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close this book Local Experience With Micro-Hydro Technology
View the document 2. FINANCE


a) Tasks and Responsibilities

b) Which Institutional Arrangement is Best?

c) A Country Example

d) The Need for Training

Concerning hydropower development, the most common state at present is still one of central (state) control. Water rights and licencing procedures are geared towards the end of a state monopoly, with a very restrictive and not a promotive practice adopted in dealing with development initiatives. Where, in addition, small schemes are treated in the same way as large ones, the danger of a loss of interest on all levels is evident. A legal framework is necessary.

No doubt, its aim should be to control and coordinate all water-resource needs in a wider context, and perhaps less the continuation of a monopoly situation at a time when each kWh produced by hydropower, may be considered to be in the national interest. A fundamental constraint in the large scale dissemination of small hydropower, can be removed by the formulation of an open policy, under which local and individual initiative is not only permitted but is encouraged. A degree of state control, on the other hand, is necessary in the interest of all. For it to be effective and fair, it appears that it should be delegated to the lowest possible level. This may be on the level of the drainage-area concerned, or perhaps even on the village level. The People's Republic of China may be quoted once more as an example where an appropriate policy exists. One may first note the overall maxim of "walking on two legs", that stresses small developments in parallel to large schemes. This has been the policy responsible for the large-scale dissemination already achieved. On the implementation side, various levels of government are concerned which the following citation may show: "At the central government level, the Bureau of Farmland Water Conservancy is responsible for the planning and construction of small hydropower stations. Its specific task is to coordinate countrywide the planning and integration of the small stations, to guarantee optimal interconnection of isolated stations and to promote the production of the required equipment at county and province level. The planning is based on the 5 year plans of the communes (as the smallest administrative unit), which are approved at county level for projects smaller than 500 kW and at province level for larger projects."). It may be added that the first step in projects is taken by the communes. For the formulation and technical details, the county waterbureau assists, and thus promotes local initiatives. The communes on their part define their needs based on consultations with individual settlements and thus, while there is central planning, this directly relates to the needs of the rural population, because all local development plans together form the data-base on which the central government acts. It is clear that other countries with different social structures may require a different organisation to deal with hydropower development. It would in most cases be impossible or impractical to copy the Chinese system. The point to be learned from is much rather that projects and decision-making bodies are related in size, and the authority is on the lowest possible level, without the loss of central overall coordination.

Besides of legal and organisational policies, there are a number of other areas requiring clear guidelines. An important question is which institutions or agencies -be it governmental, communal or private - should best be involved in hydropower development, and at what level and for which specific aspect.

There are basically two groups of problems that require the attention of appropriate institutions. The first group is common to all rural electrification projects, be it hydro, another source of isolated power supply, or extensions from a grid-system. The second group of problems concerns specifically hydropower development which will require organisational involvement, in addition to the basic institutional structure that usually already exists to take care of the first problem group. The World Bank gives an outline of institutional problems in their publication "Rural Electrification". Material therefrom has been adapted here, with hydro-specific elements added.

a) Tasks and Responsibilities

The interdependence of the many elements of an investment program is such that the program's success can be undermined by a failure in any one of them. This includes the institutional arrangements for running the program. At the local level of responsibility, for example, negligence in billing or a lack of trained personnel to repair faults can discredit the program within the locality. At a more central level of responsibility, such lapses as inappropriate or bad pricing-policies may eventually discredit the program nationally, however successful the other aspects of the program may be. Analysis of institutions, therefore, requires a careful look at each of their elements. In discussing this problem, it is convenient to classify the elements in terms of who is responsible for them -that is, in terms of organisation.

The diversity of tasks connected with rural electrification programs requires special institutional arrangements at all levels of administration: namely, at the levels of the government, executing agencies, and the local administration in the rural areas. The division of responsibilities between these three levels depends partly on conditions and partly on the nature of the tasks. The table fig. 83 lists the more important tasks and how they are sometimes allocated, although the allocation obviously changes from case to case.

Where the country has a significant rural development program, a need clearly exists for the public sector to take an active interest in order to promote coordination between investment in related sectors, particularly in agriculture, irrigation, agro-industries, and other rural infrastructure projects, such as roads, schools, water, and health. In addition, where the country is large, and electricity is generated and distributed by independent regional utilities, a central government agency (such as REC(Rural Electrification Commission) in India) may be needed to promote standardisation, cooperation between regions, and a regional balance in the rural electrification program.

Fig. 83: Typical Tasks and Divisions of Responsibilities in Rural Small Hydropower Development

Source: Adapted from World Bank, Rural Electrification


Another function for the public sector is to provide general directives and ground-rules for tariff and financial policies, the allocation of funds, and the criteria to be used for project appraisal and selection. This is traditional, except that the scope of the directives and ground rules needs widening to cover the special problems of rural electrification and, in particular, isolated, small hydropower stations. Much of the public sector's involvement needs to be indirect only, if the ground rules and directives are well laid. A specific function of the public sector may also be to approve equipment designs of local manufacturers; to compare such designs and conduct performance tests. This may permit end users of the technology to select equipment, based on an objective technical appraisal.

Much of the public sector's policy needs to be worked out jointly with executing agencies who are primarily engaged in implementing projects, and therefore have an intimate knowledge of local reality. Questions on tariffs, financing, the setting up of programs and overall potential assessment are thus best done jointly. The responsibilities of executing agencies are in the areas of site identification, formulation of projects, engineering design and construction, decisions on the appropriate quality of service, procurement and contracting. Of much importance, although this is sometimes neglected, are providing of advice and supervision as well as facilities for the training of personnel of the local institutions. Also, a task that is often not carried out at all, is active load-promotion and effective load-management, in which local institutions require considerable assistance from executing agencies.

b) Which Institutional Arrangement Is Best?

There is no clear answer to the question of which institutional arrangement is best. The main debate is about the extent to which the responsibilities just outlined should be delegated to the local administration. It is sometimes said that the executing agencies can assume the responsibilities quite well, also in the operative stage of a project, with the additional advantage that the more talented and motivated people can, in working at the centre, spread their efforts more widely. On the other hand, if such centrally appointed personnel is delegated to a small hydropower station to operate it, personnel costs are likely to be high in relation to usually modest revenues of such a plant. It is often stated that operating costs of small hydropower stations are high. This need not be true, if the underlying principle of the institutional arrangement is one of marginality, while still maintaining efficient operation.

In practice, it is necessary to be flexible in deciding the form of organisation. On the one hand, several arrangements may work well; on the other hand, different arrangements suit different countries and cultures.

c) A Country Example

Experience in Nepal may be of interest in this context: at the outset, when turbine development was taken up by a local manufacturer, there was virtually no institutional set-up capable of taking care of all related aspects of hydropower development. Consequently, only very few turbines could be sold to daring customers who somehow tackled the problem of financing, site identification, licencing, and installation. To improve the situation, personnel of the manufacturing company was engaged in site-identification surveys and later in installation activities, training of personnel, and maintenance of existing stations. The Agricultural Development Bank at the same time conducted introduction courses for their field personnel to enable them to assess project feasibility from the lending point of view and took up financing of small hydro installations on a sustained basis, taking into account the specific nature of such investments (e.g. longterm, slow return) in the loan repayment requirements. Licencing authority is traditionally on the local level, so that there was no major problem in this area.

The arrangement of institutional involvement was further refined in the following years. Manufacturers (three of them by now) set up specialised installation-units within or affiliated to the company, whose job is to carry through projects from their very inception to the point of regular check-up's during operation. Projects that are executed are always based on a productive activity such as agro-processing or lift-irrigation (refer also to section E.2), and stations are usually privately owned.

In the case of larger projects, but still in the micro-range (e.g. the example in section E.1), the various manufacturer's specialised units cannot cope with all the tasks necessary. Two government agencies were set up to handle projects in the micro-and mini-range respectively, with a third agency, a private limited company, working as a contractor on the mini-scale of projects. Site identification on this scale of operations is usually done by small engineering consultant firms aided by the local authorities, followed by a feasibility study. Detail surveys are then done jointly by one of the manufacturers or the hydro contractors team, with the respective government agency. In the execution stage, engineering design is split into penstock and equipment layout on one hand, and all the rest on the other, as is actual construction and installation work.

The executing agencies here, are the relevant government agency or. the hydro-contractor, and the manufacturers team respectively, while electricity-transmission and distribution are taken care of by the government agencies themselves, or are contracted to one of the few local electrical engineering firms.

The several manufacturers of equipment are today in a situation of competition with each other, as are the engineering consultant firms. This has an impact on quality-wise and cost-wise performance. It may be noted that co-operation in hydraulics technology exists among some of the manufacturers despite competition. This is due to the large potential market that bears promise for intensified activities in the future. No one would like to see the failure of a competitor's project in this situation, because it could discredit hydropower development in the area concerned.

The attitude of government authorities in the early phase of activities is also remarkable: requirements of performance and reliability of local equipment was relaxed deliberately to encourage manufacturers. Workshops with no prior experience in equipment manufacturing got the chance to develop skills without having to face undue risks, as did consulting engineers in the case of site-surveys. As previously mentioned, this has led to the situation of competition in which steady technological improvements are evident. On the operation and ownership-side finally, several arrangements exist. One of the larger stations (but still in the small-scale) is operated successfully as a private limited company, while others are under direct control of a central government agency. Micro plants are often owned and operated privately, as mentioned, while co-operative ownership is also existing. It is still too early to say what institutional structure is the most suitable, except perhaps that institutions that are located geographically close to the hydropower station under their control, are at an advantage.

d) The Need for Training

A number of seminars on the development of small hydropower have identified problems of insufficient capacity for planning, designing, construction, and operation of hydro stations. This translates primarily into a lack of know-how and skills in the specific area in many developing countries. It is evident that knowledge on all levels -from policy-makers to plant operators - is a necessity and it is encouraging to see that a lot is already being done about this situation. There is a trend of increasing numbers of seminars and workshops that become more and more meaningful as international expertise is built up. This is indeed very valuable on the level of higher cadres. More on the practical side, in project execution and plant operation, individual countries have an important role to play. As pointed out throughout this paper, hydropower development is highly situation-specific. On the job training should therefore be regarded as the most effective instrument. Governments could plan and execute pilot-projects that are deliberately overstaffed, to give as many training opportunities as possible. In this way, a stock of personnel would be trained that could be engaged in further projects, where again new people could be trained. The multiplicator-effect thus initiated, could form the basis of a skill-bank, permitting substantial dissemination after a relatively short time.

It should be noted that training on the civil engineering side should be different from that oriented to big project development, because a non-conventional approach is usually necessary in small hydro projects, as far as materials and working techniques are concerned. Another point is that people assigned to big projects on the higher level, tend to be specialised in one specific activity, while in small projects generalists are required.