the Bank in April 197L. 1Je thus owe many thanks to a l l the others who worked on t he study, i.. par t i cu la r to Xabier Beltran, Maria C+stina de Cabrera, Jesus Cutie', Carlos Xartines, F e U x Cast i l lo , Jose Cabrero, and some 65 students uho a t one time o r another to i led loyally in the fieldwork and analysis of the data. ~t an early stage of the study, we were also fortunate to have a b r ie f but highly informative anthropological f i e l d study f r o m Ricardo Falla.

We are also very grateful t o CEL, the bmisio'n Ejecutiva @dm- e lect r ica del Rio Lempa, f o r permission to study the i r program, and f o r making t h e i r f a c i l i t i e s , records and experience f reely a t our disposal. W e should l i ke , in par t icular , to thank Ing. Benjamln V d e n t e , and Ingeniems Espinoza, Matamoros, Granadino, ~ o l G o s and Ortiz f c r t h e l r advice and willingness to discuss the resu l t s of the research as they materialized.

I n the Bank, special thanks are due to Marcelo Selowsb, who developed most of the theoretical and enpir ica l approach reported here; to John GUMI.1g f o r enormously sharpening the resu l t s of the fieldwork; to Tony Churchill and Bernard Russell fo r t h e i r help i n se t t ing up the study; t o D.C. Rao and Anandarq Ray of the Research C o d t t e e f o r thei r encourage- ment; to Phyl l i s Peter and Haria del Solar fo r l o o w after a e a t r a t i v e problems and many other aspects of the work.

NOTES - CEL - Cornision Ejecutiva H y d r o e l e ~ t ~ c a del Rio Lenpa

Foreign Exchange Rate: 1 co16n = 0 .k US$

PART I

BACKGROUND ,OWANIS ATION,PRINCIPLES

CHAPTER I. Am AND ORGANIZATION OF THE STUDY Intro c?uc t ion Aims Organization

CHAPTER 11. 'x'HmREl'ICAL PRINCDLES Economic Costs and Banefits

(a) Benefits - The Model f o r A r t i f i c i a l Light (b) Benefits - Uses in General (c) Mgrat ion (d) Assumptions of the Denand Supply Models (e) The Problem of Join t Demand (Multiple Inputs) ( f ) Aggregathe; t h e Benefits from Sample Studies (g) .Costs of Supply (h) The Growth of Aggregate Costs and Benefits

Over Time ( i ) Shadow Pr ices ( J ) -am

The Cr i ter ion f o r Projec t Acceptability

CHAPTER III. BACXGROUND INFORMATION ON a S A L V ~ , P Economic Growth Agriculture, Land Tenure, Organisation of Rural Labor Manufacturing Trade Urban-Village-Rural Definit ions Urban-Village-Rural Population Levels and Migration

CHAF'TER IV. THE ELECTRIC POWER SECTOR Development of the Sector

(a) Generation and Wansmission (b) Dis t r ibut ion

Tar i f f s and Cost St ructure (a ) Bulk Supply Tar i f f s (b) Reta i l Tariffs

The Rnral Elec t r i f i ca t ion P~ogram (a) History (b) CEL1s Program (c) E n a n c i a l Returns on CB1s Program

PART I1

STUDIES OF SELECTED PEOJECTS

CRAPTER V. PRUJECTS SF&CTED FOR STlTDY Selection C r i t e r i a Features of the Areas Served by the Projec ts

CHAPTER VI. ELECTRICITY DEMAND ON THE PRDJJ3CTS Introduction Domestic and Commercial Consumption Fn the Vil lages Farm and Agro-Industrial Consumption Outside the Vil lages

CHAPTER VII. THE COSTS OF SUPPLY Introduction Bulk Supply Subtransmission and Medium Voltage Distr ibution

(a) U n i t Costs (b) Costs per Vil lage (~abece ras ) (c) Costs pe r Large Consumer (outside the ~ a b e c e r a s ) (d) Costs pe r Caserio (rPinor v i l lage) ( e ) A General P o h t on the Decline of Costs Over Time

Low Voltage Local Distr ibution Administration, Bi l l ing and Other Costs (Running cos ts ) Summary of Investanent Costs by Village

CHAP'rER VIII. FINANCIAL ETURNS (a) Net Revenues from the Villages (Cabeceras) (b) Net Revenues from Fam and Agro-Industrial Consumers (c) Extensions to Minor Villages ( ~ a s e r i o s )

PART 111

HOUSMDLD sums

CHAPTER IX. SAMPLE STUDIES OF HOUSEIIOLD CONSUMPTION Introduction Sample Select ion and Procedures Analysis

(a) Main Uses of E l e c t r i c i t y and i ts Subst i tu t ion (b) Changes in the Use of E lec t r i c i ty and i t s

Subst i tu tes Over Time (c) Income Effects on Consumption (d) Income Distr ibution Effects on Consumption (e) Occupations and E lec t r i c i ty CoAsumption ( f ) Quality and Ownership of Dwellings and

E lec t r i c i ty Consumption (g) Note on Service t o Small Farmers and Fann Workers

Outside the Villages (h) Income Transfers and Migration ( i ) Gif t s and Purchases of E lec t r i ca l Appliances ( j) Price and WiLlFngness-to-Pay (k) Est inat ion of Monetary Benefits (1) Other Aspects of Consumer Response

sunnning UP

PART IV

S m OF FARMS,AGRO-I?lMISTRIES AND COMMERdE

CHAPTER X THE EXTENT AND GROWTH OF PRDDDCTIVE USES OF ELECTRICITY I N RURAL AREAS CEL 's Consumers

(a) Consumers on the Motive Power Tariffs (b) Non-Domestic Uses on the Domestic General Tar i f fs (c) I r r igat ion

General Extent and Growth of Agm-Industrial ActixLty The Future Demands of Non-Domestic Consumers S-ry

CHAPTER H. CASE STlTmES OF PROIUCTIVE USES OF EtECTRICITP Sample Selected Rewlts

(a) Coffee Processing (b) Sugar Processing (Large Scale) (c) Sugar Processing (Small Scale) (d) Rice Processing (el Con, Mills ( f ) Poultry Farm3 (g) I r r igat ion (h) Fann Machinery ( i ) CooUng on Farms (j) ReMgeration in Shops (k) Potable Water Pumping

Effects of Taxes on Fue l411 and Equipment Average Net Benefits fo r Small and Large Consumers sunmring UP

PART V

COST-BENEFIT CALCULATIONS3 SUMMARX AND CONnUSIONS

CHAPTER XI10 COST-SENEFIT CALCULATIONS e

Introduction Resume of Consumers' Surplus Benefits and Shadow Prices Economic Returns t o the Components of the Pmgram

(a) Economic Returns from the Villages (b) Economic Returns fmm Fann and Agro-Industrial

Consumers (c) Ektensions to Efinar Villages

Overall and Regional Returns to the Program

l l o n o n o 111 ul I l h

CHAPTER X I I I . SUMMARY AW CONCLUSIONS

ADDENDA TO CHAPTKRS 2 AND Il

HAPS

PART I

CHAPTER 1

AIMS AND ORGANIZATION OF THE STUDY

In t roduc t i on

1.1 Rural e l e c t r i f i c a t i o n i s a comparatively new and growing f i e l d of investment i n developing coun t r i e s . Some coun t r i e s , and Ind i a i n p a r t i c u l a r , have had pub l i c investment programs i n t h i s f i e l d f o r over twenty years ; and f o r an even longer per iod , r u r a l a r ea s i n most coun t r i e s have had varying degrees of access t o e l e c t r i c i t y through small autogenerators i n s t a l l e d a t p r i v a t e i n i t i a t i v e . However, t h e major i n i t i a t i v e t o e l e c t r i f y r u r a l a r e a s took shape i n t h e 1960 's and t h e bulk of t h e investment has occurred w i th in t h e l a s t t e n years. The r a t e of investment i s a l s o increas ing . It i s es t imated t h a t cumulative investment i n r u r a l e l e c t r i f i c a t i o n by coun t r i e s w i th in t h e Bank's sphere of opera t ions was about $10 b i l l i o n by 1971, o r 10% of t o t a l investment i n e l e c t r i c power, b r ing ing s e r v i c e t o about 150 m i l l i o n people, o r one-eighth of t h e v i l l a g e - r u r a l populat ion; i t i s a l s o es t imated t h a t t h e l e v e l of cumulative investment and t h e number of people served w i l l more than double w i th in t h e next t e n yea r s .l!

1 .2 The presen t r e s ea r ch s tudy i s one of s e v e r a l i n v e s t i g a t i o n s by t h e Bank i n t o (a) t h e scope f o r succe s s fu l investments i n r u r a l e l e c t r i f i c a t i o n and (b) t h e methods of i d e n t i f y i n g and appra i s ing them. It was i n i t i a t e d fol lowing t h e 1972 Sec tor Working Paper on E l e c t r i c Power , which f i r s t r a i s e d i n t h e Bank t h e p o s s i b i l i t i e s f o r investment; o the r s t u d i e s , and a l s o some of t h e main po l i cy messages obtained from t h i s s tudy , have been d i s - cussed i n t h e 1974 i s s u e s paper on r u r a l e l e c t r i f i c a t i o n [ I ] .

A i m s . 1 .3 I n o rde r t o p inpoin t t h e aims of t h e s tudy , i t is u s e f u l t o consider some of t h e ques t ions t h a t were r a i s e d when it was i n i t i a t e d . One s e r i e s of ques t ions were f o r f a c t u a l c l a r i f i c a t i o n s regarding:

( i ) t h e c o s t s of r u r a l e l e c t r i f i c a t i o n and how' they vary with:

- t e r r a i n ;

- t h e l e v e l and growth of demand;

- u t i l i z a t i o n (or load f a c t o r s ) ; and

- consumer dens i t y ;

1/ See t h e paper on "Issues i n Rural E l e c t r i f i c a t i o n " , July 1974 [ I ] . -

(ii) the response of rural areas to the investments, as reflected in:

- the level and growth of demand and of the number of consumers;

- which income groups are affected;

- the level and growth of demands from productive uses in farms, agro-industries and rural commerce;

- load factors;

(iii) the financial returns that can be expected, taking a long view.(financial returns are often believed to be low, but generally on a basis of short time horizons and on in- sufficient analysis of changes in costs and demand over time);

(iv) the economic benefits and if these are sometimes sufficient to justify projects which cannot otherwise be justified on financial grounds;

(v) the dependence of financial and economic 'returns on :

- the level of economic development in the area;

- the extent of productive uses in farms, agro- industries and commerce;

- the quality of complementary infrastructure;

- the presence of an integrated rural development program; and

- institutional factors such as promotion, credit and pricing policy.

Two remaining questions were for clarifications of method:

(vi) how are economic costs and benefits to be estimated in practice? (a UN Inter-Regional Seminar on Rural Electrification, held in New Delhi in 1971, also high- lighted the need for studies to answer this question);

(vii) most countries stress the importance of the social aims in their electrification programs: how are these to be allowed for in project justification?

1.4 The broad aims of the study, then, are first, as far as possible, to estimate the costs, the demands, and the financial and economic returns to rural electrification projects in different circumstances; and second, to emerge with some piactical recommendations for the evaluation of rural electrification projects.

1 . 5 E l Salvador proved t o be a good country f o r a case s tudy. The p u b l i c program t o e l e c t r i f y s e l e c t e d r u r a l a r e a s i s now twelve years o l d , a s u f f i c i e n t per iod f o r t h e purposes of ex pos t e v a l u a t i o n (some v i l l a g e s have indeed been e l e c t r i f i e d a t p r i v a t e i n i t i a t i v e f o r over 20 y e a r s ) . I n common wi th o t h e r developing c o u n t r i e s , t h e c o s t s a r e h igh , and i n i t i a l demand l e v e l s and f i n a n c i a l r e t u r n s low. Output i n a g r i c u l t u r e is q u i t e d i v e r s i f i e d and inc ludes c o f f e e , c o t t o n , sugar , r i c e , l i v e s t o c k and t h e r e l a t e d a g r o - i n d u s t r i e s , wi th c o f f e e being t h e p r i n c i p a l product ; t h e q u a l i t y of i n f r a s t r u c t u r e and t h e l e v e l s of income and commercial a c t i v i t i e s a l s o va ry s u b s t a n t i a l l y from one p lace t o ano ther ; t h e r e f o r e , t h e r e was t h e oppor tun i ty t o examine how e l e c t r i f i c a t i o n p r o j e c t s f u n c t i o n i n d i f f e r e n t envizoneents . F i n a l l y (though t h i s judgment proved t o be o p t i m i s t i c ) i t appeared, b e f o r e we began t h e s tudy , t h a t informat ion about r u r a l a r e a s , and about t h e r u r a l e l e c t r i f i c a t i o n program, was q u i t e good.

1 .6 The remainder of P a r t I out l ines" t h e t h e o r e t i c a l p r i n c i p l e s on which t h e s tudy is based, and provides background informat ion on E l Salvador and t h e e l e c t r i f i c a t i o n program. The e m p i r i c a l work of t h e s tudy h a s ' b e e n organized i n t o four p a r t s :

P a r t 11: S t u d i e s t h e aggrega te f i n a n c i a l performance of p r o j e c t s i n 1 2 s e l e c t e d a r e a s of d i f f e r i n g s o c i a l and economic c h a r a c t e r i s t i c s ; it looks a t t h e growth of consumer demand and compares revenues wi th c o s t s .

The nex t two p a r t s probe more deeply i n t o consumer demand i n an a t t empt t o a s c e r t a i n some of t h e s o c i a l and economic b h n e f i t s from e l e c t r i f i c a t i o n :

P a r t 111: P r e s e n t s a s o c i a l and economic a n a l y s i s of a broad sample of households i n r u r a l a r e a s ; households n o t us ing e l e c t r i c i t y a r e a l s o s t u d i e d .

P a r t I V : P r e s e n t s an economic a n a l y s i s of a sample of farm, a g r o - i n d u s t r i a l and commerciql a c t i v i t i e s i n r u r a l a r e a s ; a c t i v i r i e s n o t us ing e l e c t r i c i t y a r e a l s o s t u d i e d .

From t h e s t u d i e s i n t h e s e two p a r t s i t i s ~ o s s i b l e t o b u i l d up on the f i n a n c i a l s t u d i e s of P a r t I1 and make adjus tments f u r s o c i a l and economic f a c t o r s ; t h i s is t h e t a s k o f :

P a r t V: P r e s e n t s a c o s t - b e n e f i t a n a l y s i s of t h e p r o j e c t s i n 12 s e l e c t e d a r e a s , ..nd t h e r e a s o m f o r t h e d i f f e r i n g l e v e l s of eccnomic r e t u r n s .

The conclus ions a r e a l so brought toge ther i n P a r t V . ,

CHAPTER 2

THEORETICAL PRINCIPLES

2.1 Rural e l e c t r i f i c a t i o n i n developing c o u n t r i e s is intended t o serve both economic and s o c i a l aims. On t h e economic s i d e , t h e aim is t o r a i s e t h e s tandard of l i v i n g and p r o d u c t i v i t y i n r u r a l a r e a s by providing a s u p e r i o r and o f t e n cheaper form of power and energy; on t h e s o c i a l s i d e , c o u n t r i e s o f t e n extend s e r v i c e t o a r e a s of low income and p r o d u c t i v i t y even i f t h e se r - v i c e is u n l i k e l y t o b e f i n a n c i a l l y s e l f - s u f f i c i e n t f o r many years . When b u i l d i n g up a j u s t i f i c a t i o n f o r a p r o j e c t i t is u s e f u l t o keep t h e s e two aims a p a r t and begin wi th a s tudy of economic f a c t o r s be fore working s o c i a l f a c t o r s i n t o t h e a n a l y s i s . Confusion between economic and s o c i a l aims is thus avoided, and t h e t r ade-of f s , t o t h e e x t e n t t h a t they occur , can be examined. This approach is followed below. The f i r s t s e c t i o n d i s c u s s e s economic c o s t s and b e n e f i t s ; s o c i a l f a c t o r s a r e in t roduced i n t h e subsequent s e c t i o n , which d i s c u s s e s t h e c r i t e r i o n f o r p r o j e c t a c c e p t a b i l i t y .

Economic Costs and B e n e f i t s

2.2 The most commonly c i t e d economic b e n e f i t s of r u r a l e l e c t r i f i c a t i o n a r e t h a t i t r a i s e s t h e s tandard of l i v i n g of households and t h e p r o d u c t i v i t y of l o c a l farms, agro- indus t r i es and commerce; i n a d d i t i o n i t is thought t h a t r u r a l e l e c t r i f i c a t i o n has some e f f e c t i n stemming migrat ion t o c i t i e s by making i t more d e s i r a b l e f o r people t o l i v e i n r u r a l a r e a s . I n monetary terms, people ' s p r i v a t e v a l u a t i o n s of t h e s e b e n e f i t s can be c a l c u l a t e d from t h e demand and supply models of t h e f i n a l products of e l e c t r i c i t y and i ts s u b s t i t u t e s ; b e n e f i t s t o t h e economy a r e then t h e aggregate of people ' s p r i v a t e v a l u a t i o n s cor rec ted , us ing shadow p r i c e s , f o r p r i c e d i s t o r t i o n s i n t h e economy. I n t h e fol lowing d i s c u s s i o n of t h i s approach, we f i n d i t con- ven ien t t o begin wi th a simple case b e f o r e g f n e r a l i z i n g it:

(a) B e n e f i t s - The Model f o r A r t i f i c i a l L igh t ;

(b) B e n e f i t s - Uses i n Gener-al. -

Afte r t h i s , v a r i o u s problems and complications a r e d e a l t wi th:

(c) Migration;

(d) Assumptions of t h e Models;

(e) The Problem of J o i n t Demand (o r Mul t ip le I n p u t s ) ;

( f ) Aggregating t h e Benef i t s ;

(g) Costs of Supply;

(h) Growth of B e n e f i t s and Costs Over Time; and

( i ) Shadow P r i c e Adjustments.

A summing up is then provided.

(a ) B e n e f i t s - The Model f o r A r t i f i c i a l Light

2.3 To beg in , d i s c o n t i n u i t i e s and q u a l i t y d i f f e r e n c e s between l i g h t sources a r e neg lec ted . I t is convenient t o measure u n i t s of l i g h t i n terms of kWh i n p u t i n t o a s t andard e l e c t r i c l i g h t bu lb , and consider t h e changes i n t h e q u a n t i t y and v a l u e of l i g h t consumed fol lowing e l e c t r i f i c a t i o n . I f i n i t a l l y Qs u n i t s of l i g h t a r e consumed from a s u b s t i t u t e source of l i g h t a t a t o t a l supply p r i c e of Ps, and then Q, u n i t s of e l e c t r i c l i g h t a r e consumed a t a ( lower) u n i t p r i c e of Pe, we can s a y t h a t t h e n e t ga in t o t h e consumer c o n s i s t s of two p a r t s :

11 '.. - '$the reduced c o s t of t h e amount of l i g h t he p rev ious ly 2-

bought: Qs (Ps - Pe) - - - . a. . f' - 2 t h e v a l u e t o him of t h e e x t r a l i g h t he now buys

i ts e x t r a c o s t . < ! I

' 4 ,

Since he w i l l v a l u e each e x t r a u n i t somewhere between t h e o l d p r i c e (which was t o o h igh f o r him t o choose t o buy the@) and t h e new p r i c e (which i s low enough t o make t h e e x t r a purchase worthwhile) and s i n c e each e x t r a u n i t w i l l c o s t him t h e new p r i c e , t h i s second p a r t approximately e q u a l s :

bverage Value Extra Cost \

These n e t ga ins t o t h e consumer a r e something he does n o t have t o pay f o r - the:. a r e over and above t h e revenues - and a r e o f t e n r e f e r r e d t o a s t h e consuner ' s s u r p l u s b e n e f i t s .

2 .4 E l e c t r i c l i g h t , however, i s o f t e n p r e f e r r e d t o s u b s t i t u t e s even i f it c o s t s more. Ic i s i n o t h e r words s u p e r l o r i n q u a l i t y . Hence t o t h e tvo p a r t s of s u r p l u s b e n e f i t s s o f a r mentioned,

- t h e reduced c o s t of t h e amount of l i g h t t h e consumer p rev ious ly bought,

- t h e excess of t h e v a l u e t o him of t h e e x t r a l i g h t over i t s e x t r a c o s t

a t h i r d p a r t should b e added:

- . t h e v a l u e of t h e h igher q u a l i t y : ight.

It fo l lows t h a t t h e sum of t h e t e r n s :

w i l l be an underes?'imate of t h e s u r p l u s belle£ i t . It could, i n an extreme c a s e , even b e n e g a t i v e when t h e t o t a l s u r p ~ u s b e n e f i t was p o s i t i v e . This

would happen i f t h e consumer paid more pe r u n i t of l i g h t than b e f o r e (Pe exceeding Ps) , valued t h e improvement of q u a l i t y h i g h l y - b u t d id n o t much i n c r e a s e h i s consumption.

2.5 D i s c o n t i n u i t i e s a r e e v i d e n t l y a s i g n i f i c a n t f e a t u r e of t h e demands of i n d i v i d u a l consumers. Demand is l i n k e d t o t h e app l i ance s t o c k and, i n t h e c a s e of farms and a g r o - i n d u s t r i e s , t o t h e technology and ou tpu t of t h e produc t ion process ; demand f o r a p a r t i c u l a r a p p l i c a t i o n is e i t h e r z e r o o r some l e v e l which is more o r l e s s c o n s t a n t ; e l e c t r i c i t y f o r i r o n s , r e f r i g e r a t o r s and pumps a r e examples - e i t h e r they a r e n o t bought a t a l l o r a r e bought and used a t a p a r t i c u l a r r a t e . L igh t ing demands a r e o f t e n l e s s discon- t inuous because one, two, t h r e e o r more e l s c t r i c l i g h t s may be used w i t h varying i n t e n s i t y ; even h e r e , however, t h e demand is o f t e n f o r one o r two e l e c t r i c l i g h t s o r none a t a l l , p a r t i c u l a r l y i n r u r a l a r e a s . Never the less , i t is easy t o show t h a t t h e s u r p l u s benef ics s t i l l have one o r more of t h e t h r e e components i d e n t i f i e d above: reduced c o s t s , t h e v a l u e of h igher q u a l i t y l i g h t , and t h e va lue of e x t r a l i g h t taken on account of i t s h igher q u a l i t y and/or reduced c o s t s .

(b) Benef i t s - Uses i n General

2 . 6 A s i m i l a r approach can be app l i ed t o p roduc t ive uses of e l e c t r i c i t y . Here, however, t h e e l e c t r i c i t y c o n t r i b u t e s t o o u t p u t , which can be valued d i r e c t l y , r a t h e r than t o domestic convenience which cannot. Hence t h e p r a c t i c a l problems of measurement a r e s imple r .

I ---__

2.7 Consider f i r s t e l e c t r i c l r e f r i g e r a t i o n qn a shop, f o r which no sub- s t i t u t e i s u s u a l l y a v a i l a b l e s o th 'z t - ref r igera ted goods cannot be s o l d a t a l l u n l e s s e l e c t r i c i t y is a v a i l a b l e . I f , wi th a r e f r i g e r a t o r , t h e g r o s s annual p r o f i t on s a l e s of r e f r i g e r a t e d goods .is K and t h e annual c o s t of t h e r e f r i g e r a t o r and e l e c t r i c i t y i s L , then t h e s u r p l u s b e n e f i t is simply K-L. Such a b e n e f i t i s a common r e s u l t of e l e c t r i f i c a t i o n i n r u r a l a r e a s i n ho t c l ima tes .

r' 2.8 The use of & c t x k - i n s t e a d of d i e s e l pumpsets. f o r i r r i g a t i o n provides an a l t e r n a t i v t 6 e X m p l e where cos t -savings a r e t h e b e n e f i t s . Diese l can produce t h e same ou tpu t a s e l e c t r i c pumpsets, though o f t e n a t a h igher c o s t , and s t i l l enable far& t o make a good p r o f i t . I f e l e c t r i c pumpsets reduce t h e farm's annual c o s t from D t o E , then (D-E) i's t h e s u r p l u s b e n e f i t .

2 .9 For p roduc t ive u s e s , most of t h e s u r p l u s b e n e f i t s of e l e c t r i c i t y can be i d e n t i f i e d and es t ima ted a s above. The f i r s t s t e p i s t o s tudy t h e process and determine:

ou tpu t ;

- t o t a l c o s t s , broken down i n t o ' e l h c t r i c ' and 'non-elec tr i c ' components ;

i

i - prof i t s . --

The second s t e p i s t 6 c o n s i d e r p r a c t i c a b l e : : u b s t i t u t e s and examine t h e i r p o s s i b l e e f f e c t s on c o s t s , ou tpu t and p r o f i i - s ; t h e cnanges i n p r o f i t s g ives

t h e consumer's su rp lu s b e n e f i t s . The s u b s t i t u t e s a r e genera l ly obvious once t h e process is understood ( e l e c t r i c i t y is genera l ly used only f o r four th ings : h e a t , l i g h t i n g , r e f r i g e r a t i o n o r motive power) . When e l e c t r i c i t y is ind i spens ib l e - as wi th l i g h t i n g on a l a r g e s c a l e , o r a s when e l e c t r i c motors a r e embodied i n t h e technology, a s i s o f t e n t h e case f o r t h e l a r g e r and more modern agro- indus t r i es - t h e p r a c t i c a b l e s u b s t i t u t e i s a l o c a l autogenerator .

2.10 For domestic uses t h e consumer's su rp lu s b e n e f i t s can only be deduced from an econometric a n a l y s i s of consumer demand f o r e l e c t r i c i t y ; t h i s approach i s discussed f u r t h e r i n Chapter 10.

2.11 I n a l l cases , both domestic and non-domestic, t h e na tu r e of t h e su rp lu s b e n e f i t s t akes one o r more of t h e t h r e e forms discussed e a r l i e r i n connection wi th l i g h t i n g : it is sometimes cheaper than t h e a l t e r n a t i v e s ; it is genera l ly of supe r io r q u a l i t y t o t h e a l t e r n a t i v e s and on account of t h i s i s valued more h igh ly ; and i t makes q o s s i b l e new o r e x t r a a c t i v i t y - a t e l e v i s i o n , a r e f r i g e r a t o r , o r more l i g h t i n g and i r on ing , f o r example. These b e n e f i t s a r e a l s o i n excess of t h e amounts paid f o r e l e c t r i c i t y ( t h e d i r e c t b e n e f i t s ) .

2.12 A s a genera l conclusion, t h e r e f o r e , t h e g ro s s b e n e f i t equa l s t h e amount paid f o r by t h e consumer f o r h i s e l e c t r i c a l i npu t s p lus h i s su rp lu s b e n e f i t . The l a t t e r c o n s i s t s of one o r more o f : --

- c o s t sav ings r e l a t i v e t o t h e a l t e r n a t i v e ;

- t h e va lue of t h e d i f f e r e n c e i n q u a l i t y ;

* - t h e va lue of any e x t r a output o r a c t i v i t y generated by lower c o s t s and/or a change i n q u a l i t y .

2.13 Considering a range of a c t i v i t i e s , t h e consumer's su rp lu s b e n e f i t s gene ra l l y have t h e fol lowing s i gn when e l e c t r i c i t y i s adopted:

Application Substitutes

Domestic Lighting Candles, Kerosene Iron Flat Iron Refrigeration Generally None Fans None Radio Batteries Television None

Cost Quality Extra Savings Benefits Activity

Farms, Agro-industries Motive Power , Diesel, Steam, Animals + Lighting Autogenerator + Refrigeration Kerosene, Autogenerator + Commerce Lighting Kerosene Refrigeration Kerosene, Ice

(c) Migration

2.14 One commonly discussed benefit of rural electrification is that, as mentioned earlier, it is thought to contribute towards stemming migration from rural to urban areas by making rural areas more desirable to live in; The effect of this is to raise the individual's demand curves for electricity in rural areas; the benefits perceived by individuals are thus fully reflected in the supply and demand models discussed above. The only question which remains is whether people are mistaken about the advantages of rural areas and that the benefits are higher than they perceive. We know no way of quantify- ing such benefits; and while the possibility of them might be accepted, and some allowance made when the criterion for project acceptability is decided upon, this should be weighted against the following: that most people migrate for good reasons, principally in search of jobs (see Chapter 10 for example). This question about the possibly mistaken values of people, however, raises a more general point about the use of demand and supply models.

(d) Assumptions of the Demand Supply Models

2.15 The point is whether the demand curves over or understate the benefits on account of:

- external benefits which consumers ignore;

- irrational values of the-consumers.

We have, however, found little evidence to show that these possibilities are important for rural electrification pr2)jects. There seem to be no .significant externa; benefits analagous to, for example, the community health

b e n e f i t s of p o t a b l e wa te r s u p p l i e s . Also , d u r i n g t h e c o u r s e o f e x t e n s i v e f i e ldwork , i t was found t h a t low income groups i n p a r t i c u l a r weighed d e c i s i o n s t o spend w i t h e x c e p t i o n a l c a r e , and t h e r e was no r e a s o n t o suppose t h a t t h e demand and supply models were i n v a l i d on account of consumers b e i n g i r r a t i o n a l ( though t h e r e is , of c o u r s e , as many c o u n t r i e s r e p o r t , always a need t o promote t h e s e r v i c e and demons t ra t e how i t can b e used t o good e f f e c t ) ; t h e work of t h e a n t h r o p o l o g i s t , Ricardo F a l l a , which l a i d t h e b a s i s f o r t h e subsequent f i e ldwork a l s o suppor t ed t h i s c o n c l u s i o n [h] . 2.16 I n f a c t , t h e assumpt ions most of t e n ques t ioned about t h e approach are t h e f a m i l i a r ones r a i s e d by income d i s t r i b u t i o n ( d i s c u s s e d l a t e r , ucder t h e c r i t e r i o n f o r p r o j e c t a c c e p t a b i l i t y ) and by p r i c e d i s t o r t i o n s (d i scussed under shadow p r i c i n g ) .

( e l The Problem of J o i n t Demand ( M u l t i p l e I n p u t s )

2.17 So f a r , a g g r e g a t e s u p p l y p r i c e s have been t aken f o r t h e e l e c t r i c and s u b s t i t u t e s o u r c e s of power and energy,, though supply h a s , of c o u r s e , many e lements . The c o s t t o t h e consumer of t h e e l e c t r i c a l t e r n a t i v e , f o r example, is made up o f :

- t h e e l e c t r i c i t y b i l l ;

- t h e c o s t of connec t ion and w i r i n g ;

- t h e c o s t s of t h e e l e c t r i c a l equipment; and

- any maintenance and o t h e r c o s t s of owning and runn ing t h e equipment.

S i m i l a r l y , t h e c o s t t o t h e consumer of t h e s h b s t i t u t e is made up o f :

- t h e c o s t of f u e l ;

- t h e c o s t of t h e equipment;

- i n s t a l l a t i o n c o s t s ; and

- any maintenance and o t h e r c o s t s of owning and runn ing t h e equipment.

When t h e s e a l t e r n a t i v e s are b e i n g compared, t o o b t a i n , f o r example, c o s t - s a v i n g s o r d i f f e r e n c e s i n v a l u e , a l l such c o s t s obv ious ly have t o be taken i n t o account .

2.18 S i n c e t h e f i n a l o u t p u t of e l e c t r i c i t y - of l i g h t , of r e f r i g e r a t e d goods, of motive power, e t c . , - i s a j o i n t product of a l l such i n p u t s , t h e q u e s t i o n a r i s e s of how t o r e l a t e t h e b e n e f i t s s p e c i f i c a l l y t o t h e i n p u t of e l e c t r i c i t y . The answer t o t h i s o l d problem is t o be found i n M a r s h a l l ' s P r i n c i p l e s of Economics (Chapter 6 ) . -ge",gf-its, a r e t h e a r e a under t h e d e r i v e d dernand cu rve f o r e l e c t r i c i t y , and e q u a l ;

-- , * - .. -.' .

> - t h e t o t a l s u r p l u s b e n e f i t s of t h e j o i n t p roduc t ; p l u s I

- t h e amount pa id f o r e l e c t r i c i t y ; \.-.-. . . 1.' t -

t h e s u r p l u s b e n e f i t s of t h e j o i n t product be ing t h e ones desc r ibed i n s e c t i o n s ( a ) and (b) above. (The r eason why t h i s r e s u l t ho lds is t h a t t h e aim is t o t e s t whether , o t h e r t h i n g s g iven , e l e c t r i c i t y is wor thwhi le , and i t must be taken t h a t a l l j o i n t b e n e f i t s would be l o s t w i thou t e l e c t r i c i t v . Th i s does n o t mean t h a t a l l b e n e f i t s have been ' a t t r i b u t e d ' t o e l e c t r i c i t y ; f o r i f ano the r i n p u t were be ing t e s t e d , o t h e r t h i n g s g iven , i t must be s i m i l a r l y t aken t h a t t h e j o i n t b e n e f i t s would be l o s t w i thou t i t . Also , i t does n o t mean t h a t no b e n e f i t s could be ob ta ined wi thou t e l e c t r i c i t y , s i n c e , a s shown above, a l t e r n a t i v e s can g e n e r a t e b e n e f i t s t oo ; however, i t does mean t h a t a l l n e t b e n e f i t s ( r e l a t i v e t o t h e a l t e r n a t i v e s ) would b e l o s t , t h e s e n e t b m E . . T e i n g t h e a r e a s under t h e d e r i v e d demand cui%ei;)

- - . -- 2.19 I f , t o t a k e an example, t h e annual amounts pa id f o r i r r i g a t i o n pumping b r e a k down a s fo l lows :

With ' E l e c t r i c i t y With D i e s e l

Pump 1 ,000 1,000 Motor 1,000 800 Maintenance 100 1 ,000 E l e c t r i c i t y Costs 500 - Fuel Costs - 900

Then :

Surp lus B e n e f i t s ( c o s t s av ings i n f h i s case ) = 1,100 E l e c t r i c i t y Revenues = 500 T o t a l B e n e f i t s of E l e c t r i c i t y = $1,600 Surp lus B e n e f i t s a s % of Revenues = 220%

A s i m i l a r procedure can be a p p l i e d t o o t h e r c a s e s .

( f ) Aggregating t h e B e n e f i t s from Sample S t u d i e s

2.20 The aggrega te b e n e f i t s of r u r a l e l e c t r i f i c a t i o n , i g n o r i n g p r i c e d i s t o r t i o n s and o t h e r compl i ca t ions f o r t h e moment, a r e t h e sum of revenues and consumers' s u r p l u s e s . The revenues can of cour se be ob ta ined d i r e c t l y from t h e b i l l i n g and accoun t ing r e c o r d s ; b u t t h e s u r p l u s b e n e f i t s have t o be ob ta ined from sample s t u d i e s of p a r t i c u l a r u s e s of e l e c t r i c i t y and i t s s u b s t i t u t e s . - The approach adopted i n t h i s r e p o r t f o r o b t a i n i n g aggrega te consumers' s u r p l u s b e n e f i t s is a s fo l lows . The consumers a r e f i r s t grouped according t o type and t o l e v e l of consumption. A s m a l l sample is then taken

1/ I n p r i n c i p l e , aggrega te b e n e f i t s can be e s t ima ted d i r e c t l y from demand - a n a l y s i s of aggregate d a t a ; b u t i n p r a c t i c e such d a t a a r e r a r e l y a v a i l a b l e f o r an impor tant number of v a r i a b l e s , i n c l u d i n g d a t a on t h e u s e of s u b s t i t u t e s .

-from each group, and f o r each consumer i n t h e sample t h e s u r p l u s b e n e f i t s a r e c a l c u l a t e d a s a percentage of h i s e l e c t r i c i t y b i l l . I f R j is t h e t o t a l revenues from consumers i n group j , and S j i s t h e percentage s u r p l u s b e n e f i t s f o r t h e average consumer i n t h e group, t h e t o t a l b e n e f i t s a r e then:

T o t a l Revenues +z R j S j 1100 j

I f , f o r example, 85% of revenues a r e from i r r i g a t i o n and 15% a r e from domestic consumers, and t h e s u r p l u s b e n e f i t s f o r t h e average i r r i g a t i o n consumer a r e 220% t imes h i s e l e c t r i c i t y b i l l , then t h e t o t a l b e n e f i t s equal :

100 + 85 x 220/100 = 287% times t o t a l revenues,

n o t count ing the s u r p l u s b e n e f i t s t o domestic consumers.

(g) Costs of Supply

2 .21 Engineering, a d m i n i s t r a t i v e and o t h e r f e a t u r e s of t h e c o s t s of supply a r e d e a l t wi th i n Chapter 6 . Here only two p o i n t s need t o be men- t ioned . F i r s t , t o round of f t h e d i s c u s s i o n on c o s t s and b e n e f i t s , t h e c r i t e r i o n f o r accep t ing pro j e c t s on economic grounds i s t h a t :

Revenues + Surplus Benef i t s 2 Costs of Supply,

s u b j e c t of course t o any shadow p r i c e adjus tments t o a l low f o r d i s t o r t i o n s i n t h e economy. I f , t h e r e f o r e , p r i c e s a r e c o s t r e f l e c t i n g and incorpora te revenue r a i s i n g e lements , p r o j e c t s can be j u s t i f i e d on economic grounds without t h e need f o r measurements of s u r p l u s b e n e f i t s . Moreover, even i f s u b s i d i e s occur , i t may only be necessary t o measure s6me of t h e s u r p l u s b e n e f i t s f o r p r o j e c t s t o c r o s s t h e t h r e s h o l d , s o t o speak, and be j u s t i f i e d . On t h e o t h e r hand, revenues may sometimes be s o f a r below c o s t s t h a t p r o j e c t s a r e un- j u s t i f i a b l e on i n s p e c t i o n . Therefore , though i t i s an aim of t h i s r esea rch paper t o e s t i m a t e b e n e f i t s a s f a r a s p o s s i b l e , t h i s i s merely t o explore t h e problems of measurement and t o l e a r n something about b e n e f i t s ; i t i s no t t o suggest t h a t s u c c e s s f u l a p p r a i s a l r e q u i r e s a l l b e n e f i t s t o b e e s t i n a t e d ( i f a t t e n t i o n i s paid t o making p r i c e s c o s t - r e f l e c t i n g , a p p r a i s a l can be enormously s i m p l i f i e d ) . 2.22 The second p o i n t is merely t o h i g h l i g h t some f e a t u r e s of c o s t s and how they change wi th demand. There a r e f i v e main components t o c o s t s :

(1) Capacity c o s t s which i n c r e a s e d i scon t inuous ly over t ime, b u t decrease markedly per u n i t of c a p a c i t y demand on account of economies of s c a l e and i n c r e a s i n g load d e n s i t i e s ( t h e s e a r e c h a r a c t e r i s t i c of sub t rans - miss ion and d i s t r i b u t i o n network inves tments ) ;

(2) Capacity c o s t s which i n c r e a s e more o r l e s s i n p ropor t ion t o t h e peak kW demand of t h e reg ion ( c h a r a c t e r i s t i c of bulk supply c a p a c i t y c o s t s ) ;

( 3 ) Energy (kwh) r e l a t e d c o s t s i n c r e a s i n g i n p r o p o r t i o n t o kWh demands;

(4) Admin i s t r a t ion , maintenance and o t h e r b i l l i n g c o s t s i n c r e a s i n g w i t h t h e number of consumers and va ry ing w i t h consumer d e n s i t y ;

(5) Fixed c o s t s of c a p a c i t y and a d m i n i s t r a t i o n which do n o t va ry w i t h kWh o r kW demands o r wi th t h e number of consumers.

On account of ( I ) , (4) and (51, average and inc remen ta l c o s t s , which a r e i n i t i a l l y ve ry h igh , tend t o dec rease qu ick ly w i t h t h e growth of demand. Another f a c t o r which reduces average c o s t s and improves r e t u r n s i s t h a t l oad f a c t o r s tend t o improve ove r t i m e .

(h) The Growth of Aggregate Costs and B e n e f i t s Over Time

2.23 Both c o s t s and b e n e f i t s grow over t i m e w i th t h e growth of demand. The growth of c o s t s can be c a l c u l a t e d from s t u d i e s of what is r e q u i r e d i n terms of network inves tments , of a d m i n i s t r a t i v e and b i l l i n g arrangements, and of t h e energy and c a p a c i t y demands on t h e g r i d system. The revenue element of b e n e f i t s a l s o fo l lows q u i t e obvious ly from t h e f o r e c a s t s of demand. Ana lys i s of t h e growth of aggrega te consumer's s u r p l u s b e n e f i t s r e q u i r e s t h a t t h e d i s t i n c t i o n ( r e f e r r e d t o i n ( f ) above) between t h e v a r i o u s consumer groups needs t o b e r e t a i n e d i n t h e f o r e c a s t . Thus i f , f o r example, t h e r e are t h r e e p r i n c i p a l groups, t hen t h e weighted average consumers' s u r p l u s , u s ing t h e e a r l i e r n o t a t i o n , changes according t o :

The growth of revenues from one ca tegory of consumer i s o f t e n much f a s t e r than from a n o t h e r , caus ing l a r g e s h i f t s i n t h e weighted average consumers' s u r p l u s ; t h i s i s o f t e n t h e c a s e , f o r example, when i r r i g a t i o n o r a l a r g e agro- i n d u s t r y is in t roduced i n t o a r eg ion . The v a l u e s of S . may a l s o change over t i m e due , f o r example, t o changing incomes i n households and b u s i n e s s e s ; b u t t h i s is a compl ica t ion which, i n t h e absence of s u i t a b l e t ime series informat ion , we were unable t o t a k e i n t o account .

( i ) Shadow P r i c e s

2.24 The most impor tant d i s t o r t i o n s i n t h e p r i c i n g system, a s f a r a s t h e i r e f f e c t s on r u r a l e l e c t r i f i c a t i o n is concerned, r e l a t e t o c a p i t a l , f o r e i g n exchange, l a b o r , t a x e s and s c a r c i t y of c r e d i t . The approach used i n i

t h i s paper is elementary and fo l lows c u s t o a a r y p r a c t i c e s ; a more r e f i n e d approach d i d n o t seem warranted.

( i ) C a p i t a l . The i n t e r e s t r a t e f o r p r e s e n t worth c a l c u l a t i o n s co r re sponds t o t h e one recommended f o r p u b l i c s e c t o r p r o j e c t e v a l u a t i o n (about 10% i n E l Sa lvador ) .

( i i ) Fore ign Exchange. A s i t happens , no shadow p r i c e a c j u s t - ments were needed f o r t h i s i t e m i n E l Salvador ( s e e Chapter 1 4 ) . Fore ign exchange e a r n i n g s from c o f f e e and s u g a r , i n p a r t i c u l a r , have b e n e f i t e d from r i s i n g p roduc t ion and r i s i n g world p r i c e s ; and f o r s e v e r a l y e a r s , t h e r e h a s been no f u n d a m e n ~ a l d i s - e q u i l i b r i u m i n t h e ba lance of payments o r unusua l ly heavy p r o t e c t i o n . However, a s r e g a r d s p r i n c i p l e s , t h e fo l lowing can be s a i d f o r c a s e s where shadow p r i c e ad jus tmen t s a r e r e q u i r e d : t h e ad jus tmen t s app ly t o e l e c t r i c a l a p p l i a n c e s and equipment a s w e l l a s t o t h e c o s t s of producing e l e c t r i c i t y ; o f f - s e t t i n g ad jus tmen t s a l s o app ly , of c o u r s e , t o s u b s t i t u t e s o u r c e s of energy and equipment. I n p r a c t i c e , t h e most s i g n i f i c a n t c a s e s a r e t o be found i n farm and a g r o - i n d u s t r i a l demands ( e s p e c i a l l y a u t o g e n e r a t o r s , d i e s e l eng ines and r e f r i g e r a t o r s ) .

( i i i ) Labor. The main element is t o be found i n t h e c o n s t r u c t i o n of t h e e l e c t r i c a l ne tworks , where u n s k i l l e d l a b o r c o s t s may form about 25% of inves tment c o s t s , depending on t h e t e r r a i n . The excess of wages over shadow wages is deducted from t h e c o s t s t r eam.

" ..- ( i v ) fiet Tax Revenueg. These are p a r t of t h e Government's p r o f i t s

%gemming, mos t ly , from sales of e l e c t r i c a l a p p l i a n c e s and equipment; t hey a r e counted i n w i t h " t h e b e n e f i t s (o r deducted - -- - - ..-.-...-- .,I *

from t h e c o s t s k - These revenues a r e o f f s e t t o some e x t e n t by ;educed t a x revenues due t o a reduced h s e of s u b s t i t u t e s ; mainly t h i s i s o n l y s i g n i f i c a n t f o r farms and a g r o - i n d u s t r i a l demands which o t h e r w i s e use taxed i t ems such a s a u t o g e n e r a t o r s , d i e s e l eng ines and a l t e r n a t i v e s o u r c e s of r e f r i g e r a t i o n .

(v) C r e d i t . Loca l i n q u i r i e s o f t e n show l o c a l i n t e r e s t r a t e s much %Ygher than t h e o p p o r t u n i t y c o s t of c a p i t a l . I f I* deno tes -.-. . ~

a c t u a l i n t e r e s t payments on equipment and I t h e i n t e r e s t which would b e pa id w i t h b e t t e r c r e d i t f a c i l i t i e s , (I* - I ) needs deduc t ing from t h e c o s t stream. By t a k i n g a sample of c a s e s I* and I can e a s i l y be c a l c u l a t e d a s a pe rceh tage of t h e e l e c t r i c i t y b i l l pa id t o run t h e equipment; a g e n e r a l pe rcen tage adjus tment term can then be a p p l i e d t o e l e c t r i c i t y revenues from t h e whole consumer popu la t ion .

( j ) Summary

2.25 The t ime s t r eams of c o s t s and b e n e f i t s , which need t o be added a l g e b r a i c a l l y and p r e s e n t worthed, appear as fo l lows :

Benefit Streams:

- electricity revenues;

surplus benet its to farms, agro-industries and commerce, calculated from studies of processes, outputs and profits, and of how profits would change if substitutes were used;

i..?'' j ; ,/;5 - surplus benefits to households, which can be estimated,

in principle, from econometric studies of household demand.

Cost Streams:

- capital costs of bulk supply, related to the area's peak kW demand ;

- capital costs of subtransm~ssion and local distribution networks ;

- energy costs (kWh related) ;

- administration, billing and maintenance costs.

Shadow Price Adjustments Streams:

- net tax revenues;

- net foreign exchange penalties;

- shadow wage adjustments to labor costs;

- adjustments for scarcity of credit.

Having calculated the present worth of net benefits in this way, and also estimated an economic rate of return (by considering different discount rates), the next question to consider is: What is an acceptable criterion?

The Criterion for Project Acceptability

2 . 2 6 Calculations of costs and benefits concentrat'e only on economic factors and only on what can be quantified. In several cases the estimated rate of return may be above the opportunity cost of capital and sufficient to justify the project on economic grounds. This happens if a strong demand develops from:

- a number of villages, not too widely scattered (so that costs are not too high); and

- farms, agro-industries and rural commerce;

and if proper attention is paid tc keeping costs down, to pricing policy, and to identifying proje~ts which are related to the economic development priori- ties of the area.

2.27 However, a number of p r o j e c t s o f t e n show r e t u r n s c l o s e t o b u t below t h e o p p o r t u n i t y c o s t of c a p i t a l . A s a p o i n t of p r i n c i p l e , i t would g e n e r a l l y be wrong t o r e j e c t such p r o j e c t s : g e n e r a l l y i t is n o t p o s s i b l e t o q u a n t i f y a l l of t h e n e t economic b e n e f i t s , and s o c i a l arguments may be impor tan t . The f o l l o w i n g , f o r example, may merit a l lowances :

- t h e s u r p l u s b e n e f i t s t o households , i f t hey cannot be e s t i m a t e d ;

- t h e v a l u e judgment t h a t low income and s m a l l b u s i n e s s consumers m e r i t s p e c i a l help, so t h a t a subs idy on e l e c t r i c i t y s a l e s is d e s i r a b l e a t low l e v e l s of consumption;

- i n s t i t u t i o n a l b e n e f i t s i n t h a t t h e inves tment is a s t i m u l u s t o p u b l i c and p r i v a t e i n s t i t u t i o n s , a s w e l l a s t o t h e a r e a i t s e l f , t o t a k e a s t r o n g e r i n t e r e s t i n t h e a r e a ' s development; t h i s should f e e d back p o s i t i v e l y on t h e r e t u r n s t o t h e p r o j e c t b u t t o a n immeasurable e x t e n t (an example 'of P r o f e s s o r Hirschman's d ic tum t h a t t h e b e n e f i t s of unin tended s i d e e f f e c t s on i n s t i t u t i o n s a r e o f t e n more f a r - r each ing than t h o s e of t h e in t ended e f f e c t s of p o l i c y [ 6 ] ) ;

- t h e expected r e t u r n s may be lower than t h e o p t i m i s t i c r e t u r n s ; b u t an o p t i m i s t i c view of t h e p r o j e c t should be taken: t h e s o c i a l consequences of n e g l e c t i n r u r a l a r e a s outweigh t h e r i s k s of l i m i t e d s u c c e s s .

2 . 2 8 The a l lowances f o r such arguments depend on t h e coun t ry , and i n p a r t i c u l a r on i t s f i s c a l s t r e n g t h . For t h i s r eason , how much lower than t h e o p p o r t u n i t y c o s t of c a p i t a l t h e r a t e of r e t u i n c r i t e r i o n can be pe rmi t t ed t o go i s a m a t t e r b e s t l e f t t o expe r i ence , d i s c u s s i o n and judgment. But t h e r e a r e s e v e r a l r e l a t e d arguments f o r not p e r m i t t i n g i t t o go too low, i n a d d i t i o n t o t h e obvious p o i n t t h a t i t s i g n i f i e s an i n e f f i c i e n t inves tment . F i r s t l y , i f r u r a l e l e c t r i f i c a t i o n i s t o c o n t r i b u t e towards economic o u t p u t and wages i n r u r a l a r e a s , i t must b e couched i n a p r o d u c t i v e c o n t e x t . LF,nere i t i s , t h e demands from a g r i c u l t u r e , a g r o - i n d u s t r i e s and commerce w i l l b e l a r g e , and t h e revenues and s u r p l u s b e n e f i t s from t h e s e should p rov ide a good economic r e t u r n t o t h e inves tment . In t h i s r e s p e c t , e l e c t r i c i t y i s s imply a f a c t o r i n p u t t o a g r i c u l t u r e and r u r a l commerce, so t h e economic r e t u r n s should be comparable t o o t h e r inves tmen t s i n tkiese s e c t o r s . On t h e o t h e r hand, where t h e r a t e of r e t u r n is low i t is a s i g n t h a t demands f o r p roduc t ive u s e s may be low and t h a t i t s c o n t r i b u t i o n towards r a i s i n g p r o d u c t i v i t y and incomes i n t h e a r e a s i s l i m i t e d .

2 .28 Secondly, and c l o s e l y r e l a t e d t o t h i s , i s t h a t a low r a t e of r e t u r n may s i g n a l t h a t t h e r e i s i n s u f f i c i e n t a t t e n t i o n t o t h e development of l o c a l i n f r a s t r u c t u r e and a g r i c u l t u r e : poor o r no c r e d i t f o r example, o r bad roads . E l e c t r i c i t y i s on ly one of many f a c t o r i n p u t s needed f o r development. I f t h e complementary i n p u t s a r e n e g l e c t e d , t h e c o n t r i b u t i o n of e l e c t r i c i t y t o develop ment i s diminished.

2.29 Th i rd ly , p r o j e c t s having low r a t e s of r e t u r n can a l s o l ead t o d i s i l lus ionment among both i n v e s t o r s and consumers. One reason f o r t h i s is t h a t even subsidized e l e c t r i c i t y and t h e app l i ances t o use i t o f t e n c o s t f a r more than people a n t i c i p a t e ; t h i s can be e x c e p t i o n a l l y unwelcome s e t - back f o r low income households, and a h igh r a t e of d isconnect ion r e s u l t s . Another reason i s t h a t where development i s expected, but not r e a l i z e d , t h e r e is cynicism ( t h i s s tudy and a l s o an A I D sponsored s tudy i n Costa Rica and Colombia have found s o l i d evidence of t h i s [ 5 ] ) . 2.30 Four th ly , where t h e r e is a s t r o n g demand from households and bus inesses , a low r a t e of r e t u r n probably i n d i c a t e s t h a t t a r i f f s a r e too low and wrongly s t r u c t u r e d . Some of t h e l a r g e r household consumers i n v i l l a g e s a r e o f t e n above-average per c a p i t a incomes, whi le many of t h e l a r g e r farm and bus iness consumers make q u i t e good p r o f i t s . I t is sometimes t h e c a s e , h o w e v e r , t h a t s u b s i d i e s cont inue even though such consumers a r e a b l e and w i l l i n g t o pay more. T a r i f f s can be r e s t r u c t u r e d so a s t o he lp t h e lower income groups more whi le enabl ing t h e u t i l i t y t o e a r n a b e t t e r f i - n a n c i a l r e t u r n and extend s e r v i c e more widely; t h e measured r a t e of r e t u r n would a l s o be higher .

2.31 F i n a l l y , t h e b a s i c reasons f o r low r a t e s of r e t u r n a r e low l e v e l s of use of high-cost p r o j e c t s . It i s p o s s i b l e i n such cases t h a t a l e a s t - c o s t s o l u t i o n has no t been found. Low demand stemming from simple uses l i k e l i g h t i n g , i r o n i n g and one o r two r e f r i g e r a t o r s i n v i l l a g e shops, can be met by smal l d i e s e l o r micro-hydro powered au togenera to r s a t r e l a t i v e l y low c o s t s . When such a l t e r n a t i v e s a r e adopted, t h e r a t e of r e t u r n is n o t - only good but t h e schemes a r e o f t e n f i n a n c i a l l y p r o f i t a b l e .

2.32 I n sum, t h e r a t e of r e t u r n (o r p resen t worth) c a l c u l a t i o n provides some u s e f u l messages. A high r e t u r n s i g n i f i k s a good investment. A r e t u r n somewhat below but approaching t h e opportuli i ty c o s t of c a p i t a l deserves t o l e r a n c e s i n c e t h e r e a r e s e v e r a l b e n e f i t s of importance which cannot be q u a n t i f i e d . Low and v e r y low r e t u r n s on t h e o t h e r hand may s i g n a l an in- e f f e c t i v e o r badly prepared p r o j e c t , wrong p r i o r i t i e s o r t h e p o s s i b i l i t y of d i s i l lus ionment .

CHAPTER 3

BACAGHOUND INrl3mfION ON EL SALVADOR --

Economic Growth

3 -1 El Salvador's economic growth and output has h ia to r ica l l :~ dependell on ;tgriculture, and in par t i cu la r on the export of coffee, of which E l Salvador is the s ix th l a rge s t producer. While, however, agri l-~rl ture s t i l l provides the l a rges t share of GNP, there has been a pa r t i cu la r ly marked developnent of manufacturing, commerce and finance which together now provide ( in 1974) nearly half the GNP.

Table 3.1

Sonrces of GNP, 1960 and 1970

Current Prices 1962 Pr ices Increase Share Sector #1960 1970 1960 1970 % 1970

Agriculture Minerals Manufacturing Construction U t i l i t i e s Transp.& Communications Commerce F3n an ce Housing Government Other Services Total

The r a t e of economic growth increased from 4.3% per year in the 1950 'S , t o 5.6% per year in the 1960's. AS one might expect, both a cause and a consequence of the high r a t e of growth in commerce and manufacturing has been the emergence of a young and r e l a t i ve large entrepreneurial class.

3 -2 The rapid economic growth of the pas t twenty f i v e years has not , however, s ignif icant ly benefi t ted the low income groups, though some attempt t o spread the benef i ts through minimum wage l eg i s l a t i on were i n i t i a t ed in the 1960's ( in 1972, the minimum wages were jus t l e s s than one dol lar per day). One reason f o r this i s t ha t population has grown rapidly a t 3.5% pe r year, and the present population density of L30 persons per square mile ( t o t a l population i s 3.7 mill ion) i s one of t he highest i n the world. The other reasons a r e that ,pol l i t ica l awareness of economic and soc i a l needs have developed slowly and reluctantly. The averzge Salvadorean has the lowest protein intake i n Central America;

i l l i t e r a c y , although diminishing, i s above 40%; and, as indicated by the -, following data, poverty, s tagnation of r u r a l incomes, and pressure OR the land are driving increasing numbers t o urban areasr-

Flural Workhg Population Urban Working Population

Total

1970 Increase

Rural Incomes, @ per capiLa 2 92 2 99 2% Urban Incomes, $ per capita -1,SOO ~ 1 , F 0 0

660 26%

Average per capi ta income, 6 6F0 5%

For a long time, goverrnnent support was highly concentrated i n the i n t e r e s t s of a few la rge producers of coffee and cotton; and only recently has more support been provided t o the d ive r s i f i ca t ion of industry and agriculture. And, though qui te la rge programs f o r economic reforms were conceived i n the e a r l y 1960 I s , several of these were of ten abandoned o r unaccomplished.

3 -3 Nevertheless, there have been growing Fn i t i a t ives t o widen and deepen development. The government has made spec ia l e f f o r t s t o launch a number of s o c i a l programs in public housing, heal th and education; a number of r u r a l in f ras t ruc tu re p ro jec t s , pa r t i cu la r ly in roads and e l e c t r i f i c a t i o n , have progressed well over recent years (though extension public water supplies seems t o have lagged very badly); the re are various programs to support p r iva te agr icul ture and provide c r e d i t in r u r a l areas (though a program of land reform has been postponed indef in i t e ly ) ; investment i n a s e r i e s of la rge public i r r i g a t i o n projec ts has begun, which, once completed should r a i s e the area of land i r r iga ted f i f teen-fold t o over 300,000 ha; and, as our survey of productive uses of e l e c t r i c i t y - shows (in chapter 12) there seems t o be qu i t e a lot of growth of commerce and agro-industries i n r u r a l areas. Even so , there i s a long way t o go. Qui te apart from the problems of i l l i t e r a c y and prote in deficiency mentioned above, i t should be noted t h a t a la rge port ion of the labour force i s employed f o r l e s s than half the working days of t h e year; and the public investment programs in r u r a l areas have s t i l l reached only a minority of the people - over 70% of r u r a l roads are s t i l l dirt-roads, fo r example, often impassable in the wet season; the e l e c t r i f i c a t i o n program, which r igh t ly concentrated on the l a rge r v i l l ages f i r s t , has reached perhaps no more than 10% of the ru ra l population, and the majority of the people do not have access t o sa fe drinking water o r hea l th service. I n 1970, the per capi ta income d i s t r ibu t ion was as follows : -

Lowest V 0, Per Capita Income $ Share of National Income

6 221 16% Next 30% Next 15% Top 55

APricul ture , Land Tenure, Orgafiisation of rZural Labor

3 -4 The a g r i c u l t u r a l s e c t o r continues t o be sharply divided in terms of techniques and organ isa t ion , between production f o r expor t , which is genera l ly modern and e f f i c i e n t l y organised, and which has high y i e ld s ; and product ion f o r t h e domestic market (mostly corn, beans, r i c e and sorghum), which i s predominvltly i n t h e hands of m a l l holders , genera l ly c u l t i v a t i n g t h e poorer s o i l s and having l imi ted access t o c r e d i t and how-how. This dichotomy i s r e f l ec t ed in t h e s u b s t a n t i a l i nc r ea se in outpu t of t h e expor t crops (cof fee and co t ton in p a r t i c u l a r ) ; and in t h e poor performance i n domestic food production, which has not kept up with t he l e v e l o f populat ion growth i n t h e l a s t two decades, h i t h t h e r e s u l t t h a t food imports have r i s e r . I n 1970, cof fee formed ha l f t he value added h ag r i cu l t u r e , cot ton lo.?%, and corn, t h e l a r g e s t domestic crop, s.

Table 3.2

Output i n ~ g r i c u l t u r e , 1960 -1970 (fl :,I c u r e r i t p r i c e s )

Coffee Co t i o n Corn Se m s Sugar Rice Others

Tota l

A s l a t e r discussed 2.:; 2. I 5 e r 1 2 , t'nere i s q u i t e a l a r g e po te r i t i a i ?rc7>--,h from i r r i g a t i o n .

3 .5 It i s not pos s ib l e t o ~ ~ q d e r s t a n d agricc15ure i n ?1 Salv;'!r,r wi<hout some appreciat ior , 05' t he s y s t m of land tenure , :dkLic;? is d i s t h c t l j f elidal ir, some r e spec t s , .-nu .jf t k 3 o ? g : + n L ~ z t i r i ~ 3 1. : , h ~ l ?tp:::+- fo r ce , There a r e about 230,000 fa rms , over be in s less :.?an 2 i,a, .:n:i occirpytng about 10% of ag r i cu l t u r t i l land; on the o;iier hznc 1.: of Lrie falms occupy -50s of the land. The smal l i ; ~ rn~e r s (3 ha o r l e s s ) , ~ h o 7.57,

o r own t h e i r p l c t s ( "ar renda ta r io s" an3 ' p r cp i e t a r i o s I t ) , comprise r o i l g h l ~ one t h i r d of t he r u r a l labour fo r ce of 6:!c?,000, a d have to work or: = i - i ~ l a r g e r p rope r t i e s t o supplement t h e i r in :ome. A l a r g e portior? o f i h e labour fo rce , which has increased i n r e c ~ a t years , a r e t h e ~ c o ~ o n 3 s , ! ' who are provided with she;t.er, wages and s smal l p i ece o f land (mostly l e s s than 1 ha) f o r subs i s tence , in exch r q e f o r work OH the lai.::er farms. F ina l ly , :here i s a l a r g e c l a s s ; ~ f mainly m f . y ~ . ; n ~ I . :cT~~L-s, the f l jo rna le ros , " xho genera l ly move wi th in ;he m r a l ar-.as d u r i r . ~ t i le c r o p - p i c k i n g seasons.

3 '315s system of land tenure , -nd t h e c r q a n i s ~ 5 i o ~ o f the Ir1n?:1r f o x e , have very important conseqaences !'or infrss :;rucr,;~re inv2s ::me:; ;s - q-~5+e apa r t f r o n the obvious f a c t ol' l < , i ~ incomes. sm-:; ; I:.:-~er: .:nd

. . . t h e cclonos, :iho +&gether n a y for?;; : ~ : ~ l f -.he r - u z l zoplll=.:;;'-on; :io ;!.it -- ,- u .- .>

i n the main v i l lages but i n low densi ty and m a i l settlemen5s; as a r e s u l t i t i s very expensive to extend service to them. I n addition, the colonos do not own t h e i r property and so can only have service n t the ins-tiga" klon of the property owner. Final ly, t he migrant workers generally cons t r i lc t (oa t of wood and miscellaneous materials) temporary houses; there i s l i t t l e permanence o r s o l i d i t y i n t h e i r dwellings, Kith the r e s u l t t h a t extension of service to them is rare ly worthwhile. The ne t r e s u l t i s t ha t i t i s very d i f f i c u l t t o ju s t i fy extension of service t o nearly two t h i r d s of the v i l lage- rura l working population - as K i l l be seen l a t e r i n t h i s report .

I l an~@ac t u r i n g

3 -7 Though it can be shown t h a t there i s plenty of m3n f o r economic growth i n agr icu l ture , the shortage of lnnd w i l l pmbably make E l Salvador increasingly dependent on food imports, pa r t i cu la r ly froin o ther Central American countries, and Fncreasingly dependen5 on manufacturing f o r growth.

3 -8 A s mentioned e a r l i e r , manufacturing has grown rapidly over the l a s t f i f t e e n years , and together with comerce and f inance provides nearly half the GW. It i s also absorbing an i'ncreasing f r ac t ion of t he labour Zorce, as the following t a b l e indicates: -

Table 3.3

b l o y m e n t in E l Salvador (.thousands)

Agriculture and Fishing IJIand ac t u r L ~ g - Factory - Handicraft Construction U t i l i t i e s Transport Comer ce Services Other Total Zhployed Unexplopent -Jneqlo>men+, 3 Total iJo?L%g Population

The high growth indus t r ies , financed makily by coffee producers and foreign inves tors , have been t e x t i l e s , food products, shoes'and chemicals. A number of small indus t r ies have also expanded rapidly, in pa r t i cu la r f u m l t l ~ r e , pr in t ing paper products, t a i l o r i n g and simple metal goods. There a r e also a number of import substi-Luting indus t r ies , including those which produce e l e c t r i c a l appliances and :;mall e l e c t r i c a l equipment f o r power supply.

Trade - 3.9 For many yea r s E l Salvador has been ab le t o balance i ts paynents and expand i t s t rade . One reason f o r t h i s has been the rising ou';pu'; and p ~ i c e s o f coTfee. Also, E l Salvador h s s bee:^ very succe s s fu l in d ive r s i f y ing and expandhe i t s exports . I n 1950, cof fee accounted f o r 67% o f export s a l e s ; by 1973, though t h e vol~une of coffee s a l e s had doubled, they accounted f o r 44% o f exports:

Table 3.4

Agricul ture: Coffee Cotton Shrimps Others To t a l

P r i n c i p a l Exports ( c u r r e n t p r i z e s )

I n d u s t r i a l : Processed Sugar Cotton 'I'l--read a n d Yarn Cotton Fabric Clothing Chemical Produc ~,s Other Tota l

Other ( unc l a s s i f i ed )

To t a l Exports (f .o.b.) 2 93

Source: I3F.D Economic ;.lemoranu~, on E l Salvador, :lo . ~ ~ L - S S

3.10 This expansion of L q o r % s has permit ted I;he impor5 of manufactured goods, and helped f inance e;cpansj.nn of mznufacturing, i n f r a - s t r u c t u r e and agro- industr ies . In comon v i t h m;u<r counts les , the 1973 o i l p ~ i c e increase:;, rnd the cur ren t i n f l a t i o n , have r ecen t l y ilnderrninsd El Salvador 's t r a d e pos i t i on .

Urb =-Village -Rural Def in i t ions

3 -11 For t h e purposes of economic and p o l i t i c a l a c h i n i s t r a t i o n , 21 Salvador i s divided h t o ih 9epartamentos ( see t a b l e 3.5, l a t e r ) , which i n t u r n oversee 261 smal le r a d n i n i s t r a t i v e ~ t s h o - m a s : , : - u l i c i ~ i ~ ; . 11:~

7 - Xunicipios have p r i n c i p a l c en t r e s known :is cabeceras, which ? r e ofislc:.~.:.:; c l a s s i f i e d as Iturbzn.lf Outside t h e cabe,:eras t he p o p d a t i on Ls c l a s s i f i e d as t t r u r d . 11 In 1971, t h e populat ion d i s ur lbut ions a f :be '~hxi ic ipios ;;ere as follows:

Table 3.5

I , l~micipios C l a s s i f i ed Accordhg t o Xumber of Houses: Urban and Xural

FTum5er of I;o~ises Urban (cabeceras) Rural

Total No. of Houses (':-I 260,000 L40 ,000 (700,000)

Tota l Population l , h 3 O Y O O O 2 ,~46 ,000 (3,549,000)

(*) ltpproximate. Populat ion f i g u r e s divided by 5.5, t h e average family s i z e .

Soilrce: 1971 Census data .

3.1 3 It i s evident t h a t most of t he cabeceras wo-iLd be b e t t e r thouqht of as v i l l age s . Indeed, E l Sa lvador ' s "rural1I e l e c t r i f i c a t i o n proTr?:n, when It began I n t h e e a r l y 1960 Is, concentrated on e l e c t r i f y h g the c:!'aeceras. (1.10s t count r ies consider concen5rstions of 1000 houses o r l e s s t o be v i l i a ~ e s ; ;lexica and I n d i a i n f a c t tzke v i l l a g e s t o be conce~i t ra t ion of 10,COO people o r l e s s . )

3.73 Outside t h e cabeceras, t h e populat ion i s mostly niral, in t h e yeilerally accepter1 sense of t h e terni. Ra l f , perhaps, i s c lu s t e r ed i n k srlnll h ~ ~ d e t s , c a l l ed c a s e r i l l o s , whi le t he remainder i s s c a t t e r e d , l l v i n y on unused l ~ t i l d a1on;l; f h e roadside o r on t he farms of t he l a r g e r lantloi-mers. As explained above (paras . 3.5 and 3.6), i t i s p a r t l y a s h i r t i n z , u n s e t t l ~ d popul?tLm, on accourit of t h e l a r g e nunber of migrant workers, xho change l oca t i on between seasons i n search of work; and i t i s p a r t l y a f ixed populat ion ( t he l lcolonosll and t h e s a a l l farmers) on account of t he system o f l a d tenure , which binds many people t o t h e land of the l a r g e landowners.

3.1 4 O f i c i a l l y t h e rural areas a r e divided i n t o over 2,000 zones krlo\m as canfJones, in which t h e c a s e r i l l o s may Se thought t o form t h e p r i n c i 7 a l v i l l a g e s wi th d i s t i n c t c u l t u r a l i d e n t i t i e s . 3u t wi th - impor tan t except ions , i t would be a mis take t o t h ink of the c a s e r i l l o s in t h i s way. E l * s t i y , not a l l c a ~ t o n e s have c a s e r i l l o s . Secondly, t h e cu l t i r ra l i d e n t i t i e s of t h e r u r a l people a r e genera l ly wi th t h e cabeceras, a f a c t o r which i s p a r t l y explained by t he system of land tenure , and p a r t l y by t h e s h i f t k g populat-ion. Fever t he l e s s , t he c a s e r i l l o s a r e population concen.brations and the l a r g e r one's m a y everi form cen t r e s of socio-econo.nic grosrth.

A number o f t h e l a r z e r ones have been e l e c t r i f i e d in recen t yea r s , and, now t h a t a l l b u t four of t h e cabeceras have been e l e c t r i f i e d , the f u ~ u r e e l e c t r i f i c a t i o n program i s t o extend s e r v i c e t o an increas ing nanber of them.

Urban-Village-?wal Populat ion Levels and ' l ig ra t ion

3.15 Table 3.5 shows t h e i nc r ea se i n populat ion l e v e l s by Departa- mentos. A s i n o t h e r count r ies , t h e r e has been a l a r g e s h i f t i n populat ion towards the c a p i t a l c i t y , though i t has n o t been q u i t e so marked 2s e l s e - where - t h i s i s p o s s i b l e on account of El Sa lvado r ' s s m a l l ~ e s s and t h e l a r g e number o f migrant w o ~ k e r s who can f i nd work by moving between regions i n t h e ha rve s t seasons.

Table 3.6

Populat ion of t he Departamentos

Departamento

Ahuachapan Sagta Anna Sonsonate Chalatenango La Liber tad San Salvador Cuscatlan La Paz Cakalas San Vicente usll lutan San :4iguel "lorazan La Union

To t a l

Populat ion 1961 - .. 1971 - Increase ,b

3.16 k a l - U r b a n migrat ion, however, i s no t confined to t h e l s r g e r c i t i e s and towns. The v i l l a g e s ( cabeceras r n ~ ~ i c i p a l e s ) a r e a l s o experiencinc: an i n f 1 1 ~ ~ of people from r u r a l areas . L? s i x t e e n v i l l a g e s surveyed i n t h i s s tudy, t h e r a t e s of i nc r ea se i n t he number o f houses over a 10 year per iod were i n t h e range o f 1.5$ t o 5% p e r year. The fol lowing fuable i n d i c a t e s t he s i t u a t i o n f o r t h e whole c o ~ l n t r j :

Table 3.7

Populat ion D i s t r i bu t i ons of the Nunicipios

Population Urban ( ~ a b e c e r a s ) Rural nange 1961 1971 Change 1951 1971 S h a n ~ e

Tota l Populat ion 0.98 m. 1.40 m. (44%) l.5& m 2.15 m. (LO$)

(-%) incli ldes San Salvador ( ~ o p u l a t i o n z0.75 m.) . 3.17 The number o f t h e smal les t Cabeceras ( l e s s than 1000 i nhab i t an t s ) declined s u b s t a n t i a l l y , t h e reason bsing t h a t t h e i r s i z e s had increased to p u t them i n t o a l a r g e r populat ion bracket (more than l0OC inhabi-tan-ts) . I n genera l , however, t he number o f smal l Sabeceras ( l e s s than 10,000 i nhab i t an t s , say) has kep t f a i r l y cons tan t , the main - di f fe rence belng t h a t they a r e now l a r q e r . On t he o t h e r hand, t he number of i c w dens i ty r u r a l popillation a r ea s ( l e s s than 10,000 inhab i tan tdmuni - c ipio) decl ined q i t e narkedlgr, i n favou;. o f a l a r g e s h i f t towards t he ~ l r a l a r ea s surrounding t h e l a r g e r t o m s and c i t i e s ( i .e . Cabeceras wi th more than 10,000 inhab i tan t s ) . What seems 'to happen, then , i s t h a t t h e v i l l a p s (smal l Cabeceras) a r e a b l e to hold onto a d i nc r ea se t h e i r popuL2tions on a pa r wikh c i t i e s , in t h e presence o f l a r g e s c a l e migrat ion from rdr a l areas.

3 -18 The f a c t remains, however, t h a t near ly two t h i r d s o f t h e people l i v e ou ts ide the a a i n v i l l a g e s - she small farmers , the workers ( t h e colonos) l i v i n g on t h e l a r g e farms, =Id a good po r t i on o f t he migrant workers. A s d i s c~ i s s ed e a r l i e r (paragraph 3.6), it i s f requent ly d i f f i c u l t and c o s t l y t o extend any kind o f pub l i c s e rv i ce t o them. Thus, whi le it i s p o s s i b l e t o discover (as in t h i s study) t h a t many r u r a l -v i l l age areas a r e m r t h e l e c t r i f y i n g , i t i s apparent t h a t a l a r g e number o f people a r e a l so cu r r en t l y ou t s ide t h e scope of the r u r a l e l e c t r i f i c a t i o n program.

cwm L

THE JiLECTRIC POWER SECTOR

Development of the Sector

(a) Generation and Transmission

L. l There a r e only two indigenous energy resources of s ign i f icance in El Salvador: t he hydro e l e c t r i c p o t e n t i a l of t he Mo Lempa, t he country's p r inc ipa l r i v e r , and the recent ly surveyed geothermal f i e l d s . During t he pas t twenty years , expansion cf generation capacity was f i rs t based on hydro m d then on a mix of hydro,fuel o i l and gas turbine p l an t ; f u t u r e expansfon is t o be based on continued explo i ta t ion of t h e Rio Lempa, geothermal energy, and in t h e longer run, on nuclear and/or more o i l energy.

h.2 Before 1945, El Salvador's e l e c t r i c i t y needs were met bzr a number of p r iva t e companies using small d i e s e l , thermal o r hydro p l an t s located -h each of the main consimp%ion centres . Up t o then, t he re :.rere c o n t ~ h u a l shortages o f capacity t o meet q u l c ~ l y growing demands; i t was t h i s s i t u a t i o n which l ed to the fornat ion i n 1945 of t he Comision Ejecutiva Hiclroelectrica de l Rio Lempa (CEL), whose main tasics were t o study and exp lo i t t he hydm reserves of the Rio Lenpa, and to e s t a b l i s h an in tegra ted sys ten of genera t ion and transmission. Today, p r a c t i c a l l y a l l t he generation and t ransmias io~l capacity i s provided by CEL, who sell e l e c t r i c i t y in bulk t o e ight p r iva t e d i s t ~ ~ i b u t i o n companies, two indus t r5a l consumers, and various government agencies. Since 1962 CEL have a l so -mderl;ai:en the l a r g e r p a r t of El Salvador's r u r a l e l e c t r i f i c a t i o n program; sales to rur~1.l areas c o n s t i t u t e CEL's only (non-bulk) s a l e s t o domestic and business COESILT~!~"P .

4-3 The f i r s t power s t a t i o n s t o be comnissioned were both hydm: t h e C;,?co de Noviembre, which was expvlded in s t e p s from 30 MW i n 1954 up t o 81.L I.IW by 1966; and the Guajoyo 15 MI? s t a t i o n , commissioned in 1963. Ta sup?lanent peak capaci ty in the wet seasons, and energy reserves in t h e d r y seasons, twr, o i l f i r e d u n i t s of 30 and 33 Yd were i n s t a l l e d a t Acajutla i n 1966 and 1969. i"-Li?; capacity shortages in recent t i n e s n e c e s s i t a t e j the introduct ion of 6L.5 Xu' of gas turbi.nes, whlch inclxded 2 x 15.5 Yd u n i t s a t Soyapangc in 1972, p lus another of 25 W -91 1973. So the system now cumprises: -

Hydro 96.4 MW S t e a r ( o i l ) 63.0 IW Gas %bin& 64.6 MW

m m

Altogethsr, senerat ing capacity in 31 Salvador has expanded neayly tenfold i n the p a s t 20 years , t h a t is , from roughly 20 X*; in t he ea r ly 1950 '3. Total inves t - ment by CEL in generation and transmission over t h e pas% twenty years has amolmted t o about $ 200 ?J (($80M).

L.11 The peak demand has grown a t a sustained r a t e of l l .S ;$ p e r year during the pas t ten years , and i t i s forecas t t h a t demand w i l l continue t o grow a t about this r a t e f o r some time. To meet t he growFng danand two p r o j e c t s a r e under construction: the 270 Xd hydro p lant a t Cerron Grande, comprising four units of 67.5 MW each, to be i n s t a l l e d in stages; and a 30 MW geothermal s t a t i o n a t the Ahuachapan g e o t h e n a l f i e l d , the u l t imate capacity of which may be increased t o 100 41W. The IBRD appraisal report of these p ro jec t s projected the following expansion sequence up t o 1980:

Demand I n s t a l l e d Capacity, MW Year MW Total Wdro Geothermal Fuel O i l G/T 's

Source: Beport l o . h9a-ES, April 1973. 9 New 67.5 unit a t Cerron Grande.

Betxeen them, the Cerron Grande and the Ahuachapan p ro jec t s should be s u f f i c i e n t to meet ihcreased demands up t o the mid ' 1980';. Beyond then, a run of r i v e r pro jec t (La Pintada, 80 Nd, downstream from Cerron ~ r a n d e ) and a fu r the r l a r g e hydro s torage p ro jec t ( El Tigre, LOO MW, s h a r d with ~onduras ) a r e being contemplated; nuclear and/or more f u e l o i l a r e more d i s t a n t prospects.

(b) Distr ibut ion

4-5 There a re eleven u t i l i t i e s , includin; CEL , d i s t r ibu t ing e l e c t r i c i t y in E l Salvador; most of them buy e l e c t r i c i t y in bulk from CEL, though severa l s t i l l have small generators suppljring some of t h e i r networks. The areas served by these u t i l i t i e s are indicated a3 the map; some s t a t i s t i c s are:

Table L.1

E lec t r i c U t i l i t y S t a t i s t i c s , 1971

1/ Capacity No. of Sales GWh Purchases GWh U t i l i t y KW Consumers Re ta i l Bulk From CEL Others

CEL CAESS CLESA CECSA CLES CLEA SPRB DEUSEM CO SAESA DESSEM RMCO

Total

j/ Xespectively, CEL; Companiz de Alumbrado E l e c t r i c ~ de San Salvador; Compvlia de Luz Elect r ica de Santa h a ; Compania Electr ica de Cucumacayan S.P..; Compa- n i a de Luz Elect r ica de Sonsanate; Compania de Luz Elect r ica 3e Ahuachapul; Sucesion Pio Romem Bosque; Mstr ibuidora Elect r ica de Usulutan S.E.M.; Compda Orienta l Salvadorena de Alumbrado Electric0 S.A.; Distribuidora Elect r ica de Sensuntepeque S.E.M.; Sociedad IEdroelectrica Roberto de Yethex y Cia.

All u t i l i t i e s except CEL a r e p r iva te ly owned.

L.6 About 25% of the population a r e supplied with e l e c t r i c i t y , most of whom ( n e z l y 90%) l i v e in the larger urban areas - San Salvador, La E b e r ~ . a d , Chaletenango, Cuscatlan, Santa h a , San Tfiguel and Sonsonate. Yost of the remaining sa les a re to the smaller cabeceras an6 agro-industries in the =a1 areas. The growth of sa les and of the number of people served have been qu i te rapid, as can be seen from the following s t a t i s t i c s of CUSS, the country's l a r s e s t d i s t r ibu to r :

1963 - % Increase Sales, GWh per year 2 20 130$ Consumers 67,000 131,oco 96% kWh/consumer 3,280 3 ,8m 19%

About 25% of s a l e s a re t o domestic consumers, 15% t o commerce, 15% t o government and 45% t o industry; they are growing a t roughly equal r a tes .

4.7 Investment b~ dis t r ibu t ion between 1952 and 1972 formed 27% o f investment in the sec to r (58% was in generation, 15% i n transmission) and amounted t o about $80 M ($32 M).

Tar i f f s and Cost S t m c t u r e

4.8 A l l u t i l i t i e s a re subject t o regulat ion by the Inspeccion Senera1 de Servicios Elec t r icos (IGSE) , under the Ministry of Economy. The nine p r iva te ly owned u t i l i t i e s a r e permitted t o earn an 8% annual re turn on ne t a s se t s a f t e r meeting a l l expenses, including taxes and dividends. CEL, which i s t h e only publ ica l ly owned u t i l i t y , has been permitted t o earn somewhat higher r a t e s of re turn than this (9% o r mom) on account of t h e need t o generate funds t o f inance i t s l a rge expansion program.

Bulk Supply Ta r i f f s

4.9 CEL's bulk supply charges t o the d i s t r ibu t ion companies were ( i n 1972) an energy charge of i? 0.03 per year and a capacity chalge of k? L5 per KW/year fo r t he l a r g e r d i s t r ibu t ion companies ($ 50 per K~/year f o r the smaller ones). I f anything, this energy charge was ( i n 1972) i n excess of marginal energy cos ts , and t h e capacity charge below marginal capacity costs. The cost of ex t r a thermal generation from Acajutla, f o r example, was about two, not three , centavos pe r Moh; while the cos ts of providing ext ra capacity broke down as follows:-

New Steam Plant $25O/KW Transmission Costs

Tota l

Allowance f o r 0 & M 15% Allowance f o r transmission losses 3% Allowance f o r reserve capacity 20%

Total Costs a $ L 2 6 / ~ Total Costs, a t 11% Annuity= P!ll7/~~/year

I f t he ca lcula t ion i s repeated using gas turbine' capacity cos ts of $150 p e r KW, the marginal capacity costs work out a t about 680 per KW, which i s s t i l l nearly twice CEL's ac tua l capacity charge.

4.10 A fur ther point i s t h a t there i s no seasonal element in C E Z ' s t a r i f f s , though there a re c lear s easona l i t i e s in the cost s t ructure. In the w e t season there is s p i l l i n g a t the Cinco de Noviembre p lant and, with t h e exception o f the peak per5od when the thennal p l an t need t o be run, the cos ts of providing ex t r a energy a r e p rac t i ca l ly zero. In t h e dry season, on t h e o the r hand, the thermal p l an t a r e on base load, and ex t r a kWh demands require more output from these p lants , hydro reserves being fixed. In the dry season, then, energy cos ts r i s e markedly.

L.11 There is , i t i s apparent, a good case f o r CEL and IGSE t o reconsider the s t ruc tu re of the bdlk supply tarFff . (The recent i n f l a t i o n and t h e energy c r i s i s make the case even stronger.) A seasonal element in the bas i c energy charges, together with a new r a t i o between capacity and energy charges, would (a) encourage economy on capacity demands durbg the peak, and (b) encourage economy on energy demands during the dry season. In addit ion, time-of-day metering, w i t h capacity costs spread over the peak period kWh, might present

a b e t t e r incent ive f o r t he d i s t r ibu t ion companies t o encourage economy in t h i s period, than does the present system of monthly charges per KW of peak demand.

(b) R e t a i l T a r i f f s

4.12 These a r e liskzl for (i73L ,and CAESS in t a b l e 4.2. Similar s t ruc tu res and levels apply t o all the u t i l i t i e s , and d i f f e r s l i g h t l y only in d e t i i l . 1 5 t h t h e exception o f the t a r i f f s f o r public l i g h t i n g and i r r i g a t i o n , a l l the t a r i f f s a re of a decl ining block form. The domestic t a r i f f s , D3, dec l ine pe r kWh consumed; while the o the r t a r i f f s have a more complicated KW-related decl in- i ng block fonn together with various minimum and KW charges.

4.13 The bas ic problens Kith this system (which is common in many countr ies) have been discussed elsewhere,l/ and a r e b r i e f l y as followsr

(i) t h e marginal cos t s of supply do no t necessar i ly decl ine, a s the above s t r u c t u r e assumes, with kWh consumed; and

( i i ) the h - r e l a t e d , decl ining block kWh r a t e s a r e complicated and serve no usefu l purpose; a lso, they do no t r e f l e c t marginal cos t s t ruc tu re .

4.lb More pos i t i ve ly , a t a r i f f which r e f l e c t s cos t s t r u c t u r e is general ly much simpler and more e f f e c t i v e than t h e above. In El Salvador, i t needs t o have only two elar.ents, d i f f e r ing i n l e v e l wi th t h e voltage l e v e l o f service:-

(a ) a seasonally varying f l a t VEJh r a t e f o r small consumers;

(b) a seasonal ly varying f l a t kWh r a t e , p l u s a capacity charge f o r l a r g e consumers; an opt ion t o t h i s would be time of day metering, wi th the capacity charges spread over the peak period kWh.

b .15 There is , then, a s t rong case f o r r a t i d n a l i s i n g t h e t a r i f f s a t both r e t z i l and bulk supply leve ls . Rat ional i sa t ion a% t h e r e t a i l l e v e l would have the added advantage o f making the t a r i f f s much simpler. Removal of the declining blocks would also improve the f i n m c i a l performance of t he pro5rz-7 (see para.L.26 et.seq.).

1 / IBRD Public U t i l i t i e s Department Research Notes by Turvep and Ar-derson: - No. IiES 1 tfEconomic Analysis of E l e c t r i c i t y P r i c ing Po l i c i e s : Ar. I n t r o d u ~ t i o n . ~

Jan. 197b No. RES 3 tlFramework f o r ELect r ic i ty T a r i f f Studies , March 197L No. RES 4 l lElec t r ic i ty T a r i f f s i n Thailand1' December 1974

Table 4.2

T a r i f f

D 3 Domestic

G 4 Commercial

Monthly Reta i l TarLffs of CEL and CAESS ( 6 per kWh)

First 70 kWh 0 -12 Nrst 1.50 kWh 0 -08 Next 40 kWh 0.10 NextbSkWh 0 -07 Excess MJh 0.05 Excess kFIh 0 -04 Minimurn 1.00 Mininum 1.60

First 50 kWKW 0.15 Flrst 100 kWh/KW 0.11 Next 50 k\Jh/KN 0.12 Next 12.5 kWh/KW 0.09 Excess kWh/KW 0.05 Excess kWh/KW 0 -04 Mhinlllm 3.00 Minimum 5 -00

F5; ~ o t i v e Power (LV) First LO MWKW 0.14 First 50 kWh/ii 0.06 Next50kWh/KW 0.06 Next50kWh/KW 0.06 Excess kWh . . 0.04 Excess kWh 0.04 l.flmmm 5.00 No Mini~mnn -

F6 Motive Power (HV) Erst 100 WKW 0.06 nrst 100 k'm~ 0.06 Excess kWh/KW 0.045 Excess KJS~/KW 0 -035 ~ q s c . ~ h a r ~ e / X i d 5.00 sCapac.Charge/KW 4.25-5.25

M i n W 6 -00

F9 Mo hive Powsr (Hv) 2/

E'irst 100 kWKW 0.06 First 100 k'Wh/KW 0.065 Excess kWKW O.O)rS Ekcess ~ W ~ / K W 0 -03.5 ~ a p a c . charge/KW 5 -00 Capac. Charge/KW 6 -00

R-10 & R-11 Irrigation ~harge/kWh 0 -0.5 ~harge/kWh 0 .06 Annual iMnimum/~ 6.00

8 Public L i g h t h g charge/kWh 0.07 , See footnote - 1/.

CAESS1s charges sometimes d i f fe r s l i g h t l y in d e t a i l between regions. Also, they have addit ional t a r i f f categories f o r both public and domestic lishting; various (umefered) fl;t ra tes are available according t o lamp s i z e fo r both types of consumers.

2/ Virtual ly the same as ~ 6 , but i s applied f o r six months oqly to seasonal consumers, - such as producers of coffee, r ice , henequen, sugar-cane and cotton.

The Rural E l e c t r i f i c a t i o n Program

(a) History

4.16 About 40% of E l Salvador 's population l i v e in administrat ive centres h w n as cabeceras municipales, of which the re a re 261 in t h e country (see Chapter 3 , paras. 3.11 e t .seq. and t a b l e 3 -7). Although these cent res a re o f i c i a l l y c lass i f ied a s urban, and severa l a r e indeed the l a r g e r t o ~ m s md c i t i e s , 2L6 of them had populations o l 10,000 o r l e s s i n 1961 and a r e b z t t e r thought of as v i l lages . ('The development of these smaller centres - t h r ~ u g h providing schools, some hea l th cent res , impro-red roads, water and e l e c t r i c i t y - has indeed Zoned par5 of El S a l v a d o ~ ~ s ' r u r a l ' developmen3 proyran.) The o t h e r 60% l i v e in the rwal a reas , mostly in small s e t t l e n e n t s o f 30 50 50 f a n i l i e s o r l e s s , known as caserios; these set t lements , of which thero are about L,@00, are of ten exceedkgly poor, w i t h l i t t l e o r no i n f r a s t r u c t u r e o r s igns of permanence and developnerrt . 4.17 I n 1960, a b u t 50 of the 2L6 cabeceras w i t h populations of 10,000 o r l e s s had e l e c t r i c i t y s q p l i e s from the g r id - thaugh the o tners o f t en had small autogenerators t o provide l ight ing . The e l e c t r i c i t y was d i s t r tbu ted exclusively by t h e p r iva te companies, some of hkich found q u i t e a high r a t e of growth of demand f o r e l e c t r i c i t y (over 10% p e r year) and were ac tua l ly able t o make a p r o f i t on t h e investment.

4.18 In 1962, under a governmen5 d i r ec t ive and with f i n a n c i a l ass i s tance from IDB, G E L i n i t i a t e d a r u r a l e l e c t x i f i c a t i o n Frogyam. The fix; s i ~ was +d e l e c t r i f y the cabeceras, and then se lec ted caser ios close t o the l i nes . C3L began with a p i l o t p ro jec t t o e l e c t r i f y I l cabeceras wi%h 1h,OO0 inhabi tan ts and 3,730 homes in Departamento de La Paz. La Paz i s a r e l a t i v e l y poor area near the coast , with, a t t h a t time, poor inf ras t l i rc ture ; l o c a l agr ic ld ture i s inainly cotton, corn and c a t t l e . It was fo recas t t h a t 50% of t h e banes would request e l e c t r i c i t j , with demands of about 100 wa%fs/consumer sad 30 lciiconsumer/month ( c - f . an average of 300 k-r]h/urba domestic zonLi~~mer/mon5h?.

4-19 FOUOI&IS t h i s p ro jec t , a na t iona l p lan was launched in 190b tc e l e c t r i f y man;. inore areas. To date, C E L serves 80 cabeceras exclusiveljr., 1 L o thers i n conjunction with the p r i v a t e companies, and in addit ion serves about 200 caser ios i n the out lying r u r a l areas.

L.20 The p r i v a t e companies were a l so involved with the plan. I n 1965/56, Compania Aluzbrado Elec t r ic0 de S z n Salvador (CAESS) , the l a r g e s t d i s t r i b u t i o n company, extended supplies t o 50 cabeceras and present ly serves over 180 caserLos and cabecer as.

L.21 TG date , a l l bu t f o u r of the 261 cabece~as have publ ic e l e c t r i c i t y supplies together with about 250 caseriAos .Our s t a t i s t i c s a re only concre:,e f o r CEL's program (da%a f o r some of the p r i v z t e companies were not forthcoming), and we s h . 2 1 shor t ly elaborate or, these. 8uC, rcughly speaking, f o r the whole country : -

- There were ove- 30,000 consumers connected between 1962 and 1972.

- This i s about, 7 5 of the vil lage-rural population.

- Aggregate investment from 1962 to 1972 in distr ibution networks was about $15 M.

- This is appkximately $500 per consumer.

(b) CEL's Program

b.22 The following s t a t i s t i c s show the population served i n the 80 municipios exclusively within Cn's serctce area: -

Table L.1 No.of Houses 1971 Number Elect r i f ied June 1972

( a) To t a1 lb ) Cabeceras (c) Rural Id) umber (d) /(a)% (d)/(b)%

~ o t a l 115,000 23,000 92,000 11, Q3 10,000

10% La Pas

45% 3,700 6,4m 2,QO 21% 58%

The aggregate data are contrasted w i t h the data f o r the ll cabeceras of Departa- mento de La Paz uhich, as mentioned above, were the first to be e lec t r i f i ed under CEL's program. La Paz has a re la t ively high urban (cabecera) population,' which par t ly explains why the fract ion of houses served is much higher than average. The e lec t r i f i ca t ion program was, as explained above, i n i t i a l l y directed a t the cabeceras; it can be seen tha t CFL's p l a p h g assumption tha t half the people in a newly e lec t r i f i ed local i ty would request service was a good one.

4.23 The growth of CEL's program i s i l lus t ra ted by the following s t a t i s t i c s of consumption and numbers of consumers served by C I S :

Table 4.4

Year No. of Total MWh/month k\~h/consumer/ San Salvador Consmer s (decenber) month kWh/consumer/l.?on th

Aver age Growth Rate per yeu 31% 35-hwJ

Altogether CEL served 15 ,OCO consumers by 1972 (i.e.includi-ng sem6ces in those m u n i c i ~ i o s supplied jo in t ly by CEL and other companies).

4.24 The high r a t e of growth in number of consumers and in t o t a l demand large ly r e f l e c t , of course, network extensions. They are not good 5ndexes of the t ine pa t t e rn of the consumers' response t o the investments. A botte- k d e x i s provided by the r a t e of growth of demand pe r consumer, which 2% 15.55, pe- year i s nearly twice tha t of the urban areas.

4.25 Moreover, t he response seems to have been an a l l round one, with conslmers on the comnercial (general) and motive power t a r i f f s t a h g the la rger share of the load:

Table 4.5

Annual Consumption Data According to Tar i f f Category ( CEL )

1967 197 2 Tariff - No. MlJh - - No. M'Jn $ - D-3 Domestic 5,189 1 , ? U 40 12,963 '5,452 3 6' G-4 General 865 832 27 1,707 3,591 21; F-5,6,9 Eotive Power 82 724 23 320 5,OLQ 3 4 R - l l I r r i g a t i o n 3 57 2 13 300 2 No. 8 Pnbl i c Lighting 7h 2 30 8 10 9 5 9h k

6,213:,085m ' m l m m

During the period 1967-1972, the average conswpticn per non-domestic consmer grew a t an average r a t e ,of nearly, 20% per year; average consumption p e r dorr~eskic consmer grew a t alound 11% p e r year.

(c) Financial Returns on CEL's Program

L.26 Despite the high response, o v e r a l l f i n a n c i a l performance remains poor; in some regions the program i s beginning t o show a p r o f i t , but in others , t he f i n a n c i a l losses a r e s t i l l q u i t e large. CEL have c l a s s i f i e d t h e i r accounts according to zones; t he following a r e data f o r 1972:

Table 1r.6

CEL1s Financial Returns from Rural E lec t r i f i ca t ion in 1972 . $M

Zone - 1. S.West 2. West 3. N.West

10. 11.

Totals

Expendituu2.e~ Net Revenues To t a 1 M Revenues Dwn. Energy 0 & M %

Source: CEL, In fome Mensual, ,December 1972.

L.27 It i s evident t h a t demand would have to increase subs t an t i a l ly in some areas , pa r t i cu l a r ly in some eas t e rn zreas, before the investments can show a p ro f i t . Indeed, i t i s e n t i r e l y poss ib le t h a t some zones may never show a p r o f i t - t he demand i s too low, they a re too remote, and the cos ts of extension are too high f o r t h i s to occur (as w i l l be shown in the subsequent chapters). On the o ther hand, investments in the Western and Sduth-Central zones are already approaching p ro f i t ab i l i t y . Furthermore, it can be expected t h a t f i nanc ia l re turns w i l l improve over time i n a l l zones due to:-

7 - load f ac to r improvements a s load develops; ^ -. -- - - f u l l e r u t i l i z a t i o n of capacity as more consumers become

/. connected t o existing networks and as t h e i r demands increase ( i n i t i a l capacity i _ s ~ F o f t e n ~ ~ f f i ~ i - e n t to meet over 10 years -growth ih demand) ;

- fu ture reinforcements t o meet load growth w i l l cos t subs t an t i a l ly l e s s , pe r u n i t demand and pe r unit capacity, than the i n i t i a l cos ts of construct ing the networks.

Economies of s ca l e , and the bene f i t s of load f a c t o r improvenent are, in f a c t , subs tant ia l . It should also be recal led t h a t the above f inanc ia l da ta r e f l e c t the f i r s t 5-10 years o f the program; this is the most d i f f i c u l t period f inancia l ly .

.- .-- - - -" -

4.28 In addit ion, the f i n a n c i a l re turns to t h e program a r e c l ea r ly dependent on the t a r i f f pol icy. E a r l i e r it was shown t h a t the s t r u c t u r e of t a r i f f s bore l i t t l e r e l a t i o n t o the s t r u c t u r e of costs. I n CEL's case, there should be some concern about t he extensive use of s t rongly decl ining block t a r i f f s , which undermine f i n a n c i a l performance, do no t r e l a t e t o cos ts and f a i l t o take i n t o account consumer's a b i l i t y o r wil l ingness t o pay f o r service. Similar remarks apply t o concessionary t a r f f f s f o r motive power and i r r i g a t i o n . 7,evenues co~lld be raised s ign i f i can t ly by t a r i f f reforms, without necessari ly -maelmining the s o c i a l and economic aims of the program.

PART I1

STUDIES OF SELECTED PROJECTS

CHAPTER 5

PROJECTS SELECTED FOR STUDY

Select ion C r i t e r i a

5 -1 The economic and f i n a n c i a l re turns t o m a 1 e l e c t r i f i c a t i o n p ro jec t s depend very much on a number of exogenous f a c t o r s - the qua l i ty of l o c a l roads f o r example, population densi ty, t h e type of l o c a l agr icu l ture and agro-indus- t r i e s , l o c a l wages, and so on. One of t he tasks s e t f o r t h i s study was t o e s t a b l i s h the quan t i t a t ive importance of such exogenous f a c t o r s on the perforn- ance o f t he pro jec ts . A number of p r o j e c t s functioning in d i f f e r ing environ- ments were thus chosen f o r study; care was a l so taken t o choose some p ro jec t s t h a t had "done w e l l y arld some t h a t had "done poorlyl ' , in order t h a t o the r poss ib l e Mluences on p ro jec t performance would not be missed.

5.2 Twelve p r o j e c t s were se lec ted f o r study, ten being CEL's p ro jec t s and two, f o r urposes of comparison, being those of a p r iva t e u t i l i t y , 3. de Matheu (RAMCOP. (A l a r g e r sample covering seve ra l u t i l i t i e s was i n i t i a l l y contemplated, bu t t he s i z e of t h e t a s k and information shortages necess i ta ted r e s t r i c t i o n ; even f o r these twelve p ro jec t s , i t proved t o be too d i f f i c u l t t o obtain a l l t h e information, p a r t i c u l a r l y on cos ts , t h a t we required.) The areas served by t h e p ro jec t s vary in seve ra l respects , in:-

- remoteness from major population gen%res;

- population l e v e l s and population density;

- type of ag r i cu l tu re and l e v e l of l o c a l business a c t i v i t y ;

- s t anda rdof l i v i n g o f p e o p l e i n the area;

- l o c a l t e r r a i n and climate;

- qua l i ty of l o c a l i n f r a s t ~ c t u r e (roads, schools, water, hea l th f a c i l i t i e s ) ; and

- consumer response t o e l e c t r i f i c a t i o n , as r e f l ec t ed in consumption l eve l s and t h e percentage of t he people requesting services.

Features of t h e Areas Served by the P ro jec t s

5 -3 The twelve p ro jec t s a r e i n twelve d i f f e r e n t municipios, f o u r in the west, six i n t h e c e n t r a l region, and two in the eas t :

Muni d p i o

San Antonio Pa jonal Candelaria de la F'rontera Juayua Salcoat i tan Jay aque San Francisco Chlnameca San Juan Talpa San Juan Tepezontes San Luis Talpa Eiosario d e la Paz Chirilagua Sesor i

Departamento Region Semed by:

Santa Ana Santa Ana Sonsonate Sonsonate La Libertad La Paz La Paz La Paz La Paz La Paz San lfiguel San Yiguel

Western Western Western Vestern Central Centr a1 Central Central C e n t r a l Cen t.ral Eastern Eastern

CEL CEL RAMCO M I C O CEL CEL CEL CEL CEL CEL CEL CEL

The locat ion of t h e municipios can be seen on the attached map.

5 - b Some fea tu res of the areas a re summarized in Table 51. Subsequent chapters on the household surveys and on the s t u Q of faxms, agro-industries and r u r a l commerce, provide a f u l l e r p i c tu re o f t h e i r economic development; the above t a b l e and the following remarks provide a .rough out l ine . "lunicipios t h a t a r e q u i t e well developed anu show s igns o f continued development are , i n order of development:

(1) Juayua; ( 2 ) Rosario de l a Paz; (3) Candelaria de l a Frontera; (h) San Juan Talpa; (5) San Luis Talpa.

A t a more intermediate s t age ( f o r r u r a l areas) are:

(6) Sesori ; (7) Jayaque; (8) Chirilagua;

and very backward are:

( 9 ) Salcoati tan; (10) San Antonio Pajonal; (ll) San Juan Tepezontes; and (1 2) San Francisco Chinameca.

5 - 5 . Some notes on the cabeceras (head v i l l ages ) o f these municipios a re presented below. The rural areas outs ide the cabeceras, where two-thirds of t h e v i l l age r u r a l population l i v e , a r e considerably poorer, most* lacking s o c i a l and economic in f ras t ruc tu re - passable roads, e l e c t r i c i t y , water, schools, o r heal th f a c i l i t i e s - o f any kind (we were able to study these areas only through our o m s q l e surveys, o ther information being very sparse o r no t available) .

~. G r o w t h Rare, 6

3epartme:l:O: h t a Ma Area . 9q.l;n. :a) 1.M Pap;lntion/Sq.Y. (19711 169 NO. JT cebeceras 13 Ave. Q a c l ~ i*; Fm. 12.4

AFrlcu1t;re. Ha. h t l t i v a t e d "affee Carn 267 -2ttor Rice 1 PeMI 37 Ca t t l e 1.593

No. of P m . s i.r fhnlClDl0 i/ X J ~ 973 742 : . 5 . d i,%e ?-I8 353 473 7.L64 317 174 3 7

Roads, "'. to SM s%lv.dOr Total ~f h t c n Paved

HIrd Top Clrt

S s c l a l Service3 : o . .I school. 3 0 . >r TescZerm

sources: varljus g o m r m o t egencies pnd Census Cfflce. ;am da ta on s o c l d servl:?. e 7 d housilg urr from f i e l d t r ips . E l e c t r i c i t y con-ptlon data are our urn campilatl~n..

i' There are I r a M l j four hicdr 2i I r c l l l n q : the b e s t qulua1lr.j ?ncs !!aye ciled roofs and are nrO. of >rick, cement sad stone, - wl:h I ron I r a . ( l o d l y the:, u e hm u "nlrto" - and 'ladrlllo-mi:exnl. Fext are r k e ones m e of "Mouc" aM "bsnrrr?~c" , n l n r w m d , ~d ard nrl:ka rc1:-forced r l f h straw; orten they u r W n t c d white. and ImL s m ' o r t a b l e

md atrraCYLve. h e loves t :u.lity m e s , rh lch we ' W V f co-o I-, the mr.l arc.., r ; d on the ~ , . r s a i r C ~ 01' '.hc vi l l sges , are han a. "ranchos" and arc no mrr thrn straw Our. * I L L f r m e a cade out oP rrce b r ~ l c h e r .

I

I (1) Juayua i s a la rge and re l a t ive ly prosperous cent re of regional growth, s i tua ted in a coffee growing area. Many organisations keep regional o f f i ces in Juayua (which was only e l e c t r i f i e d in 1965). The commercial sec tor i s well developed: on the domestic e l e c t r i c i t y t a r i f f alone, the re a r e 85 shops; the non-

I domestic services include 8 l a rge shops, 21 services f o r Sakeries, restaurants , a cinema and a gas s t a t ion ; and severa l o ther services. Inf ras t ruc ture and houses are good: a l a rge port ion of the houses have piped water, t he re are good schools and a well equipped heal th centre. In contrast with sany areas, t he re are l e s s absentee landlords, and severa l landlords l i v e in the cabecera. Coffee used to be processed elsewhere, but now there are severa l m i l l s near the cabecera. There i s some domestic industry, but only on a small sca le ; the goods 3re sold mostly within the municipio.

( 2 ) Xosario de l a Paz was the f i r s t v i l l age t o be e l e c t r i f i e d by CEL. It i s a l a rge , pleasant and f a i r l y prosperous v i l l age , 37 Km from San Salvador, and the good mad connection (one can reach the cap i t a l by bus in l i S minutes) i s sa id t o have been an important f a c t o r i n the v i l l a g e ' s development. It i s a l so a f a i r l y densely populated area, where the average spacing between t h e cabeceras i s about 6 KI. The q ~ i a i i t y of housing i s good, a?d the re i s a l o t of new construction; an old an3 deficien: gravi ty system of water supplies was recently replaced by a well and pqmp system. Agriculture i s mainly cotton, co~m and c a t t l e . Except f o r the cotton f i e l d s , holdings a re small; most people work the cotton f i e l d s , and r a i s e corn, beans o r c a t t l e on small p l o t s + z i n g the r e s t of the year. Quite a few inhabi tants l i v e i n Flosario but work i n San Salvador, while o thers f ind employment i n a nearby r i c e m i l l . A s w i l l be seen in l a t e r chapters, commercial and o ther small business a c t i v i t i e s a r e important, though generally they serve only l o c a l markets.

(3) Candelaria de l a Frontera i s a l a rge and f a i r l y prosperous v i l l a g e close to the boarder with Guatemala. Housing qua l i ty i s good, even in the out- skirts. The i n f r a s t m c t u r e , however, i s of mixed qual i ty: good schooling i s avai lable; there i s a hea l th centre; but some s t r e e t s are bad; the qual i ty of water and lack of adequate sewerage are considered a problem. Candelaria i s an old b m , and i t i s sa id t h a t i t s bes t period has passed now t h a t i t is bypassed by a new highway t o Guatemala. The land i s devot'ed t o c a t t l e , corn, beans and, f u r t h e r north, to coffee; holdings a re small, and most people r en t land i n the rainy season, moving north t o work on the coffee p lanta t ions during the d-qy season. There i s some small s ca le Fndustry. Commerce is s t i l l imporfant, but no t as much as in the days before the new highway was constlucted; the extent t o which shops can serve the l o c a l markets i s l imited since Santa Ann can be readi ly reached; there is , nevertheless, a variety o f customers on the commercial e l e c t r i c i t y t a r i f f s ( ~ 4 ) . ( 4) San Juan Talpa is a medium sized v i l l age , close to Rosario de l a Paz, 35 Krn from San Salvador. Road access i s reasonably good, though, until recently, the 3 *%n feeder road which linjcs i t t o the highway was of very poor qual i ty. The qua l i ty of housing in the v i l l a g e centre i s q d t e good, but is poor on the ou t sk i r t s . The in f ra s t ruc tu re has been grea t ly improved i n recent years; a heal th centre was b u i l t in 1966, s t r e e t s have been improved, there i s a good water system and a well-equipped school. Ihplojrment pa t t e rns are s imi la r t o Rosario, though i t i s possible t h a t the average v i l l age income i s somewhat less . Commercial and other small businesses which serve the v i l l a g e are qu i t e well developed.

(5) San Luis Talpa i s a small v i l l a g e s i tua ted near t h e coast, on a good road, 35 Km from San Salvador, and in the cot ton area not f a r from Rosario de l a Paz. The quality of houses i s good, with piped water of ten available. Both t h e school and the hea l th centre, however, are not w e l l equipped. b c a l agr icu l ture is predominantly cotton; the farms are la rge , highly productive and require l a rge quan t i t i e s of labor f o r picking during t h e dry season. During the wet season, the workers rent land f o r growing cereals. Most of the farm workers in the area buy t h e i r necess i t i e s from San Luis Talpa, and this has been a stimulous t o commerce. There i s a lso a measure of agro-industr ial a c t i v i t y nearby.

( 6 ) Sesori i s a small, i so l a t ed and very old v i l l age i n the eas tern p a r t of the country. The houses a r e no t bad qual i ty , but are old. There i s only one access road a n d i t i s i n bad condition; water supplies a r e poor; there i s a school and a hea l th centre , bu t both are understaffed and poorly equipped. Nevertheless, recent economic growth i s t b u g h t to have been considerable, t he r a i s ing of c a t t l e being the main impetus. Also, there i s q u i t e a lot of commerce, Sesor i being the p r inc ipa l market cent re in the region.

( 7 ) Jayaque i s a very old v i l l age 43 Km from San Salvador. It i s not poor, but i t i s stagnant. Its modern development began a t t h e end of the l a s t century when three l a rge coffee farms were being developed and required a lot of labour. These th ree farms s t i l l domhate the area, though there a r e a few s m s U holdings; in t h e i r present stage, the farms can o f f e r l i t t l e ex t ra growth and employment. Road access i s r a the r good, apart from t h e l a s t 3 Km of feeder road, which i s in bad condition. Housing is ra the r poor, though the water s x p l i e s , the hea l th centre and the school a r e reasonable. Most people f ind employment dxdng the coffee picking season (when the re i s also a l o t of migration t o the area) . There a re four coffee mills nearby, p lus a number of shops and small businesses (e.g. corn grinding) which serve t h e v i l lage .

(8) Chirilagua is a l a rge but poor v i l l age in the remote southeastern coas ta l plane of t he country. Road access i s good; the school o f f e r s education up t o a high grade, but i t suffers from a very high desert ion r a t e , pa r t i cu la r ly among i t s r u r a l students who are o f t en needed a t home o r su f fe r i n t e s t i n a l diseases; and t h e r e is a lso a hea l th centre. The supply and qual i ty of potable water i s a major problen; a t present t he re a re only a few standpipes. Agricul- t u r e is mixed; there a re some l a rge cotton holl.lings, and severa l m a l l holdings f o r corn, beans and l ives tock (pigs, caws and chickens,mainly). Nost people work i n the cotton f i e l d s in the dry season, and rent small p l o t s t o grow corn and beans in the wet season. There i s no industry and only a few shops.

(7) Salcoat i tan i s a small, poor v i l l a ~ e s i tua ted -k R coffee area; i t co1iL3. be consideyed a silburb of the nuch l a r g e r -zillage o'f Juajr~a (discussed above) which i s only 2 Km away. Road c o n n e c t i ~ n s are good; there i s a bus service; almost a l l f d l i e s have p r iva te a c c . 3 ~ ~ to potable water; t h e present school i s no t well eq-sipped, but i s t o be *roved; t h e ~ e i s no hea l th centre, but the one i n Juayua i s eas i ly reached and there i s a lso a p r iva t e prac t ice in Salcoat i tan i t s e l f . I n the surrounding areas :here a r e la rge , modern, highly productive coffee farms, owned by f i v e fami l izs , and which provide most of t h e employment. There is l i t t l e domestic industry, but the comnercial s ec to r i s of some inportance. For most goods, Juayua i s of course the main poin t of a t t r ac t ion , but s ince Salcoat i tan l i e s along orie of Juayua ' s access roads some of t i e regtonal narket is served by Sa lcoa t i tv l ra ther than by Juayua. Though Salcoatit,an does not +pear on s i g h t t o be a czntre of economic growth, i t s

population, l i k e t h a t of Juayua, has grown markedly in recent t i n e s ; and here is q u i t e a s t rong e l e c t r i c i t y demand stenrming from commerce.

(10) San Antonio Pajonal i s a small v i l l a g e , poorer than Sa lcoa t i tan , no t f a r from Candelaria de l a ~F-contera. Road connections t o o t h e r municipios a r e poor, wi th t he result t h a t the people in t h e surrounding a reas tend t o shop i n San .4ntonio r a the r than elsewhere. The s t r e e t s a r e in very bad zondi t icn, piped water i s ava i l ab l e though not in s u f f i c i e n t s:lpply, and theye i s a school; never- t he l e s s , perhaps because of much worse condi t ions i n t he surrounding rural areas , t he re has been considerable migrat ion t o t h e v i l l age . The land, which i s abundant, is mainly devoted t o corn and c a t t l e ; almost a l l holding except those f o r c a t t l e a r e small , and much of t h e farming is f o r subsis tence. Thera i s some domestic inctustry, and, a s explained above, q u i t e a l o t of com.nercia1 a c t i v i t y , inc lud ing shops and the processing of animal food, corn, n i l k 7nd cheese; this has, i t dl1 be seen, given r i s e t o quite 3 rapid growth cf e l e c t r i c i t y denand.

(11) San Juan Tepezontes is a small , very poor v i l l a g e i n a coffee growing area. The f a m s a r e very small; new techniques a r e only p a r t i a l l y u t i l i s e d ; t he coffee t r e e s a r e q u i t e old; and the re i s not nuch p ro t ec t i on against. erosion. ihe growers have l i t t l e c r e d i t and t echn ica l ass i s tance , thoug!? t h e g o v e m e n t r ecen t ly began t o help by c rea t ing co-operatives; a l so , a g o ~ e r m e n % agency was es tab l i shed to c o l l e c t coffee and improve p r i ce s . Road access i s s t l l l rough; the houses a r e very poor; t h e h e a l t h s e rv i ce s a r e p r a c t i c a l l y non-existent; t h e school house could no t be worse; and t h e r e is no potab le water supply sysfem. There i s a l s o no indus t ry and commercial a c t i v i t y i s very l imited.

(1 2) San Francisco Chinameca is the most economically backuard v i l l a g e in our sample. It seems t o be decl ining, though it i s only 2 1 Krns from San Salvador and road access i s reasonably good. The qua l i t y of housing v a r i e s redeljr: t h e r e a r e s eve ra l made o f adobe (dr ied mud) , and look q u i t e good; t he r e s t s r e primLtive. There i s , as in a l l t he cabeceras, pzb l i c l i ~ h % i n ~ , baCU no potab le water o r sewerage facilities; water i s byought over considerable dis-nnces from wells. There is no h e a l t h centre and t h e absence of good q u a l i t y whter has had ser ious h e a l t h e f f ec t s . The school is il l-equi?ped, has s s h o r ~ s g e o f teachers and a problem of absenteeism. Coffee i s the na-in source o f i n c ~ m e and employment, b u t coffee growing s d f e r s from tha same problems a s irl Jlxn Tepe- zontes . People in t h e r u r a l areas supplement t h e i r (highly season2l) Lncolle earned from the coffee harves t by growing ce rea l s on renA,ed land in the -nlnjr season. Quite a few people a r e a l so involved in the business o f coffee c o l l e c t - ing , w e i g h i ~ g , drying and t ranspor t ing t h e seeds on a small s ca l e . Small indus t ry i s v i r t u a l l y non-existent . Commercial a c t i v i t y a l so amounts t o l i t t l e ; t h e r e a r e q u i t e a few shops, earning very l i t t l e p r o f i t , which ca r ry small assortments of ba s i c neces s i t i e s .

5.4 The las t ; th ree cases in p a r t i c u l a r show how areas can and do remain backward in the absence of s eve ra l kinds of i n - r e s h e n t . San Francisco Chiname- ca and San Juan Tepezontes, f o r example, have had electricity suppl ies f o r over ten years , and Chinameca has a good road; y e t l o c a l ag r i cu l tu re and o t h e ~ Fnfrastruct.ure have been badly neglected. This has no t only r e su l t ed i n ths areas remaining backward, with o s t ens ib ly l i t t l e s i g n s of development, buk a l so a very poor r e t u r n on the e l e c t r i c a l invesA'ments.

CHAPTER 6

EXECTRICITY DEMAND ON THE PROJECTS

Introduction

6.1 Consumers in mil areas can be grouped in to six categories (according the t a r i f f categories described in Chapter 4): domestic, commercial, low and high voltage i n d u s t r i a l ( "motive power11), i r r i g a t i o n and public l ight ing , In 1972 the number and annual consumption of those' supplied by CEL were:-

Table 6.1

Tariff - No - MWh A- kWh/consumer

D-3 Domestic 12,963 5 , 452 36% 421 G-4 General (comerc ia l ) 1,707 3,591 2 k% 2,100 F-5 LV :4otive Power 306 2,I l8 ' lL% 6,930 F-6, 9 HV Yotive Power 3.L 2,922 20% 208,700 R-U. Lrrigation 13 300 2% 23,100 No ,8 Public Lighting 10 9 594 4% 5,400

6.2 P rac t i ca l ly a l l the domestic and commercial consumers and, of course, public l i g h t s , a re located in the v i l lages ; while p rac t i ca l ly a l l the motive power and, of course, i r r i g a t i o n consumers, a r e in the farms and agro-industries i n the outlying r u r a l areas. ( ~ n exception t o t h i s i s t h a t there are sometimes domestic consumers in small hamlets (caserios) e l e c t r i f i e d i n the outlying areas; but we have only been able to study these on a sample bas i s during f i e l d t r i p s (see chapter 3) and not on an aggregate l eve l ) . The followtng discussion of e l e ~ t ~ c i t y consumption on the p ro jec t s i s accordingly divided into:-

- Domestic and Commercial Consumption in the Villages;

- Agro-Industrial and Farm Consumption Outside the Villages.

Domes t i c and Comrnerci a1 Consumption i n the Villages

6 -3 For each of t h e 12 v i l lages , t a b l e 6.2 displays the l eve l and growth of demand, number of consumers and the consumption per consumer. The v i l lages are ranked in mugh order o f l e v e l of development as described :'a Chapter 5 , with Juayua being the most highly developed and San Francisco Chinameca the most backward.

Table 6.2 1 / -

Domestic and Commercial Consumption in the Villages (~abece ras )

No. of Consumption, k~dh/consurner/ Village Consumers ?IWh/mon t h month (Year ~ l e c t r i f i e d ) 1967 1972 1967 - 1972 1967 iF7C

(1) Juayua (1965) 569 67L 22.9 38.6 J0.2 52 .?

(2) Rosario de l a Paz (1963) 178 2L8 6.9 13 .l 38.8 52.8

(3) Candelaria de l a Fron- t e r a (1966) 197 331 6.1 1-1.3 31 .O 3L.l

(L) San Juan Talpa (1963) 137 16L 3.7 7.0 27 .0 h2 .?

(5) San Luis Talpa (1963) 9h 1 2 2 3 -0 8.7 31.9 71.?

5 L 87 1.3 6.L 24.1 73.5 (5) Sesor i (1967)

(7) Jayaque (1965) 10 9 228 5-5 lC.3 29.1 h5.l

(8) Chirilagua (1967) 69 157 2 A 5.9 2h.8 37.5

(10) San Antonio Pajonal (1966) 115 18 L 3 *8 6.1 33.0 33.2

(11) San Juan Tepezontes (1963) 10 3 l l 6

(1 2) San Francisco k i n a - meca (1963) 7 8 10 1 l p 3 2.1 16.7 20.8

~ o t a1 m-75 TTZ 6?.2 rn 33.7 -EZ

1/ F'uil Time Ser ies Data Available in University Report "Elec t r i f icac io ?ursl" Universi- dad Centroamericana, San Salvador 197L.

6.L The more highly developed v i l l ages have (as one might expect) responded b e t t e r t o t he projects . This i s ref lec ted in uniformly high growth r a t e s o f demand, l a rge r average l eve l s of consmption and a grea ter f r ac t ion of people requesting serv ice , a s shown i n t ab l e 5 .3 .

Table 6.3 -

Response of the Villages t o E lec t r i f i ca t ion

kWh/month/ Homes Annual Growth Rates, $ consumer E lec t r i - No. Consmt ion/ - ~ c - - .

Village 1972 f i e d , '72 Consumers Consumer Total

Better Developed Villages (1) Juayua (2) Rosario (3) Candelaria (b) San Juan Talpa (5) San Luis Talpa

Int,ermedia t e (6) Sesori (7) Jayaque (8) Chirilagua

Sackward ( 9 ) Salcoat i tan h6.9 L2% h 5 9 (10) San Antonio Pajonal 33.2 9% 10 0 10 ( i l ) San Juan Tepezontes 31.0 b$ 2 3 5 ( 1 2 ) San Francisco Chinameca 20.8 2 6% 5 5 10

Urban Area : San Salvador Uo n.a. n.a. n.a. %

Follordng the c l a s s i f i ca t ion of chapter 5 (paras.5.4 et.seq.1 the v l l l ages have been grouped into 'be t t e r developed' , ' intermediate1. and 'backward.

6 - 5 A general point i s tha t the growth r a t e s , eren in the backward v i l lages , tend to be high - as f a s t as experienced in urban areas f o r example, though from lower levels . I n the ' be t t e r developed1 and 'intermediate' v i l lages , t he high growth r a t e s a re s l so combined Kith qu i t e a l a r g e bas ic load per consumer, already approaching or exceeding 50% of t h a t t yp ica l f o r urban areas, and growing much more quickly; Candelaria is an exception, possibly because of a very high number of small consumers.

6.6 Of the three ' intermediate' villages, Sesori in pa r t i cu l a r has responded well. We think thz t t h i s i s explained p a r t l y because it i s the main market centre in a f a i r l y remote region, and a centre of soc i a l i s a t ion , and pa r t ly by the growth of incomes from c a t t l e r a i s ing a c t i v i t i e s in the region. Chir i lagua (which i s ye t more i so l a t ed and has poor inf ras t ruc ture) and Jayaque (which i s not poor but stagnant) have both provided a quickly groKing source of demand, though fmm low levels .

6.7 A s regards the 'backward' v i l l ages , the good response of Sa lcoat i tan i s 'he exception t h a t proves the ru le . A s noted i n Chapter 5, i t i s s i t ua t ed on the road t o Juayua, and tends t o take some commercLa1 business away from the l a t t e r ; t h i s i s c l ea r ly revealed i n t he high l e v e l 02 demand f o r electr ici t -J f o r comerc i a l uses, shown in t ab le 6.5, now to be discussed.

6.8 Commercial and o ther non-domestic demands a r e an import,ani. element in a v i l l a g e ' s demand ( they are discussed comprehensively i n s tudies of 'product- i v e uses of e l e c t r i c i t y 1 in Chapter 10). The 1971 Census revealed 820 smal l i n d u s t r i a l and c o m e r c i a l u n i t s in the twelve v i l l ages , an average of 58 pe r v i l l a g e and one per 125 people in the municipios; they include: 320 general shops, k5 meat shops, 35 corn m i l l s , 108 s l a u g h t e r i q and f a t renderlng .unit.s, 27 bakeries , 58 t a i l o r s , and various phannacies, barbers , r epa i r shops, etc . Ye fomd t h a t about kO$ had e l e c t r i c i t y , and s e v e r ~ l o thers would probably turn to i t in fu tu re (see chapter 10). The ac tua l breakdown between comnerc:ial and domestic consumption i s roughly indicated in t ab le 6.5.

Table 6.5

Breakdown Between b m e s t i c and Commercial Consumption

Vil lage No,Hornes Consumption - k ~ m o n t h , Dec ,1572 Comer c i al 1971 - T o t d - Domestic (33) Commercial ( G L ) ~ %

(1) Juayua (2) Rosario (3) C a n d e l ~ r i a (4) San Juan Talpa (5) San Luis Talpa (6) Sesor i (7) Jayaque (8) Chirilagua (9) SalcoatFtan (10) S,Prtonio Pa j o n d (ll) S. ~ u a n TepeY qontes (1 2)S.FYancisco Chinameca

9 Actually, there a re qu i t e a number of commercial consumers on the dcrnestic and v ice versa; so the above d iv is ion i s o n l j approxim;~te.

6.9 Provided economic growth proceeds i n the v i l l ages , t he potent.ia1 consnmp'~lc?n of both dorr.est,ic and commercial consumers i s q u i t e high, and i s l i ke - l y t o increase rapidly. Yost consumers tend to incrense cons,mption over time, ond there i s no s ign of s a tu ra t ion even a t high l e v e l s of consumption; these poln ts a r e shown in t ab le 6.6 below.

Table 6.6

Monthly kWh Con- t i o n

Consumption Ranges of Domestic and Commercial Consumers

No .of Consumers 1967 - - 1972

1226 244 Average Consumption 122 21 3 in 1972 = 35 W m o n t h

Commercial:

0 - 50 107 126 51 - 100 36

101 - 200 20 Aver age Consumption 201 - 300 19 i n 1972 175 klNmonth 301 - 400 5 ll 401 - 500 4 7

.> 500 - 2 13 \ 193 266

6.10 Surmning up:

(1) There has been a l i v e l y response t o e l e c t r i f i c a t i o n in a l l but the most backward v i l lages ; t h i s i s ref lec ted i n qui te high l eve l s and very high r a t e s of growth of demand in the l e s s - backward vi l lages.

(2) Output and productivity i n l o c a l agr icul tu le seems t o be the important f ac to r explaining the v i l l ages ' response; complementary i n f r a s t r u ~ t u r e ~ t h o u g h of course e s sen t i a l f o r a v i l lages ' overa l l developnent, seems t o have a weaker e f f e c t - otherwise the "intermediate" v i l l ages would have responded poorly.

(3) I n the less-backward villages,bo t h domestic and commercial consumers (of which there is a surpris ing l a rge number and variety) increase consumption l e v e l s qu i t e quickly, and there i s no obvious s ign of sa tura t ion even a t qui te high l eve l s of consumption.

Explanations of the th i rd point are offered in subsequent chapters dealing with the household surveys and with the productive uses of e l e c t r i c i t y i n r u r a l areas.

Farm and Agro-Industrial Consumption Outside the Villages

6.11 Nearly 40% of t he e l e c t r i c i t y demand on CELts r u r a l networks has stemmed from consumers on t h e motive power and i r r i g a t i o n t a r i f f s ou ts ide the r u r a l areas. A s shown i n t a b l e 6.1 t h e r e were 333 such consumers i n 1972, with consumption l e v e l s ranging from a few thousanci t o s eve ra l hundred thousand kWh p e r year. Sometimes, the demand of one l a r g e consumer - a l a rge slaughterhouse, f o r example, o r a l a rge processor of cot ton o r r i c e - may exceed t h e aggregate demand of f i v e o r ten v i l l a g e s in a region; the following s t a t i s t i c s f o r CEL in 1972 i n d i c a t e t he s i z e and s igni f icance o f such demand nodes outs ide t h e v i l lages : -

Consumer Group No. o f Total kWhper Consumers NJh Consumer

2 / Village 1/ 9b village: 9,637 10'2,50~)/village FS (LV moTive ~ o w e r ) t a r i f f s 3/ 3 96 2,113 6, g00 ~6 (HV motive power) +Jariffs z/ b 1,99b S00,OOO F9 (HV motive power) t a r i f f s 10 928 92,800 3 l l ( i r r i g a t i o n ) t a r i f f s 13 300 23,100

1 / includes domes t i c and commercial consumers and publ ic l igh t ing . - 2 / Cabeceras only - i .e . excludes about 200 caser ios ou t s ide these head v i l l ages . - 3/ A few of these, as explained i n para. 6.2 a r e i n the v i l lages . - W The l a r g e s t of these consumers i n 1972 was a s laughterhol~se which c o n s m ~ d -

about one mi l l i on kWh.

The p o t e n t i a l demand from consumers outs ide t h e cabeceras, and the r a t e of pro;ith of t h e i r number and demand l e v e l s , a r e a l l l i k e l y t o be q u i t e l a r q e (see chapter Y;.). The main f a c t o r s behind this a r e t h e modernization of ag r i cu l tu re and the iri-:rer;ing l e v e l s of agro-industr ia l a c t i v i t y in t h e r u r a l areas.

6.12 The s igni f icance of these l a r g e addi t iona l demand nodes, from the e l e c t r i f i c a t i o n progrsm's viewpoint, i s t h a t they improve the u t i l i s a t i o n , economies of sca le , and thus the economic re turns t o investments in the sub- translrission networks (which jo in t ly supply both t h e e l l a g e s and the demand nodes outs ide them).

6.13 The ex ten t and na ture of demands ou t s ide t h e v i l l a s e s va r i e s markedly between regions:

Table 6.7 1 /

Number a d Locations of Large Agro-Industries, 1971-

Depart amento Cotton Rice - - Coffee 0 thers Tot a1 - 2 9 24

Ahuachap an Sonsonate 2/ Santa Ana San Salvador La Libertad 2/ Chalatenango La Paz 2/ San Vicente Cabanas Usulutan San Miguel - 2/ .

Morozan La Union Cuscatlan

Total

1/ Compiled from maps and interviews. - 2/ Departamentos corresponding in which the 12 cabeceras studied a r e situated.- - The region with most agro-industr ial a c t i v i t y i s s t i l l San Salvador, though the l e v e l of a c t i v i t y i s qui te la rge in other regions and has been increasing in recent years. We estimate t h a t 92 of the above agro-industries a r e in the Cabeceras Depart,ment.?i (and so a re r ea l ly urban based), the other 169 being in the r u r a l areas adjacent t o the vi l lages.

6 .Uc A n~unber of d i f f i c u l t i e s stopped us from calculat ing the exact number and growth of consumers connected t o the subtransmission networks supplying the twelve v i l l ages studied in t h i s report. Some estimates were possible, however. The t o t a l f r ac t ion of demand on the subtransmission networks emanating outside the v i l l ages s tudied, i s roughly as follows:

Region Around

Juayua S a l c o a t i t a n

San Ant,onio Pa jona l Caqdelar ia de l a Frontera

Jay aque

San IiYancisco Chinameca San Juan Talpa San Juan Tepezontes San Luis Talpa Rosario de l a Paz

Chi r i l agua Seso r i

% Tota l Demand Departamento from Outs ide V i l l a ~ e

Sonsona t e Sonsona t e

Santa Ana Santa Ana

La Liher tad 6%

La Paz La Paz La Paz La Paz La Faz

San Yiqtiel San : ? i s e l

A s mentioned e a r l i e r , and f o r reasons explored i n P a r t 111, the se demnds a r e growing f a s t e r than those of t h e commercial and domestic conslzners i n s i d e t h e v i l l a g e s .

THE COSTS OF SUPPLY

Introduction

7.1 The cos ts of supply are general ly grouped i n t o four items:

- the bulk supply cos t s of generation and high voltage transmission;

- the costs of subtransmission and medium voltage d is t r ibut ion;

- the. costs of low voltage l o c a l d i s t r ibu t ion ;

- l o c a l administration, b i l l i n g and maintenance costs.

The costs of each of these items up t o 1972 w i l l be discussed below; f u t u r e cos ts i n r e l a t ion t o fu tu re demand a r e projected i n the next chapter, which considers f inanc ia l returns.

7.2 These break down i n t o the cos ts p e r KJJ of increasing and main tahing new gene ra t im capaci ty, and the costs p e r k14-1 of generating energy. In Chapter L (paras. L.9 et.seq.) it was indicated t h a t the energy costs were roughly:

- zero i n the wet season, except a t peak demand, when i t would r i s e t o over 2 centavos/kldh, corresponding t o the marginal costs of generating energy ff-om gas turbines o r steam p lan t ;

- about 2 centavos /kWh i n t h e d r y season, corresponding to the marginal cos ts of generating energy from steam plant .

For t h i s study, we have taken a f i g u r e of 2 centavos pe r k\Jh throughout t h e year. The reason f o r t h i s s impl i f ica t ion i s t h a t most of t he agro-industries operate in the d r y season, while most of the v i l l a g e demand i s in t h e peak period. I n 1972 p r i ces , $0.02f~Wh should be a good average. I n fu tu re t h i s average may drop once the Cerron Grande Hydro p ro jec t i s conpleted (though the drop w i l l , of course, be o f f s e t t o some extent by the October '73 o i l p r i c e increases) .

7.3 The capacity costs were estimated t o be:

New Steam Plant $2 50 /IIW ~ a n s m i s s i o n cos ts S SO/KW

$300/~

Mith an allowance of is,$ f o r O M , 3 f o r transmission losses and 20% f o r spare

capacity, t h i s works ou t a t $426 per KW, o r , a t SL% annuity, $b7 per KW p e r year (f l17/K~/year) .

7 .b The e f f e c t on bulk supply coats of load f a c t o r s in r u r a l areas (where the peak demands general ly coincide Kith system peak demands) i s considerable. Thus in an area where the -average kWh demand i s 2000 WKW, corresponding t o a load f a c t o r of 23%, t h e bulk supply costs amount to:

but when, i t r i s e s t o 4000 k N h / ~ i ~ , corresponding t o a load f a c t o r of 45$, the b d : < supply cos ts drop to

+ 0.02 = 0.949 centavos /kwh. l,E Load fac to r s tend to improve markedly over time i n r u r a l areas, with a marked e f f e c t on the long' run re tu rns t o the invesLnents.

Subt rz~smiss ion and ?Tedium Voltage Dis t r ibut ion

(a) Unit Costs

7 05 The subtransmission and medium voltage d i s t r ibu t ion networks cons is t of:

- pr inary subs ta t ions of 115/22 o r Ldi KV connecting t h e region t o the gr id (115 KV);

- HV l i n e s (22 o r 44 KV) f o r subtransmission t o t h e main conwming areas;

- secondary subs ta t ions with trans!ormation from 22 O F

&& KV t o 13.2 KV f o r medium voltage d i s t r ibu t ion ;

- t h e N , J d i s t r i b u t i o n n e t w o r k s , ~ h i ~ h t a k e supplies d i r e c t l y t o t h e v i l l a g e s and the l a r g e consmers.

7.6 @ 1972, CEL had constmcted 1289 Krn of medim ;roltage d i s t r i j u " ' b33E

l i n e s , 15 secondary substat ions, p l u s 248 Km of HV subtransmission l i n ~ s t o the grid. Average costs p e r Km of ?7 d i s t r i b u t i o n l i n e were a s follows:

Cost per Km of Item - Voltage Investmen% ?.TJ Di,strij:;tfcn

HV 3clbtransmission l i n k s 22 o r &b KV g! 10.32 M 6 8,905 Secondary Substations 22 o r hW13.2 KV g! 1.28 M 993 MV Dis t r ibut ion networks 13.2 KV 6 2.68 M

Total 5 14.28 H

Table 7.1

Item -

Cost Breakdown of 13.2 KV and 44 KV Lines (3 phases; average conditions )

P 1 anning Right of Way Materials:

Poles ( 9 pe r ~ m ) Conductors Fixtures Pro tec t ion Equipment

Personnel: Labour Supemrision

Transport oy Xateri a l and Equipment Other Equipment Other Costs

Total

Cost / Km / d 13.2 KV U K V

Table 7.2

Substat ion Costs ( h 4 t o 13.2 KV substat ions )

Item

Plamling Land ::a teri.21 s a d Equipment Personnel :

Labour Supervision

Transport, of Materials and Equipment O ther

To +,a1

(It i s poss ib l e t o express these cos ts on a pe r KW demand bas is ; b u t we lacked the da i ly demand data t o t h i s .)

7.7. The cos t s of these networks vary considerably with road access and t e r r a in ; in d i f f i c u l t t e r r a i n , time and Iahonr cos ts may double, and the spacing of t h e poles i s narrower and t h e i r height i s grea ter . M f f i c u l t t e r r a i n and poor access may increase t o t a l cos ts , we est imate, by 50% o r more. Table 7.1 and 7.2, over leaf , pmvide cos t breakdowns of the l i n e s and substat ions. ( A comparison between the cos ts of IrL and 13 .2 KV l i n e s provides a good ind ica t ion of economies of s ca l e in the investments; the former a re capable of carrying t en times the power of the l a t t e r , y e t cos ts a re l e s s than 30% higher - t he cos t s of poles , labour, planning and r i g h t of way a r e the same f o r the two cases; only the costs of conductors, f i x t u r e s and f a u l t pro tec t ion are s ign i f i can t - ly ,but l e s s than proport ionately, larger . )

(b) Costs per V i l l a ~ e ( ~ a b e c e r a s )

7 -8 The mediin -,mltage d i s t r ibu t ion networks in CEL1s system are routed towards the head v i l l ages (cabeceras), and then branch out as needed t o the la rge farms and agro-hdus t r f a1 consumers, and t o the caserios (minor v i l l ages ) . For purposes of cos t ana lys is , i t i s convenient t o think of the l i n e s t o t h e v i l l ages a s being the backbone networks, shared by a l l consumer?, and the MV d i s t r ibu t ion l i n e s to caserios and l a rge consumers as being extensions. In 1972, t he lengths of $he l i n e s on the MV d i s t r i b u t i o n system a r e sham in t a b l e 7.3

Table 7.3

Km of 13.2 KV l i n e No. of Km t o ~ a b e c e r a s / Zone 1 / -- t o Cdoecer;~ ( a ) Others 2/ Total Cabeceras (b) Cabeceras (a) /(b)

2. West 2/ 3. IJ.West 8.1

11 .J 15. South 41 17. I Central 0 t he r Totals

I / Corresponding t o S3L1s c l a s s i f i c a t i o n (see a l so t ab le h.6). - 2/ Others a r e caserios and la rge consumers outs ide the cabeceras. - 3 / drea of San .Antonio Pajonal and Candelaria de l a Frontera; a lso of Juny-ua and -

Salco a t i t an (served by ~ 4 ~ 0 ) . b/ Area of San f i a ~ c i s c o Chinameca, San Juan Talpa, San Luis Talpa, Rosario de l a -

Paz a d San Juan Tepezontes.

2' A rea of Chirilagua.

/ Area of SesoA. 17 Area of Jayaque.

The subtransnission and MV d i s t r i b u t i o n costs of taking . e l e c t r i c i t y i n t o the cabeceras a r e obtained by nnlltiplying the l a s t column (of Km of l i n e p e r v i l l age ) by the cos t p e r Km of $ 11,078 f o r subtranzmission and mediim voltage d i s t r ibu t ion (para.7 -6) .

( c ) Costs per Large Consumers (outside t h e ~ a b e c e r a s )

7.9 CEL had 33b consumers on the motive power and i r r i g a t i o n t a r i f f s in 1972; about 250 t o 300 of these (say 275) were located outs ide the cabeceras. To reach than, i t i s estimated t h a t CEL constructed about 200 Kms of MV d i s t r ibu - t i o n l i n e . The average of lilV d i s t r i b u t i o n l i n e s per l a r g e consumers thus works o u t t o be, approximately:

200 x 11,078 = $ 8,057 p e r consumer.

( 1 t i s probable t h a t t he re i s some regional va r i a t ion in this f igure , though we did not est imate i t . )

(d) Costs p e r Caserio (minor v i l l age )

7.10 CEL had e l e c t r i f i e d about 200 minor v i l l ages by 1972, requir ing about 500 Km of MV d i s t r ibu t ion network extensions. The cost extending subtransnission and MV d i s t r ibu t ion to then thus works out a t about:

- x 11,078 = $ 27,700 per caserio. 200

Again, t he re i s probably a marked regional va r i a t ion in these costs.

7 .ll AII important poin t which emerges from t h i s cos t est imate i s t h a t , once the backbone networks t o serve the principaA demand centres have been completed, the marginal cos ts o f extensions to smaller loads a r e r e l a t i v e l y s m a l l . In t h e case of the caserios , the marginal cos ts of extending the subtransmission and d i s t r ibu t ion networks a r e l e s s than 30% of the cos ts of i n i t i a l - l y extending se rv ice to the head v i l lages . T h i s explains the + r a l e l e c t r i f i c a - t i o n s t ra tegy of many countries, including E l Salvador 's , which general ly has three phases :

- t o e l e c t r i f y the main and l a r g e s t load centres f i r s t , so as t o ju s t i fy and develop the backbone networks; second :

- t o branch ou t t o the smaller denand centres , near these networks, a t r e l a t i v e l y Icw marginal cost; and

- to re inforce the system as needed as load develops.

(e) :A General Point on the Decllne of Costs Over Time

7 .12 Subtransmission and medium voltage networks are general ly designed to meet severa l years of growth of demand - 10 t o 15 years i s t y p i c a l in many countries, someLimes l a r g e r (as we bel ieve i s t he case f o r CEL). Furthermore, uprat ing Lhe net-dorics can be accomplished a t a r e l a t i v e l y low marginal cos t

( a s i s apparen t from t a b l e 7.1 and paragraph 7 -7). It fol lows t h a t t h e c o s t s p e r unit demand, and p e r consumer se rved , r e s p e c t i v e l y d e c l i n e more o r less i n v e r s e l y wi th t h e grodh o f demand and consumers served.

Low Voltage L o c a l D i s t r i b u t i o n

7 013 Low v o l t a g e d i s t r i b u t i o n networks a r e t h r e e phase a t 400/220 v o l t s ; the 13.2/3.4 t ransformers which supply then a r e z e n e r a l l y s u f f i c i e n t t o s e r v e 20 o r 30 household and smal l bus iness consumers; t h e l a r g e r consumers have i n d i v i d u a l t ransformers . Crener a l l y , t h e i n i t i a l networks a r e cons t ruc ted cover t h e nain a r e a o f t h e v i l l a g e ; dur ing t h e following t e n y e a r s o r so , i n v e s t - ments on ly c o n s i s t o f t r ans formers , mete r s and n i n o r ex tens ions and r e i n f o r c e - a e n t s ; i t i s on ly a f t e r t h i s p e r i o d , when t h e load has b u i l t up t o q u i t e l a r g e l e - ~ e l s , t h a t f u r t h e r investments i n reinforcement and expansion become s i g n i f i c a n t .

7.11: The networks of f i v e o f t h e v i l l a g e s have been c a r e f u l l y costed ( i n t h e absence o f good records f o r each v i l l a g e , t h i s was done by on s i t e s t u d i e s o f c o n s t r u c t i o n procedures and compila t ion of equipment i n v e n f o r i e s from e l e c t r i c a l maps); t h i s g ives us an e s t i m a t e o f t j ~ i c a l u n i t c o s t s , from which t h e c o s t s o f LV d i s t r i b u t i o n i n o t h e r v i l l a g e 9 a r e es t imated. Our c o s t e s t i m a t e s f o r t h e f i v e v i l l a ~ e s a r e shown in t a b l e 7.3.

Table 7.3

LV D i s t r i b u t i o n Cost Est imates f o r Five V i l l a g e s

Consumer Year 1 Year 11 Year 11- Average Narginal - 1/

San Francisco Chinameca 18,571 21,735 10 7 20 3 80 San Juan Talpa 31 9 532 37,407 17 2 2 17 Iiosario de l a Paz

93 39,592 67,063 277 2 44 195

Chi r i l agua 59,612 84,251 359 241 88 Candelaria de l a Fron te ra 71,566 102,572 468 219 104

1/ I n c r e a s e in cumulative investment d ivided by no. o f consumers. - Table 7 .$ shows a breakdown of c o s t s , and t a b l e 7.5 s h m s ' t h e r e l a t i o n between - 4 .

line l e n g t h s , number o f consumers and a r e a served.

7 -15 Investment p e r consumer in t h e e leven th y e a r i s about $230 on average; in t h e f i r s t yea r , i t i s much more var ied , on account o f d i f f e r i n g i n i t i a l l e v e l s of consumer response.

Table 7.4

Item - Planning Land Material and Equipment:

Poles Conductors Fixtures Transformers Meters Lamps (public ~ i g h tine;)

Persr~nnel: Labour .

Supervision Transport of Materials and Equipment General

$ of Total Costs d

3 2

Table 7.5

Relationships Between No .of Consumers, Lenqths of Line and Area Covered

San F'rancisco Chinameca San Juan Talpa Rosario de l a Paz Chirilagua Candelaria de l a F'rontera

No.of Length of Consumers Lines,

meters (Year 11)

Area served, Km 2

7.16 Although a f t e r a number of years (eleven years i n the above cases) fu r the r investments t o extend and re inforce the network3 again become qu i t e la rge , cumulative investment per unit of Fd peak dem.md continues to decline. The main reasons f o r t h i s a re the l a rge economies of sca le in equipment r a t ings , pa r t i cu la r ly when s i zes are small - a 50 KVA transformer, f o r example, costs perhaps only 50% more than a transformer of 10 KVA; t h e sane poles and s imi l a r f i x t u r e s can be used +a carry wires of l a r g e r r a t i n g ; the cos t of switches, pole f i x t u r e s rvld protec t ion equipment a l l increase slowly with ra t ing; and labour cos ts are inva r i an t with ra t ing .

Administration, B i l l i ng and Other Costs (Running Costs)

7.17 The operat ing and maintenance costs of generation and transmission are alreed-1 allowed f o r i n the est imates of bu3.k supply costs. The d i r e c t cos ts of mint the program i n 1972 we= $679,003, o r $h5 ($1.5) p e r serv ice per year; i t , was much higher i n e a r l i e r years. This high f i g i r e should decllne i n fu tu re years a s the number and densi ty of consumers increase; the hizh f i g v e i s p a r t l y a r e s u l t of t he wide senzraphical spread (which cannot, increase much fu r the r ) of C 3 ' L f s progrm. Other co1.m5ries have experlence.3 zunnin,? cos ts of l e s s than $25 ($10) per serv ice per year , and i t , i s possible t h a t CELfs w t l l dec l ine to t h i s l e v e l (in 1972 p r i ces ) . In t h i s study we take a s t r a i g h t average of $L3 f o r the f i r s t ten years, $35 f o r the l l t h , droppinc t o $30 by the 25th year. L/

S ~ m a r y of Lnvestmerlt Sosts by Vil lage

7.18 The emulative investment costs of s u p p l m g the v i l l ages only (i.e. igno-ring extensions t.o farms, a ~ r o - i n d u s t r i e s and caserios) a r e calculated b, t a b l e 7.6 f o r the f i r s t , e leventh and twenty-fifth years. Average investment costs pe r are also calculated, and amount to:

:-lo s t Developed : J u a p a ?.osario de l a Paz C.mdalaria de l a FYonhera 3ai Juan Talpa San L u i s Talpa

I n t ~ r n e d i a t e : Sesor i Jay sque Chi,n',lae;uci

aac'kward: Salcoat i tan San Ant,onin Pajonal San Juan Tepezontes San Francisco Chinameca

Average Costs, Centavos / MJh F i r s t Year E l ~ v e n t h Year Twen5y -DL'i_fth Year

Average C&:4 cos ts f o r the program tend to Se 'h igher than t h i s on account of the extensions to the caserios, where road access i s poor.

Ear .4ntoni= S . l co . t l t an ??.jonal

:Yi i rw , i ' :SC3

Chi: r2ei.r .

iirerqe *r.r.ulll -os t , cen tavor per Km -..

By -he Ele'ienLh Year :lo. 31' C-csmers ? o r a l '.w i,, year c 3 s t : - ~

Pulb I p p l y Sub-Trw.3.6 "i >imtr. L'J :lstr:bu:im Paxer Loraas

T0t.1

Piierwa h u a l Cos:, centavos prr 11.3 13.0 15.6 16.7 12.7 13.6 1L.7 V.3 22.4 15.5 -1.c 23.3

9)' 'ie Tven'.:!-r'lrtb. ' ' e a r .'-+. .Q . of ,:or.rumerr 15co 603 750 3W ? M 25C 370 659 3 0 250 1% ?. 0 :=:.I ::+ in ; ~ m r 3033 720 712.5 285 260 5 m L o 7 422. j 2bc 2 ~o i 26 ico '13?1t:

E&lk Supply Sut-:ra?a.& '5' 2ir:r. L'i ? i r t r i b u r l a n Parer Lasses

r0z.i

Averce A n l l r l Cost, cen tawa per khh 5.5 6.6 7.6 8.2 7.5 7.5 8.3 14.7 2 . 3 2 . 2 .? .5 L5.L

- -- -

:3rrc:ete cost l a t a r3r the re v l l l w e r ; IF. o the r , : l l lwes , LV network lnves IPmt coats were eat:maceC rrom u n l r .roar darn, taking 2 2 9 per Y m s u r Par Cke e leven th year: %greyate c o s t s i n the f i r s : y a w to te 7 1 of the e l smnt i l Y e u assresate, and s -t c o l t i n ,ll eases of eim per cor.3-r I n the r m t y - P l f t h yea r .

** Sulk s-pply e l s t n ~ u e d >: a f l k ~ r e or 1 / 2 W t:d prr kwh for the f l r s t .nd eleventh yew; and value* r q l a g horn 1/35W to 1/25Oo 13r the twenty-ilPtr. yea r Cree chapter 3).

*- *r lagsea cDIted st 2% of bulk r u ~ l y coat* .

-*' Equlllr a"r7ulLy >I' 11% :ines tct11 : , d & t : i e 1r.vest .mt cants (1.a. l* i n t e r e s t rare, V ?gear pro jec t l i f s t i r u ! .

.-+* See :Laptcr i f o r 4e:aIlr of pro.:ecrlons.

7.19 The f i r s t year average c o s t s a r e as tonish ingly high, except i n t h e two "most developedft v i l l a g e s , and range f r o m s to 116 centavos (6 t o 46 cents) pe r kWh; t hese f i g ~ r e s exclude energy and running cos ts . (The f i n a n c i a l problems t h i s can cause i n the e a r l y years can be judged from the f a c t t h a t t a r i f f s may be l i t t l e more than 10 centavos pe r K?Jh sold.) A s the load develops, however, i t can be absorbed by l i t t l e e x t r a investment, except i n generat ing capaci ty, wi th t h e r e s u l t t h a t aveyage cos t s drop q ~ i c k l y t o nuch lower levelseby the e lo~renth ye:ir they have, dropped t o 11 to 16 centavos (4 t o 6 cen t s f , except i n the backdard v i l l a g e s , and by the twenty f i f t h year to 6 t o 15 centavos ( 2 .!t t o L.0 cen t s ) .

7.20 Ln t h e ftmost developed" and tf intermedlatetf v i l l a g e s , t h e cos t s drop more quickly and t o lower l e v e l s than i n t h e "backcrardTf v i l l a g e s , on accomt of t h e h!+c$~ l e v e l and growth of demand. The cos t s i n the a reas where v i l l a ~ e s a r e tsitle1iy spread - Chiri lagua Lelng t h e extreme excunple - remain very high, however, on account, of the s l & s t u l t i a l InvesLnent in s:~btransndssion and I.llr dlstribu:ion l i n e s needed to reach them.

7.31 Average cos t s , we expect, w i l l continue t o drop with f u r t h e r load g r o l ~ t h and load f a c t o r improvements. The inmediate e f f e c t of load f a c t o r i.m?;.~>vementYs i s t o rpduce t h e bulk supply capaci ty cos t s p e r u n i t so ld (an Lrrrp~ovenent from 2% t o IrO$ f o r e x m p l e woxld half these average c o s t s ) ; u l t i n a t e l y , load f ac to r improvements would a lso c u t t h e average capaci ty cos t s of' d i s t - ibu t iqn iqves tnents . The above ave-age cos t es t imates a l so ignore the denmtis of the f a m and ayro- indus t r ia l consumers, who share many of the sllb:r~nsmissiorl a n d 3 7 d i s t r i b u t i o n netrmrks o f the v i l l a g e s - t h i s too cu t s average cos t s con::iderably. These p o i n t s w i l l emerge from the f i n a n c i a l ana lys i s of t h e p r o j e c t s in the next chapter.

CHAPTER 8

FINANCIAL RETURNS

8.1 In t h i s chapter, annual revenues a re compared with the annual cos ts of supply in the ear ly , mid' and l a t e years of the p ro jec t ( spec i f i ca l ly , years 1, 11 and 25'). In turn, the. ne t revenues a re estimated for:

(a) The Villages ( ~ a b e c e r a s )

(b) Farm and Agro-industrial Demand Outside the Villages;

(c ) Minor Vil lages ( ~ a s e r i o s ) . Though these a r e discussed separately, a l l th ree share the same subtransmission netr~orks. It wo?rirl be uneconomical t o slipply any one kind of consumer alone, such ns (a) o r (b) fo r example; buk i t m a y be, and of ten i s , economical to supply moye than one together. That i s , i t i s the t o t a l ne t revenues what matters most, not the ne t revenues t o each element.

8.2 To deal with the jo in t cost problem, we have f i r s t determined (as i n Cnapter 7) the costs of routing the backbone subtransmission and !.N d i s t r ibu t ion networks to the v i l l ages and then considered the marginal cos ts of extendins then t o f aims, agro - industr ies and caserios . (2) Net Severnos from The Villages (~abece ras )

8.3 Table 8.1 presents the revenue-cost ca l c~ i l a t ions f o r each vi l lage. For years 1 and 11 the reven7Je data a re f a i r l y concrete, those f o r the I l t h year requir ing only a shor t extrapolat ion from exis t ing records. Data f o r the 25th year were based on simple hand extrapolat ions of, present trends of the growth i n the number of consumers and conasimption per consirme?, modified by (a) allow- ances f o r sa tura t ion and (b) our guesses as to the po ten t i a l f o r load growth in the vi l lage.

a O h The f i r s t f ea tu re t h a t s tands ou'c i s t h a t annual revenues are generally lower, of ten .substantially lower, than annual costs ; the comparisons a r e shown on a percentage ail~j average bas i s i n t a b l e 8.2 :-

6 4

:, ?! ? B

2 '- k :: 7

2 5 5 ., 7 = - - 2 P

4

4 = - # C . .

c 9 c 9 - . $ 5 2 : 3 z 7 - . - 5 ? ? ; u ., .. - k o > -~. ,A *

": r

e - - t , 4 2 " a ~ i j * . ; : < 7 . . - V

7.:: : : L J J i L ' G + - 2 " '~.- m .

. - C ? - - -i ,6 m - 3 s - a - . ? , . 2

? f 3 ? E > 5 "3' * - c - 2 -. c - F t : ? $ ; 5 2, :" i 2

4 i 0 :

I C

" ? , - : d P Y . Y

E L 5 2 4 L . 3 ce 4 . u '-1 s ,, m I C * - = L E < - x7 . 3 - Y

- 2 '- " d l )

., z \. -*. g ; - d 'I - .- 6 . . . -I hl -1 -

Table 8.2

P r i c e

V i l l age

Bet te r Developed: Juayua Rosario Candelaria San Juan Talpa San Luis Talpa

Intermediate: Se so r i Jay aque C h i r i l a p a

Backward : Sa l coa t i t an Pa jonal Tepezontes C'ninameca

Net Revenues as $ of Revenues Ave .Cost, centavos/khlh Cent avos/ Year 1 Year 11 Year 2$ Year 1 Year 11 Year 2 5 kwh

8 - 5 The p r i n c i p a l reasons f o r t h e low revenues, d e s p i t e t he good load g r a r t h in mst of t he v i l l a g e s , a r e a s follows:

(1) Load f a c t o r s a r e l o w , maldng t h e average c o s t s of generat ion and t ransmission very high. For example, we es t imate t h a t these a r e only about 2000 klJh f o r each ICId peak demand in t h e e a r l y years , r i s i n g to about 3500 f o r the more developed v i l l a g e s ( i .e . load f a c t o r s o f 23% and hO% re spec t i ve ly ) . I n urban a reas , load f a c t o r s a r e 50% t o 60$, so t he average bulk supply cos t s a r e about h a l f those f o r v i l l a g e s .

(2) The p r i c e s o f C S do no t r e f l e c t the lower load f a c t o r s of conslmers i n r u r a l areas; a l so they dec l i ne q u i t e markedly with t h e growth of each ind iv idua l consumer's demand. Both f a c t o r s , of course, genera te f i n a n c i a l l o s se s . In genera l , revenues a r e low because p r i c e s a r e too low.

(3) Subtransmission and i4V d i s t r i b u t i o n cos t s a r e very high in areas where vill.sg?s a r e f a r apa r t ( t h e case of C h i r i - lagua, i n p a r t i c u l a r , i l l u s t r a t e s this po in t ) .

(h) Load growth and load f a c t o r improvements, iii t h e case o f t h o b a c h a r d v i l l a g e s , a r e s i np ly no t good enough.

1 Two other reasons why p r i ces and thus revenues a re low are f i r s t t h a t CEL have based t h e i r p r i ces using an i n t e r e s t r a t e of 65 when valuing asset,^, r a t h e r than the 10% we have used; and second, the accounting cos ts on which p r i ces a re based a re backward looking, in t h a t t h e older p ro jec t s which appear i n CEL's accounts a r e cheaper than the 1972 p r o j e c t p r i c e s t h a t we have used.

I

I

8.6 A s mentioned e a r l i e r , t he v i l l ages share t h e same subtransmission and MV d i s t r i b u t i o n networks as the farm and agm- indus t r i a l consumers, wha add

I near ly SO$ to the t o t a l k'dh demand and tend t o have l a r g e r load f ac to r s . Hence - it i s necessary t o assess the ne t revenues from these consumers i n order to

obta in a proper impression of o v e r a l l returns.

(b) Net Revenues from F a n and Agro-Industrial Consumers

8.7 3y 1972, 200 Km of subtransmission and d i s t r ibu t ion l i n e s had been extended t o reach the 3311 farm and agro-industr ial consumers (on the motive power and i r r i g a t i o n t a r i f f s ) , roughly 275 of whom were outside the cabeceras - an extension of C.6 Km/consumer. The demands of these consumers have grown with p a r t i c u l a r r ap id i ty ; and, a s our survey of farm and a g ~ o - i n d u s t r i a l a c t i v i t i e s i n Chapter 10 shows, they a re l i k e l y to grow very quickly f o r severa l years , provided -. t he re i s no major s e t back t o the growth, a n d develop- . />b j . . ,

ment of agr icuI ture i n E l Salvado,r. Thus a l a rge and quickly growing demand, , , . . - >........ with a r e l a t ive ly sood load f a c t o r , can be reached a t a low margirial cost. Table 8.3 shoris ou? pro jec t ions and calcul;rt.ions . 8.8 Net revenues a r e negative, despi te the rapid growth of a f a i r l y good load f a c t o r demand. The bas ic reason f o r t h i s i s t h a t p r i ces are too low: i t i s t h e pr ic ing pol icy, r a the r than the bas ic p r inc ip l e of extending serv ice t o many of these consmers, which seems t o be a t f a u l t . - 1 / The present system o f :

- declining block t a r i f f s (which drop considerably - see tab le 4.2) ; and

- making pr ices comparable t o those i n urban areas, despi te b e t t e r load f ac to r s and lower d i s t r ibu t ion cos ts in t h e l a t t e r ,

mi s t of course u n d e h e ne t revenues. ( ~ l s o , again, our c a p i t a l cos ts a re worked out 1972 costs valued a t lo$, r a the r thzn h i s t o r i c a l cos ts valued a t 6% t h a t i s used f o r present pr ic ing policy.)

( c ) Extensions t o Winor Vil lages ( ~ a s e r i o s )

8.8 i.Je have not est i ina~ed the dennnds of these v i l l ages ; we have only been able to ccnsider them ir, the sa?rple surveys, discussed i n the next chapter. Nevertheless, i t i s apparent t h a t i t dl1 be d i . f f icu l t t o j u s t i e extension of

I / It remaim t o be discussed, in the concludkg chapter, i f the farm and agro- - i n d u s t r i a l loads the v i l l a g e l o a d s a r e tcgether s u f f i c i e n t t o j u s t i f y the pro jec ts .

Table 8.3

Calculations of Net Revenues from Farms and Am-Indus t r i e s

Year 5 Year 10 Year 25 l 1967 ) (1972) (1987)

NO. of Consumers 85 33L 1,000 k\Jh/knsumer/year 9,200 16,000 35,000 'rota1 Demand, MbJh 781 5,340 35,000 kWh/KW demand a t peak 1/ 4000 hours 4000 hours 5000 hours Average Price, gk5Jh 0.07 0 -07 0.07 Revenues , $000 ' s 5L.7 373.8 2L50.0

Investment Costs, $000 's:

Distribution 2/ Bulk Supply I/ Total Annual Value (Y$)

Energy Costs 4/ $ 0 0 0 ' ~ Totai Costs $om's

N e t Revenues, 6000 % Total Revenues Average Costs, $/MJh

1/ Individual peaks generally occur i n the daytime, and t h e i r KW demvld a t system peak, which is in the evening, are somewhat l e s s than t h e i r own peak.

2/ Based on an average marginal extension of 0.6 Krn of l i n e per consumer. By - 1972, 200 Krn of l i n e had been extended t o roughly 275 large consumers outside the cabeceras; the other 60 o r so were ins ide the cabeceras, requiring l i t t l e extension of the networks.

L/ Including 20% allowance f o r power losses a t peak (marginal cost = 1.2 x fiO63/KW).

b/ Including 15% allowance f o r energy losses (marginal cost , = 1.15 x O.O?$/k\:'h). -

serv ice to them unless they a re very close t o t h e ex i s t ing networks. To take an example, a b o u ~ o n s u m e r s only may be expected in these v i l l ages , and, on average, they a r e l i k e l y to take l e s s than abou% 250 Hh/year, generatinp; t,otal revenues of !i?lS00 per year. This i s l i t t l e more than the annual cost of 1 Km of :.?I d i s t r i b u t i o n l ine ; t o this must be added the costs of bulk supply, operat ion and maintenance, and energy.

PART I11

HOTJSE OL2 SUillEYS

CHAPTER 9

SAMPLE STUDIES OF HWJSEIDLD CONSUMPTION

In t roduc t ion

9.1 Or ig ina l ly , t h e household surveys had t h r e e ob jec t ives ; t he se were:

- t o d e t e n n i n e t h e e x t e n t and g rowthof household uses o f e l e c t r i c i t y ;

- by analysing t h e s o c i a l and economic c h a r a c t e r i s t i c s o f both e l e c t r i f i e d and non-e l ec t r i f i ed households, t o f i n d t h e main determinants of housenold consumption; and

- td es t ima te t h e q u a n t i t a t i v e economic b e n e f i t s of e l e c t r i c i t y t o households, a s measured by consumers1 wi l l ingness to pay ( s e e Chapter 2 ) .

In r e spec t of t h e t h i r d ob j ec t ive , the e f f o r t was unsuccessful f o r two reasons. F i r s t l y , the consumption func t ions proved to be d i f f i c u l t t o spec i fy on account of t h e d i s c o n t i n u i t i e s i n consumption (e.g. households do o r do not have c e r t a i n k b d s of appliances); though w e were a b l e t o see how these d i f f i c u l t i e s could be overcome, i t was evident t h a t s tandard e c o n m e t r i c prograns could not be used f o r es t imat ing and t e s t i n g t he models 1/: new es t imat ion and t e s t i n g procedures were required which would have been too c o s t l y and t i m e consuming t o develop. Secondly, t h e raw da t a obtained from the f i e l d were simply no t accura te enough f o r p r i c e e l a s t i c i t i e s t o be est imated, given t h a t p r i c e s do not vary much ( t h e e f f e c t s o f incomes and o t h e r va r i ab l e s were much e a s i e r t o see) ; ihough w e might have p a r t i a l l y got round t h i s problem by s t r a i g h t cos t - comparisons between e l e c t r i c i t y and i t s s u b s t i t u t e s , t h e comparisons f a i l e d because e l e c t r i c i t y was genera l ly more expensive - i,e. i t s main b e n e f i t s a r e no t f e l t i n cost-savings, b u t through less t ang ib l e q u a l i t y e f f e c t s ( s ee Chapter 2 ) -

9.2 Hence t h i s chapter concentrates on t h e f i rs t two ob jec t ives of looking a t t h e p a t t e r n s and growth o f household consumption and then analysing t h e explanatory va r i ab l e s , First, however, a s h o r t de sc r ip t i on of t h e sampling procedures i s presented.

Sample Se l ec t i on and Procedures

9.3 Over 300 f &lies were surveyed during t h e s tudy, o f t en with q u i t e a l o t of re interviewing to improve accuracy and remove obvious i ncons i s t enc i e s and interviewing e r ro r s . O f these, 232 gave f a i r l y r e l i a b l e information, of which

1/ S p e c i f i c a l l y t he model had t o be s e t up i n P r o b i t form wi th simultaneous equat ion and covariance ana lys i s f a c i l i t i e s .

- 111 were e l e c t r i f i e d households; md

- 121 were non-electr i f ied.

9.L The sample covered e igh t commimit,ies, six with, two without ' e l e c t r i c i t y . Five of t h e communities were cabeceras ( a l l e l e c t r i f i e d ) , t he

&hers being caser ios (minor v i l l ages , of which only one was e l e c t r i f i e d ) 3/. The - communities cover a wide range of s i5uat ions as regards:

- l e v e l of economic developent ;

- r a t e of economic growth;

- population and population growth;

- years e l e c t r i f i e d and l eve l s of e l e c t r i c i t y and consumption.

Three of the cabeceras an Luis Talpa, San Juan Talpa, and Candelaria de l a ~ r o n t e r a ) were s tudied on an aggregate l e v e l i n the preceding f o v chapters. ( ~ g g r e g a t e da ta were not obtained f o r the o ther communities.)

9.5 The interviewing technique tauk a lrhi2e t , ~ 1-lc.-ielop. Questionnaires (completed by the interviewers) were f i rst t r i e d , but had t o be abandoned because people were hos t r i e to them, because they were too s t i f f and in f l ex ib le , and because they were unre l iab le (indeed, fami l ies of t en d e l i i ~ e r a t ~ e l y gave wrong answers 1/) . Informal conversations with the fami l ies , with a modicum of note taking, proved t o be f a r more su.ct.essful: i t gave the interviewer f a r more f l e x i b i l i t y , and enormously irrcreased the rapport between interviewer and fami ly .

9.6 The Lnformation obtained r e l a t ed to: - 2/

- locatior, , c o n m i c a t i o n and contact with o ther areas;

- personal and cornunity asp i ra t ions ;

- ownership, s i z e and qua l i ty of housing;

- family s i ze , age and sex composition; education l eve l s , number and occupations of those worklng; migration data;

- e l e c t r i c a l data: date connected, c o n s q t i o r i l e v e l s (from b i l l i n g records), types arid p r i ces of appliances bought, reasons f o r connection;

- data on e l e c t r i c a l subs t i tu tes : kFnds used and t h e i r costs , why they are prefered t o e l e c t r i c a l alternativmes;

l/ Xargaret Haswell reported s imi lar d i f f i c u l t i e s in India llEconomics of Village Development i n India." F ~ u t l e d g e and Kegan-Paul. 1967.

2/ A de ta i l ed l i s t i n g i s provided in the Universi ty 's Report PI. - A/ Table 3.U l ists some fea';ures of v i l l ages sanpled.

- family incomes ( inc lud ing incomes received from o r s e n t from emigrants) , p r i n c i p a l expendi tures , a s se t s .

A s tudy of these va r i ab l e s required the sample t o cover a broad range of family l i v i n g condi t ions; s tudying f ami l i e s in d i f f e r e n t communities p a r t l y helped t o ensure t h i s ; another method of ensuring a broad sample was t o t ake f ami.1 l es with d i f f e r en t housing q u a l i t i e s . - Analysis (a) : i ~ i n Uses of Elec t r ic i t ; ? and i t s S ~ b s t ~ i t i i t e s

9.7 The main domestic uses of e l e c t r i c i t y , we found, a r e f o r l i g h t i n g , i ron ing , r e f r i g e r a t i o n , r ad io s and t e l e v i s i o n . Sometimes, people purchase a r e f r i g e r a t o r i n order t o s e l l cold dr inks t o supplement t h e i r incomes; and t he r e were a few sases where people had i n s t a l l e d a smal l corn m i l l ( f o ~ t o r t i l l a s ) ; b!~\ t he se cases formed a smal l p e r c e n t a ~ e of t he sample. The d i s t r l h u t i o n of app1i:mce ownershi?, and t h e kinds of s ? l b s t i t u t e s used by non-owners, weFe a s follo1,rs :

Table 9.1 -- Tjse of E l e c t r i c i t y and I t s S u b s t i t u t e s

$ Households l!sina i t "ibe S l e c t r i f i ed &'?Jon-Elsctrified

Ligh ts I rons Televis ion 3ef ri:eldators F...iai5s I/ S l e ~ d e r s Stoves

100% Kerosene 58% F l a t I ron 3% - 305 Kerosene 2 35 Bat tery 10: ?Janiinl 4% Gas

{!bod 2 2% Other $1

105 100% 35% 915 - - - 1% lA2$ 5L$ no5 e s t i n a t e d

18% kg 7 8% 96s 2 5s 11%

1/ SaTlple s i z e s 111 f o r e l e c t r i f i e d , 121 f o r non-e lec t r i f i ed . - 2/ E l e c t r i f l e d households genera l ly continue to use s u b s t i t u t e s (even f o r l i g h t i n g ) -

f o r many purposes.

3/ Inc lades radio-record p l a r e r s . - h/ Reco-d p l aye r s ( U s ) , water hea t e r s , c locks , musical ins',nunents, motors, s n a l l -

ni l l s , serdn,= machine (one only) , e LC.

Z/ Candles occass iona l ly used. The kerosene l q s a r e u sua l l y a p i ece of rag, used a s a wick, inser5ed i n f o a t i n ; kerosene vapor l ap s a re only found occass iona l ly .

6 / This irlr:llides q u i t e 2 number of hand dr iven sewht: machines (about 15% of - a l l s.ample) .

9.8 Evidently subs t i t u t e s a re ava i lab le and extenstvely used. Even e l e c t r i f i e d households continue t o use t r a d i t i o n a l forms of energy, pa r t i cu la r ly f o r cooking where wood i s found to be much cheaper and qu i t e abundant i n the rtral areas. Its main advantages a r e found i n l i gh t ing and ironing, where the subs t i t i l t es a r e i n f e r i o r , and in te l ev i s ion and r e f r ige ra t ion , where p r a c t i c a l subs t i t u t e s a re not readi ly avai lable .

(b) Chanees in t h e Use of E l e c t r i c i t y and i t s Subs t i tu tes Over Time

9.9 The b i l l i n g records on the cons~urrption of iihividual consumers confirm 01- e a r l i e r analysis of Chapter 6 t h a t the r a t e of growth o f demand p e r consumer i s qu i t e high. The average r a t e of growth a f t e r connection to 1972 was about 102 per ;ear per consumer, though the re is qu i t e a b i t of variance in this fisre. For the six communities with e l e c t r i c i t y :

Table 9.2

Level and Srowth of Consumpt,ion/~onsrlrner

k~.Jh/ I n i t i a l Years .4nnual Sample Consumer Ki/ Connected Growth Size 1 / 1972 -- Consumer L/ ( ~ v e r a g e ) Rate

Bette? Developed: Agxilares 20 753 n.a. n.a. n.a. Candelaria de l a F'rontera 17 / 525 403 h% 6% San Juan Talpa 23 400 157 8 12% Saq Lui3 Talpa 8 729 170 8 20%

Backward : San Miguel Tepezontes 8 158 168 6 -1: Comalapa 7 409 157 & 12%

1/ Less than size of t o t a l sample of 111 since cases where records were incomplete - a r e omitted.

2/ One year a f t e r connection. - 11 Excluding one very l a r g e consumer, whose consumption declined s l ~ b s t a n t i a l l y

following migration 02 family menhers.

Looking $5 t h e in1ll-sid11a1 reco-tjs, i: i s pos s ib l e >o f i n d q u i t e a l o 5 of yandom v a r i a t i o n s i n consumption l e v e l s from one yea r t o %h? next , and in some cases , systematic tieclines. 3u:, o v e r a l l , indiyCduzl conmiiiYion 1svei.s a r e growin!; r a p i d l j . A s one might expect , cons~rmption l e v e l s a r e h lzher i n :.he be t t .er developed co.mimit,ies.

9.10 The growth of consumption i s r a t h e r o!)viously ~ s s o c i a t e d with t he ?youth of appliance sto-i;, a s t h e subs= i t u t e s a r e z r a d u d l y i-eplaced by e l e c t r i c a l , ;ypliznres. S l c c t r i c i t y i s f i x : used f o r l i g h tin!; ?.nd ironins;, af-ce- x!?ich ao re e q x ? ~ s i r e applinnhes a r? ;iriderl - nc?r; o r l e s s i n t h e or , ler h e i c a i e d i n 1 1 a . Thp f o l l n s inq :able in,zllcates the 3dist,r5.busi.on of appl i r r l re si,ock 'ln tk'e six e i ~ c t ~ ~ i f i e d : o m ~ n i t i e s and i % s e f f e c t an ::ons~lmytion l eve l s .

7ons-motion Levels 2n.i f ipyliance St&

< 3 r ~ ~ l e with imuli,mces Hette- Develope:: 3 : i c k ~ a r d Aver nqe i:',,!h Comurl i t%s 1 / 7onun:ulStles 2/ 1972 A/ -

1 / ,?z:li i3iq+-s, 5x1 ;,I.' '3 Talpa, S-?n Juan Ta lpa , 2 , S , xp l e :,ctal = 39 -

:/ @+,her 2pplj.nnces incl!?:de r ad io s , mixers , e t c . - ':/ %ere i3 :yfite :i iary vr,-%ance (over 2 607) in some o f those f igxyes 5et:reen -

one conscxer and ano k e r .

-he i~7::er app i . i ;.nces, it can h e s eec , lncrease :ivernce coils-lm?:ion l e v e l s c ~ ~ n s j der- :,:itv,. >n(! i n c-cnseql1cnce t he avera7e :ier~-,nr?s in -che b e t t e r de7elopej v i l l a ~ ~ s :i:.a .: - ,TT~-~: .... cin':s those of th? jackward vil1aze. j .

(c) Income Effects on Consumption

9.11 The main f a c t o r which detennines appliance ownership, and thus the l e v e l and growth of e l e c t r i c i t y consumption, i s family income. There i s a marked corre la t ion between appliance ownership and t o t a l and pe r cap i t a family incomesr-

Table 9.4

Relations Between Household Consumtion. b ~ l i a n c e owners hi^ and Household Incomes

Costs, II Y Family ,Per Capita Annual

Connec- Appli- Elect- Annual Inaome Family In- Cos'u - Appliance :/ t i o n 2 / ances r i c i t y Total r/ & come 6 Fam.Income

Lights (L) 60 58 15 35 1,590 365 2.2% L + Irons (I) 60 88 21 50 2,480 5 9 2 -0% L + I + T V 60 837 37 18 2 3,390 770 5.32 L + I +nefrig. (R) 1150 101 304 7,960 990 3 8%

75 2088 L + I + ? + T V 7 5 105 LS7 11,060 2,270 4.1%

1 / Each item lisiied also includes o ther appliances (which are r e l a t i v e l y i'ew) such - as radics , mixers, e tc .

2/ Including housewiring. - 3/ Annuities of Il$ and 16s for connection and appliances respect ively; the aIlTl~a1 -

costs of l i g h t bulbs, which are also included in this f igu re , a re about $5 per year fo r small consumers and $10 p e r year fo r l a r g e consumers.

L/ Sample group means. - 5/ Sample group means. Connections and appliances a re t o t a l costs , e l e c t r i c i t y i s -

an annml cost.

9.1 2 Total family expenditures on e l e c t r i c i t y and e l e c t r i c a l appliancee a r e about 2% (on average) f o r ismall consumers, r i s i n g to o r 5% i f a t e l ev i s ion o r a r e f r ige ra to r is purchased. But expenditure on e l e c t r i c i t y forms a minor f r ac t ion of th is : i t amounts t o around only one percent o f f amjly income, o r l e s s .

9-13 It i s possible, therefore, t ha t fami l ies would be both able and willing ( i f t he p r i ces were higher) t o pay more f o r e l e c t r i c i t y . A s suggested i n Chapter 8, the low f inanc ia l re turns computed f o r many p ro jec t s reflect more on the (low and badly structured) pr ic ing policy than on the investmen%s. The l i v e l y response of consumers t o the program, ref lec ted in high ra t e s of grohl;h of demand, and the low f rac t ion of family income t h a t i s spent on e l e c t r i c i t y , both suggest t h a t pr ice e l a s t i c i t i e s may be low.

Table 9.58

D i s t r i b . ~ t i o n of Rural Incomes and Relat ionship t o E l e c t r i c ~ t y Consumption

F d l y Income 3ange, l

Family per Capita Incorns ; s a g , 2

L loo LC1- 2 2 0 201- 2c9 331- i 0 3 2'31- 509 531- 600 <01- "00 7 ~ 1 - iioo "01- yx 5m1-1,\~0@

100; -1,500 > ;,jOr) 7 ~ t a l S

To ta l Sample iGroup

NO. - Incoze. t

Tota l w l e ;roup

R 0 - :.come ,d

26 l t , ?Y3 72 5 . 5 s 44 6 1 . 2 ~ 24 h, 792 19 5!2,410

55,633 l5 5 lh,143

3 12,073 1 3,54c 5 32,302 3 4 . 2 3 2

11 - 2bO i'.l 232 6i3,j5L

Wi:h E l e c t r i c i t y WithouL E l e c t r i c i t y ' Family Income-k'dh Clnsumption Data Group Croup Group Aver%-e FFamily

ho. Income,$ No. I..coue,t xyh Incovle kk'h/Family

Tabla 9.5b

As Above, b u t on R r Capita 1r.corne Basis

Kith E l e c t r i c i t y Without E l e c t r i c i t y R r Capita Income-k3b Consumptior. A t a ;roup lroup "up i:.erage i m l y

:,a. Incow,$ ~ncome,$ I n c o ~ ~ 6 ' - % / f d l y - 3 1,713 23

1 2?,5?1 53 16 28,51? 26- i3 27,506 11 13 4% ,456 5 13 52,634 2

5 14,143 - % 8,958 1

3,540 - J 32,802 - H 44,232 -

11 - 26c 111 - lli m h ~i

A g w d croporr icn of the t 'amilies ui:i.JuT e l e c t r i - i r y e l i v i n d i n the case r l a s v i thou t ser-.,ice ( see Tsble 3.1)

(d) Income Dis t r ibu t ion Effec ts on Consrunption

9.1.11 Income d is t r ibu t ion curves f o r r u r a l areas , according t o our measure- m e n t s , seem t o follow the same shape - though a t a much lower general l e v e l - as those f o r t h e country. Incomes, in o the r words, a r e no t uniformly low; and the re i s , indeed, a very wide range of income l e v e l s t o be found. This explzins t he wide range in consumption l e v e l s i n the sample, and a l so why r e l a t i v e l y l a rge consumers can somethes be found in q u i t e backward communities.

9.15 Table 9.5a shows the income d i s t r i b u t i o n of f ami l i e s in our sample; i t also compares the income d i s t r i b u t i o n of those with e l e c t r i c i t y with t h s d i s t r i b u t i o n of those without, and gives t h e e l e c t r i c i t y consumption l e v e l s of each goup . The curves a r e also p lo t t ed in f igu res 9.1 and 9.2, and compared with a sketch o f t h e income d i s t r i b u t i o n cu.rve f o r the whole count,ry. Table 9._% presents t he same information on a pe r capi ta income basis .

9.16 Families begin t o consume e l e c t r i c i t y , i t can be seen, a t very low income l e v e l s of around $100 ($40) per capi ta ; this i s in t h e lowest dec i l e of p e r capi ta incomes in E l Salvador ( a v e r ~ g e per c a p i t a income was $320 in 1972). The number of famil ies connected and t h e i r average consumption l e v e l s r i s e very rapidly wi th income l e v e l - a doubling, of family o r per cap i t a family income nore than doubles average consumption. The income e f f e c t , moreover, i s apparent a t a l l income l e v e l s up t o $800 ($320) per cap i t a when some s igns of s a tu ra t ion (which a re not apparent in urbul areas) begin t o appear.

9.17 The d i f fe rence i n consumption l e v e l s between t;he ' b e t t e r developed' anci 'backward' v i l l ages a r e also explained by d i f fe rences i n t h e i r income d i s t r i bu t ions :

Table 9.6

Incone Dis t r ibu t ion of E l e c t r i f i e d Families i n Different Communities

Per Capita Bet ter Developed Income m g e $ Comrnilni t i e s 1/ Backward 2/

1 / Sample s i z e 78 (Candelaria, Aguilares, San Luis Talpa and San Juan ~ a l ~ a ) . - 2 / Sample s i z e 33 an itiguel Tepezontes, Comalapa, Cuchi l la Comalapa) - ( ~ o t e a g a k t h a t some famil ies with incomes of l e s s th,m n 0 0 ($40) per capLta a r e connected).

9.18 The b e n e f i t s o f e l e c t r i f i c a t i o n t h u s do seem t o reach low income groups and r i s e q u i t e quickly with t h e i r incomes. The main o b s t a c l e t o extension of s e rv i ce t o many o f then i s not t h a t they would be unwi.lling t o purchase t h e s e rv i ce , bu t t h a t , inmany p o t e n t i a l demand cen t res , populat ion d e n s i t i e s and populat ion l e v e l s a r e very low, so t h a t

- aggregate demands would be too low, and

- cos t s o f s e rv i ce would be too high,

t o j u s t i f y s e rv i ce from t h e g r i d . Autogenerators, a s many count r ies have found, a r e t h e only economic a l t e r n a t i v e f o r prcviding s e rv i ce i n these circumst,ances. Publ ic suppl ies from t h e g r i d c m only be JustLfied i n the h igher p o p d a t i o n densitay, h igher demand regions.

4:-/ - (e) Gczupations and E l e c t r i c i t y Consumption

9.19 The type o f occupation of t h e family wage-earner s e m s t o have some irifl.uence on consum?tion. It was no t iceab le , during t h e course of t h e fieldwork, t h a t people working In ag r i cu l t u r e were l e s s h c l i n e d t o ob t a in e l e c t r i c i t y t h m those of s i n i l a r incomes working ou ts ide aq r i cu l t u r e . The follotring da t a seem t c bear t h i s out:

Table 9.7

Occupations and t he Cecision t o Connect

Main Vase Earner Vorkinp: i n : Agricnl t,ure Non-Agricult,ure

Number of Cases !h.mber E l e c t r i f i e d Porcent E l e c t r i f i e d

Averc~ge Per Capit, a Incomes : Those )Jot E l e c t r i f i e d 61% $19 Those E l e c t r i f i e d - $500 w $600

1 / Txcl~lding four l a rge Earners. -

9.20 A minor reason f o r t h i s , i t i s bel ieved, i s t h a t agr;c:LLtu-a1 workers a r e more cusxm bound. 'i'wo f a r more important reasons, however, a r e ( i ) t h a t many f n m wor!cers a r e migrant workers, and are fhr less inc l i ned t o s e t t l e i n a p a r t i c ~ l l a r area; ( t i ) okher farm workers do no t ocm t h e i r house, which i s provided t o then ( a s a payment in kind, so t o speak) by t h e landlord. Both t he se poFnts a r e a l so r e f l e c t ed in the q u a l i t y and type o f ~bmer sh ip of t he house.

4:-/ - Oc~*~:pr.-.lonal s t r i i c tu re o f s,y?ple ( e l e c t r i f i e d and non-e lec t r i f i ed respec t lve lv) : s m r l l farriers, 12 and 1 C % ; rnedilur, f ~ r m e r s , 5 and 2%; l a r g e Tamers . h and 0%; f a n workers, 17 and 53%; commercial, 33 and l?)?:; t r a d e and c r a f t s , 7 and 11%; teachers , c l e r i c a l , o t he r s , 22 and 5%.

( f ) Quality and h e r s h i p of Dwelling and E l e c t r i c i t y Consumption

The majori ty of e l e c t r i c a l consumers, we found, l ived in so l id ly ted houses of moderate o r good qual i ty . They were variously made of (painted mud br icks , reinforced with straw), wood and adobe, o r br icks;

nearly a l l had t i l e d roofs; and a few had indoor sani ta t ion . I n cont ras t , the dwellings of most fami l ies without e l e c t r i c i t y are temporary s t ruc tures , cal led "ranchos", made ou t of t r e e branches with straw thatching.

Table 9.8

Quality of House and The Decision t o Connect

1 /

House a a l i t y

~ a n c h o s (very poor) Sol id; adobe and wood, outdoor

san i t a t ion Brick; indoor san i t a t ion

Sample Distribution- E lec t r i f i ed Non-Electrified

1/ Sample s i ze ; Elec t r i f ied 111; non-electr i f ied 121. -

9.22 The famil ies l i v i n g i n the ranchos are n o t necessar i ly the poorest (tilough frequently t h i s i s so); migrant workers ( jorna leros) , who form a very la rge f r a c t i o n of the labour force , commonly l i v e in them.

9.23 A l a rge pmpor t lon of the houses, including those of s o l i d construction, a re not owned by the family, and the decision t o connect r e s t s with the landlord; 20% of our e l e c t r i f i e d sample f a l l s into this category, In the r u r a l areas out - s ide the v i l l ages , house ownership ( apa r t from the ranchos) i s much l e s s common; s ince t h i s covers the majori ty of the v i l lage- rura l poplllation, some remarks on i t are appropriate.

(g) Note on Service to Small Farmers and Fann IJorkers Outside the Vil lages

9.2L Nearly two t h i r d s of t he population of EL Salvador l i v e outs ide the main v i l l ages (as noted in Chapter 3, para. 3-10) - the small farmers, the workers (colones) l i v i n g on the l a r g e farms, and a good proportion of t he migrant workers, For two reasons i t i s very d i f f i c u l t t o extend serv ice t o them:

(i) they are sca t te red , l i v i n g i n small c lus t e r s , so t h a t cos ts a re high and demand low; except i n the minority of cases where the small farms h d population c lus t e r s a re close -b the ex i s t ing networks, extension of service to them i s uneconomical;

( i i ) those l i v i n g i n l a rge farms a r e not e n t t t l e d (by law) to ownership of the house, and serv ice i s e n t i r e l y a t the d i sc re t ion of t h e landlord.

Both f ac to r s , unfortunately, cut of f a l a rge proportion of the population from the p o s s i b i l i t y of receiving se r r i ce .on an economical basis .

Income Transfers :mni . . r2t=

9.25 Lou income fami l ies commonly receive f b a n c i a l support from family members [.rho have migrated; higher income fami l ies , on t h e o ther hand, commonly provide f inanc ia l support to those who have miqrated (mainly f o r education, as discussed l a t e r ) . The incoine t r ans fe r s appear t o be q u i t e l a rge and widespread: 40% of the hol~seholds surveyed were senders o r rece ivers (inchiding over 50% of those e l e c t r i f i e d ) ; t he incomes of low income households were augmented on average by 36%; a d higher income households t ransfer red .an average 10% of t h e i r incomes. The extent and s i z e o f t r ans fe r s a r e s h a m i n t a b l e 9.9.

Table 9.9

Income Tra:lsfers

Sending I i e c e i v i n ~

No. of fami l ies involved 1/ Aggregate Income $ Total of Incanes sent o r received

Average Income: $ per family Average Sent o r 3eceiveti: E! per family $ Sent o r Received

Average Per Capita Income, 6 2/ Average Per Capita Income Transfer, kf 2/

1 / Sample s i z e 232. - 2/ a c l u d i n q four high income fami l ies , the percentage ofsincome t ransfer red was -

higher, averaging 1&% of the fami ly ' s income. Further, e igh t fami l ies Kith incomes in the range of $1000 t o $4000, s en t over 25% of t h e i r incomes to migrants.

r/ Family Income $ No. a t Home.

9.25 Low income r u r a l fami l ies o f t en b e n e f i t considerably, therefore , from' those who have migrated (mainly t o urban areas) . The .motivation t o migrate, and t o encourage it, i s obviously very strong - as one would expect from t h e cur rent ex tent of rural-urban migration.

9.27 Migrants ( i n our sample) a r e younger, mainly s ingle , move mainly in search of education o r jobs, and mainly go t o urban areas o r l a r g e towns. Of the 220 migrants of the f ami l i e s surtreyed:

- 70% were under 25 years of age;

- ha l f were women;

- 70% were s ingle; and

- 47% had migrated to the metropolitan area, % abroad, and the r e s t t o towns and o the r =a1 areas;

The reasons f o r migration were declared to be: f o r education, 17% of sample; t o f i n d work, 31%; to form a new home, ll$; various,bl%.

( i ) G i f t s and Purchases o f E l e c t r i c a l Appliances

9.28 Often, migrants a l so buy e l e c t r i c a l appliances, and sometimes pay f o r connection, as a g i f t t o t h e i r fami l ies ; one in f i v e appliances i s obtained i n this manner. Second hand appliances are o f t e n bought (about one i n six cases). New appliances, purchased in cash o r with c r e d i t , a r e however t h e most common:

Table 9.10

Sowces o f Appliance Ownership

Number of Cases in Sample - - -eta, Connection Irons Refr igera tors TVs 0ihe1-

G i f t s 6 10 I/ - 3 6 1l . r L/ : cj

Second ?land 25 g/ 6 - 1: a 8 New - with Credi t 1 23 2 1 9 .-. 4 New - cash

-

1/ Includes one item given as p r i z e by shop (prom.tion).

2/ These a r 3 cases where e l e c t r i f i e d house. was purchased. - Credit , ' L t can be seen, i s general ly used only f o r the more expensive appliances (connection and t he smaller appliances cos t only a small f r a c t i o n of fail;? incone).

( j) Pr ice and Willingness-to -Pay

9.29 Pr ices probably have q u i t e a s t rong inf luence on the decis ion to purchase and use e l e c t r i c a l appliances - t he re l iance on g i f t s and second hand purchases, people becoming connected and building up t h e i r appliance stock only gradually, the preference f o r cooking with wood rather than e l e c t r i c (or gas) s toves, a r e a l l symptomatic of t h i s .

9.30 An e l e c t r i c a l appliance, and the e l e c t r i c i b ~ t o m it, are complementary goods: one cannot function without the other . So it i s the combined p r i c e of e l e c t r i c i t y and the appliance which matters when considering p r i c e e f fec ts . The combined p r i ces f o r some applicat ions a re compared in t a b l e 9.11 with those of the subs t i tu tes .

Table 9.11

Total Cost Comparlsons Between E l e c t r i c i t y and i t s Subs t i tu tes

E l e c t r i c a l Appliance Subs t i tu t e Costs $ Annual 1 / Annual

DE- Connection Appliance E l e c t r i c i t y ~ o t a l , K Costs, (I l_~ype)

Lights 60 S/Y ea r 10 2 2 7 to 13 2/ 21

(kerosene)

Irons 60 35 7 2 0 5 ( f l a t i ron)

Ref r ige ra to r 75 1200 80 260 500 (kerosene)

Cooking 75 300 70 120 7 5 (wood)

1 / Annuity of 11% f o r connection, 15% f o r appliance. Inclllding connection costs - i n each case s l i g h t l y oversbates, of course, the e l e c t r i c i t y cost.

2/ Light bulbs ( f i x t u r e cos ts included i n connection costs) . - 3/ The higher p r i c e applies t o vapour lamps; the lower p r i ce t o wick-lamps. -

The e l e c t r i c a l a l t e rna t ive i s more expensive i n t h e case of l i g h t s and i rons ; i t i s used on account of qual i ty and convenience. Kerosene r e f r ige ra t ion i s much more expensive, and i s r a re ly found. E lec t r i c cooking is also more expensive; i t , too, is r a re ly found.

9.31 How high could e l e c t r i c i t y p r i ces go before people would prefer s u b s t i t ~ l t e s ? Since e l e c t r i c i t y forms the l e s s e r and of ten a .small por t ion of t o t a l costs (30% or l e s s in the case of re f r igera t ion; only 15% in the case of TVS) i t i s poss ib le

t h a t t h e e f f e c t s o f e l e c t r i c i t y p r i c e s a r e correspondingly d i l u t ed . However, t h e on ly concrete evidence on how much people would be w i l l i n g t o pay i s provided by t h e h i s t o ~ i c a l d a t a o f p r i v a t e d i s t r i b u t i o n companies, where p r i c e s have been very much higher in t h e p a s t . Table 9.12 p r e sen t s some da ta .

Table 9.12

Data on P r i c e Levels f o r Domestic Consumers

Yonthly kWh Range Main Pr'lces i n ?.ane;eT Centavos / kWh 0 - 30 30 - 100 Over 100

CXL - 1 9 7 2 12 10 t o 12 5

9 kbh ranges t o which t a r i f f s apply d i f f e r considerably from one per iod and from one comp.uly t o another.

* PNKO se rve Juayua and Sa l coa t i t an ( s tud ied i n e a r l i e r chap te rs ) ; DEUSM s e r v e Usulutan, a low income region i n t he sox th west.

For commercial and f o r l a r g e domestic consumers on t h e commercial t a r i f f s , t h e r a t i o s of p a s t +& p re sen t p r i c e s was even higher .

9.32 The u t i l i t i e s have thus been ab le to charge much h igher p r i c e s in t h e p a s t (when ave-age cos t s were high) than now ob t a in ; indeed, t h i s i s t h e on ly way t h e p r i v a t e u t i l i t i e s have been a b l e to make a p r o f i t . In t h e 1940 's and ' 5 0 f s , p r i c e s were two o r t h r ee times p r e sen t l e v e l s (more i f one allows f o r Ly f l a t i on ) , r e f l e c t i n g t h e h igh average cos t s o f supply f ron autogenerat ion. I n t h e 1960 's , load growth LTI each o f the p r i v a t e u t i l i t i e s we have s t ud i ed was high, even thoxagh p r i c e s were 1.5 t imes those of CEL, o r 1.7 t imes if one allows f o ~ i n f l a t i o n ( c .f . RAMCO 's p r i c e s i n 1966 wi th those of CEL i n 1972) ; p r i c e reduc t ions weye l a r g e l y a consequence of t h e growth of demsnd r a the r , than a cause of i t , on account of economies of s c a l e being generated by load growth. .hd i n 1972, R E 3 C O ' s p r i c e s were s t i l l 30% h igher than CEL1s.

9.33 On t h e f a c e of i t , the r e fo r e , i t does seem t h a t CEL could have charged, say, 50% rno-e wi thout s e r i o u s l y choking back demand. - I / But s i n c e CZL kep t p r i c e s low, t h e i r revenue l o s s e s became t h e consumers' ga ins - on t h e above assumption

1/ W e d id no t have da t a on consumption and incomes in t h e yea r s of higher p r i c e s so a s t o enable us 50 e s t i ~ a t e p r i c e e l a s t i c i t i e s .

they received surplus benef i t s amounting 50% o r more.of revenues. Tdhile some consumers would have probably cut back on conslxnption i f p r i ces had been higher, the evidence i s t h a t o thers would have been prepared t o pay considerably inore, and indeed have done so.

9.34 This evidence t h a t people a re prepared to pay more i s p a r t i c u l a r l y important. ka lys i s (in Chapter 8) of f inanc ia l re turns t o selected p ro jec t s showed very poor revenues f run many of them. In p rac t i ce this does not mean t h a t t he inves'ments a r e unsat isfactory: i n many cases, i t can now be seen, i t means simply t h a t p r i ces are too low.

(k) Estimation of I4onet ary Benefits

9.35 In addition t o consumers ' surplus benef i t s , the s a l e of e l e c t r i c a l appliances has generated tax revenues f o r the government. Domestically produced appliances a r e untaxed; but imported appliances carry a t a x of LO;"; o r more. Table 9.13 provides d e t a i l s .

Table 9.13

Pr ices , Taxes on Appliances

IJeighted Annual

Ownership P r i ces , k? Taxes, k? Value of Appliance Domestic Foreiqn Domestic Foreign Domestic Fore im Taxes, $ * I ron LO% &% '22 36 - 10 1 Refrigerator 20$ 80% 1125 1200 - 350 L2 ';lr - loo$ - 735 - 250 3 7

- -- -

i.c Tax times 15% Annuity times $ foreign owned.

9.36 The tax revenues a re qu i t e l a rge i n r e l a t ion to the revenues from e l e c t r i c i t y sa les , as can be seen from the following calculat ions:

Tax Revenues as 5 of E l e c t r i c i t y Costs Annual -

Appliance kWh to E l e c t r i c i t y . h u a l Tax Tax Revenues as Run i t Costs L Revenues, $ 5 of Elect.Costs

Iron 70 7 1 1b% Refrigerator 800 80 L2 52% TV 150 15 37 250%

The t ax revenues are next calculat,ed as a percentage. of t h e e l e c t r i c i t y b i l l f o r combinations of appliance ownership i n t ab le 3.1b; and as a percentage of the t o t a l amount paid f o r e l e ~ t ~ r i c i t y by consumers i n our sample, in t ab le 9.15.

9.37 m e t u r revexues, it car, be seen, add subs tan t i a l ly t o the financi;:l re turns to the program - by 65$, f o r t he consumers we have samplecl. For the b e t t e r developed v i l l ages (where there are more cf t he more expensive appliances) , revenues w i l l be higher than t h i s ; they w i l l of course be lower in the nore backward v i l l ages . 1/

9.38 The monetary benef i t s of the program can now be s t a t ed a s being t h e sum of:

- revenues from e l e c t r i c i t y sa les ;

- t ax revenues from the s a l e s of appliances, amounting t o about 65% o f e l e c t r i c i t y revenues; ?/

- (supplus) bene f i t s passed onto consumers in the form of a r t i f i c i a l l y low p r i ces , mounting t o , we cpess, about 50s o r nore of e l e c t z i c i t y revenues.

If the l a t t e r gdess i s r i g h t , then t o t a l monetary benef i t s a r e over 2.15 times revenues.

(1) Other A s ~ e c t s of Consumer Response

9.39 The surveys also looked a t l i t e r a c y (cor re la ted with incomes but not independently wfth cons:imption); age (younger faml l ies more l i k e l y t o become consumers) ; family uni ty (fragmented fami l ies l e s s incl ined t o develop t h e i r homes) ; f m i l y wj.shes f o r various kinds of public faci1i:ies (hea l th , water and roads had high p r i o r i t i e s and, in severa l cases, publ ic marketing f a c i l i t i e s ) ; and prudence when purchasine goods and services (low income fami l i e s , as one might expect, f a r more prudent in spending) . The main point t o emerge, from the viewpoint of the present, study, was t h a t tuhe consmers ' response t o the e l e c t r i - f i c z t i o n program was qu i t e enlightened; there was no reason t o suppose t h a t valuing monetary bene f i t s on the bas i s o f consmer Yesponse was inval id. ( i n - come d i s t r ibu t ion might obviously be oll+s$ioneti; but t h i s i s a separqt,e issue.)

I / I n fu ture tax revenues may decline s ince more untaxed domestic appliances w i l l - 'se boxght. %esc mag be ( a ) pa r t ly passed ontc the consumers i n the form of lower p r i ces , thus adding t o consmers ' surp1.u~ benef l t s ; (b ) a r t l y passed o n w 2omestic producers, in the form of higher p r o f i t s ; and ( c 7 p a r t l y absorbed by the economy i r i the f o m of higher cos ts . To t h e ex tent t h a t (c ) i s t rue , we will 'nave overestimated the monetary benef i t s .

2 / ?tather t h v l dealing with tax revenues i n the customzqr way of subt rac t ing - them from s ~ p p l y ccs t s , we have added them t o benefits,mainly a s a matter of expository convenience .

I

Table 9.14

Tax Revenues as $ of E l e c t r i c i t y B i l l f o r Combinations of

Appliance Ownership

~ n n u a l k\lh % Annual Value of 1 / Weighted Average Appliances (respect ively) Taxes ( respec t i v e l g r of Tax Revenues g/

14% of b i l l

i 145 of b i l l

I \

100, 70, 150 L, I, TV 14, 14, 2.50 117% of h i l l !

L, I, R 100, 70, 800 14, l h , 5'2 45$ of b i l l

L , I , 9, ?"J 100, 70, 800, 150 a, 14, 5 2 , 250 73% of b i l l

l~' i .e. as 5 of e l e c t r i c i t y costs .

2/ Vsing a uniform p r i c e of 10 centa~ros/It(ifilh throughout. - 3/ Revenues from l i g h t s have been taken t o be the sane a s those from irons. -

Table 9.15

Tax Revenues as % of Total E l e c t r i c i t x B i l l f o r Consumers Sampled &/

Average Tax Tax Revenues a s $ o l Total 3/ Appliances k>h 4/ A $ Revenues, B $ B i l l . of Sample, EcA$..

l4% 1.0% U-I$ 1.4%

U7% 16.4% 45% 5.8% 7 35 40.2%

Tota l w

1 / 1U Consumers. - 2/ A s in Table 9.14 - 3 / ~ss~uning; a uniform p r i c e f o r each use. - L/ Includes other applimces, which have been t reated pro r a t n throughout. -

( i ) The h i g h r a t e s of growth of demand repor ted e a r l i e r , and which a r e l inked t o t h e growth o f e1ectrls:~G. ippl.i.ti~ce s tock , a r e a l s o r e f l e c t e d in t h e sample surveys o f domestic co nsune rs .

( t i ) The m:dn determinant o f t h e l e v e l and growth o f consumption i s fa mil;^ income. Famil ies begin t o consume a t around $100 ($LO) p e r c a p i t a , and 2 doubling o f income more than doubles t h e l e v e l of consumptior! (over a wide r>inge of i . n . - m e s ) .

( i i i ) Income t r m s f e r s and g i f t s (of e l e c t r i c n l ?.pF113noez) a l s o s ign i? ic . zn t ly affect . i:onsumption. Income t r a n s f e r s from f m i l y members who have migrated ,mainly t o u.rban a r e e s , appear t o be common and l a r z e ; on t h e o t h e r h a d , a number o f f a m i l i e s l i v i n g 5 r u r a l a r e a s p rov ide f i n e n r i a l supper:, f o r t h e educa t ion o f younger nembers l i v i n g in u r b m arees .

( i v ) A g r i c u l t u r a l workers, we found, were l e s s i n c l t n e d to consurr~e th,m non-agr icu l tu r21 workers, though income l e v e l s were o f t e n comparr.ble ; t h e reasons a r e t h ?t many a g r l c u l t , i l r ~ l :;lo17kers - r e migrant workers, wi th tenporary (ve ry par) tl-.;el-lirlqs, whi le many o t h e r s do n o t own t h e i r homes; f u r t h e r , a lar ,ye n.unber o f t h e homes 2 r e s c a t t e r e d and i s o l a t e d , mnking i t u n e c o ~ o m i c a l to extend s e r v i c e t o them.

(v) General>., e l era: , - 7 1 l?,y supply i s mainly souqht when t h e r e i s some s o l i d i t y , pelnmnence and q ~ z i i t y i n t h e house ; ~ , r n c t l ~ r e , =d wher! i t i s owned b y t h e r e s i d e n t .

(vi) P r i c e s , too , a r e import,u.t, b u t e l e c t r i c i t y p ~ F c e s prc~babl;r have r e l a t i v e l y l e s s e f f e c t on dknand t h m t h s e qf t h e app l iances s i n c e e l e c t r i c i t y f o m s a minor p a r s of cot:.l c o s t s .

( v i i ) Cur judgement i s t h a t $he monetary b e n e f i t s nf -;:..pyl:' -,?c over %;'Lee a c t u a l revenues, f o r two reasons: 0r.e i s ;i!al; -ax

, . revenues f ?om appl iance s z l e s have beer: qu i5e l a r s e ; ;':? L. . I I::, i s t h a t e l e c t r i c i t y p r i c e s have been unr iecessar i ly lcr: - wlch lower 'cn,u: I:? :>as' - . r . ~ 1 t h e reverne l o s s e s t o CxL h ~ v e bee^ revenue gains to t h e consumers,

( v i i i ) Y?ie f?elr! -.r~z-!i- ! 1 : : . ; :.?-;'.:-:. % h a t f m i l y deciui?nc t o purchr.so -cads and s e - v i c e s a r e enliyhtenec!, 2ii6 t h a t econonic bene.?:.: c a l c u l a t i o n s based on c o n s m e r respcnse seem tc be w e l l founded .

CHAPTER ic

THE EXTENT AND GROWTH OF PRODUCTIVE USES OF ELECTRICITY

I N RURAL AREAS

1c.1 The economic r e t u r n s t o r u r a l e l e c t r i f i c a t i o n programs v a r y con- s i d e r a b l y w i t h t h e e x t e n t and growth of p r o d u c t i v e u s e s o f e l e c t r i c i t y . One r e a s o n i s t h a t p r o d u c t i v e u s e s t e n d t o have h i g h e r l o a d f a c t o r s and h i g h e r consumpt ion a t o f f -peak , t h u s improving c a p a c i t y u t i l i z a t i o n ; a n o t h e r r e a s o n i s t h a t , by r a i s i n g t h e l e v e l o f consumpt ion by l a r g e amounts , t h e y r a i s e t h e economies of s c a l e o b t a i n e d f rom t h e i n v e s t m e n t ; b o t h f a c t o r s , o f c o u r s e , improve economic r e t u r n s . T h i s i s p r o b a b l y why M r . Venka t app i ah , o f t h e R u r a l E l e c t r i f i c a t i o n C o r p o r a t i o n o f I n d i a , h a s s t r e s s e d t h e p r a c t i c a l i m - p o r t a n c e o f couch ing r u r a l e l e c t r i f i c a t i o n i n v e s t m e n t s i n a p r o d u c t i v e c o n t e x t [ 3 ] .

1 0 . 2 T h i s c h a p t e r p r e s e n t s some f a c t u a l m a t e r i a l on t h e p r o d u c t i v e u s e s of e l e c t r i c i t y and i t s s u b s t i t u t e s i n r u r a l a r e a s . I t was g a t h e r e d f o r pur- p o s e s o f f o r e c a s t i n g , and a l s o s o t h a t a r e p r e s e n t a t i v e sample of p r o d u c t i v e u s e s c o u l d be chosen f o r c o s t - b e n e f i t a n a l y s i s . However, t h e m a t e r i a l i s o f i n t e r e s t i n i t s own r i g h t , b e c a u s e i t i s g e n e r a l l y s c a r c e , and b e c a u s e t h e e x t e n t and growth o f p r o d u c t i v e u s e s o f e l e c t r i c i t y i n r u r a l a r e a s i s f a r g r e a t e r t h a n i s commonly t h o u g h t . We b e g i n by d i s c u s s i n g t h e l e v e l and growth of demand from CEL's consumers , and c o n c l u d e by l o o k i n g more w i d e l y a t ene rgy u s e i n r u r a l a r e a s s o a s t o form a n i m p r e s s i o n o f f u t u r e demand.

CEL's Consumers

1 0 . 3 Over h a l f o f t h e kWh demand h a s stemmed from p r o d u c t i v e u s e s , and denands from b o t h d o m e s t i c and p r o d u c t i v e u s e r s have s h o w h i g h growth r a t e s . These p o i n t s a r e i l l u s t r a t e d i n T a b l e ?".I:-

T a b l e 1c .1

CEL's E l e c t r i c i t y Consumers and t h e L e v e l and Growth of T h e i r Consumption . , 1 1,

1967 1972 kk% / k'&/

No. T a r i f f - ?.ilJh Consumer No. >IG;h Consumer

T o t a l 6 , 213 3 ,085 497 15 ,112 14 ,977 9 9 1 Source : CEL (Data a r e f o r a n n u a l consumpt ion) 1/ t i o t e s : T a r i f f s a r e d e f i n e d i n Chap t e r 6 . Roughly, D-3 a r e d o m e s t i c t a r i f f s - w i t h some commr-rcial consumers i n c l u d e d ; G-4 a r e g e n e r a l coumt.rcia1 t a r i f f s w i t h some d o m e s t i c consumers i n c l u d e d ; F-5, .F-6, F-9 a r e v a r i o u s c a t e g o r i e s of 'mo t ive power' t a r i f f s f o r l a r g e r u s e r s ; R-11 is f o r i r r i g a t i o n ; and No. 8 t a r i f f s

a r e f o r p u b l i c l i g h t i n g .

The number of domest ic consumers more than doubled between 1967 and 1972, as d i d t h e number of non-domestic consumers; d u r i n g t h e same pe r iod t h e l e v e l of consumption pe r consumer a l s o more t h a n doubled , though from low l e v e l s , r e - f l e c t i n g t h e h i g h rates of growth of demand which occur red w i t h i n a r e a s once t h e y had been e l e c t r i f i e d . The l a r g e i n c r e a s e of t h e ave rage consumption l e v e l s due t o non-domestic consumption i s a l s o appa ren t from t h i s t a b l e ; i n 1972 t h e ave rage l e v e l of consumption f o r a l l consumers was roughly 2.4 t i m e s t h a t of domes t i c consumers.

10 .4 It is i n f o r m a t i v e t o c o n s i d e r i n more d e t a i l t h e k inds of consumers u s i n g e l e c t r i c i t y f o r p roduc t ive purposes on each of t h e above t a r i f f s .

( a ) Consumers on t h e Hot ive Power T a r i f f s (F-5, F-6, F-9)

1O.5 From b i l l i n g r e c o r d s and f i e l d t r i p s i t was p o s s i b l e t o i d e n t i f y what each of t h e consumers used e l e c t r i c i t y f o r , and how t h e i r consumption had changed ove r t ime. The d a t a a r e l i s t e d i n Table 13.2 ( f o r t h e month of December, t h e c o f f e e p r o c e s s i n g s e a s o n ) , and show a f a s c i n a t i n g and d i v e r s e range of a c t i v i t i e s . Coffee p r o c e s s i n g forms a l a r g e s o u r c e (about 45%) of demand, a s one might expec t . Other l a r g e and q u i c k l y growing sources of demand stem from:

- g r i n d i n g c o r n f o r t o r t i l l a s ;

1/ - domest ic ( p r i v a t e ) and p u b l i c wa te r pumps;-

- a l a r g e number of s m a l l b u s i n e s s e s and p r o c e s s e s of v a r i o u s k i n d s ;

a few l a r g e consumers, p r i n c i p a l l y egg and chicken f a rms ; a s l a u g h t e r h o u s e w i t h r e f r i g e r a t i o n ; some l a r g e s c a l e c o f f e e p r o c e s s o r s ; a r i c e p r o c e s s o r ; and a producer of c rude suga r from s u g a r cane .

The average consumption p e r consumer on t h e s e t a r i f f s r o s e from roughly 9,000 t o 16 ,000 kwh per yea r between 1967 and 1972, a growth r a t e of 12% p e r y e a r .

(b) Non-Domestic Uses on t h e Domestic and Genera l T a r i f f s (D-3, G-4)

10 .6 Hany people o n ' t h e s e t a r i f f s u s e e l e c t r i c i t y f o r non-domestic pu rposes . The a c t u a l e x t e n t , however, i s unknown, though we have been a b l e t o e s t i m a t e i t f o r t h e 12 v i l l a g e s s e l e c t e d f o r t h e c o s t - b e n e f i t s t u d y . A l l

1/ It i s thought t h a t unde r inves tnen t i n p u b l i c wa te r s u p p l i e s i n r u r a l - a r e a s may have l e d t o t h e l a r g e i n c r e a s e shown i n Tab le 10 .2 of ~ r i v a t e l y i n s t a l l e d pumps.

-88-

Table 10.2

Consumen on the % t i r e Power Ta r l f f s 1%7-72

Ua .Consumers Cons\mption 1[Yh Sal- (a 1/ Doc. Doc. Armual k c . Dsc. Annual Dee. Doc. AMU.1

Industry 1967 1972 Growth 5 1967 1972 Growth ,S 1%7 1972 Gmwth J

Tari f f F 3

Corn Mills ( t o r t i l l a dough) H m e r Mills (Poultry Food) Fodder Cut ters (Animal Food) 2/ Milk Coolers Domestic Water Pumps Public Water Punps (MU) r/ Other Agric.Uses Coffee Roceas ing Small Sugar U s !t/ Sugar Processing Mechanical and Welding S h o p Gas S ta t ions Carpenters Road Corn t ruct ion Se r r i ce f i b e r B t r a c t a r s (Hsnequen) Leather Workshops Cement Pulver izers I c e Makers Cooking Oi l W e r s Poultrg Falms I r r Q a t i o n Pumps Pig Farns Slaughterhouse Others

Sub-Total (Tar i f f F-5)

Tar i f f P d

Coffee Processing 0 1 Rice Proceesing 0 1 Road Constmction Service 0 1 Sl~ughterhouseheffigeration 0 1

Sub-Total (TarFif Pd) - - h

Coffee Processing 3 10 27.0 83,600 2h9,169 25.0 5,925.1r6 17,256.26 2h.0 Su a r Processin 0 1 - l3.520 y - 1,h33.86 v -

sub-%otal ( ~ a r l f b F-9) 3 11 83.600- 262,689 5,925A6 18,6p3.12

y Principal Product indicated in brackets

2/ 1[Mwn as "Plcadoras de Zacata" - A d d d s t r a c i o n Nacional de Acueductos y AlcantarFUados.

Known as "Mollendas de Cana". The juice Is used ta mak6 an unrefined b r o m sugar f o r dcmestic consumption.

y Consumption in June, 1972.

known b u s i n e s s e s , s e r v i c e s and community c e n t e r s were v i s i t e d dur ing t h e course of t h e f i e l d work and some unders tanding of t h e type and s c a l e of a c t i v i t y ob ta ined f o r each case . The r e s u l t s of t h e e x c e r c i s e a r e summarized i n Tab le10 .3 and show t h a t t h e v i l l a g e s a r e n o t wi thout a l a r g e number and a wide range of a c t i v i t y . I n t h e 12 v i l l a g e s , over 900 a c t i v i t i e s were i d e n t i f i e d inc lud ing :

- 353 s m a l l i n d u s t r i e s , 133 (38%) be ing e l e c t r i f i e d ;

- 320 shops , 159 (50%) being e l e c t r i f i e d ;

- 102 o t h e r forms of commercial a c t i v i t y , most of

which (92) were e l e c t r i f i e d ;

- 65 s e r v i c e s , 52 be ing e l e c t r i f i e d ;

- about 100 p u b l i c community c e n t e r s , inc lud ing 20 schools ,

28 churches , bu t on ly 6 h e a l t h c e n t e r s ( a n o t i c e a b l e de- f i c i e n c y of t h e s e i n r u r a l a r e a s ) .

10 .7 Unpublished census d a t a i n d i c a t e t h a t t h e number of smal l in - d u s t r i e s was about t h e same i n 1961 a s i n 1971 ( s e e Table 10.3) and t h e same might be t r u e f o r some of t h e o t h e r a c t i v i t i e s l i s t e d . These v i l l a g e s were no t e l e c t r i f i e d then, though au togenera t ion was o f t e n used on a smal l s c a l e , so i t i s ev iden t t h a t much of t h e growth of demand came from s u b s t i t u t i o n . I n a d d i t i o n , however, t h e growth of demand per consumer has been r i s i n g qu ick ly , and i t is probable t h a t t h i s o r i g i n a t e d from growth and d i v e r s i f i c a t i o n wi th in t h e a c t i v i t i e s . In t h e f u t u r e i t i s l i k e l y t h a t demand w i l l cont inue t o grow qu ick ly f o r a long t ime due t o :

- f u r t h e r s u b s t i t u t i o n ( l e s s than h a l f of t h e cases

t abu la ted above a r e e l e c t r i f i e d ) ;

- continued growth of t h e s c a l e of non-domestic and

s o c i a l a c t i v i t y .

One reason f o r t h e l a t t e r i s t h a t family incomes i n t h e v i l l a g e s , which a r e perhaps t h e primary i n f l u e n c e on t h e l e v e l s of economic and s o c i a l a c t i v i t y , may be expected t o i n c r e a s e a s ou tpu t i n a g r i c u l t u r e and agro- indus t r i es in- c r e a s e s ; a l s o , v i l l a g e i n f r a s t r u c t u r e i s b e i n g improved i n some r e s p e c t s and v i l l a g e s i z e s a r e i n c r e a s i n g , both f a c t o r s tending t o ' r a i s e t h e l e v e l of a c t i v i t y

(c ) I r r i g a t i o n ( T a r i f f s R-11)

10.8 I r r i g a t i o n h a s s o f a r on ly l e d t o a s m a l l , though qu ick ly growing source of e l e c t r i c i t y demand i n r u r a l a r e a s . I n 1970 t h e r e were on ly 1 3 consumers providing 2% of t h e e l e c t r i c i t y demand i n r u r a l a r e a s served by CEL; i n c o n t r a s t , t h e r e were over 3,250 farms i r r i g a t i n g 12,500 h e c t a r e s i n 1961, about h a l f of t h e s e b e i n g i n CEL's a r e a s ; and by 1971 t h e m b e r had r i s e n t o perhaps over 4,000 farms i r r i g a t i n g over 22,000 h e c t a r e s . Some s t a t i s t i c s a r e provided i n Table 10 .4 .

Yo. 19ll ( b r e & d m l >the? i n f o r m t i o n No. so. hot T y p i c r l W e , 1971 T y p i - r l m :1972! T y p i c a l E l e c ~ r i c i * y L a s t

4cflilry 1761 1 1 s e r r d 0-3 d-L F-5 ?m(e Am- 11 Rmge *rerqa 1 isng. Aver%. :,

->wc.:c - \mlr ~3710PS ;i ? l o r Stores

1. * I S - icnao1. 21 ::.ircnes 21 .:**1in ce>cr:3 2

. I \ . " .-_- *Cr-.l:e: : i Hi~l ic ipai i . . ;

9

1) Tclecormun,c.tlons 2 1 h l i e c

o:?l"c5 #?-:,*:e' I ."' .c Re*arlz,--latl -ercres ;,. Fer >-.l"pr.: . .."4 1

I.1-r ,' - * r W.d H-.r Hill, =&?: ' Y.3-d :Jd:ls

60- 3% 575 - 4090 U5 - -50 140 - '150 103 - G,i

115 - d l ?

l! nest are -)7.~.1. cut aver%. ?.l,ies; a ?ill lample r u -or n r a : l a t l r . - i l s c d 1.1 ieLerqent muluIacturl+i. -

? a t u h e . car. 1201 ioe 1cC1v:L:ea l n h e l l c d "~tnerr."

' ' -.la ra:ea o r . a :.reivc w i c : ; l r i l ' l e , .

Table 10.4

Farms and Areas I r r i g a t e d i n E l Salvador 1961-67

1961 No. of Farms

S i z e of Farm Using H e c t a r e s H e c t a r e s I r r i g a t i o n I r r i g a t e d

1 / ETA'S- Program: 1964-67

A d d i t i o n a l Farms H e c t a r e s I r r i g a t e d I r r i g a t e d

1971 No. of Farms Using H e c t a r e s I r r i g a t i o n I r r i g a t e d

T o t a l 3,254 12 503 0 2,526 20,073

Sources: D i recc ion Genera l E s t a d i s t i c a y Censos Es tud io d e C r e d i t o d e META, 1969

1/ META - Progrzma de Mejoramiento de T i e r r a s , M i n i s t e r i o d e A g r i c u l t u r a y Ganader ia -

10.9 Qui te a l a r g e program of i r r i g a t i o n is planned f o r E l Salvador. It i s es t imated t h a t p o t e n t i a l i r r i g a b l e land is 323,000 Ha, of which 60% should be s t ra igh t fo rward t o i r r i g a t e , 30% more d i f f i c u l t and 10% very d i f f i - c u l t - t h a t i s , n e a r l y 300,000 Ha of good i r r i g a b l e l and , of which l e s s than 7% has s o f a r been i r r i g a t e d . The expanding program is being supported i n two ways by t h e Government. One way i s through a system of c r e d i t f o r medium s i z e d p r i v a t e f r m s suppl ied i n t h e p a s t by t h e P r o g r a m d e Mejoramiento de T i e r r a s (META)$? of t h e M i n i s t e r i o de Agr icu l tu ra y Ganaderia; t h e o t h e r i s a program of 10 l a r g e pub l ic p r o j e c t s , l i s t e d below, t o be developed by t h e same Ministry:-

Zapot i tan (completed i n 1972) 4,230

Olomega ( i n p repara t ion) 9,000

Usulutan - Vado Maria 10,000

Sonsonate - Banaderas 7,600

Bajo Lempa 38,400

J u c o t a l - San Dionis io 7,000

San Miguel - San Esteban 7,000

Al to Lempa (planned f o r 1977) 23,000

J i b o a 15,000

Ahuachapan - Santa h a .11,000

Tota l 132,230 h e c t a r e s

1 0 . l o The e x t e n t of t h e p o t e n t i a l pumping load v a r i e s . For META's previous schemes, about 45% of t h e a r e a i r r i g a t e d requ i red pumps, t h e remainder being g r a v i t y and d ra inage schemes. For t h e government's p r o j e c t s i t i s es t imated t h a t t h e a r e a s w i l l be i r r i g a t e d a s follows:-

subterranean sources , r e q u i r i n g pumps 27,000

g r a v i t y , pumps, dra inage (mixture) 27,230

d ra inage only 54,400

g r a v i t y

T o t a l

23,600

132,230 h e c t a r e s

1 / ~ o w by Fond0 de Desar ro l lo Economico, Banco C e n t r a l de Reserva. -

It is thought t h a t most of t h e pumping demands f o r t h e government 's p r o j e c t s w i l l be s u p p l i e d by CEL, a s f o r Z a p o t i t a n and A l t o Lempa. Taking a s t a t i s t i c of 1 ,600 kWh needed t o i r r i g a t e one h e c t a r e p e r y e a r ( t y p i c a l f o r E l Sa lvador ) s u g g e s t s a p o t e n t i a l demand from t h e s e p r o j e c t s app roach ing 50 GWh, which is abou t 170 t i m e s t h e p r e s e n t demand from i r r i g a t i o n , and 3 .5 t imes t h e p r e s e n t demand from a l l consumers on t h e r u r a l ne tworks . I n a d d i t i o n , t h e r e may b e a s t r o n g growth from p r i v a t e consumers due t o ( a ) some s u b s t i t u t i o n f o r d i e s e l - though t h i s h a s been s u r p r i s i n g l y low i n t h e p a s t , even f o r q u i t e l a r g e farms - and (b) new i r r i g a t i o n schemes, some of which w i l l be snppor t ed by Fondo d e D e s a r r o l l o Economico.

10. il I n c o n c l u s i o n , i t seems t h a t q u i t e a l a r g e and q u i c k l y growing demand f o r e l e c t r i c i t y may develop from i r r i g a t i o n , p a r t i c u l a r l y i n view o f t h e p o t e n t i a l f o r i r r i g a t i o n and p u b l i c e f f o r t s t o deve lop i t f u r t h e r . So f a r , CEL h a s s u p p l i e d a v e r y s m a l l f r a c t i o n of p o t e n t i a l demacd.

Gene ra l Ex ten t and Growth of A g r o - I n d u s t r i a l A c t i v i t y

10.12 I n 1972 CEL had rough ly 300 consumers which might be c l a s s i f i e d as a g r o - i n d u s t r i a l ( n e a r l y a l l a r e on t h e mot ive power t a r i f f s ) . S i n c e CEL s u p p l i e s l e s s t h a n one - th i rd of t h e e l e c t r i c i t y demand i n r u r z l a r e a s , and m o s t i y i n t h e poore r a r e a s , around 1 ,200 a g r o - i n d u s t r i e s a a y be e l e c t r i f i e d i n t o t a l . T h i s i s , however, l e s s t h a n one-half of t h z a g r o - i n d u s t r i e s t l l a t employ 5 o r more p e o p l e , and less than one- tenth of t h e t o t a l number of a g r o - i n 2 a s t r i e s .

16.13 The 1961 census l i s t s abou t 18 ,700 a c t i v i t i e s which can be c l a s s i f i e d a s a g r o - i n d u s t r i a l o r c l o s e l y r e l a t e d a c t i v i t i e s ; some 2,700 of t h e s e employed 5 o r - m o r e peop le . D e t a i l s from t h e 1961 census of t h o s e o f t e n s e e n i n r u r e i a r e a s a r e provided i n T a b l e l o .5. S i n c e t h e major p a r t of t h e r u r a l e l e c t r i f i - c a t i o n program d i d n o t b e g i n u n t i l t h e mid-60's i t i s a p p a r e n t t h a t s u b s t i t u t e s t o e l e c t r i c i t y a r e a v a i l a b l e and have been e x t e c s i v e l y used i n thp r u r a l a r e a s : t h e e x p e n d i t u r e on combus t ib l e s by t h e s e a c t i v i t i e s con f i rms t h i s : -

Expend i tu re dM, i n 1961 Combustibles 1 / E l e c t r i c i t y -

A c t i v i t i e s w i t h 4 o r l e s s employees 2 .01 0.36

A c t i v i t i e s w i t h 5 o r more employees

T o t a l 7.55 5.32

To p u t t h e above f i g u r e i n p e r s p e c t i v e , a v e r a g e inves tment i n r u r a l e l e c t r i f i - c a t i o n was about d3M p e r y e a r from 1962-72. The above f i g u r e s a l s o exc lude , of c o u r s e , t h e c o s t s of energy f r o n s o u r c e s o t h e r t h a n combus t ib l e s and e l e c t r i c i t y (e. g . animal and manual energy) .

1/ Note t h a t many of t h e a c t i v i t i e s l i s t e d i n t h e census a r e p robab ly i n towns Ghich were e l e c t r i f i e d a t p r i v a t e i n i t i a t i v e b e f o r e 1961.

Imble 1 9 5

Selectlor o f Mmuf.crcrlrri,q Induetrira :n E l Salramr I

( se lec ted becord?nd t o Prehainance in wrl k e s . - ) [ b r a in tha~n-ds or collnrr)

4 o r less em'.w.ea 5 md -11. employeen

A C T 1 6 IT; ': m'bcr - J atuatlt?es 5sc .Ererw ROmlct101 beer :ooouar;'iles ?.e:.%.rgy Rodua tlon

1 7 : la-.-'fer?-,g i s t i t l i c l 501- sla.~ncsr??q lorlratel 115: 2.0 c ) l ~ ~ 1'%- a d &on 3.1 ~ 0 1 5 SUI$.P. 11 0.2 ? O I ~ Lard :4:n 153.9

. 4 il~-a:-,; :ea Food 2-1 ::.

-'43 ;the' k a Good

691 l r Z . 7 189.6 , w.2 3 0.0 2.1 ill.

' .4 - .a ~. .

3 0.5 6.2

,1 "oi". l"q, ue.~11,.. r t c . TcILIL. . ' 1 1 .-!, m,,-e;Z~r, '31j .'31 :.>ra L ~ J S S ?m.-r.L' :Ti 'e.:F : F" * ~ C . s e > - ' i

1 3 5 . . : ihtractlmn

, - ., Lhe ', .:&:tL,-?->

- 3 ' --- I,: : -. '-d?rs

:u2c .

10.14 Much of the growth of demand for electricity has stemmed from substitution (though unfortunately the 1971 census data were not available for us to examine this as closely as we wished). For example, of the 852 non-domestic activities listed in Table 10.3, nearly 50% had turned to using electricity for one reason or another by 1972. When we were undertaking the case studies of particular activities, presented in the next chapter, it also became apparent that quite a lot of substitution had occurred. Moreover, there is still quite a lot to occur, since there are still many large and small activities using diesels or autogenerators installed before the rural electrification program began.

la .15 A quickly growing source of demand is also stemming from the rising outputs from agro-industries, commerce and farms; and the potential demand due to this is very large (though again, the statistics which show these points are rather fragmentary). Irrigation, discussed above (paragraphs 10.8 to 10.11), is one example. The output and demands from large agro-industries have also grown rapidly. Of the 2:70C agro-industries employing 5 or more people in 1961, it is estimated that 300 required large quantities of energy and motive power; by 1971 their number had increased to only 313, partly because several of the coffee, sugar and cotton processors merged; but in each industry, total output increased. Classifying these large industries by location, it is found that the following are located within the rural areas (none are in villages) : -

coffee almost all the 163

sugar 13 of the 14

cotton 4 of the 15

rice 4 of the 25

beef slaughtering 2 out of 2

poultry 3 of the 25

cheese 2 out of 2

fibre (henequen) all 7

shrimp all 3

All these are growth products.

10.16 Small and medium sized activities are expanding, too. Corn grinding for tortillas, refrigeration in shops and milk cooling on farms are prominent examples. Ten years ago, there was practically no small scale refrigeration in rural areas; today, milk cooling on farms accounts for an annual consumption of over a million kWh, producing electricity revenues of around k100,OOO per year.

The F u t u r e Demands of Non-Domestic Consumers

10 . 1 7 It is ha rd t o p u t a p r e c i s e f i g u r e on t h e expec ted growth of e l e c t r i c i t y demand from non-domestic consumers. Between 1967 and 1972, t h e demand from t h e s e consumers i n c r e a s e d f i v e - f o l d , a growth r a t e of n e a r l y 402 p e r y e a r ; b u t i t is h a r d t o imagine t h a t t h i s cou ld c o n t i n u e , because much of i t stemmed from ne twork e x t e n s i o n s and s u b s t i t u t i o n , t h e r a t e s of which v i l l d e c l i n e i n f u t u r e y e a r s . The l e v e l of demand pe r consumer i n c r e a s e d from 1 , 7 6 0 t o 4 ,400 kt lhlyear i n t h e same p e r i o d , a growth r a t e of 20% p e r y e a r . But t h e growth i n f u t u r e y e a r s might b e h i g h e r t h a n t h i s f i g u r e because i t d o e s n ' t a l l o w f o r t h e growth of demand stemming from new consumers; on t h e o t h e r hand, s a t u r a t i o n may s e t i n depending on t h e s u c c e s s of t h e government ' s program t o deve lop a g r i c u l t u r e - p a r t i c u l a r l y t h e l a r g e i r r i g a t i o n p r o j e c t s d i s c u s s e d above - and r u r a l i n f r a s t r u c t u r e . I t seems r e a s o n a b l e t ? e x p e c t . however, t h a t t h e demand may c o n t i n u e t o grow a t o v e r 20% p e r y e a r f o r a t ime , and then g r a d u a l l y d e c l i n e t o somewhat ove r 102 p e r y e a r , which i s t h e r a t e expe r i enced i n t h o s e r u r a l a r e a s i n E l Sa lvador which have been e l e c t r i f i e d ( a t p r i v a t e i n i t i a t i v e ) f o r o v e r 20 y e a r s ; i f a n y t h i n g 70% d e c l i n i n g t o 10:; p e r y e a r i s l i k e l y t o be on t h e low s i d e .

10.1 8 The above e s t i m a t e s of f u t u r e demand a r e a v e r a g e s . The a c t u a i l e v e l and growth of demand w i l l o f c o u r s e d i f f e r from one r e g i o n t o a n o t h e r on account of r e g i o n a l d i f f e r e n c e s i n : -

(a ) t r a n s p o r t c o s t s ;

(b) market a c c e s s i b i l i t y ;

( c ) t h e development of l o c a l a g r i c u l t u r e ;

(d l t h e t y p e of l o c a l a g r i c u l t u r e .

The inves tment program i n f e e d e r r o a d s i s l i k e l y t o r educe t h e d i f f e r e n c e s i n ( a ) and (b) hetween one r e g i o n and a n o t h e r i n t h e f u t u r e . A l so , though agro- i n d u s t r i a l and a g r i c u l t u r a l development h a s s o f a r been ccn f ined t o 2 few and w e l l d e f i n e d a r e a s , such r e g i o n a l d i s p a r i t i e s a r e l i k e l y t o b e l e s s i n t h e f u t u r e on accoun t of t h e r a n g e of i n f r a s t r u c t u r e i nves tmen t s now under way and of t h e government sponsored a g r i c u l t u r a l p r o j e c t s d i s c u s s e d above.

10 . 1 9 A l a r g e and c o n t i n u a l l y growing s o u r c e of demand and revenues h a s s t e m e d from non-domes t i c u s e s i n Farms, a g r o - i n d u s t r i e s and commerce. Brf o r e t h e maln t h r u s t t o e l e c t r i f y t h e r u r a l a r e a s began i n t h e 1 9 6 0 1 s , a l a r g e number of t h e s e a c t i v i t i e s were u s i n g o l d e r o r s u b s t i t u t e forms of power and energy; s u b s t i t u t i o n of e l e c t r i c i t y f o r th'ese fa rms h a s provided a s t r o n g s o u r c e of demand. A q u i c k l y r i s i n g s o u r c e of demand h a s a l s o stemmed from t h e r i s i n g number and o u t p u t s of c o m e r c i a l , fa rm and a g r o - i n d u s t r i a l a c t i v i t i e s . The f u t u r e demand from s u b s t i t u t i o n and from t h e growth of economic a c t i v i t y i n r u r a l a r e a s is l i k e l y t o be v e r y l a r g e . The p r e s e n t r a t e of growth of demand,

which is over 20% per year per non-domestic consumer, will probably decline gradually to somewhat over 10% per year, though the rate will differ from one region to another; these figures probably understate the rate of growth of aggregate demand.

CHAPTER 11

-S OF PROWJCTl3E USES OF ELECTRICITY

Sample Selected

11 -1 In t h i s chapter t h e aim i s t o estimate t h e ne t economic bene f i t s obtained from various productive uses of e l e c t r i c i t y in r u r a l areas. Xeasured in monetary terms, these benef i t s a re the ne t additdons to p r o f i t s made possible by e l e c t r i c i t y (as discussed in Chapter 2). They are thus estimated by comparing the producer's p r o f i t s if e l e c t r i - c i t y i s used with the p r o f i t s i f an a l t e rna t ive were chosen such as:-

- a s u b s t i t u t e source of power and energy;

- no action (e.g. no r e f r ige ra t ion o r no motive power e i t h e r from e l e c t r i c i t y o r a subs t i t u t e ) .

11.2 Since there is a very l a rge number and var ie ty o f productive users of e l e c t r i c i t y , each using i t on a d i f f e r e n t sca le , i t was possible only t o study a sample of cases. Me took a sample of 33; a t the time, 12 of these were using the si~bstit.r.:t.e to e l e c t r i c i t y , and provided us

/ with concrete ind ica t ions of the condi t.ions under which the a l t e rna t ives were prefsrreri . TLP cases were chosen according t o two c r i t e r i a : they had t o be re la ted t o an important product of r u r a l areas, such as coffee, silgzir, r i c e and corn; and they had t o be s ign i f i can t (or po ten t i a l - l y s ign i f i can t ) e l e c t r i c i t y consumers, such as farms with i r r i g a t i o n and businesses with re f r igera t ion . The following i s the sample of a c t i v i t i e s covered : -

Activi ty

Coffee Processing Sugar Processing ( la rge sca le ) Sugar Processing (small scale) 9 ice Processing Corn Ifills Poultry Farns I r r i g a t i o n Farm Machinery i.lilk Cooling Refrigeration i n Shops Potable Water m i n e ;

Tota l

No. of No. With Cases E l e c t r i c i t y

(Two conspicuous omissions from the above sample a re ~:rit.ton processing and r e f r ige ra t ion in slaughter houses. Cotton- i s an important crop in 51 Salvador and the fou r l a r z e prol;a$srrl-:: a r e all l a r g e consumers; bu t i t turned out t o be d i f f i c u l t t o obtain t h e information t o study them. Live- s tock i s rapidly increasing i n importance and l i k e l y t o r e su l t in l a rge demands f o r e l e c t i i c re f r igera t ion ; however, t he two l a r e units t h a t now e x i s t a re qu i t e new, and i t was too ea r ly t o study them. I

11.3 The d i f f e r ences in producers1 p r o f i t s when e l e c t r i c i t y and t h e alternatives a r e compared a r e shown i n t a b l e 11.1 f o r each of the 33 cases s tud ied ; d e t a i l s o f t he ca l cu l a t i ons a r e provided i n t h e addendum t o t h i s chapter in t a b l e s 11.2 t o 11.12.

11. b An immediately s t r i k i n g f e a t u r e of the r e s u l t s i s t h a t , wi thout except ion, t h e a l t e r n a t i v e i s ac tua l l y used i n a l l cases when p r o f i t s would be r e d x e d i f e l e c t r i c i t y were used; and whenever p r o f i t s were o r would be increased , e l e c t r i c i t y was used except i n those cases where t h e producer had a l ready bought t h e s u b s t i t u t e before e l e c t r i c i t y was ava i l ab l e . This i s a remarkable confirmation of t h e p roducer ' s co s t conciousness and ca r e in s e l e c t i n g an energy source which i s righ: f o r his p a r t i c u l a r :leeds - even though energy, and tke eq:iipr.er;: t3 use i t , genera l ly f o m only a smal l f rac5ion of t o t z l cos t s .

11.5 Another f e a t u r e o f t h e r e s u l t s , and which s t p3 re s wtth c~ rnmn experience, i s t h e v a r i e t y o f energy sources and t h e p o h t Lhnt no one source i s un ive r s a l l y b e t t e r than another; sometines e1eot1- lc i ty i s bek t e r and s ~ m e t i n e s d i e s e l s , a u c ~ g e n e n t o r s , c o n n e c t i r , ~ rods 50 t r a c c c z i , o r , f o r element,ary opera t ions , animals. The r e l a t i v e advantages o f t h e -rarl?_.l:s sources change over time with r e l a t i v e p r i c e s , technical p r 3 ~ r e s s s c a l e o f ou tpu t . To show t h i s arid t o understand t h e f a c t o r s Lehind t h e producers ' choice, i t i s necessary t o look a t t h e cases in more d e t a i l .

11.6 Each of t h e cases a r e now discussed i n t u rn ; a s h o r t d i scuss ion o f the product i s provided in each case ar"ter which the cos t b e n e f i t c a l cu l a t i ons a r e discussed. In each case t h e n e t b e n e 9 t s o f ele:t ,r lcfty t o t h e consimer (which a r e t he consumers1 surp lus b e n e f i t s equal t h e i n c ~ e a s e i n business p r o f i t s ) a r e e q r e s s e d a s a 7ercerl;age of t h e consuqer 's e l e c t r i c i t y b i l l ; a s explained i n Chapter 2 (?ara. 2.30) t h i s makes i t e a s i e r t o g ross up t he sul-plus b e n e f i t s over the cons:zrre? p o p d s t i o n .

(a ) Coffee Processinq

1 1 . 7 Coffee process ing i s t h e l a r g e s t economic a c t i v i t y in E l Sa l - vador. Value added in the co f f ee s e c t o r now amount.s t o 6 3CO M ($120 M) , represen t ing !rO$ of the ou tpu t i n a g r i c u l t u r e and 10% o f GNF; i t i s a l so t h e l a r g e s t e rq loyer o f labour .

11 .8 The process used in E l Salvador i s t h s "wet process.I1 The f i r s t s t a g e i s t o so f t en and remove t h e husk of t h e f r e s h l y picked beans by mixing then wi th water and passing t h e pulp through separa to rs . The bean i s then dr ied e i t h e r i n t he sun o r by a machine which uses wood o r f u e l o i l f o r heat . Af te r drying t h e bean i s 'mown as llpergamino." F ina l l y (o f ten in another m i l l ) a t h i n bark i s removed t o produce wha: i s i n t e r n a t i o n a l l y known as "green coffee ," o r l o c a l l y as 110r3u (about 550 1Ss of picked beans a r e needed t o produce 100 l b s o f green coffee) . The

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bean i s general ly exported a t t h i s s tage; it i s general ly toasted and gmlmd i n the consuming areas.

11.9 The mills a re general ly located in the producing areas so as to minimise t ranspor t costs . There a r e about 230 i n the country, 15'0 producing pergamino, t h e r e s t green coffee; they cur rent ly process 1 L rai l l ion tons p e r year , and increase by 10% the value added i n coffee product im. Capacity and output of t h e m i l l s , though not t h e i r number, have increased in recent years i n l i n e with coffee production.

11.10 Motive power i s needed f o r pumping water and operating t h e separa tors and drying machinery. Steam and d i e s e l engines were common in the p a s t , and are o f t en seen today; e l e c t r i c motors a re more common now, fed from autogenerators o r pub l i c supplies. E l e c t r i c i t y i s used only f o r motive power a i d l igh t ing .

11.1 1 The three coffee producers studied (see t a b l e l l .2 ) represent, th ree d i f f e ren t eyas so f a r as energy use i s concerned, though a l l use the same bas i c (wet) process t o produce pergamino as described above. The f i r s t i s LO years o ld , uses steam engines and produces 0.5 mi l l ion lbs/year; t he second 20 years o ld , uses a l a r g e d i e s e l engine (with b e l t s and pul leys t o dr ive the various equipment) and produces 1.2 mi l l ion lbs/year; t he t h i r d i s modern and a l l e l e c t r i c , and produces 2.2 mi l l ion lbs/year. I n the f i r s t two cases e l e c t r i c motors could be subs t i tu ted f o r steam and d i e s e l motors; in the t h i r d , autogeneration f o r publ ic s t ~ p p l i e s . 11.1 2 S t e m turns ou t t o be cheaper than e l e c t r i c i t y in the f i r s t case because t h e m i l l i s f a r from the l i n e , requiring q? l i t e a l a rge investnent i? a d i s t r ibu t ion l i n e t o connect it. E l e c t r i c i t y would be cheaper tnan the ex i s t ing d i e s e l motor i n the second case, bu2 the l a t t e r i s now a sunk cost t o the producer. In t h e t h i r d case, where e l e c t r i c i t y i s ac tua l ly used, it i s cheaper than autogenerators, giving surplirs bene f i t s of aboat 58%.

(b) Sugar Processing ( ~ a r ~ e sca l e )

11.1 3 Sugar mills are highly mechanised and require l a r g e q u a n t i t i e s of s tean and motive power - though most of t h i s can be provided by the mills themsel-~es. The cut sugar cane i s weighed, conveyed t o ro t a t ing cu t t e r s and shredders, an3 hen t o r o l l i n g mills which ex t r ac t t he juice. The juice i s pur i f i ed by heating t o aboat 220oF and by the addit ion of milk of lime. The mixture i s then sent t o tanks where the 'muddyt juice i s contin~lously skimmed o f f the ' c l a r i f i e d ' juice ( t h e muddy juice i s then r e f i l t e r e d ) . The c l a r i f i e d juice i s concentraked i n evaporators inCuo a raw syrup mixture, and then boi led under vacum f o r fu r the r concentration; a t t h i s s tage, raw sugar begins t o c rys t a l - l i s e out of the syrup. The raw-sugar crys'uals a re f i n a l l y separated from the res idual syrup by cen t r i fuga l machines. he res idua l syrup i s a black t r e a c l e known as molasses and i s used f o r animal food.)

ll.14 During t h e 1960's t he number of mills i n E l Salvador f e l l from 20 t o 13, a s the small and i n e f f i c i e n t units were closed. Yost of t h e mills s t i l l i n operat ion a t the end of the decade were modernised t o increase e f f ic iency and capacity. Sugar outpat increased from 140 mi l l ion pounds i n 1961/62 to 340 mi l l i on pounds in 1970/71. $11 t h e mills are located in sugar producing areas on account of t he high cos ts of t ransport ing sugar cane. There is a lso a po l lu t ion e f f e c t t o be considered, which requires loca t ion of t h e mills away from l a r g e popula- t i o n centers.

11.1 5' The mills generate t h e i r own steam by burning waste pulp and f u e l o i l (waste pulp alone cannot generate s u f f i c i e n t hea t ) , and t h e i r own e l e c t r i c i t y f o r motive power needs by passing some of the steam through turbo-generators. Nevertheless they a r e a l l connected t o the gr id f o r purposes of s t a r t i n g operat ions, i.e. u n t i l t h e b o i l e r s a r e heated, and i n case of emergencies. Once s t a r t e d , some mills ac tua l ly have t h e capacity t o generate e l e c t r i c i t y i n excess of t h e i r own require- ments, and thus to s e l l it t o l o c a l areas ( h i s t o r i c a l l y , t h i s has been a common source of e l e c t r i c i t y in r u r a l areas in many p a r t s of the world).

11.1 6 In the three sugar mills studied, a l l use steam turbo- generators t o supply motive power needs. I n the f i r s t case, t h e m i l l i s nearly 100 years old and t h e motive power f o r cnishing the cane is s t i l l obtained from the o r i g h a l steam engine, t he o ther motors having been replaced by e l e c t r i c motors over t h e years; publ ic supplies a r e needed f o r s t a r tup , c o n t a e n c y and occasionally to s~pplement, t he outpct of t he autogenerator; about 20% of t h e e l ec . t r i c i ty needs a re purchased. I n t h e second case the m i l l i s la rge , modern and s e l f s u f f i c i e n t e l e c t r i c - a l l y , s e l l i n g 20% of i t s e l e c t r i c i t y generated t o CEL; steam turbo- generators a re used f o r regular operat ions with a small d i e s e l autogenerator f o r s t a r tup and contingency. The t h i r d case i s also modernj. bu t r e l i e s on public supplies f o r s t a r t u p ind contingency, and buys only a small f r ac t ion of iCvs e l e c t r i c i t y needs.

11.17 Most sugar mills could reduce f u e l - o i l con.mmption and el iminate t h e c a p i t a l and maintenance cos ts of a turbo-generator by using public e l e c t r i c i t y supplies. It i s poss ib le t h a t this i s not common, even iz new mi l l s , because they have usual ly been located in areas without public supplies , and t h e i r design philosophy i s linked t o this. However, this is the case we exanine below. (In re t rospec t , we can now see t h a t i t would have been more representa t ive t o look a t t h e more common case of public supplies vs, d i e s e l autogenerators f o r s t a r t u p and contingency .)

11.1 8 For the two new mills the ca lcula t ions (&I t a b l e 10.3) show t h a t f u l l e l e c t r i f i c a t i o n would r a i s e cos ts and reduce p r o f i t s . The reason is t h a t by using the waste pulp of t he sugar cane f o r fue l t he cos ts of e l e c t r i c i t y generation in t h e m i l l s a r e low. The only exception (and which proves the ru le) is the very o ld m i l l which uses a steam engine of very low thermal e f f ic iency f o r i t s main motive power needs. Public supplies a r e thus indeed only use fu l f o r s t a r t u p and contingency, and t h e i r advantage r e l a t i v e t o d i e s e l autogeneration depends (as in the case of .the coffee producers above) i f they are close to the public networks.

(c) Sugar Processing (Small sca le)

11.1 9 A common a c t i v i t y i n r u r a l a reas , though it i s s t e a d i l y being replaced by the l a r g e r m i l l s , i s the production of crude brown sugar f o r l o c a l domestic consumption. The cane i s crushed on rmdimentary m i l l s (" t rapiches") dr iven by animals o r by d i e s e l o r e l e c t r i c motors of about 10 HP. The juice i s heated i n capsules and c r y s t a l l i s e s i n t o crude brown sugar on cooling; wood and crushed cane are used f o r heating. The process takes ?lace in the dry season, from December t o Yay.

11.20 In the two cases s tudied ( t a b l e 11.b) one uses th ree p a i r s of oxen (borrowed from a neighbour a t a token f e e of one colon (LO cents) p e r ox pe r day) f o r 18 days each year to prodirce about 8 tons of sugar; a m a l l e l e c t r i c motor i s an a l t e rna t ive . In the o the r case, the m i l l provides a serv ice t o small farms nearby, operat ing f o r 125 days p e r year to produce 97 tons of sugar; a small d i e s e l engine i s the a l t e rna t ive .

11.21 The e l e c t r i c a l t e r n a t i v e i s cheaper than d i e s e l on account of i t s much lower c a p i t a l and maintenance cos t s ; surplus bene f i t s are nearly 70% of the e l e c t r i c b i l l . The t rap iche using oxen bare ly makes a p r o f i t on account of the low quant i ty of sugar produced. I f more output and p r o f i t s weye deslred, o r i f the farmer had t o pay the f u l l ren t f o r the oxen, he would have t o turn t o d i e s e l o r e l e c t r i c i t y (indeed he recent ly sold the mi l l ! ) . M i l l s dr iven by animals a r e in f a c t rap id ly disappear- ing.

(d) Rice Processing

11.22 Once the r i c e has been gathered, i t has t o be dr ied ( i n the sm o r by machine) before processing. In the process, the h u l l i s separated from the r i c e gra in , and provides two by-products (granza md pulimento) which a re used f o r p o u l t m food.' The r i c e i s then polished, c l a s s i f i e d and packsd. A number of small motors a re needed to convey the gra in be+uween processes and t o operate the s i f -cers , separa tor anrj pol ishers . A l l nills use the ?.me bas ic process.

11.23 The production of r i c e in E l Salvador has come a fid1 c i r c l e , r e f l e c t i n g the v i c i s s i tudes of the Central American Common Yarket, from 18,000 tons in the e a r l y 19601s, t o 50,000 tons in 1967/58, and down t o 23,000 tons in 1972/73. In 1973, production was exclusively f o r the domestic market, amounting t o 16 l b s p e r capi ta p e r year.

11 .24 Four m i l l s are s tudied i n t ab le 11.5, t h ree being e l e c t r i c a l l y powered with d i e s e l as an a l t e rna t ive , t he o ther being d i e s e l powered with e l e c t r i c i t y as an a l t e rna t ive . Tuo o f the e l e c t r i c m i l l s a r e q u i t e new, a n d operate f o r most of the year; the other two a r e older and operate much l e s s ( the d i e s e l m i l l f o r only 3 months pe r year) . It i s i n t e r e s t i q g t h a t though the d i e s e l m i l l (which i s ra ther old fashioned, and uses b e l t s and pul leys t o dr ive the machinery) prod~lces considerably l e s s than the o thers , it requires more inotive powey (80 HP a s aga ins t 50 H? i n the e l e c t r i c m i l l ) .

11.25 Evidently, r i c e processing can and does take p lace without e l e c t r i c i t y - as with t h e processing of a l l major crops. The main advantages of e l e c t r i c i t y a re t h a t c a p i t a l and maintenance cos ts a r e much l e s s than d i e se l s , and it is more r e l i ab le . Cost s a r h g s y ie ld surplus benef i t s to the consumer of 10 t o 30%; however, r e l i a b i l i t y and convenience probably make i t worth more than th i s .

(el Corn ills

11.26 Locally ca l led "molinos de 3ixtamalt1 these mills a re used t o cmish corn fa make cornbread, " t o r t i l l a s , " a bas i c element of the na t ional d ie t . The seed i s f i r s t separated from the cob, boiled and then milled; the crushed damp corn is then baked f o r consumption. A person's r a t i o n i s typ ica l ly six t o nine t o r t i l l a s dai ly.

ll.27 The m i l l i s elementary, using ro t a t ing d iscs powered by small motors (about 5 HP) f o r the crushing. Tradi t ional ly t h e corn has been crushed by hand with s tones o r hand m i l l s . But within t h e l a s t 20 years the use of motors has spread considerably; man3 v i l l ages have four o r f i v e m i l l s , and the number has more than doubled in the l a s t l.0 years. Consumption of e l e c t r i c m i l l s is typ ica l ly in the range 100 to 1000 k'dh p e r month. One person general ly runs the m i l l t o .process the corn brought by l o c a l fami l ies ; the m i l l s a r e always located i n the v i l lages .

l l .28 In the th ree cases s tudied ( i n t ab le 11.6) e l e c t r i c power i s general ly much cheaper than d i e se l ; cos t savings a re 30 t o 60% of costs. P r o f i t s a r e of ten q u i t e modest, and the income o f the m i l l o f t en accounts f o r a major p a r t of t h e family 's income. By cut t ing cos ts and being cleaner and more r e l i a b l e , i t is thought t h a t q u i t e a l o t o f ex t r a mi l l ing has been made poss ib le by e l e c t r i c i t y (e.g, i n the t h i r d case the m i l l couldn ' t make a p r o f i t with the d i e s e l a l t e rna t ive ) . People also say t h a t the quiteness of an e l e c t r i c motor, in the m a l l rooms in which they work, i s a lso very much appreciated.

( f ) Poultry F a n s

11.29 Poultry farms in E l Salvador a re exclusively f o r t he production of eggs and chicken meat. Egg production increased from 150,000 da i ly i n 1962/63 t o 904,000 da i ly in 1968/69, but dropped t o 700,000 in 1971/72 due t o l o s s of s a l e s in the Central American Common Yarket; t h i s is one egg pe r capi ta every f i v e days. In 1972, 643,000 l b s of chicken meat were produced.

11.30 Many of the farms a r e near the towns, but some have been located i n r u r a l areas in recent years. All the f a m s have e l e c t r i c energy, e i t h e r bought o r aufagenerated; it i s used f o r l i g h t b g , m a l l motors and Fncubation. Only incubation (fumigation, cooling, heating) requires much energy.

11.31 I n the two farms studied ( t ab le 11.6) one uses e l e c t r i c i t y only f o r l i g h t i n g and small motors; i t consumes about l 4 O O kWh yearly, which i s bare ly as much a s a household w i t h a small r e f r ige ra to r , t o produce 1.3 mi l l i on eggs p e r year. The o the r fumigates and cools the eggs in readiness f o r incubation elsewhere, and consumes about 34,000 k'dh year ly f o r a production of 4 mi l l ion eggs. Both use publ ic suppl ies ; autogeneration i s the only p r a c t i c a l subs t i t u t e . Net surplus bene f i t s (cost, savings) a re 93% f o r the small consumer and 31% f o r the l a rge consumer - the former r e f l e c t i n g t h e very high unit cos t of small autogenerators.

(g) I r r i g a t i o n

11.32 The p o t e n t i a l f o r e l e c t r i c pump i r r i g a t i o n i n 51 Salvador i s qui te l a rge , as discussed in Chapter 10. So f a r , only a small f r z c t i o n (7%) of good i r r i g a b l e land (amounting t o 300,000 to 3$,000 hectares) has been i r r i g a t e d . The increases in value added and fa-m, p r o f i t s following i r r i g a t i o n are very l a rge , and i r r i g a t i o n can and does take place using d i e se l s i f no cheaper a l t e r n a t i v e i s avai izble .

11-33 E l e c t r i c pump i r r i g a t i o n i s much cheaper i f t h e farms are close t o the neCYworks o r i f t h e area covered i s large. The four cases cf pump and spray i l - r igakion shown in t a b l e 1:~.8 confirm 2lis point . Eie:;eis and e l e c t r i c pumps are compared; in t h r e e supplementtiry ca lcula t ions , t he cos t s o f t h e e l e c t r i c l i n e are omitted t o show t h e i r impor taxe . In t h e f i r s t case the area i r r i g a t e d i s small (2 ha) ; but i t i s c lose t o the l i n e , and q u i t e la rge surphis Sene f i t s of 75% are calculated. In the next three cases the farms a r e a l l about 1 Km from the l i n e ; only in the l a r g e s t farm (67 ha) i s e l e c t r i c i t y cheaper, providing s l l rp l~ is benefit 's o f 35%. (iihen the l i n e cos ts a re omitted from the o ther two cases, e l e c t r i c i t y i s again much cheaper.)

(h) Farm Machinery

11.34 The main use of e l e c t r i c i t y i s f o r s m d l ce rea l thrashers , fodder c u t t e r s (picadoras de zacate) and hammer m i l l s (moiinos d e n a r t i - I l o ) f o r preparing animal food. The motive power needs i r e only ?...bout# 5' HP, and i f a t r a c t o r with a s u i t a b l e coupling i s not ava i lab le o r convenient, a small d i e s e l o r e l e c t r i c mot,or i s used. :iioathly consumption of the e l e c t r i c motors i s a few hundred kT+Ih. The number of u n i t s operating in the country, however, i s increasing very rap id ly s ince r a i s ing l ives tock i s becodng tncreas ingly important.

11.35 In the th ree cases s tudied ( i n t a b l e 11.9) two use t r a c t o r s ( a t zero mamnal c a p i t a l cos t t o the farm) t o dr ive t h e machinery a n d the o ther ul e l e c t r i c motor. ill1 produce about 200 tons of fodder and maize each year, mostly f o r the fa-m i t s e l f (though some i s o f t en so ld) ; mo1,crs of 5' HP a r e s u f f i c i e n t . The cos ts of e l e c t r i c motors a r e compared with those of using t r a c t o r s o r m a l l d i e s e l notors . E l e c t r i c motors a re cheaper and more convenient ( i f , of course, the farm i s c lose to t he l i n e ) , mainly because operet ion and maintenance cos ts a re so much lower; when a t r a c t o r i 3 used, f u e l a?d operat ing cos ts tend t o r i s e s ince L t i s a b ig engine (e.g. ,SO - 100 W ) f o r such a purpose.

!Elk Cooling on Farms

11.36 Xithin the l a s t f i f t e e n years , milk cooling on c a t t l e farms, o r a t nearby v i l l ages , has increased rapidly in E l Salvador, and provides q u i t e a la rge demand f o r e l e c t r i c i t y in r u r a l areas. Though only small m o t o ~ s of 3 o r h HP a r e needed, they operate continual ly throughout the year , creat ing demands of 10,000 t o 20,000 kTdh pe r year. 24ost of t he cooled milk, p a r t i c u l a r l y from the l a rge r farms, i s destined f o r fu r the r processing and consumption i n c i t i e s ; the smaller farms tend t o ca t e r f o r t h e r i s i n g demands i n r u r a l areas.

11.0 37 Before e l e c t r i c i t y was ava i lab le , t he few farms t h a t cooled milk used d i e se l motors o r autogenerators t o dr ive t h e compressors; autogenerators were general ly preferred s ince they a l so provided e l e c t r i c i t y f o r l igh t ing . However, public e l e c t r i c i t y i s now much cheaper, as our s tud ie s of four farms i n t a b l e ll.10 show; mainly t h i s i s because i t i s easy to loca te the coolers near the d i s t r ibu t ion l i ne . Also it i s found t o be cleaner , more convenient a n d r e l i ab le . Even neglect ing these advantages of qual i ty , however, t he consumer's surplus bene f i t s of e l e c t r i c i t y seem to be qu i t e l a rge - about 100 t o 130% of revenues, accordirig t o our calculat ions.

( j ) Tefr igerat ion in Shops

I. 1..38 A v i l l a g e of f i v e hundred households and i t s neighbouring areas i n E l Salvador may sus ta in the commercial a c t i v i t y o f twenty t o t h i r t y foodshops, two t o f i v e general s tores , o f t e n a pharmacy, two o r th ree corn mi1l.s (studied above) and a workshop o r two (see t a b l e 10.3 f o r example). The small v i l l ages and hamlets,which a r e much poorer and more numerous, have i i t , t l e commerce of course, and r e l y on the l a r g e r v i l l ages i f they a r e ne:zby; l a r g e v i l l ages , on the o ther hand, may have considerably more ac t iv i ty . The main uses of e l e c t r i c i t y in the shops a r e f o r l i g h t - LIE, r e f r ige ra t ion and sometimes t e l ev i s ion ( to a t t r a c t custom o r as an added serv ice f o r which a small f e e may be charged). Food i s r a re ly kept i n the r e f r ige ra to r s ; they are use f o r cooling water and drinks.

11.39 Before e l e c t r i f i c a t i o n , r e f r ige ra t ion was very r a r e i n r u r a l areas. Kerosene r e f r ige ra to r s were avai lable but were too cos t ly t o j u s t i f y t h e investment s ince the shops' p r o f i t s a r e small. E lec t r i c r e f r i - gerat ion i s much cheaper and can provide a modest p ro f i t . In the two cases studied in table '&I1 p r o f i t s ( the consumer's surplus) amounted t o about 120% of the e l e c t r i c b i l l . Today, r e f r ige ra t ion i n , shops i s qu i t e extensive, and p r o f i t s can he expected t o r i s e a s incomes r i s e in r u r a l areas.

(k) Potable Water Punrpin,q

l l .40 I n ha l f of E l Salvador's v i l l ages , potable water i s s t i l l delivered on ox c a r t s , o r brought by hand o r horseback from neighbouring areas - of t en over q u i t e a d is tance a t considerable t o i l . Yuch of people 's time and e f f o r t i s s ~ e n t i n getting; water i n t h i s way. Public and p r iva te wells with buckets o r manual pumps are a l so common in many v i l lages . Increasingly, if too slowly, however, d i e s e l o r e l e c t r i c motors a re used by the public weter supply author i ty to serve public standpipes and house connections, and a number of households have i n s t a l l e d t h e i r own. The public pumps are typ ica l ly 25 HP, del iver ing 20 mi l l ion gal lons p e r year , requir ing around 75,000 KvJh pe r year - enough t o double the e l e c t r i c i t y load of a v i l l a g e of two o r th ree hundred households. The p r iva te pumps are f r a c t i o n a l W motors, and typ ica l ly de l ive r 100,000 gal lons, requir ing only a few hundred k T h .

I I. - 4 1 The case study in tab le il .l 1 of a publ ic pump f o r the v i l l a g e of San Juan Talpa (population 6,000) shows t h a t t h e e l e c t r i c pump i s somewhat cheaper than d i e se l , the cost savings amounting t o near ly 50% of he ~ l e c t r i c l t y b i l l . The small 0.33 HP p r iva t e d i e se l pump serving a household, i n t h e case shown, turned ou t t o be cheaper than t h e e l e c t r i c a l teynat ive because i t w a s bought second hand; in o t h e r cases, t he e l e c t r i c a l t e r n a t i v e can be shown t o be cheaper.

11 .L2 The cos ts of more t r a d i t i o n a l ways of del ivering water a r e conpared ( i n tab le 1l.12) with t h e cos ts and del ivery capacity of small e l eck r i c pumps; one case i s de l ivery from an ox c a r t , t h e o ther i s de l ivery fron a bncket well . (For the sake of argument, labour cos ts i z the l a t t e r are taken t o be half the minimum wage r a t e of i? 2.25 (90 cents) p e r day). 'fie cost savings, t he savings i n t i n e and labour, and the increase i n water del ivery, can be qu i t e enornous.

Case - Delivery ~ o s t / 0 0 0 ,onls/" ~re?.r ga l lons

~ l u Cart W,OOO Z 7.6 1/3 ST E l e c t r i c Pump ( 1 hour pe r day) 93,000 0.97 Bucket ::!ell 33,000 $6 5 -1: 1/3 KF E l e c t r i c Pump (8 hours per day) 274,000 0 .06

x- It i s of course impossible t o obtain a s much from t h e bucket wel l as from small pumps.

11.43 There a r e , therefore, enormous g a k s from e l e c t r i c pumping -- of m e o r two orders of magnitude. !Jhile these ga ibs can be made a t a somewhat higher cost frcm d i e s e l motors, t h i s should not be allowed t o obscure %he ~ o i n t t h a t modern forms of motive power can ra ise the water n ' e l i v ~ i - ; ~ r a t e s Li r = a l rreas enomoilsly.

Effec ts of Taxes on Fuel-Oil and Equipment

11. &4 The above ca lcula t ions were based on ac tua l p r i ces ( including taxes) so as to ind ica t e the e f f e c t on producers' p r o f i t s of using e l e c t r i c i t y o r i t s a l t e rna t ive . But from an economic viewpoint, t he taxes make pr ices above resource cos ts (unless they a re imposed a s a device t o r e s t r i c t demand i n times of s ca rc i ty ) , and so need t o be excluded from the economic cos t c~mparisons.

11 .&5 The main items affected by taxes are the f u e l cos ts of running d ie se l motors o r au togene~ators , where taxes were 30% of the p r i ce ( i n i972) ; and e lec t , r ic r e f r ige ra to r s , where taxes were 33% of the pr ice . Other e l e c t r i c a l machinery was taxed a t more o r l e s s the same r a t e as the subs t i t u t e s ( a t 10% to 15%)

11.46 The ca lcula t ions were thus adjusted f o r {axes i n the cases w h ~ r e e l e c t r i c i t y was used, and are summarised i n Table 11.14. The general eyfect of f u e l o i l taxes i s t o make the economic bene f i t s of e l e c t r i c i t y , in absollite terms, ztmut 10$ to 20% lower. The taxes on refr iye-at ion increase t h e ne t benef i t s by 50 t o 60% ( t h i s corresponds qu i t e well with t h e calculaf ed ne t t a x revenues f o r domestic r e f r ige ra to r s ) . Average Bet Benefits f o r Small and Large Conslxners

11. b7 Although there a r e f i v e t a r i f f cateyories f o r productive iisers of e l e c t r i c i t y , small s i z e of our s~~rllple r e s t r i c t s us to considerinp; n n l y +:GO

groups, ons f o r l a rge and one f o r small consumers. Taking the cases whex e l e c t r i c i t y (not tine subs t i t u t e ) i s ac tua l ly used, we estimate the fo l lo r iny weighted average ne t benef i t s (consumers! surplus p h i s tax revenues) f o r each group :

A B Net Benefits Relat ive

Small Cons-fmers : Corn :? i l l s Shops ?filk Cooling lJater Pumping Fann ??a chinery Small Sugar Processes Poultry

Large Cons:Jmers : Coffee Sugar I r r i g a t i o n Rice

Per Consumer 1_/ Importance - 2/ A x B $

135 4 . 3 Total =$

lf A s percentage of e l e c t r i c i t y b i l l (estimates are averages of f igures i f i t a b l e l l . 1 4 i n addendwn! ,

2~' Rased on estimates of r e l a t i v e t o t a l kWh consumed by each group.

The lower b e n e f i t s ( i n % terms) f o r t h e l a r g e r consumers a r e probably a r e s u l t of t h r ee f a c t o r s : g r e a t e r remoteness from t h e l i n e than i s t h e case f o r smal l consmer s , lower u n i t maintenance c o s t s f o r t h e d i e s e l and autogenerator a l t e r n a - t i v e s , and more e f f i c i e n t d i e s e l engines and autogenerators .

11. L8 These e s t ima t e s o f b e n e f i t s a r e i - n i n i m ~ u n va lues , s i n z e they a r e based on c o s t and p r o f i t c a l cu l a t i ons alone. I n most czses , u s e r s s a i d t h a t $hey valued t h e r e l i a b i l i t y and convenience o f t h e e l e c t r i c a l t e r n a t i v e h igh ly , q u i t e a p a r t frorn any c o s t o r p r o f i t advantages i t may have. It i s i n t e r e s t i n g t h a t , i n t h e p a s t , t h e commercial and motive power t a r i f f s o f the p r i v a t e u t i l i t i e s were more than double those now charged by CEL (though the:: have s i n c e 5een lowered on account of load growth reducing average cos t s ) implying a g r e a t e r w i l l i ngnes s t o pay than we have es t imated. Suminy 'Jl,

( i ) There a re genera l ly s e v e r a l a l<e rna t i ve s to e l eo t r i : ; power f o r p r o d l ~ r t i v e uses i n r u r a l areas . !?my businesses can and do 1~;e auluogener~tors , d i e s e l en3ines , o r , i n s p e z i a l cases suzh a s sugar and cof fee pro,:e:;:,-i::g, ste-.XI enzines i f electrici ty i s no t av2, i lable ; these a l t e r n a t i v e s z r e c f ten cheaper. ?or v e q r m a l l opera t ions an-ha1 o r mvlual energy i s w e d , buf It is d ls t i r i . c : t l y i n f e r i o r in terms of c o s t s , output a d convenience, and i s rkpicj3.y 'r;ek.tg replrr:er.: Sy d l e s e l or elec5ri.r: power.

( i i ) I n every case s t ud i ed , t h e use r hod made a completely r? t , ional c i ~ o i c e between e l e c t r i c i t y and i t s a l t e r n a t i v e s : wherever e l e c t r i c t t y st1.t c o s t s and/c Y

increased p r o f i t s , it was used, and wherever i t did no t , t h e a l ternat8i7?e w a s .r.serl. The on ly except ions t o t h i s prove t h e ru l e ; i n a nlunber of cases where t h e r;j.ter- n a t i v e was S e i r g nsed, but e l e c t r i c i t y would have been b e t t e r , tine use r i:ad i n s t a l l - ed h i s e q u i ~ n e n t be f c r e e l e c t r i c i t y was availzlble and so h s d srmk cos4,s.

( i i i ) E l e c t r i c i t y Is gene ra l l y cheaper and b e t t e r than t h e a1tern;i t3ives, provided t h e consumer i s f a i r l y c l o se t o t he l i n e . Diese l engines and jc r auL,n- genera to rs =e t he most comrnorl a l t , e r n ~ t , i v e s ; they a r e more expelisive, ' e::s re l i , 'n le and c c s t i y t o malnta ln , a n d a r e s e n e r a l l ; ~ Sus t i= ied on ly f - . use:.s I n ~emoke a reas .

( i v ) 0 ~ r es t imates of cons~mer s ' su rph l s b e n e f i t s , a:l;justeci f c r !.:i.~s, a r e r.ol.lgh1.l; 9,3$ of t h e e l .ect r ic l 'vy b i l l f o r m a l l u s e r s , nr1.f 1CT: G!' the ii;:..! f o r la,-ge csers. These e s t i x z t e s do not, hovever, ~llow for t h e value ;f i.!:~ ,;!.-ied re l l .abi l i i - .? tiqd con~~cn l ence o f elcc4,ricit:r supply, which inixly u s e r s s a i d Were i q o r t m t .

CHAPTER 12

COST-BEN P I T CALCULATIONS <

Introduction

12.1 I n this chapter, t h e f i n a n c i a l r e tu rns ca lcula ted ( i n chapter 8 ) f o r se lec ted p ro jec t s a r e adjusted f o r

- con~umers ' su r~ lus benefi ts , and

- shadow p r i ces

i n order t o provide an estimate of t h e economic re turns .

12.2 The ana lys i s begins by considering t h e r e tu rns t o the co onents of t he program (v i l l ages , farm and i n d u s t r i a l consumers, minor v i l l a g e s "P and then discusses ove ra l l and regional re turns . F i r s t , however, a resum'e of shadow price^ and consumers ' surplus benef i t s i s presented.

Resum6 of ~ o n s u m e r s ' ~ u r ~ l u s Benefi ts and Shadow Pr ices .

12 .3 Capi ta l cos ts , throughout, have been estimated using a 10% i n t e r e s t r a t e . Foreign exchange camponents of t h e p ro jec t have been estimated using a c t u a l p r i ces s ince, a s explained i n Chapter 3, balance of payments have genera l ly been more or l e s s i n equilibrium f o r many years a t t h e present exchange r a t e , -4 thou t abnormal pro tec t ion po l i c i e s . Turning t o labour costs , we should, i n pr inc ip le , make adjustments f o r u n s E l l e d labour c o s t s involved i n manufacturing concrete poles and construct ing t h e networks. However, it appears t h a t these amoupt t o no more than 25% of d i s t r i b u t i o n network investment costs , and l e s s than 10% of ove ra l l program cos ts ; even i f we used a shaduu p r i c e of zero, therefore, our conclusions would not be ma te r i a l ly a f fec ted; so we have neglected it. R n a l l y , shadow p r i c e adjustments due t o l a c k of (or t o too expensive) c r e d i t have been neglected since, during the f i e l d work,it was no t a not iceably s i g n i f i c a n t f ac to r .

12.b The main shadow p r i c e adjustments have been t o allow f o r t a x revenues. The main items a f fec t ed were taxes on e l e c t r i c a l appliances f o r shops and households ( the s u b s t i t u t e s generating negl ig ib le t a x revenues); and taxes on d i e s e l o i l fo r d i e s e l motors a n d autogenerators, which a r e t h e common s u b s t i t u t e s t o e l e c t r i c i t y f o r productive uses ( taxes on e l e c t r i c a l and s u b s t i t u t e equipment a r e about t he same and so tend t o b e . o f f s e t t i n g ) .

12.5 The adjustments t o e l e c t r i c i t y revenues' t o allow f o r consumers'surplus benefi ts , and a l s o f o r taxes, were estimated f o r households and businesses i n chapters 9 and 11 respect ively. In sum, t h e adjustments were estimated t o be a s follows (expressed a s a percentage of t he e l e c t r i c i t y revenues):

For households : Surplus Benef i t s 2 50s Taxes To t a l

For Small Product ive Users: To t a l For Large Produc t ive Users: To ta l

Economic Returns t o t he Components of t h e Program

12.6 A s d iscussed in Chapter 8 , t h e r e i s a j o i n t co s t problem i n t h a t t h e v i l l a g e s , and the f a n - a n d industr ia l . .consumers ou t s i de them, sha r e t h e same (backbone) subtransmiss ion networks . Hence what count a re t h e o v e r a l l economic r e t u r n s i n r e l a t i o n t o o v e r a l l co s t s . On t h e o t h e r hand, t he r e t u r n s and t he non-joint co s t s o f se rv ing d i f f e r e n t consumer gmups a r e h i ~ h l y va r i ed , so i t i s lbportant , t o examine them i n d i v i d u a l l y a s w e l l a s in t h e a g ~ r e g a t ~ e . For t h i s reason, t h e fol lowing ana ly s i s proceeds (much as i n Chapter 8) by calculatinp; t h e economic r e turns from

(a) v i l l a g e s ;

(b) ex tens ions t o farm and agro-indus t r i a l canswners ;

( c ) ex tens ion to minor v i l l a g e s .

A s be fore , the c o s t s of supplying t he v i l l a g e s i nc lude t h e cos t s o f r ou t i ng t h e subtransmiss ion networks t o them. S ince , however, t h e s e networks a r e shared by t h e farm and i nd iv idua l conslmers, and by minor v i l l a g e s , only t h e incremental c o s t s o f extend in,^ t h e networks t o t he se consumers a r e incl-ulded in t h e s~1ppl;r cos t s .

( a ) Economic Se turns from the V i l l age s

12.7 The economic r e t u r n s a r e c a l cu l a t ed i n , Table 12.1 f o r t h e twelve v i l l a g e s whose f i n a n c i a l r e t u r n s were analysed i n Chapter 8. It w i l l be rscall .ed t h a t t he se twelve v i l l a g e s , in s o c i a l and economic terms, could be grouped ( s e e Chapter 5 ) i n t o :

- f i v e " b e t t e r developed" v i l l age s :

- t h r e e " intermediate" v i l l a g e s ;

- f o u r "backward1' v i l l n 2 e s . .. i

k '; iZ,,< #,

To al low f o r t he p r o b a b i l i t y of h igher su rp lu s b e n e f i t s and t a x revenues generated '

i n t h e b e t t e r developed v i l l a g e s , e l e c t r i c i t y revenues were tidjusted upwards by , f c r . 125% ( i . e . s l i g h t l y above average the f i g u r e suggested in paragrsph 1 2 , s ) ; f o r .. t h e intermediate v i l l a g e s , t h e upwards adjustment was 100%; and f o r bhe bnckdsrd

i

v i l l a g e s , 75%. 1/

12.8 The economic r e tu rn s work o u t a s fol lows:

1/ In paragraph 12.5 t h e average .adjustments suggested a r e 115% f o r households - and 93% f o r s m a l l bus inesses in t h e v i l l a g e - say 10% on average. Tax revenues no te , as a percentage o f e l e c t r i c i t y revenues, a r e somewhat h igher a t lower l e v e l s of consumption on account o f t axe s on TVs.

Tab le 12.1

Eco!lornic Cos t -Benc r l l C a l c u l a t ~ o n s for I.' Vlll.%ges

Jueylla Y e u 1 Year 11 Yc.r?:, -- Roaarlo de l a Paz Candc la r l a de l a F r o n t e r a San JIIWI Ta lpa San Lula Ta lpa

Year 1 Year 11 Year?S Yearl Year 11 Year 2 5 Year 1 Year 11 Year 2 5 Year 1 Yew 11 Y e u 25 -- S e s o r l Y e u 1 Year 11 Year 2 5 ---

19 168 500 To ta l D w d HYh/yeu Annual Supply c o s t 1(K10'*:

Actual I'resent Worth

k i n u a ~ Hcvenuea COW'S 21 h n u a l E c o n d c ~ e n e f i t ; I Ri of Annual Economle Beneh tB

Net Yearly Return*. 8000's N o f Net Yearly Retu rns 4' T o t a l Ri of C o s t a 21 T o t a l RI o f Eeonrirnlc Bcna f l t s Met Euonoolc Bcne f l t e

. i q 6 o k t e

Y& Y e u 11 Y e u 25 C h i r l l a p . Year 11 Year 25

S . l c u a t i t l ~ ~ Year 1 Year 11 Year 2 5

32 84 240

San Aritonio mjo l l a l Year 1 Year 11 Y e u 25 ---

Sara Miguel Tcpezorltes Year 1 Y e u 11 Your --

Sun FTanclsco Chln-ca Year 1 Year 11 Year 2 5

16 34 1 0 3 Tot& Del-d m / Y e a r Annual Sapply Coat $OOO1a

Actual i-resellt Worth

Aet 'Yearly R e t u n s e m ' . Ri dl llet Yearly Relurna

TuLal Hi ol' Cos t s 5 / T o t a l N of ~ c a n o n i r k n e f l t s Net Econmilc Rene f l t e

I / 2/ Taken from t a b l e 8 . 1 , rhlcl i a l ~ o g i v e s d e t a l l s on c o s t b r eakdams .

A/ Annual revenues t imes adjustment I 'actors .,f 2.25, 2 .0 or 1.75 d e p ~ d i n g on l e v e l o f developnerrt (see t e x t ) .

4/ All p r e sen t rul . t l#s referred t o y e u 1 , r t 10$ I n t e r e a t . - 5 1 T o t a l p r eaen t r o r t t j s c a l c u l a t e d by a l n p l e I l n e a r l n t e r p o l a t l v i l u s ing t h e furnula: SrRi rear 1+12.5 r RI Year 11 + 7.2 1 IW Year 25.

Table 12.2

",st-<enefj 1. S t . ~ e : ~ n s h j V i l l ,lee

V i l l sge

Yetlrly S e t Economif- riet.\ir~ts Fi of ?'#ti o f IJe -. 3enefi t- 2s % Yearly Sosts Zonts, 7evenues Y , Co:; t Yerr 1 Yexr il Yesr 2 < JW0 ' s $@:000 ' s $000 ' s ??-,in

:2.9 7 1 y e a r l y economic r .~ : ,~ r i .ns , i t czn i)s s een , b a i l d ap q11i:kl;i in re'la:,ion t o gear:;/ cost,s, s o th;,:, a f t e r a'co:it $en p e ? r s , they are ,-r::;!!-. L , , - - ' . . , :r:? .-- Lota l annuj l cost.s - i :~ the ec3norn5cali:r b e t t e r aevelr~ped and i n f e m e d i a t e - r i l l a ~ e s , 1,?..5'Y 5s. ?o?+,-\;.:..,,* I . : , 3t 10$ i f i t e r e s t , s een 7 3 i)e qi:ite re.sonzble, appxachirlg q u i t e c l c s e t o , m d sometinles, exceedin; ull :.y. "hr rio2.?.! :: e .;: ; '.lor! i s 1.Chiri3 ? p a , ~.rhicb, i t , will be r e c a l l e d , i s situated i n a n a r e a vhere v i l 1 ?qcs a r e :.J',dely SF: ced; t h u s ;.-. , r : densit,)r i s l o i f ?n,! ?u tens ion coi.r,s a r p h i$: even t h f ~ ~ z h t h e lead i n Chi r i 1 :q:la i s de1:eiopir.c ~ l i t e ,;13.ickly, i t is sk_rql:~ not, s l i f I i c i e n t> t o p;er,era Le ecr.,- .mi(: r e f u r n s which even c l o s e l y mat& t h e l a rye i n v e s t i n n t co s t s o f rl~t:.rork ext,pnsions. 1/

1; This -2i:;es t h e obvious qxess ion o f whether FS +roulcl h-ve been be t%er t o supply - vi;l2ges I n t h i s a r e a by ac togenera t ion . Tha c,-ite~Lon :or t h i s i s diaclissed Ln t h e addendcm 'o :hapeer 2.

12.10 I n t he economically backward v i l l a ~ e s , t he p i c t u r e i s q u i t e d i f f e r en t . It takes 20 t o 25 gears o r more f o r t he year ly economic r e t l r n s t o spprozch t o t a l yearly cos t s of supply. The r e s u l t i s t h a t , once everything has beer. present. worth, t he benef i t -ccs t r a t i o s a r e very poor. 1/ A p a r t i a l exception i n 'he above case i s Sa lcoa t i tan ; but, i t i s an exception \rt-,i c h , as we fomd i n e a r l i e r chapters , proves t he rule: S a l c o a t i ~ a n i s almost a suburb o f Juayua, and picaks up q u i t e a l o t of J u a p a ' s commercial t rade.

12.1 1 It seems reasonable t o conclude, then, t h a t v i l l a g e needs alone c a ~ m o t j u s t i f y t he investments - with t h e important, exception o f those ~ i l l n c e s which a r e s o c i a l l y and econonic?.lly q u i t e wel l developed, o r a r e developing quickly, as r e f l ec t ed in general ly good i n f r a s t r u c t u r e , s o l i d l y constructed housing and r i s i n g output in l o c a l ag r i cu l t u r e and commerce (which i s <he c r i t , e r i a on which t h e above v i l l a g e s were ranked). Also, i f extension t o t he backward ~ l l l a a e s i s tdo he ,jlis;ified they need to be s i t ua t ed i n f a i r l y c lose proximity t o ( o r , a s i s o f t en t h e czse, on t he routes o f ) n e t w o r ~ s which a~ routed to se rve the l a rge r loads.

12.12 In p r a c t i c e , n r a l e1ectr i f ic :nt ion projrams a r e no t , as we have seen, intended f o r v i l l a g e s d o n e . I n E l 3 a l v a d o ~ ' s case, acout 11C:l! cf ,demand st,ems from farms and agro-ind~ist . r ies ou ts ide t he v i l l a y e s : i t i s s l s o t h e most q L ~ i c k l p irowinf: soiizac:e of riemand. tience i_t i s n e c e s s a q t o consider hat, these denends imply f o r the procram I s o v e r a l l re turns.

lF.12 About 5% of t he non-domestic jei:ianri sterna from. s m d 1 ccnslmers on t he commercial, small no2ive po5rer ( '5) 2nd i r r t g a t i o n Jzr-i ffs , the o ther 5G$ sr,emmina from cons~~mers or. t he l a rqe motive power ~ a r i f " . iJence :;he :ivera::e nd.iustmt?r-?. for s:x.~l-:is b,ri-?its qA.-d +,axes (usinp; tile d z t i ? s i ~ ~ ~ m a r i s e d in p a r ~ < r ~ . p h 12.5) i s about 62 2.

1 . 1 Taking t he eccn0mi.c bene f i t s , therefore , t o be 1.52 times t he revenues, the cos t s and bene f i t s of serving farm and 2i:ro-industrial consumers work out t o be:

1 / The cos t -benef i t r a t i o s , as calculated above, do n o t of course provide a - s a t i s f a c t a r y t e s t of t he investnierlts. They a re only i nd i c2 t i ve of what e?ch v i l l a g e ccjntributes t o the ove ra l l ecorlomic ret i lnls . Cn zcccilnt o f ?.he , joint cos t problem, proqrams need . iust l fying or. - zonr.1 ba s i s , i .e. inc111di.n~; t he r e t l ~ r n s from a l l v i l l a g e s i n t he zonp, :and n i l the farm and aqro-indusfr ial cons~uners .

Table 12.3

Cost-Benefit Streams fo? Service t o Farm and Agro-Industrial Consumers - 1 ,!

Total Demand, MWh Annual Supply Costs, @OO's Present Worth of Costs

Annual Revenues, $ 0 0 0 ' ~ Economic Benefits Present Worth of Benefits

Year 5

7 81 107 .O 73.0

54.7 88 .6 60 05

Year 10 Year 25

R,1 of Net Annual Benefits -1 2.5 21.8 l b 7 .h

1 / Project ions and cos t breakdowns given i n Chapter 8 , paragraph 8,7 et.seq. -

Presen'; wor,thsof the cost and benef i t streams can be calculated by simple i n t e r - pola t ion 1/, t o give:

Present Worth of Costs Present Worth of Benefits Net R11, $ 0 0 0 ' ~ Benefit-Cost Ratio - 1.26

12.1l-1 The demands from farms and agro-industries, therefore, do seem t o r a i s e (as one might expect) the general l e v e l of economic bene f i t s to be obtained from the investments.

(c) Extensions to Minor Vil lages

12.1 5 Although adjustments f o r surplus bene f i t s and tax revenues make a difference, i t i s s t i l l the case t h a t minor v i l l ages need t o be f a i r l y close t o the exis t ing l i n e s before extension to them can be j u s t i f i e d in economic terns. Thus, to rewor': the example of Chapter 8 ( ~ a r a . 8 . R ) ~ the ,annual revenues from a minor v i l . l n ! ~ e may work out a t around a 5 0 0 per year , assuming 50 consllmers with average year ly loads of 250 kWh. Even allowing 100% f o r surplus bene f i t s and f o r taxes, the economic benef i t s of $3000 would j u s t about cover the extension costs of 2 Krn of MV d i s t r ibu t ion l i n e p lus an elementary LV l o c a l d i s t r ibu t ion l ine .

V a h e i n ;:ear 5 times 19; p l ~ i s values i n years 10 m d 25 each t h e s 15/2.

Overall and FZegional Returns to the Program

12.16 The overa l l economic returns t o t h e program - i f one exchides the minor r i l l a e e s , vhich have undoubtedly weighed heavily on the program - appear to be qu i t e good. A weighted average cost benef i t r a t i o f o r our sample of v i l l ages , nnd of farm and i n d u s t r i a l consumers, is about 1.34 (or 1.03 i f one excludes Juayua from the sample). Much depends, of course, on the fiiture growth of demand; but our a n n b s i s of household, commercial, farm and agro-industrial demand has comprehensively pointed to considerable po ten t i a l demand; and t h e forecas ts we have adopted are i f anything on the low side. It i s also probable t h a t our estimates of consumers' surplus benef i t s a re on the low side: we have ignared a number of qua l i t a t ive benef i t s , and also pointed t o pr ice data which suggests

. tha t a number of people, a t l e a s t , have in the pas t been Ki l l ing t o pay more than we have assumed in the above calculations.

12.17 Rut the re turns vary from one area t o another. There are th ree main parameters :

- load density; 6 - the extent and growth of farm and agm-industr ial

demands outside the v i l lages ;

- the extent and growth of household, commercial and small business demnnds ins ide the v i l lages .

Costs r i s e very rapidly as load density declines, due t o v i l l ages (and t h e i r surrounding nori-village consumers) being spread o u t o r remote. And benef i t s , we have shown, r i s e more or less commensurately with the growth of demand.

12.18 To i l l u s t r a t e the adverse e f f e c t s of load density, we took one v i l l age ( ~ h i r i l a g u a ) in an area where 20 Km of subtransmission l i n e were needed per v i l l age on average. The r e s u l t i s tha t , although a good all-round load was developing in the area, the benefit-cost r a t i o was qu i t e low (about 0.8 taking LO$ of the demand to stem from outside the v i l lage) . On the o ther hand, v i l l ages close together (such as Rosario, San Juan Talpa and San Luis Talpa, where l e s s than 4 Km of l i n e uere needed per v i l l age ) , benefit-cost r a t i o s are around 1.25.

12.19 In every case, t h e ef fec ts of load growth on the economic returns t o the projec t were c lear to see. All the areas where load l e v e l s and growth was good d i d qui te well, sometimes very well.

12 -20 The extreme examples of poor re turns are the minor v i l lages , away from the main mads and networks. Nearly two-thirds of the v i l lage-rura l population l i v e in such places. The loads and the load density are low, and in consequence so are the economic returns.

12 .21 I f , then, p ro jec t s a re t o be chosen so as t o y ie ld s a t i s f a c t o r y economic re turns , i t i s necessary t o be discriminLatingo Economic r e tu rns a r e very un- uniform. They are, moreover, determined mainly by exogenous f a c t o r s - thoiqh inter-departmental cooper.?tion can obviollsly improve knowledge and cont ro l over the p o t e n t i a l retcns t o the invesLaentjs. For example, a major infhience on cos t s i s the qual i ty of roads; and perhaps the ma,ior inf luence on demand is economic growth and output Fn l oca l a g r i c u l t ~ ~ r e : apar t from t h e d i r e c t l y productive demands t h i s c rea tes f o r e l e c t r i c i t y , i t also r a i s e s the l e v e l of wages and commerce i n the area, and thus the l e v e l of household and commercial demands.

CHAPTER 13

SU?%PY AND CONCLUSIONS

13.1 The aims o f the study, which were s e t out on Chapter 1, were t o answer a s e r i e s of questions regarding:

( i ) coats;

( i i ) people's response t o the investments;

( i i i ) f i n a n c i a l returns;

( iv) economic returns;

(v) f ac to r s which explain the l e v e l o f economic returns;

( v i ) methodology.

The following conclusions address each of these matters i n turn.

( i ) Costs (chapters b and 7)

(1) Variat ions over t h e . Average cos ts a re i n i t i a l l y very la rge , but decl ine quickly over time with load growth. The reason fo r this i s t h a t a l a r g e investment i s i n i t i a l l y required to extend networks in.b an area, a f t e r which t h e cos ts of subsequent reinforcements and extensions a re r e l a t i v e l y low (even t o meet q u i t e l a rge demand Fncreases). Also the re a re considerable economies o f s c a l e as equipment capaci t ies a re increased. Typical average investment cos t f igures (in 1972 p r i ces ) are;

Early W.d (10) Late (25) Years Years Years

Quickly Growing Loads Slowly Growing Loads

15 cents 5 3 t o L ilw - 20 10 5 t o 6

(2) Cost Breakdowns. I n t'ne ea r ly years , i t i s the c a p i t a l cos ts of t h e d i s t r ibu t ion networks which form the l a r g e r p a r t of costs ; 33 load grows, however, bulk supply cos ts become mom important; on an annual bas i s , a t yp ica l cos t breakdown i s r

Bulk Supply: Capacity Energy

Dis t r ibut ion (HV,MV,LV) O R c M

Early i f i d Late Years - Years Years

(3) Variat ions with load density. Costs increase markedly wi th remoteness of load centres , o r Kith increases in t h e spacing of v i l lages . Typically (1972 pr ices) :

Early %id (10) Late (25) Years Years Years

20 Km spacing between v i l l ages L6 cents 10 6 L Km spacing between v i l l a g e s 15 5 3

( 4) Effec t of Terrain. D i f f i c u l t t e r r a i n increases labor cos ts and the time required t o construct networks. We est imate t h a t it can increase network costs by up t o SO$, a s compared w i t h rout ing them along roads s u i t a b l e f o r trucks.

(5) U t i l i za t ion . Load f a c t o r s a r e i n i t i a l l y poor, o f t e n around 20% i n the ea r ly years, though we think t h a t they could r i s e to 40% in l a t e r years (c.f. 50-60s in urban areas) . This p u t s up bulk supply capaci ty costs,which r i s e more o r l e s s inverse ly with. load f ac to r .

( i i ) Response (Chapters L,6,9,11)

(6) Overall response so f a r (Chs .4,6). Overal l load has b u i l t tlp q u i t e quickly from a l l quar te rs , though from low i n i t i a l leve ls . h i s i s re f l ec t ed in:

- a high r a t e of growth of demand per domestic consumer of around 11% p e r year;

- a very high r a t e of growth o f denand p e r non- domestic consumer of amund 20% p e r year; these consumers a l so generate about h a l f t he demand;

- a high demand f o r new connections ( typica l ly , b% / increase i n new consinners p e r year once an ar'eaA i s e l e c t r i f i e d ) .

The average demand was 110 kWh/consumer/month in 1972, a s compared +,o around 325 kWh f o r consumers in urban areas.

(7) Variat ions in response (Ch.6) . The response, however, va r i e s considerably from one community to another. A comparative ana lys is of 12 v i l l ages , ranked i n t e n s of t h e i r s o c i a l and economic development, shcwed t h a t ( a s one might expect) response was :

- good i n the b e t t e r developed v i l lages ;

- more varied, bu t sometimes good i n intermediate v i l l ages ;

- r e l a t i v e l y poor i n backward areas.

Growth i n l o c a l ag r i cu l tu re d e f i n i t e l y improves response, probably through i t s e f f e c t s on l o c a l wages and commerce, and through the d i r e c t productive appl ica t ions i t crea tes Tor e l e c t r i c i t y .

(0) Household response ( ~ h . 9 ) . The main f a c t o r which detelmines household demand is household income. Households, we found, begin t o consume f o r elementary purposes (such as l ight ing and ironing) a t income l e v e l s of around $LO p e r capita . Consumption l e v e l s , which are linked with the l e v e l of appliance stock, then r i s e very quickly with income over most income ranges; a doubling of income more than doubles consimption levels . Other f ac to r s which influenced consumption were as follows :

Income dis t r ibut ion . We also folrnd t h a t incomes were very widely d is t r ibuted i n m r a l areas (and so, too, therefore , were consimption l e v e l s ) ; our estimates of mean family income were $125 per capi ta (c.f. $300 pe r capi ta f o r the country)

Occupn t ions ,~~ l i~ ra t i on , Location. Agricul tural workers were l e s s incl ined to consume than non-agricul t~lral workers, though incomes were of ten comparable; reasons suggested were t h a t many ag r i cu l tu ra l workers a r e migrant workers, l i v i n g in temporary and exceedingly poor dwellinzs, while o thers do not own t h e i r homes; fur ther , the majority of these people l i v e in sca t te red , low density communities makbg i t uneconomical t o extend serv ice to them. Generally, therefore, e l e c t r i c i t y sirpplp i s mainly sought where the re i s some s o l i d i t y and permanence in the house s t ruc ture , and when i t i s owned by the resident; and i t i s only , just i f ied i n the la rger , l e s s sca t te red o r remote communities.

lncome t r ans fe r s and g i f t s . These were from family members who had migrated (mainly to urban areas) and were qu i t e widespread; by augmenting r u r a l family incomes by more than 10% on average they had c l ea r influence on consumption.

E l e c t r i c i t y prices. These probably have l e s s e f f e c t on demand than those of the appliances s ince e l e c t r i c i t y forms a minor p a r t of t o t a l costs.

( 9 ) Farm, commercial and agro-industr ial response (chs.10 and 11). The ma5n applications are r e f r iqe ra t ion (shops, milk cooling on farms, and slaughter- houses) and motive power (pumping and machinery). The response has stemmed from both l a rge and small a c t i v i t i e s . Before e l e c t r i f i c a t i o n , a l a r g e number were using subs t i tu t e forms of power and energy (d ie se l engines and autogenerators mainly, but in a minority of cases, animal power); subs t i tu t ion of e l e c t r i c i t y f o r these has provided a strong source of demand. A qaickljr r i s i n g source of demand has also stemmed from the r i s i n g outputs of farms, commerce and agro- i n d u s t r i a l a c t i v i t i e s .

The main reasons f o r the preference f o r e l e c t r i c i t y have been t h e ex t ra p r o f i t s it has generated in t h e form of cost savings and/or ext ra output r e l a t i v e t o the a l te rna t ives . Also, lower maintenance needs and r e l i a b i l i t y a re important. However, e l e c t r i c i t y i s not always preferred, pa r t i cu la r ly f a r farms and a c t i v i t i e s not close t o the networks, s ince c o ~ e c t i o n costs a r e then very high.

(10) Response i n t h e f i t u r e . For all consumers - households, commerce farms and agm-industr ies - w e have predicted a continuation of t h e l i v e l y response so f a r experienced, though i t i s condit ional , of courae, on a numQer of exogenous po l i cy decis ions r e l a t ed to growth in agr icu l ture . P o t e n t i a l i m i g a t i o n needs f o r e l e c t r i c pumping, f o r example, a r e some f i f t y times present l eve l s ; agro-industries a r e loca t ing i n rural areas and seem t o be growfng quickly; and commercial demands should r i s e with output in agr icu l ture and wages, as should, of course, household demand.

(11) People no t affected. However, t he fu tu re response i s l i k e l y t o continue to be confined to t h e m a i n v i l l a g e s and the farms and agro-industries near to them. %-thirds o f t h e village-rural population, including t h e majori ty of small farmers, l i v e outs ide these a reas in small, sca t te red , low densi ty communities; as pointed out above, it i s d i f f i c u l t to j u s t i f y extension of serv ice to them.

( i i i ) ~ i n m c i d Iieturns (chs. 4 and 8)

(1 2) CEL1s accounts (ch.4). Overal l revenues are s t i l l (1972) 1% shor t of meeting accounting costs; some regions a re showing a p r o f i t (according to these accounts) o thers subs t an t i a l losses . ;Jhile these should improve over time on account of :

- load growth; and - load f a c t o r improvements;

it i s apparent t h a t unnecessarily low and i l l - s t ruc tu red t a r i f f s have undermined returns.

(1 3) Financial r e tu rns from se lec ted v i l l a g e s (ch.8). Variat ions i n load densi ty and load growth make the r e t u r n s d i f f e r considerably from one area t o another. Generally they are poor, even if a long-time horizon i s taken, f o r reasons mentioned above: the f i n a n c i a l r e tu rns in all cases a re adversely a f fec ted by low decl ining block p r i ces ; and in some cases, load densi ty and load growth are simply too low.

(1 4) Financial re turns from farms and agro-industries ( ~ h . 8 ) . These, too, t u rn out to be negat ive - again mainly on account of low pr ices .

(1 5 ) ? i n o r , small v i l l a g e s ( ~ h . 8 ) . A simple comparison of i n c r m e n t n l ex'ension cos ts with the ( m a l l ) incremental loads of these communities shows t h a t t h e f i n a n c i a l l o s ses of extending the networks t o them by more than about 2 Krn, would o f t en be subs t an t i a l .

( iv) Economic Returns (chs. 9, 11 and 12)

(1 6 ) Adjustments f o r economic benef i t s . Economic ret i l rns i n a l l sit!inkions were higher than f i n a n c i a l re turns , sometimes considerably higher. A major reason fo r t h i s i s t h a t households and businesses general ly do bene f i t from (value) serv ice by more than the amomt they pay f o r it. I l i s to r i ca l ly , t he re i s evidence t h a t some consumers have paid th ree o r more times present p r i ces , when silpply was provided by autogenerators. In addit ion, t he s a l e s of appliances generate t a x revenues (of ten equivalent to 50% o r more of the e l e c t r i c i t y b i l l ) which are no t cos ts , of course, but a t r a n s f e r of the household's would be s u r p l i ~ s bene f i t s t o the public revenue.

Our estimates are that the minimum adjustments fo r consumers1 surplus benefi ts and taxes amount t o about 100% of the e lec t r i c i ty revenues fo r households and small businesses, and 60% for large businesses. ÿ he reasons why 'the l a t t e r i s smaller are tha t the substi tutes - diesel motors and autogenerators mainly - are bet ter maintained, and so are more competetive with e lec t r i c i ty ; the diesel o i l i s heavily taxed; and the larger businesses are often located l e s s close to the l ine , which puts up costs.)

(1 7 ) Net e f fec t of the adjustments (Ch.12) . Overall, the economic returns appear to be qu i te good, with cost-benefit ra t ios , i f our demand forecasts are correct, i n excess of unity using 10% discount rate. We found tha t v i l lage demands alone are not generally sufficient t o jus t i fy the investments; but the addition of fann and agro-industrial loads often more than t i l t s the balance.

But economic returns vary considerably between regions. Backward regions, regions of low loads and load density, regions that are remote, o r regions with few productive applications of e lec t r i c i ty ,a re a l l l ikely t o generate poor economic re turns . Explaining the Economic Returns ( ~ h s . 9, l l ,12)

(1 8) It follows from the above analysis t ha t three factors are l ike ly to lead to economically jus t i f iable investments:

- good load density (by ru r a l standards);

- a good potent ia l load from households and commerce within the vil lages;

- a good potent ia l load from farms and agro-industries.

A l l three, but the l a t t e r two items in par t icular , should stem from areas where agricultural productivity and wages are r ising. There i s no contending, therefore, that r u r a l e lec t r i f i ca t ion investments, Ff they are t o be economically successful, need t o be related to the broader programs aimed a t ra is ing productivity and output in rural areas.

Methodology ( ~ h .2)

(1 9) The methodology suggested fo r economic analysis i s the one outlined and used in this report. It procedes in the following steps:

- estimnte demand and revenues, over a long time period;

- estimate the cost-streams;

- adjust the revenue strearns,as f a r as i s possible, fo r consumers' surplus benefits;

- adjust the cost-streams for shadow prices;

- adjust e i ther cost o r revenue streams f o r taxes;

and compare (adjusted) costs and benefi ts on a present worth basis.

This is all, we bel ieve, t h a t i s necessary, s ince all t he economic b e n e f i t s seem to be den:~nd r e l a t ed . I-Iowever, in most s i t u a t i o n s i t i s no t poss ib l e to est imate a l l the constuners ' surplus bene f i t s ; i n addit ion, Lhere 111;iy

be unquantif table s o c i a l :irgilinent,s f o r exbending service. I f i n these s i t u : ~ t ions the re are i n s t a c e s when estimated economic r a t e s of r e t u r n are close t o , but below, the opportunity cos t of c a p i t a l , pro,lec:t.s s t i l l might, be acceptable 311

the grounds t h z i some bene f i t s could not. be quantif ied.

( Papers ci ted only once are l i s t e d a s footnotes in the text . )

1. Issues in Rural Elect r i f ica t ion - IBRD %por t No.517, July 1974 . 2. Electrification Rural - hraluacion de Costos y Beneficios Sociales en

E l Salvador (h Vols.), Apri l 1974. Prepared by tegm from Universf- dad Centroamericana Jose Simeon Canas, San Salvador.

3. Vnited Nations Inter-Regional Seminar on Rural Elect r i f ica t ion, New Delhi, December 1971.

L. Costos y Beneficios Sociales de l a Elect r i f ica t ion Rura l en E l Salvador - Caso de Rosario de l a Paz. Ricardo Falla. Spring 1973, Journal of Universidad Centroamericana, San Salvador.

5. Rural Elect r i f ica t ion - an evahiation of e f fec t s on economic and s o c i a l changes in Costa Rica and Columbia. J.H.Davis, J.Saunders , G. C .?Oses, Centre f o r Tropical Agriculture and f o r Latin American Studies.

I University of Florida, 1973.

A D D r n A

( t o chapters 2 and 11)

COIPARISONS BETWEEN AUTOGENERATION AND PUBLIC SUPPLIES

When extending serv ice t o some remoter o r low load dens i ty areils, the expected revenues, taking a lone view, may be s ign i f i can t ly below the costs. In p r inc ip le , one option would be t o r a i s e the p r i c e of e l e c t r i c i t y so as t o j u s t i f y extension of service; however, the p r a c t i c a l o r p o l i t i c a l necessi ty f o r uniform t a r i f f s might r u l e this option out. Another option would be t o r e l y on l o c a l autogenerators; as it happens, spec ia l (higher) t a r i f f s f o r such serv ice can o f t en be, and o f t en a re , acceptable - in many places t a r i f f s a re four o r f i v e times those f o r public (gr id) supply. Should serv ice be extended from the gr id , a t a f inanc ia l loss? o r should it be supplied by autogenerators a t a f i n a n c i a l p r o f i t ? The answer can be obtained from a simple supply and demand model as f O ~ O F T S

Let P represent p r i c e and Q the present worth of quanti ty (kl~h) demanded over the p r o j e c t ' s l i f e t ime , and the subscr ip ts a and g respect ive ly represent autogeneration and gr id supplies. With grid supplies , t h e present worth of revenues i s Pg.Qg. I f autogeneration had been used, a quanti ty &a would have been demanded a t ex t ra cos t to the consumers of ( p a - ~ g ) ~ a ; this i s now surplus bene f i t s t o them. Mnal ly , t he e x t r a quanti ty demanded i s valued somewhere between the o ld and the new p r i c e (say halfway), so t h a t t h e consumers ' surplus benef i t s of t h i s por t ion of the amount demanded a r e about (0.5 (Pa+Pg) - ~ g ) ( Q - Q a ) . Hence the t o t a l bene f i t s , which need t o be compared with t h e present worth of costs of extending supply to the area,are the revenues:

p lus surplus bene f i t s of:

CHAPTER U: ADDENDUM

DETAIL5 O F CASE STDMES

A l l . 1 were under ru les we re

A l l of the following s tudies a r e of ac tua l a c t i v i t i e s , and taken in l a t e 1972 and throughout 1973. The fo l lowhg ground

generally used : - - 1972 p r i c e and cost data;

- annuit ies based on 105 i n t e r e s t r a t e ;

- 10 year Ufet imes f o r new d iese l motors;

- 1.5 year l i fe t ime f o r new e l e c t r i c motors;

- 2.5 year l i f e t ime f o r new e l e c t r i c a l connections.

The l i fe t imes taken f o r o ther c a p i t a l equipment, s tocks, and second hand equipment varied with the case.

A=. 2 The s tudies of each pa r t i cu la r kind of ac t iv i ty always began with v i s i t s t o several businesses t o learn about the process, t o f ind out how techniques varied w i t h age and t r ad i t ion , and of course to see how they obtained and used energy, and what the a l t e rna t ives were i n each case. The next s tep was to s e l e c t representat ive cases, with the constraint , of course, t h a t we could only study those where the people were pleased t o cooperate.

~11.3 The l a rge r businesses general ly had reasonable records, except on d e t a i l s l i k e maintenance costs . Many of the smaller businesses, however, did not keep records ( the owners being i l l i t e r a t e ) , but turned out , as one might expect, t o know well what t h i s o r t h a t cost them, and how much they produced. Often t h e p r i ces of inputs , pa r t i cu la r ly of cap i t a l equipment and of mater ia ls already processed, could be checked by v i s i t i n g suppliers. The same was in p a r t t r u e of maintenance costs , since the re were sometimes a number of mechanics and suppl iers who knew roughly how much time and money was spent on repair ing and maintaining eqilipment; also, the producers themselves were well aware of these costs, and could make a good guess a t them.

- 4 n . h The cost data i n each case have been divided i n t o "comnon and "energy costs." The common costs a re those which do not change

if t h e a l t e rna t ive e n e r g source i s used, and include primary mater ia l inputs; genera l lya la rge port ion of the labor costs; t he bas ic c a p i t a l equipment f o r the process; and miscellaneous items. The Ifenergj costs" include the costs of f u e l o r e l e c t r i c i t y ; capital. cos ts of motors, r e f r ige ra to r s , e tc . ; maintenance costs of the motors, r e f r ige ra to r s , etc.; a ~ d some labor cos ts (which have been included in the heading 0 and 1.1).

Table 11.2

3.ree Cases of Coffee Processing: Costs and 3enefi ts of E1ectrific:tion

Case C 1 Cla C 2 c 3

m e o f 1Iotive Power Steam (as f o r C1 Diesel E lec t r i c Subst i tu te Po~.rar E lec t r i c b u t c m i t - Elec t r ic Autogeneration Motive Power (Total) 53 l-c? t ing l i n e 52 2 173 iP A n n u l icbrh of Elet:.Plternative 6,000 cost) 1 3 :OOO 73,000 Outpuk: l b s p e r yea:. 5OO,OOO 1,200,000 ? ,27$,SGa Sa les : $ per year 325,000 780,000 1, ~ L U , 925

Common c a s t s 6

Prirnal-j ??ateriql.s Lnbo r C a p i t d Others Total

3Jel,'.< -n C' a?ci :; : npit,~!. { m ~ tors ) .71 107.;11

Total Costs (Actllal) 305,159 733,170 1,3!;9,905

F r o f i t s ( . ~ c ~ i l a l ) l a , all1 W,630 L? ,356

Pyo f i t s (wi~h ;obs :i ;?lte) 17,761 (1997L1) ;/?, 351 L6,OSo

Net 3enefi t s of Elec ! ir ici ty - 1,080 (900) 5 2 1 3,335

:dote: Costs o f new diesel and 11% e1ec:rlc motors taken.

Three Case Studies of Large-Scale S u ~ a r ~ r 6 c e s ; i n ~

Case - E l e c t r i c i t y : Autogenerators 80%' 100% 95%

Bought from Grid 20% (20% sold) Alternat ive: Bought from Grid

5% 100% 100% 100%

Total Native Power Capacity 362 HP 3925L- HP 2,200 HP

Sales:

Sugar tons/year 3,593 L6,818 2,909 Molasses 000's gal/year 365 1,620 751 E l e c t r i c i t y Sa les , - 61,365 - Value U y e a r , 1,556,673 15,656,365 6,975,800

Comon C o s t s ($ p e r year)

P F ~ I ~ I ~ F J Xate r i a l s Labor Cap i t a l Others Total

m e r q Casts (6 per year)

F'uel /k:h 0 and 'l Cap i t a l (autogenerators) Total

LO, 982 lr6,21rO 29,093 12,y62 60,SlS 7.779

E l e c t r i c i t y C an2 i.1 Cap i t a l ( l i n e s and t r a n s f o n e r s ) Total

LO, 455 -

Total Costs ( ~ c t u a l ) 1,35&,699 12,669,991 5,812,221

P r o f i t s ( ~ c t u a l 201,97L 2,669,991 1,163,579

P r o f i t s (with ~ l t e r n a t i v e ) 222,913 2,862,260 1 , 0 9 7 , l l l

!Get Benefi ts o f E l e c t r i c i t y 20,939 -12h, Il& -66, L60

Net Benefi ts as $ of E l e c t r i c i t y Revenues 52% -38% -28%

1 / Capi ta l co s t s based on itemised cos t s f o r new mills, 32 and S3, and the second hand - p r i ce s of the old nil1 - which, though newly 100 years o l d , was r ecen t l y so ld , d i m a n t -

l e d and i s being r e b u i l t ! A l l energy cos t es t imates exclude cos t of t h e sugar cane pulp xhich i s used t o f i r e the bo i l e r s .

Table 11.4

Two Cases of Small Sca l e Sugar Processing ( ~ r a p i c h e ) -

Case - Type of Energy Al te rna t ive Considered Power and Energy of

E l e c t r i c Al te rna t ive

Sales (pe r year) - Tons Value, $

Common Costs ($ p e r year)

Primary i?a te r ia l s Labor Capi ta l Others Total

Enerey Costs ($ p e r year)

Oxen / k?dh 0 and :.I Cap i t a l (motors) Tot al

% e r g c o s t s (Al te rna t ive , $/year)

k~:lh/hel 0 and 1.1 Capi ta l (motors) Tota l

Tota l Costs ( ~ c t u a l )

Cxen E l e c t r i c i t y E l e c t r i c i t y Diesel 10 HP 10 W 21 0 k)h/year 1,400 k~Nh/~ e a r

P r o f i t s ( ~ c k l a l ) 177 1,569

P r o f i t s (with ~ l t e r n a t i v e ) 158 1,337

Net Benefi ts of E l e c t r i c i t y -19 182

Net Benefi ts as $ of Elect , r ic i ty Revenlies -23% , 673

1 / Second case i s 2 se rv i ce t o l o c a l a rea , and does no t buy sugar cane, but, charges - something t o prgcess It. Yotive power cos t s conparisocs a r e based on cos t s of new equipment.

No t i v e Power ( ~ c t u a l ) Motive Por~er ( ~ u b s t ~ i t u t e ) ic:.ih/j.esr of Z l e c t r i c XZlls

Table 11.5

i:o:lr Case S tudies of ?ice

Sa l e s (per year)

,l'ons I,? 32c.e Tons of 3y Prcducts Value

common Cosfs $/year

Frirr.;i;.~j :.faterials Labor Capif a 1 Others To t a1

Capi ta l - 1/ Total

Total Costs

P r o f i t s ('ctcal)

ProfiLs ( . U t e m ~ t i v e )

- E l e c t r i c Diesel E l e c t r i c E l e c t r i c Diesel E l e c t r i c Diesel Diesel 46,000 - 72,000 293,000

-. !re$ 3enefl5a 1s 5 of ElecLr ic i ty Fievenues +15$ +28s +ll$ +3 1%

1 / 3aserl on 7.rFces oZ new equipment. - 2/ A.nnui.5; rate ;Je !i:?ve : ~ s e d t o cos t che equipment i s higher tha? t he one 5 - l l c i t ir, -

%l-.e acco..a;ing r u l e s vsed Sy the nill , which i s . ~ . ~ h y l fprol ' i ts l l appear nezat.Lve.

Table u.6

u Three Case Studies of Corn !Ells

Case - Type of iflo t i v e Power Alternat ive Zonsidered 'Iota r 5apaciV klSn Consumption of E lec t r i c Alternat ive

Sales - l b s per year Value, i?

Common f:os<s, $

Labor Capi ta l Others Total

P.. ,,crqy Cost_s_, $

l"uel/k' Ll C ~n:l ! C:lpitcl (notors) Total

3.-:s, @ ( a l t e rna t ive )

h e 1 ps: jh 0 and ?,I Cap i ta l (no t o r s ) Total

ia - 1'2 ?.?3

Diesel 2/

Electrti? E lec t r i c Elec t r ic Diesel Diesel 7.75 HP 3.5 HP 3.0 HF

145 kwmonth 067 k!.lh/mnth 249 kl:.?h/nanth

Total Costs ( ~ c t u a l )

P r o f i t s ( ~ c t u a l )

P r o f i t s (with Alternative)

Net Benefits of E l e c t r i c i t y

Net Benefits as $ of E l e c t r i c i t y Revenues

1/ Generally the corn n i l l s are a l o c a l service, and c o n i s brought to the m i l l s by - l o c a l households f c r processing. The millscharge 1 to 1.30 colones pe r 100 l b s processed.

2/ A d iese l mobor is used as a standby i n t h i s case as there i s only one m i l l ir t he - v i l l ~ q e ; t h i s accounts f o r t h e l a r g e r output, and &so the higher charge f o r the serv ice .

Case - Energy (Actual) E n e r ~ ; (Alternat ive)

Sa les - ~ g ~ s / y e a r ~hickens /year Value, $

Common Costs, $/yeear

A8

Table 1 L 7

Case Studies of Two Poultry Farms

Primary Platerial Labor Capital (including chicken stock) Other Total

E l e c t r i c i t y 0 and 2.1 Capit a1 (connections) Total

i h e l 0 and 11 Capi ta l (auto generators) Tota l

Total Costs (Actual)

P r o f i t s ( ~ c t u a l )

P r o f i t s (Alternat ive)

Net h n e f i t s

Net Benefiis as $ of E l e c t r i c i t y B i l l

PP 1 PF 2

E lec t r i c E l e c t r i c Autogeneration Autogenerat ion

x Y i r rl 4 2S i" r u i r u

- F a C ... ir

2 2 Z b ? 0

d L?G d??- 0

uIcv 0 2:hOz 0 4 L . 4

5 " 2 2 " " w a u s > s a w 2 d z g

m o 2 ~ 5 d Yj

@ - ! \ ? " : m m m f f f

Table 11.9

Three Case Studies of F a m '2;achiner~

Case - M 1 z.1 2

Source of Power Tractor (751iP) 'i'rsctor ( t5W) Altern; t i v e E l e c t r i c (SIP) E l e c t r i c (SIP) Consumption o f E l e c t r i c

Al:.~m;~tive 1,872 K W y r 3,515 k;ih/yr

ElecD~.ic (5HP) Diesel (5-1

Tons 0," Wcider and ;Iaize 200 120 Vnlue (:iTFroximate) @ n.2. 16,000

Common Sosts $/year

E:nef*s:y Cc s t s , $/;re:Lr

Fue l /E lec t r ic i ty 0 and 7.1 Capl ta i (motors) Total

Fu'ue?-/3lectriclty 0 afld '4 CapIta1 Tot 3 1

Total ' h a t s (hctual)

Table 11.10 -- Fo-oilr Case S tud ies o f ! e l k G o o l i n ~

Case - NC 1 YC 2

O7:tpi1=, Bot,tiss/jrea:. 775,625 711,690 S t , $ 232,688 152,994 Capnc't:; of Cooler 16C,ors, HP 3-25 3.5 k' Tn ~ o n s L m p t i on 19,685 22 ,421 Source o f Power Elec t r ic E l e c t r i c Al te rna t ive Source Autogen. Autogen.

4l14,oOO 95,st;c; L.75

13,320 E l e c t r i c Autogen.

E l e c t r i c Diesel

? E l k Input Labor C api 5 n l 0ti:er.s Tot-.l

",ect,ricity 0 and "7 Cap i t a l (conr.ections) Tota l

Cap i t a l (motors/~.u.utogen~ .) m ~ o t ; + i

Total Costs

F r o f i t s ( ~ c t u a l j

Ijet i2enefl;s as 5 of Z l e c t r i c Y i l l 98% 1255

Case-

A 12

Table U . ? L

1 / Two Case Studies of Refr igerat ion in Vill'age shops-

Sa les , $/year Capacity of r e f r i g e r a t o r , cu.ft. k-,Jh pet. Year m e Alternat ive

.:osts of Unrefrigerated Goods, $/year

E l e c t r i c 3e f r i ge ra to r Costs, $/year:

- e l e c t r i c i t y

Kerosene 3eC.r; gerw '.(.:, Costs, $ /ye~ r :

- kerosene - r e f r i g e r a t o r To tsl

Tota l Costs (E1ect:ris)

Total Costs (Kerosene)

P r o f i t s with Electrlr: ?efr igerator

Prol ' i ts with Kerosene S e f r i ~ e r ~ t o r

)Jet, a e n e f i t s of E l e c t r i c i t y

?let Benefi ts as % of E l e c t r i z i t y >ill

1,355 ll

95s E l e c t r i c Kerosene

1,846 13

1 , O U E l e c t r i c Kerosene

1/ Notes ~ n ( l 3eet;lil.j. 1Y? pr ices . Annuities based on 10s inherest, and 7 year l i f e t i n e s - for e l e c t r i c refriqernt,ors, 5 years for kerosene.

Table 11 .I 2

Case -

Two Case S tud i e s o f Pota'o+ !.later pump in^ '

QW S~d>s? . i t l l t s S i z e Quant i ty delivere:? ?all/jrear Aver,. v Time Cperated k',?~ neede l Lq e r l e w h : r n a t i v e No .oi' Feople Sel-v~c!

KL P r i v a t e ' ~ 2 , Pkbl ic Pump - Pump - Gasoline 1/ E l e c t r i c E l e c t r i c Die:; e l 1/3 HP 25 a 1 22,000 20,300,000 1.5 hours/day 10 hollrs/dng

1-59 78 ,COG Z;uz i l j o f 5 97 f nmi'lies p1-1.5

10 s t a~ : l p ipe s

Diesel Al te rna t ive : - Fuel 3 !: - no to r 10 h .,7 - maintenance

Tota l +a Cost Savings ( ~ l e c t r i c d l t e r n a t i v e ) -.!ll 1, 505

Net Sene f i t s o f ' j .ect,ricity a s o f Z1ec:tricit;r E i l l

1/ Gasoline no:or bought, second hand. iLmiiit ies 5sspd o r ~ t h e seco~ld hzn:! .rice ar.d - a 5 jie.!ie l i f e t i i i e .

Table L 1 3

Two Sase Studies Comparing Potable Water Delivery by E lec t r i c Pumps r d t h Animal and Nanual Energy

Case - KLectric Pump, Power Delivery, gallons/year Head k ih per year T h e of Operation

Annual Costs - e l e c t r i c i t y - e l e c t r i c motor

0.33 HP 0.33 HP 90,000 27L,OOO 18 f e e t 50 f e e t 100 aoo 1 hour per day 8 hours per day

Alternative Ox Cart Bucket4Jell

Delivery, gallons/ye ar 90,000 33,000

Annual Costs - t ransport - labor - cap i t a l

Net Cost Savings of E lec t r i c i ty 6 597 6 6

1/ Notes and Details. The ac tua l data are from case studies, t he bucket-well s t i l l - being used in ~ J L ; the ox cart was once used in b.13, but has since been replaced by the e l e c t r i c pump. Labor costs,uhich are i l l u s t r a t i v e , a re equal to the man-hours times 50% of the 1972 minimwn wage of $2.25 per day. The ac tua l delivery in gallons of the ox cart is unknown, so the cos t were estimated by studying t h e various f ac to r s involved in t ransport ing 90,000 gallons per year over a distance of 1 Km by ox c a r t to t h i s house.

Table U.14

Ef fec t s o f Taxes on Net Benef i t s

in Cases Where E l e c t r i c i t y i s Used L/ 1Je5 Benef i t s

a s $ of E l e c t r i c i t y 13111 With Taxes 'dithout Taxes

Case and Processes

~3 Coffee Processing 5 8% 3 h4: T2 Small Sca l e Sugar Process L/ 675 56s F.1 Rice Pmcess ing 15% -&i? 33 Rice Processing 11% -% Iib Wce Processing 31% 3% :.12 Corn "11s 3 1% ILL$ hi3 Corn b2% 2 b% P - 3 Poul t ry Farm 93% 7 5% PF2 Poul t ry Farm 31% llj: 11 I r r i g a t i o n (c lose t o Lines r/) 7 52 30% M3 Farm ?!achinery 123% 107% MCI ilk Cooling 98s 64% MC2 Milk Cooling 125% 90% I'eIC3 '.Elk Cooling 121$ 87% 3 C 4 Milk Cooling 131% 106% Rr"l Refr igera t ion i n Shops 1 2b% 17 5% W2 3e f r i ge ra t i on i n Shops 113% 1 75% \i2 ; later Pump 475 1 2%

1 / Large sugar processes gene ra l l y do no t use d k s e l f u e l oil, and have been excluded. - 2/ Cases where e l e c t r i c i t y i s no t used do not, of course, lead t o l o s t t a x -

revenues from d i e s e l o i l .

3/ This case i s not an e l e c t r i c a l user , b u t we be l i eve t h a t t h e ca lcu la t ion b e s t - r e f l e c t s r e l a t i v e cos t s when t h e consumer i s c lose t o t he l i n e .

Documents

World Bank Document · The present report is substantially based on the material presented in the University's report, which was submitted to the Bank in April 197L. 1Je thus owe