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# **Box 4. Lao PDR Connection Charge Program: Power to the Poor**

The Power to the Poor (P2P) program, implemented by Electricité du Laos (EDL) with the support of the Ministry of Energy and Mines, subsidizes connections and finances indoor wiring for poor rural households. The objective is to increase household connection rates to 85–90 percent in villages already connected to the grid. The program, which uses participatory methods, particularly targets poor female-headed households. Eligible households receive the same no-cost “basic” 3/9 amp meter (low voltage) provided by EDL to all households. This is sufficient for an average household to run two light bulbs and a small electrical appliance, such as a radio. Participating households make an average up-front payment of about $24 and can obtain an interest-free credit of up to $87 to cover the costs of installation and indoor wiring. The credit is paid back over three years in installments of about $2.50 as part of the household’s monthly electricity bill. One of the key ideas behind P2P is to keep targeted households’ monthly expenditures—for both the repayment of the interest-free credit and electricity consumption—at the same level as their expenditures for vastly inferior traditional energy (such as batteries, diesel lamps, and candles) before connecting to the grid. The monthly savings in household energy expenditure are projected to be enough to allow households to repay the connection cost in three years.

The case of Ms. Phanh, 57 years old and divorced, is an excellent example of how P2P has benefitted the poor. She has been living on her own for 20 years, as her adult children have moved away. Her home is made of wood and thatch and consists of one very small room, where she sleeps, and an equally small covered porch area. She works 6 − 7 hours a day finding fish, frogs, and bamboo shoots for her own subsistence and to sell; this is her only income-generating activity. She earns about $6.25 per month. Other than this work, she is unemployed, as local opportunities are limited to manual field labor, where men dominate. Her income is often not enough to meet her needs, and she depends on her son for additional food and money. Since her home was connected in April 2009, Ms. Phanh has been using electricity mostly for lighting and operating some small appliances. She consumes a very small amount of electricity per month, approximately 14 kWh (kilowatt hours), for which she pays approximately $0.35. In addition, she pays about $2.50 toward the P2P credit provided by EDL for the up-front connection costs. Now that Mrs. Phanh has electricity, she hopes to purchase an electric water pump to irrigate a small vegetable garden she would like to plant near her home to earn additional income.

_Source:_ World Bank 2011a.

There are several reasons why many international programs focused on rural electrification favor capital subsidies over consumption subsidies. Consumption subsidies require a constant stream of revenue from national governments and distort energy markets by encouraging consumers to use more power than they would if the price were not subsidized. In countries where the price of electricity is subsidized, but access to the grid is low, rich households, which are more likely to be connected to the grid, are the main beneficiaries of the price subsidies. After the initial wave of rural electrification takes place in a given country, it is mainly the poorer households, those not able to afford the connection charge, that still lack electricity, so connection subsidies tend to be well targeted. Moreover, the social benefits of capital subsidies have been shown to be quite high—sometimes well over 50 percent of the cost of providing electricity service (IEG 2008; Meier et. al 2010; Khandker et. al. 2012a). The first use of electricity is generally for household lighting, which has a very high value for customers. As a consequence, encouraging the widespread adoption of electricity yields substantial benefits, both for households and for nations.