Switching entirely to liquefied petroleum gas (LPG) to meet household energy needs is one way of greatly lowering exposure to indoor air pollution, while simultaneously bringing additional benefits of time savings and convenience. Although there are a number of reasons why many households do not use LPG, the primary reason is that the poor cannot afford it. The Government of Andhra Pradesh has launched an innovative targeted subsidy programme, the Deepam scheme, to encourage the uptake of LPG among low-income households. This issue of the newsletter presents the results of an independent evaluation of the Deepam scheme carried out by the National Institute of Rural Development (NIRD) in Hyderabad. An Assessment of the Deepam Scheme in Andhra Pradesh Choice of Household Fuel Use--Can Government Influence It? S witching entirely to LPG to meet household energy purchase makes it difficult for many households that are not needs is one way of greatly lowering exposure to well off to switch to LPG as a cooking fuel. indoor air pollution. Although there are a number of In order to help overcome this financial barrier, the State reasons why many households do not use LPG and other Government of AP launched the Deepam scheme in July cleaner fuels, the primary reason is financial--switching to 1999. In this scheme, the government pays the LPG LPG costs more in cash terms, and sometimes considerably connection fee for women who belong to self-help groups more, than the fuels currently used. So it seems reasonable and whose households are classified as being below the to ask if a subsidy scheme can be designed to help more poverty line (BPL) indicated by the possession of white poor households take up cleaner commercial fuels. ration cards. The Government of India has historically attempted to There are more than 373,000 self-help groups in AP with encourage fuel switching from biomass to cleaner over 5 million members. About 150,000 of these self-help commercial fuels by providing large groups are in rural areas. As of March universal price subsidies to kerosene, 2002, over 1.5 million LPG connections sold through the Public Distribution had been released through the Deepam System (PDS), and LPG. A scheme scheme, including 1.2 million in rural providing price subsidies, however, areas. The majority of the recipients are does not address one of the barriers members of self-help groups under the to household uptake of LPG: the Pradesh Development of Women and Children in high upfront cost associated with the Andhra of Rural (or Urban) Areas (DWCRA and start-up of LPG service. For example, DWCUA, respectively). a new LPG user in the state of Government Andhra Pradesh (AP) has to pay The State Government of AP has Department, Rs. 1,000 for "LPG connection" (to authorised 1.7 million connections to be receive an LPG cylinder), and Supplies released to date. Overall, the scheme is Civil purchase an LPG stove and other ce: designed to cover 3 million households. Sour accessories at an additional cost of The Deepam Scheme has helped partial switch- The State Government of AP has agreed Rs. 1,000 or so. The combined cost of over to LPG from biomass (see inset) among BPL to cover the total cost of Rs. 3 billion households but their inability to afford cylinder the LPG connection fee and stove refills is a major constraint. (over US$ 60 million). other than the Scheduled Caste (SC) and Scheduled Tribes TABLE 1: DISTRICTS SELECTED FOR THE DEEPAM EVALUATION (ST) did not appear to be genuinely poor although they were white card holders. Region Districts* Telengana Adilabad and Khammam Over 80 per cent of Deepam beneficiaries purchased the stove and other accessories using their own funds. The rest Coastal Andhra East Godavari and borrowed money from their own self-help groups; very Vizianagaram few borrowed from other sources. Rayalaseema Anantapur and Kurnool The number of days lapsed between the time a group was *For each district, three mandals (groups of villages) were selected. selected for participation in the Deepam scheme and when Since the logistics of LPG cylinder delivery were expected to be an issue, the cylinders were delivered to homes averaged 64 days, or villages and self-help groups within mandals were grouped on the basis of the distance to the closest LPG dealer. Further, only those self-help about 2 months, with the median being 29 days. The majority groups that had been participating in the scheme for more than a year of this time lapse was between selection and sanction. were selected in order to have a meaningful assessment of LPG consumption. Gas agencies are required to deliver refill LPG cylinders to The Deepam scheme differs from traditional fuel homes to the extent possible, setting up sub-depots subsidies in two respects: (1) it is targeted; and (2) it is a if necessary. However, of the 66 self-help groups, only one-time capital subsidy in that it subsidises LPG 14 responded that they relied entirely on home delivery to connection rather than LPG refills as with price obtain refill cylinders. In fact, 42 groups did not have home subsidies. Deepam beneficiaries have to cover other delivery at all. upfront costs of taking up LPG--purchase of a stove and Lack of adequate LPG distribution connecting accessories amounting to some Rs. 1,000. At the state level, the Government of AP surrenders 5 litres infrastructure is a problem in the per month of PDS kerosene for every new Deepam Deepam Scheme. Only a minority of beneficiary enrolled in exchange for increased allocation beneficiaries have refill cylinders of subsidised LPG by the Central Government to cover delivered to their homes. the scheme. As such, an evaluation of the Deepam scheme can provide LPG consumption valuable insights into the effectiveness of different forms of Only a tenth of the respondents were consuming half a fuel subsidies. The World Bank, with support from the cylinder of LPG or more a month, the amount estimated to Department of Civil Supplies, Government of AP, be needed to meet the majority of the cooking needs fully commissioned a study to examine the performance, using LPG. One-third refilled every three months, another effectiveness, sustainability and replicability of the third every three to four months, 14 per cent every four to Deepam scheme. six months, and 5 per cent less frequently than every six This evaluation, conducted by NIRD in mid-2001, was months. The refill rate was not well correlated with the based on focus group discussions with 66 self-help groups distance to the closest dealership. Predictably, the most and interviews with 134 Deepam beneficiaries from six common reason given for low consumption of LPG was the districts (see Table 1). In addition, discussions were held higher cost of using LPG, the refill cost ranging from Rs. 250 with other LPG users and non-users, oil company to 300 in mid - 2001 depending on the distance to the dealer. representatives, dealers and government officials involved How and when LPG is used in the scheme. LPG was found to be most extensively consumed during the monsoon season. The reasons for higher usage of LPG Findings of the Study during this season are the following: (1) the agricultural The Characteristics and Experience season begins during the monsoon, making more cash available to agricultural labourers who earn regular wages; of Deepam Beneficiaries (2) there is less time for biomass collection and cooking; Focus Group Discussions with and (3) keeping biomass dry is difficult. The use of LPG Self-Help Groups was reported to be the lowest in summer. Over one-half of the 66 self-help groups that participated Wood is still used more than any other fuels for cooking, in the focus group discussions were more than four years and is also the dominant fuel for heating water and other old. Based on housing conditions, assets and land-holding non-cooking purposes. The only exception is "other status, about half of the beneficiaries belonging to groups cooking", where LPG seems to have made an inroad, most 2 likely to make tea and perform other simple tasks for Average LPG consumption was 3 kg per which getting a fire going by use of wood would take up a disproportionate amount of time. month per household. At this consumption Advantages of LPG use level, health and development benefits of In terms of economic benefits, there was a near universal LPG use are not fully realized. consensus that savings in cooking time were the most significant aspect of LPG use (97 per cent). This was cited The others had to collect the cylinders themselves, or else twice as many times as not having to spend time collecting pay a third party for cylinder delivery. Half of the biomass (45 per cent). Other reasons for using LPG included respondents reported that they had to pay up to Rs. 55 for time made available for labour (30 per cent) and the social each cylinder collection, averaging Rs. 22 per refill. The status associated with LPG use (9 per cent). Focusing on the other half did not pay anything extra for cylinder delivery. impact on actual cooking, cleanliness (lack of soot deposits How much LPG do beneficiaries consume? on pots and pans, making clean-up easier) was most important (88 per cent), and cited twice as frequently as the LPG consumption was calculated based on when the absence of smoke during cooking (45 per cent). cylinders were installed and the number of times refilled. The results, expressed in kilograms (kg) per month per Disadvantages of LPG use household, are shown in Figure 1. Average LPG The reduction in kerosene allocation was seen as a negative consumption was 2.9 kg per month, and an average refill feature of the Deepam scheme by a large number of rate was one every seven months (median one every five beneficiaries (84 per cent). Urban consumers, who suffered a months), lower than what the focus groups reported. cutback in their allocation, were directly affected. Rural However, there was a marked difference between urban consumers, who are entitled to only 3 litres a month to begin and rural households: urban households consumed on with and use kerosene primarily for lighting, did not face average 4.8 kg per month, whereas rural households reductions in kerosene allocation. The State Government was consumed 2.6 kg per month. A quarter of the respondents able to maintain the same kerosene quota for rural Deepam reported that they used LPG for all cooking, which is beneficiaries by updating the ration card registration system estimated to require about half a cylinder a month. One- and taking other rationalisation measures. The rural third said that they used LPG regularly to prepare tea, and beneficiaries nevertheless expressed dissatisfaction with the a quarter said they used LPG to cook meals for guests. policy of exchanging kerosene for LPG allocation. Figure1 Average LPG consumption under Affordability and level of satisfaction the Deepam Scheme. Two-thirds of the respondents said that LPG was "partially" affordable. One-fifth said that LPG was affordable, but 14 per cent replied that it was not affordable. Predictably, 89 per cent wanted to see a reduction in the price of LPG to facilitate its greater use. In terms of the level of satisfaction with the Deepam scheme, 97 per cent were satisfied with the selection process, 77 per cent with its coverage, and 65 per cent with the distribution arrangements. Individual Interviews The majority of the 134 beneficiaries interviewed were in rural Source: Evaluation of the Deepam Scheme in Andhra Pradesh areas. Two-fifths owned land, and one-half owned livestock. February 2002, Draft final report by NIRD. Two-thirds had kitchens inside the house (equally split between those with and without partitions from the rest of the Pluses and minuses house). Close to half of the households owned two-wheelers. As in the case of focus groups discussions, all of the Most of them learned about the Deepam scheme from their respondents cited time saved as the primary benefit of self-help groups and government officials. As with focus using LPG. The biggest problem cited was the additional group discussion findings, most used their own funds to expenses incurred in switching over to LPG (89 per cent), pay for the purchase of the stove and other accessories. followed by the inconvenience and expenses incurred in Two-fifths lived within 5 kilometres (km) of an LPG collecting refill cylinders (55 per cent), having to spend distribution point. However, of those who lived within money upfront (17 per cent), and the use of LPG being 5 km, only a quarter had home delivery of refill cylinders. "unsafe" (13 per cent). 3 Looking to the Future The uptake of LPG is strongly income elastic at low income levels, so that the poor will use LPG sparingly. As long as free The Deepam scheme is a rare example of targeted capital or cheap biomass is available, households will continue to use subsidy for LPG, and as such it provides valuable insights traditional fuels rather than LPG unless they are quite well off. for designing subsidies to promote better energy services Cylinder management makes the distribution of LPG in rural for the poor. areas especially difficult and commercially unattractive unless Achieving the social objectives of the scheme - saving LPG is universally used as the primary cooing fuel. Merely women's time for other activities, improving household urging distributors to set up more depots--just to cater to environment and health, and reducing pressures on Deepam beneficiaries who do not consume much more than forests - in a tangible manner would require substantial use of 3 kg per month--is unlikely to resolve delivery problems. LPG as the primary fuel. This study found that for the majority An important consideration is the deregulation of the of rural households, the incremental cost of substituting downstream petroleum sector by April 2002. One of the biomass with LPG was sufficiently high to deter significant objectives is to create an open and competitive market with a switching to LPG. Instead, the financial considerations have level playing field, designed to increase efficiency in the confined LPG to incidental use (such as making tea or sector and ultimately reduce the cost of service to consumers. preparing meals for unexpected guests), or to periods when Differential treatment given to state-owned oil companies the opportunity cost of fuelwood use is high, such as the and private sector LPG distributors (in the form of subsidies monsoon season. Reliance on biomass as the primary fuel reserved exclusively for the former) goes against the spirit of continues among the majority of Deepam beneficiaries. sector deregulation and its objectives. By continuing to give not only a price subsidy but also a cylinder connection fee Capital subsidy to alleviate the high upfront cost of energy subsidy only to the dealers for state-owned oil companies, service is generally acknowledged to be far better than the Deepam scheme in its current form slows down the operating cost subsidies (such as fuel price or power tariff move towards a market-based petroleum sector. subsidies). However, capital subsidy facilitates access to quality service only if consumers can pay for the operating Confounding Conventional Wisdom-- costs themselves so that a viable energy market can develop. Mexican Experience This study shows that urban households are more willing to As a broad brush picture, it seems reasonable to suggest that as pay for LPG cylinder refills than rural households, because households become richer, the level of indoor pollution should biomass is less available (and consequently more decline. This, however, was not found in studies in Mexico. expensive), and cash income is probably more consistent The studies have found that, as expected, those who used only and higher. In this regard the capital subsidy provided in the fuelwood for cooking tended to be concentrated among low income households. However, when households began using Deepam scheme has been better utilised in urban areas. But LPG, they almost never abandoned fuelwood in rural areas, so the question remains as to how to help the rural poor, the that nearly all households using LPG became multiple-fuel principal target of the Deepam scheme, to enjoy similar users. Furthermore, mixed fuel (fuelwood and LPG) users tended to consume more overall energy than fuelwood-only benefits of LPG connection. users. As a result, fuelwood savings from taking up LPG, averaging 8 per cent in five studies, were much smaller than The beneficiaries universally cited time savings in cooking as what might have been expected based on stove efficiencies. the chief benefit of LPG use. There is less awareness about the Surprisingly, when concentrations of respirable particulate matter health benefits of LPG use. Women have noticed the absence of - the primary pollutant of health concern in indoor smoke - were smoke and the impact on eyes, throat and lungs. Exposure measured at the household level in one study, average particulate concentration did not decrease consistently as income rose. In fact, monitoring in Andhra Pradesh and elsewhere indicates that the average concentration among the lowest income households unless LPG becomes the primary energy source, thereby was 450 µg/m3, but rose to 845 µg/m3 among the most affluent substituting the majority of biomass used, indoor air pollution households where the highest proportion of LPG usage was found. While these findings need to be interpreted with caution levels remain high (see box - Confounding Conventional on account of the small sample size, these nevertheless illustrate Wisdom).At the level of LPG consumption found in this study, the point that air pollution levels do not necessarily decrease health benefits of LPG connection remain low in rural areas. monotonically with increasing wealth. There are several possible explanations for the above household The Government of AP has taken the decision to add an pollution measurement results. As income rises, houses become generally cleaner but the kitchen area can be neglected and additional 1.3 million new connections under the Deepam remain traditional, becoming increasingly marginalised. Some scheme at the cost of Rs. 1.3 billion. In this context, the affluent households remodel the kitchen, using materials that do principal question is whether and how a commercially not permit as much air flow: for example, replacing wooden walls with cement walls. viable market can be developed and sustained in rural areas. Souce: Masera, O.R., B.D. Saatkamp and D.M. Kammen. 2000. "From linear The experience with the Deepam scheme has confirmed switching to multiple cooking strategies: a critique and alternative to the energy ladder model," World Development Vol. 28, No. 12, pp. 2083-2103. the worldwide experience with the household use of LPG. 4 Interview To accommodate the needs of vulnerable groups, 3 per cent of Deepam connections have been specifically "The Government of AP is reserved for the physically handicapped and women committed to releasing an belonging to the Scheduled Tribes. A significant additional Rs. 128.51 crores change on the supply side is the addition of 69 new to provide a total of 3 outlets by oil companies to the existing 280 outlets to million LPG connections to provide better service and expand coverage in poor women." rural areas. G.N. Rao, In continuing with the scheme, are there things you Director, Department of Food, Civil Supplies and Consumer would like to do differently? Affairs, Government of Andhra Pradesh The Government of AP has released Rs. 171.49 crores What in your opinion are some of the successful under the Deepam scheme and is committed to releasing aspects of the Deepam scheme? In particular, have an additional Rs. 128.51 crores to provide a total of there been pleasant surprises? 3 million LPG connections to poor women. I would There has been very strong demand for LPG connection propose the following modifications. from DWCRA members eligible for the Deepam scheme in 3 Strengthen education activities (especially on health the districts of Guntur, Krishna, West Godavari and East and safety aspects) to encourage greater utilization of Godavari. The main benefits that women see are time LPG connection. savings (which could be used for childcare, economic 3 Concentrate on those users who are likely to use LPG activities and leisure), cleaner house environment and regularly. improved social status. In the last two and a half years, have you seen 3 Focus more on improving the distribution network. changes in the implementation of the program, 3 Change rules to permit the transfer of connections to perhaps in response to requests from the beneficiaries relatives (kith and kin) who are eligible for the Deepam or LPG distributors? scheme. Recommendations however, be conducted in a broader context and emphasise a number of measures, including smokeless For the next stage of the Deepam scheme, the findings of chullahs and separate kitchens, so that households can the study point to several recommendations. choose from several options. Attention should also be ª Ifsmallsizecylinderscanbeintroduced, notonlywill paid to simple practices that can improve the health of each refill cost be considerably smaller, enabling many household members at no additional cost, such as households to refill more regularly, but the initial taking small children out of cooking areas, and cylinder deposit fee, for which the State Government of ventilating cooking areas more. AP is currently paying Rs. 1,000, can also be For others considering a comparable targeted capital subsidy significantly lowered. Small size cylinders may scheme, the following additional considerations may be therefore yield double benefits: more regular worth incorporating in the design of such a scheme. consumption of LPG by the beneficiaries, especially in ª Rather than making the scheme universally available, rural areas, and a lower subsidy bill for the government. consider concentrating on those areas where the It is important to stress, however, that market forces, availability of free or cheap biomass is diminishing. and not government policy, should guide the sizes of This will concentrate limited state financial resources cylinders to be made available on the market. on those households who are most likely to ª Allow the transfer of Deepam connections to other consume LPG. eligible beneficiaries in cases where the recipients find ª Bear in mind the importance of creating a sufficiently themselves incapable of purchasing refill cylinders. level playing field for all LPG distributors, in the spirit ª Publicisehealthbenefitsofreducingexposuretoindoor of sector deregulation and its ultimate objective of air pollution. Such public education campaigns should, providing better service at the lowest cost. 5 Opinion used the same network to penetrate the rural areas, distribution logistics were found grossly inadequate. To overcome this, the "The Government of Andhra Government of Andhra Pradesh should involve private sector Pradesh should involve private LPG companies in the scheme, as the private sector has a much sector LPG companies in the better penetration of distribution network in rural areas. For Deepam Scheme" example, Shakti Gas right from its inception has focused on rural markets since the urban markets are already the monopoly D. V. Manohar, of the Government oil companies. Consequently, we enjoy an Chairman and Managing Director, excellent distribution network in the rural areas and are better Shri Shakti Gas, Hyderabad, Andhra Pradesh equipped to handle the Deepam logistics. Also the Government Can you comment on economies of scale for distribution dealers operate on a single tier whereas the private sector and consumption of LPG? For example, how much would dealers have booking agents and stock points and operate on a a household need to consume per month to make it viable two to three tier system. for a private LPG business ? Can Subsidies be Effectively Used to The LPG distributor should have a customer base of 1500 to 2000 to be viable. A refill turnover of 300 per month is required to Increase Cleaner Fuel Consumption break even. The average consumption of the Indian household is Among the Poor? about 80 kg per annum in urban areas. In rural areas it is much A new study sponsored by ESMAP addresses precisely this lower. Total monthly fuel expenditure is approximately between question. The study will analyse kerosene and LPG subsidies in Rs. 150 and 200. LPG is not the primary cooking fuel. Among our the context of petroleum sector deregulation (from the rural customers, normally only the husband works. If the wife perspectives of protecting access and public health benefits for has a part time or seasonable job, the monthly household income the poor while preventing adverse fiscal impacts and sector rises, making the purchase of LPG easier. distortions). In particular, it will examine alternative subsidy What do you view as important elements for expanding mechanisms to the current universal one (for example, directing your LPG business in general, and recruiting new a limited subsidy to low-income households only) to see if customers in particular? concentrating limited resources on those most needy might accelerate the uptake of cleaner household fuels among low Removal of government subsidy and the creation a level playing income households. In order to answer these questions, the field are important elements for expanding our LPG business. study will attempt to gain a better understanding of what makes Currently, LPG for domestic use is subsidised to a substantial households switch over from biomass to liquid or gaseous fuels. extent. In AP, the gas connection is also subsidised under the National surveys and other data will be examined in depth Deepam Scheme. In such a situation the private sector LPG towards that end, testing different hypotheses. companies are unable to expand their business. The outcome of the study will be a solid analytical basis and An evaluation of the Deepam Scheme suggested that the some recommendations for policy decisions on how to logistics of refill cylinder distribution are one of the harmonise the fiscal and social objectives of petroleum sector problems faced by rural households. What are some of the pricing policies after sector deregulation. The study is being options for addressing this problem? undertaken by a group of economists from the Society for Economic Research and Financial Analysis in India. The Deepam Scheme in Andhra Pradesh was implemented For more information, email to Dr. Masami Kojima at through the distribution network of the Government oil mkojima@worldbank.org companies, which was restricted to urban areas. When they Feedback We would appreciate if you send us contributions, comments and suggestions. The last date for receiving articles for the next issue is April 20, 2002. Sameer Akbar Kseniya Lvovsky South Asia Social and Environment Unit South Asia Social and Environment Unit The World Bank The World Bank 70, Lodi Estate 1818 H St., NW New Delhi 110003, India Washington DC 20433, USA Tel: 011-91-4617241 Fax: 011-91-4619393 Tel. 202-473-6120, Fax 202-522-1664 Email: sakbar@worldbank.org Email: klvovsky@worldbank.org If you would like to be included in the mailing list, please email to pritikumar@mantraonline.com Visit us at http://wbln1018.worldbank.org/sar/sa.nsf This newsletter is part of a World Bank study in India, Household Energy Air Pollution and Health, and is supported under the joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP). The material used in this newsletter does not represent the views of the World Bank. Produced by macro graphics.comm pvt. ltd.