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How IDCOL and the Bangladeshi SHS programme started

Silvana Tiedemann: Prof. Khan, IDCOL is well known today as the implementing agency of the Bangladeshi Solar Home System (SHS) Programme. Was this its initial purpose?
Prof.Fouzul K. Khan: No, not at all. IDCOL was initially set up as the implementing agency for the Private Sector Infrastructure Development Project (PSIDP) of the World Bank. Its purpose was to finance large infrastructure projects, like large power plants, ports, roads, bridges, etc. Small scale solar systems were not on the agenda at all.

Tiedemann: In 2003, IDCOL started the Solar Home System Programme. In an interview with ArcFinance, IDCOL’s current investment director, NazmulHaque, described the initial involvement in renewable energy as ‘accidental and reluctant’. Would you agree with that statement?
Khan: The World Bank wanted to replicate a SHS programme they had in Sri Lanka and approached IDCOL to be one of the implementing agencies for the Rural Electrification and Renewable Energy Development Programme (RERED). But the odds were not in favour of the programme. I had disagreements with the World Bank over procurement and selection of participating organisations and furthermore, the Board insisted on financing large power plants and was sceptical about the ability to recover small loans. But actually, the biggest opposition came from me. Even after physically viewing a SHS, I was not convinced initially about the usefulness of SHS.

Tiedemann: Today, stakeholders of the programme refer to you as “the father of the programme”. How come you changed your mind about SHS
Khan: You know, I am used to decent lighting system and so I did not really see the value of only some lights with a battery. Also, I was hired to finance large power plants. But I come from an island, Sandwip, and there was no electricity there. So what I did was, I purchased two SHSs from my own pockets and I gave one to a cousin and because it is a conservative neighbourhood, I gave the other to a mosque. Then I forgot about it.
Some months later, I received a post card from my cousin and the village mosque committee about how grateful they are about the electricity as they can run a TV and light and even use the loudspeaker system to call for prayers. So I called my cousin and asked if there were any problems with the system. He said that there were no problems at all; nothing. That is when I realised that a SHS is a valuable source of power – just that production, distribution and consumption are all centred at one spot. In general, it is difficult to convince me but once I am convinced, I will commit to it.

Tiedemann: You mentioned that you had a disagreement with the World Bank. What was its nature?
Khan: At the very beginning, we conducted a background study to find out which partner organisations we could work with. At the time, GrameenShakti and BRAC were the biggest and most experienced players. To level the playing field, the World Bank wanted to work with new organisations only but I did not want to risk working with organisations that have no background in the business. Furthermore, we disagreed on the responsibility for the procurement of solar panels. The Bank said that IDCOL should procure the panels to benefit from economies of scale but because I came from civil services I knew that governmental procurement is ridden with corruption. The benefits from economies of scale would be eaten up by corruption. Furthermore, I thought that it is not the business of IDCOL to get into procurement. After all, we are a financing institution.

Tiedemann: How did you manage to solve these issues?
Khan: We were lucky to have a good task manager, Vijay Iyer of the World Bank. He was of Indian origin, understood my concerns, and was ready to convince his management; and I was ready to convince my board. We worked as a team. Finally, I go the reluctant clearance from the Board to run a pilot project with 500 systems. We further agreed to work with GrameenShakti and BRAC along with 3 other new organisations and we left the procurement with the partner organisations but under the condition that the World Bank will conduct a comparative review on SHS prices. When they did the review two years later, they found that the SHS in Bangladesh are the cheapest in the world! I felt vindicated.

Tiedemann: It is standard practice to appoint external consultants to help setting up a World Bank programme. Did IDCOL benefit from the cooperation?
Khan: There are good consultants and bad consultants. IDCOL’s first resident advisor was Robert J. Parra from PricewaterhouseCoopers and his work helped IDCOL tremendously in the beginning. As for the consultant that was appointed for the SHS programme, I had to ask the World Bank for his withdrawal because his advices were counterproductive. The Bank offered to replace the consultant but we reached a deal that the Bank will only appoint a new consultant if IDCOL did not meet its targets on time. This is maybe one of the only World Bank projects without any external consultants.

Tiedemann: Do you suggest that not having an external consultant was a success factor of the programme?
Khan: As I said, there are good and bad consultants. But yes, this programme did not have an external consultant and yet we achieved our targets ahead of time, something which very rarely happens for World Bank projects, too.

Tiedemann: At the start of the programme in 2003, not only IDCOL but also the Rural Electrification Board (REB), the government agency in charge of rural on-grid electrification, implemented parts of the SHS programme. Has IDCOL been competing with the REB to reach high installation numbers?
Khan: No, there was no competition, neither officially or unofficially. The REB component failed and had to be cancelled because they were just not interested in promoting SHSs. There was no ownership for this programme. At IDCOL, we had only new staff, graduates from university. So they were open to do anything new. The REB had many other issues to deal with and this is why they failed and the funds were reallocated to IDCOL.

Tiedemann: As for the programme design, which issues were most important?
Khan: First, I tried to get good legal documents, where the rules of the games and the responsibilities of various parties are very clearly defined. We did this in the form of Participation Agreements. Again, we were offered help by foreign lawyers but we got the same deal: we draft the document on our own and if the government or the Bank was not happy, we would accept assistance. Based on my inputs, Mr. Formanul Islam, one of the first people I hired [the Deputy CEO today], drafted the agreement and fortunately for us, the Bank was happy with it.
The next step was to come up with a good financing mechanism. So we developed a financial model on the basis of a background study that evaluated the monthly expenditures for kerosene. We decided that our financing package should lead to monthly expenditures that are very close to kerosene but slightly higher.

Tiedemann: Why a slightly higher price?
Khan: It was slightly higher because the quality of the light was better. Not only that, you could also run a TV. So, about 10% higher prices were not a problem. Furthermore, at the time when we started the programme, 1Wpwas about $5. So the price of a basic SHS was around $500. These are high costs and you cannot include too many subsidies. The reason why SHSs finally spread like bonfire is because kerosene prices went up and solar panel prices went down. So the economies were hugely in our favour. Furthermore, LED lights were introduced. What you were able to deliver with a 50Wp in the beginning, you were able to deliver with a 30Wp or even 20Wp system. We were lucky to get the initial positioning right but our position also got better and better over time.

Tiedemann: The financing mechanism consists of several components, a buy-down grant, a down-payment by the end-user, a refinancing loan by IDCOL, and a PO contribution to the consumer loan. How did you come up with this design?
Khan: The main idea was that everybody must have a stake in the programme. Take for example the down-payment. Before our programme started, UNDP distributed SHSs for free but after two years, we could not find the systems in the field anymore. People must have sold them off. We also made sure that the grant would gradually come down so that it is a competitive programme.

Tiedemann: Has there been opposition by the POs to the decrease of the subsidy?
Khan: Simultaneously to the decrease in subsidy, the panel prices went down, LED lights diminished the required panel size, and the increasing kerosene price let to better economics. So, no, there was very little opposition by the POs.

Tiedemann: There is an Operations Committee (OC) for the programme at IDCOL that meets on a monthly basis. What is its main function?
Khan: Two sets of people are in the OC: PO representatives and the IDCOL officer in charge of the programme. The committee is a place to deal with problems, a place to meet face-to-face to resolve complaints against each other, and to sort out other teething problems. The POs would complain about suppliers and faulty equipment, that they need additional resources, etc. Then IDCOL would invite the suppliers and they would reply that the POs do not pay on time and so on. So everyone could pronounce their problems. It was absolutely important, especially in the beginning as the regular meetings avoided problems to grow into full-fledged crises. And we also exchanged information about the market, about the number of installations, the selection of the PO, the collection efficiency, political interferences, etc.

Tiedemann: In the early 2000s, the solar market in Bangladesh was literally non-existent. Which additional assistance was given by IDCOL to develop the market?
Khan: Initially, although GrameenShakti and BRAC already had a solar programme of their own, in general, villagers did not know about SHSs. When the POs went to the market places, people thought that SHSs are magic and that they might work on the market place but once they take one home, it would not work anymore. So we launched a massive marketing campaign, TV spots, flyers, posters, billboards on the road side, really a massive marketing campaign. We also supported the new POs with institutional support like one motor cycle for each PO, and one computer. We also developed software for them to collect and transmit the data to IDCOL. This was more in our own interest, to make sure that the programme was efficient.

Tiedemann: I am trying to understand which incentives made sure that the POs successfully took part in training courses.
Khan: Participating in training courses was mandatory on the institutional level but we included additional personal incentives for the participants, for example, money for the travel and daily allowances that are disbursed at the end of the training. If you do not do so, the guy will come but leave after a while or will come up with a good excuse about why he could not travel to Dhaka for the training.

Tiedemann: The solar market does not only consist of POs but also of suppliers. In the beginning, there was only one supplier. Did you see that as a risk for the programme?
Khan: Yes, it was always our goal to ensure as much competition as possible. So we were very careful to support the development of the battery market. Actually, I approached a company called Navana and convinced the owner to set up a solar battery factory to increase competition. We also encouraged others to set up solar panel, battery, and charge controller assembly and manufacturing.
We also needed some political support. But political support also comes with interference and I wanted to avoid interference. So I initiated a programme to mark every installed 10,000 SHS. For the first 10,000 SHSs installed, we held a celebration at the village home of the finance minister and established a telephone connection between SHS customer. Then for the power minister, local government minister, etc. For 50,000, which was the target of the programme, we got the prime minister and established a video link to the villagers that recently got SHS in her home village.

Tiedemann: Somebody who is in power today may not be in power tomorrow, which may create a problem once the government changes.
Khan: We got them all. We got Prime Minister Sheikh Hasina but we also got her predecessor Khaleda Zia. And we also provided good publicity to the politicians. It was a win-win-situation.

Tiedemann: A 2013 study by the Bangladeshi Institute of Development Studies found that the interference of local politicians has increased and has negative effects on the collection efficiency of POs. In your opinion, why is that so?
Khan: Normally, I stay away from politicians but I tried to get the support from these high ranking politicians to avoid the local politicians. Initially, the POs complained about local politicians who do not repay their loans and also encourage others not to repay. But once they saw that the high ranking ministers were behind the programme, people did not default on their payments.

Tiedemann: From your experience, in which cases did people refuse to pay back their loan?
Khan: It is very easy. If you can charge your phone, if your TV is running, people will pay back your loans. But if we did not deliver value, if your TV is not running, if you have no electricity at night, people will not pay back. This is something you cannot cheat on. So we had to make sure that the quality of the SHSs and the services were very good. Therefore, we set up the Technical Standards Committee. To do so, we selected Professor Rezwan Khan as the chairman. At the time, I did not know many engineers. So for selecting the chairman, I looked for two things. First, the person must have the technical expertise and second, the person should be what I call ‘beyond reproach’ as this person will certify the components. So I called a professor at BUET [Bangladesh University of Engineering and Technology] and said that I needed a person who nobody is able to corrupt and he recommended Professor Rezwan Khan. A lot of the credit for the programme goes to him. If he made up his mind, he made up his mind. You cannot move him with any inducements.

Tiedemann: How did you make sure that IDCOL is as incorruptible as possible? 
Khan: In Bangladesh corruption is endemic; corruption defined as the use of one’s official position for personal gains. Even though IDCOL is a governmental institution, I convinced the board to apply a pay-scale that is very close to private sector pay. But raising the pay scale is not enough because gains from corruption are usually much higher than even the most generous compensation package. So what I did is that I started an anti-corruption appointment initiative. A zero-tolerance to corrupt behaviour is now part of the standard IDCOL employment contract and it is very important for the success of the programme. 

Tiedemann: IDCOL did not only establish the certification mechanism of the Technical Standard Committee but also a monitoring of the installed systems. How does it work?
Khan: My main fear was that people will claim the subsidy money without actually installing the SHS, the problem with so many subsidy driven programmes. At the time, the subsidy was very high, about $90, which is quite a lot of money. So when we started, I did the inspection of the SHSs myself and I made it mandatory for all IDCOL staff to do so, too. This was very hard work. There were so few SHSs that travelling from one SHS to another was time consuming and exhausting but it spread the message that there is no way to claim the subsidy without installing the SHS. As a side effect, we at the head office knew about the reality on the ground.

Tiedemann: The monitoring changed over the course of the programme. At which point did you realise that you have to decentralise the monitoring?
Khan: By that time, I was not the CEO anymore, just a member of the board. We realised that the percentage of monitored systems went down, from initially 100% to below 50%. At this point, we decided to decentralise. We did a study to identify the locations of the monitoring offices and did some pilots before decentralising. It helps to save time, which would otherwise be lost by travelling from Dhaka. But they now inspect the inspectors. 

Tiedemann: As the World Bank said in its congratulatory message for reaching the 50,000 target, programmes very rarely reach their targets ahead of time. It must have been easy to extend the programme beyond the 50,000 target.
Khan: To the contrary, the programme almost became a victim of its own success. We were supposed to reach the target in 5 years but did it in 3 and half years. So we desperately needed additional grant funds to continue. Every time I spoke to the POs, their staff asked me what is going to happen to their jobs. The World Bank was willing to give us a loan but they did not have any grant funding available. Then in December, I was invited to a conference in Berlin, organized by OECD. But you know, winter in Berlin is not very pleasant and I agreed to attend under one condition only: I wanted to be allowed to give a short presentation on our SHS programme. The problem was that it was too late to change the schedule so they only agreed to arrange a presentation during the lunch break. As it often happens with these conferences, there was a delay and the chairman interrupted my presentation to continue with the main programme. I was really disappointed. When I went to the washroom to recover, somebody touched my shoulder, expressed his dissatisfaction with the interruption by the chairman, gave me his visiting card, and invited me to his office the next day. Unfortunately, I forgot the name of this true friend of the SHS programme but this is how the grant funding by the Germans started.

Tiedemann: For 2021, the Government of Bangladesh wants to reach an electrification rate of 100%. Are you optimistic that this will happen? 
Khan: I am sceptical. There is no program in place that could meet this goal, even though our constitution obliges the government to provide electricity for all. Therefore, I am currently working with the IFC on the concept of ‘mobile electricity devises’ or Pico PV systems. The main advantages of these systems are that they are affordable by the poor and the same light can be moved from one location to another as needed. Although less versatile than SHSs, these systems meet basic lighting needs of the poor. You need more than IDCOL for that as it is not a financing issue alone. But we need to find a way as I still believe that it is a national shame that millions live without any electricity. 

Tiedemann: Professor Khan, thank you very much for the interview. 

Silvana Tiedemann is an interdisciplinary researcher holding degrees in Global Energy and Climate Policy (SOAS, University of London) as well as Physics (Freie University Berlin). 

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