1. INTRODUCTION

For decades, rural development programs have been the focus of developing countries’ governments and multilateral and bilateral development institutions. Taking care basic needs in rural areas has been the primary objective of these programs until recently. Rural development has rarely been the primary objective of such programs. In recent years, the focus of these programs has shifted to ‘basic plus’, which means increased rural services for expanding income generation opportunities for rural poverty alleviation, and enhanced rural services for improving social life. There exists now a general consensus in that the provision of modern and sustainable energy is a necessity and major means for social development and poverty alleviation. Exhibit I
summarizes this concept.

In the process of energy provision, the emphasis has predominantly been on rural energy access through rural energy service companies; and the presumption has been that once energy becomes available, rural development would automatically take place. But, the reality so far has not proved this assumption. Millions and millions of dollars have been pumped into rural programs for development, infrastructure, and energy in developed and developing countries. While, there has been great impact in developed countries, the picture is different in developing countries. Sustained longterm sustained subsidies (mostly in agriculture that represents the mainstay of rural development) have played a critical role in the success of rural development in many developed countries. The case of subsidy is different in developing countries. While a number of institutional and business models have been tested in attempting to build

Exhibit I: Links between Energy and Rural Sustainable Development Graph

sustainable rural energy service delivery in developing countries, most of them have not achieved the desired results. This paper attempts to provide a possible institutional approach for sustainable rural energy delivery aimed at poverty alleviation and social development.

2. PRESENT SCENARIO IN RURAL AREAS

The rural areas lack in infrastructure facilities, such as roads/ rails, drinking/irrigation water, cooking fuel, gainful employment, education, health clinics, telecommunications, etc. The cost per capita for providing such services is much higher in rural areas compared to urban areas due to low population density, which in turn results in much lower demand for services and much higher per unit capital investment. The paying capacity for services by rural population is another constraint to expanding rural service markets. On the other hand, the total subsidies being allocated to rural sector are quite substantial and the administration costs of these subsidies are also very high. Adding to this is widespread corruption whereby subsidies are often politicized and diverted to those who least need such subsidies. This results in further failure of the approach. On the institutional side, it has to be noted that rural services for basic needs such as energy, healthcare, education, etc. are most often provided through government departments and agencies. There exists a separate department for each service, which contributes to making the services more costly. As the rural population cannot afford the actual cost of services, the governments provide subsidies, which become unmanageable with the expansion of the services to other un-served rural areas. The current trend for the provision of services and subsidies in the rural sector cannot be sustained by limited revenue collected through taxation. When subsidies are downsized or discontinued, the deterioration of services over a period of time is unavoidable in most of the cases. Quite often, there comes a stage when governments in developing countries are unable to provide salaries and wages to their employees. As a result, the massive funding provided for developing the infrastructure for providing services is physically depreciated and lost because of lack of maintenance. Given this scenario, the basic question facing the rural development planning community is - what can be done to address this problem and what are the model approaches that would cause a sustained rural development?

3. WHAT IS REQUIRED TO ENHANCE RURAL DEVELOPMENT?

We need to understand the basic difference between providing services in the urban and rural areas. As such,

every one is well aware of the difference. However, the approach to deal with the difference has not been appropriate in most of the cases where failure after failure of providing rural services is evident. Nonetheless, there are sporadic examples of success stories. We would like to summarize and bring forward the common factors in these success stories. First, all of the successful stories have had the common objective of economic empowerment of the rural poor by linking rural services with income generation opportunities. In fact, in these cases service has been available only to those who could increase their income by utilizing the service so as to be able to pay for at least the cost of service. Secondly, in all of these success cases, there have been simultaneous efforts to reduce the cost of services through innovative ways of service delivery. The combination of these two factors has led to sustainability of the rural services.

Rural populations need the following: (i) drinking water; (ii) food and shelter; (iii) irrigation water; (iv) health care facilities; (v) education; (vi) roads and transportation facilities; (vii) telecommunication means; (viii) consumer items (such as clothes, utensils, shoes, etc.); (vii) services for maintenance and repairs of equipment, pumps, motors, etc.; (viii) electricity; and (ix) a participatory social development process. Almost all of these needs can be sustainable and successfully met by providing the rural population the opportunity for employment and participation in income generation activities, primarily rural.

Furthermore, there would be other requirements of goods and services for strengthening and expanding existing income generating activities and creating new ones. There would also be a need for raw material and marketing of finished goods and products. In other words, all existing and new activities/ services in rural areas need to be catered in an integrated fashion. This would be a significant departure from the current approach whereby these services are being provided through different business models and organizations. Finally, all of the activities above require financing for creating facilities to provide goods and services. Financing will be required not only for services and goods to be used by rural population but also for agricultural activities and for setting up rural industries.

All of these needs can be met, and the rural development initiatives can be more productive, if reliable and sustainable energy services are available. As shown in Exhibit I, it is quite clear that energy and electricity play a vital role in causing rural development.

4. WHO ELSE CAN PROVIDE RURAL ENERGY SERVICES?

While the concept of energy service companies (ESCOs) is very well established and in many cases successful, the concept of rural energy service company (RESCO) is relatively new. RESCOs do exist in the form of cooperatives and private/ public energy service providers. However, in developing countries, RESCOs have been surviving on government subsidies, because the scale of operation is small, the demand for energy services is dispersed, and the cost of services is very high. Thus, the real challenge lies in developing approaches to deliver affordable services to rural communities that allow cost recovery. Can this be achieved, and how? Why not develop the concept of rural service companies (RUSCO) for the provision of rural services including energy?

When the utilities found that it is costly to create peaking facilities, they diversified into new activities such as demand side management. When a business venture becomes less profitable, it tries to diversify into similar activities and integrate them with upstream and downstream activities of the business venture. A textile mill may start growing cotton (or set up petrochemical factory), but may also enter into readymade garments manufacturing.

Similarly, a company in rural areas may start with the aim of providing comprehensive rural services to cater to all major needs of rural communities. Such a rural service company (RUSCO) would not only provide the needed rural services but also promote opportunities for rural communities to start rural industries. The RUSCOs may also provide raw materials for rural industries and buy out the finished products to sell to other market outlets. For any business to survive and sustain, it must consider the market characteristics where it plans to operate, as well as adjust appropriately and continuously to market developments. In other words, for any rural service company to be successful, it has to be designed in a way that creates potential for its financial viability. In this context, it has to consider:

• Market segment and economy of scale - the minimum number of households to be served in order for the RESCO to break even
• Appropriate ownership structure that fits into local conditions
• Amount and duration of available subsidies
• Prevailing institutional, regulatory and legal framework

Furthermore, lack of management resources is another factor that affects the need for integrated services delivery in rural areas by RUSCOs. A RUSCO needs to plan its activities in a manner that encompass the following features for its success:

• Provision of various rural services: RUSCOs can plan and provide rural services, such as drinking/irrigation water, energy services, transport, mechanized agriculture services, marketing, etc.

• Integration of rural services: RUSCOs can offer integrated rural services, such as water and energy. As energy, especially electricity plays a vital role in creating income-generating activities and the energy services must match the needs of the rural communities, RUSCOs may carefully invite other business players to set up mediumand large-scale industries. This will help them in creating the right consumer mix for ensuring that their business is financially viable.

• Reduction in overhead and administrative cost: One accounting system can keep track of the accounts of all rural services.

• Adequate maintenance for service reliability: There is a need to develop a cadre of rural technicians, who can repair and maintain all the equipment, be it for water pumping, for providing electricity service, tractors, or other farm equipment. This would also avoid the need for mechanics or electricians for each service.

• Local employment: Provision of many different rural services under one umbrella would require many new employees and necessitate training of employees. This would benefit RUSCOs by creating more economic power amongst the members of rural communities leading to increased demand for rural services. It will also generate greater acceptance of the RUSCO approach to rural service delivery.

• Establishment of rural market facilities: RUSCOs may set up market centers to cater to the needs of rural communities.

• Establishment of service/ operation area: RUSCOs may cover an optimum number of villages to reach a threshold needed for ensuring their financial viability.

• Assistance in setting up of rural ventures: The development decisions for rural ventures need to be based on the human and physical resources available. While human resources can be molded and trained, physical resources need to be constructed and equipped.

• Mobilization of financial institutions: RUSCOs can be instrumental in inducing financial institutions to provide loans not only to them for setting up the infrastructure for providing services, but also to finance rural entrepreneurial activities initiated by rural communities.

• Sell the raw material for rural business: RUSCOs may sell the raw material after procuring these materials from outside their rural areas. In this way they can cause trade and add to their profitability.

• Assistance in marketing of rural produce: RUSCOs may buy the local produce and sell it to other market outlets at a profit.

• Assistance to local entrepreneurs to attend trade/craft fairs: RUSCOs may help the locals to attend and display their produces in local and city trade fairs.

• Assistance to local population in seeking jobs outside: RUSCOs may provide information about job opportunities to the rural communities. This would help the educated, skilled and semi-skilled rural youths take up jobs away from their villages. However, they would remit a part of their earnings to their families, which would increase the purchasing power of the rural communities.

• Transfer of new technologies into rural areas: RUSCOs can be instrumental in bringing new technologies to rural remote areas for mutual benefits.

RUSCOs need to develop their integrated business missions, visions, strategies, and plans, based on the human, physical, and natural resources available primarily in their intended areas of operation. A judicious and reasonable integration of rural energy service with the objective of creating incomegenerating opportunities would most likely make RUSCO operations viable and eventually profitable.

Although the RUSCO concept may look quite reasonable and promising, there still remains the issue of subsidy which is critical, at least for the initial phase of RUSCO piloting and proof of concept. What we believe to be important is the potential that RUSCOs offer as a promising rural service delivery model which could effectively channel and target various subsidies to the rural population and encourage rural economic and social development.

5. RUSCO – A BETTER CHANNEL FOR TARGETING RURAL SUBSIDIES

Many developing country governments are providing substantial subsidies for various agriculture activities and rural services. Subsidies are available for farm/agriculture inputs, such as, fertilizers, electricity, water, etc. Furthermore, most of the transportation facilities and other activities are funded by the government without sufficient revenues to cover costs. While there is a need to rationalize the various types of subsidies, governments may begin thinking about policies and strategies that would promote the establishment of RUSCOtype organizations as they may fit in their respective rural areas and conditions, as well as develop frameworks on handing over of the existing rural services facilities to this type of institutions. It is important to note that assets would have to be transferred to RUSCOs at a nominal reasonable cost, which may be collected over a long period of time. As RUSCOs’ ownership structure may vary from rural notfor- profit cooperatives to for-profit private businesses, the subsidization of existing and new physical assets is a delicate policy issue that needs careful attention. Considering the rural development status in many developing countries, it has to be emphasized that subsidies are still a must for the delivery of many rural services. However, they must be judiciously planned and targeted. Subsidies may be channeled through local governments to the RUSCOs. The major advantages of utilizing RUSCOs as the primary channel for managing subsidies for rural services are the following:

• Less administrative burden and lower cost results in higher effectiveness
• More transparency and accountability results in less corruption and higher efficiency
• Better targeted to those eligible and most in need
• Clear focus on only some of the services to rural populations
• Opportunity to avoid use of subsidy for RUSCOs’ operation purposes
An important comment to be noted when addressing the issue of providing subsidies through RUSCOs is that utilizing RUSCOs as a channel for rural subsidies would very well create the potential for achieving more positive impacts because of the synergized economic and social effect that various subsidies may bring about when offered as a package for integrated provision of two or more subsidized services.

6. SUMMARY AND COMMENTS

In many cases and regions, throughout the world, rural populations lack basic services and opportunities for initiating income-generating activities. At the same time a substantial amount of subsidies is being provided with the little impact in these areas. Furthermore, the objective of almost all developing country governments is to alleviate poverty and promote social development. While many institutional designs for the provision of rural services have been tested, very few have had positive results. Furthermore, it is clear that the provision of rural services per se does not affect rural economic and social development without orienting and integrating these services with income generation and productive activities in rural areas. A few comments on the discussion follow:

1. First, the application of an integrated approach for rural development and poverty alleviation is increasingly becoming a major policy of many developing institutions. Integrated approaches to rural service delivery can best be implemented by RUSCO type institutions as there is greater prospect for financial viability and eventual profitability of such entities.

2. Second, the successful provision of affordable and sustained rural services for poverty alleviation and social development depends on the financial viability of the rural service providers. Following the examples from various economic sectors other than rural, the economic advantages of business diversification and vertical/ horizontal integration in rural sector need to be explored while carefully considering rural local markets and their development trends.

3. Third, the viability of RUSCOs has to be assessed on a case-by-case basis, and a proper overall business plan should be developed for each venture to ensure cost recovery at a minimum. RUSCOs need to develop their integrated business missions, visions, strategies, and plans based on the human, physical, and natural resources available primarily in their intended areas of operation. A judicious and reasonable integration of rural energy service including rural energy with the objective of creating income-generating opportunities would most probably make such a business venture profitable.

4. Fourth, RUSCOs, as a social development partner, can assist rural communities in their entrepreneurial efforts; train and employ local individuals; cover all rural services so as to reduce administrative cost; market the raw materials to rural industries and rural produce to urban markets; and be on the look out to expand rural business activities.

5. Finally, RUSCOs may need targeted subsidy for a certain period of time during the start-up phase. They offer the best potential model for channeling various subsidies targeted to rural areas and activities. This model has the potential for achieving more positive impact because of the synergized economic and social effect that various subsidies may bring about when offered as a package for integrated provision of two or more subsidized services.