How to operate a cost-sharing scheme for electricity
The Sunday Nation
Nairobi,
05 June 2011
One of my relatives recently applied for power to be connected to his rural home. He was asked to pay about Sh750,000 and when he protested that his neighbour had been charged only Sh32,000, the Kenya Power & Lighting Company officers explained that his house was “outside the 600m limit” and therefore he has to meet the cost of an additional transformer.
The KPLC officers went further to suggest that he could talk to his neighbours and convince them to share the cost with him so that they can all get power in their homes. Now that sounds like a good idea, only that it turns a customer into a market officer of KPLC…a job that he would not get any payment for. In addition, he needs to convince at least 24 people to join him in order to bring the cost down from the Sh750,000 to about Sh30,000 per person.
If you have ever marketed anything, you will know that it is very difficult to convince 24 people to join you in a project that will cost them Sh30,000. You will need to call them for several meetings where you will serve them with tea and snacks etc…. all at you own cost. Faced with this prospect, many customers simply give up on the idea of ever getting connected to grid power.
Now there might be a better way of going about the cost sharing. What if my relative was asked to pay the Sh750,000 but then get refunds as more people connect to the transformer?
The programme can work this way: The first customer meets the full Sh750,000 cost; when the second customer comes on board, she is asked to share the initial cost by paying Sh375,000 to the first. This means that the connection cost for these two is Sh375,000 each. It is simply two people sharing the Sh750,000
When a third customer wants to connect, the initial amount (Sh750,000) must now be shared amongst three people. That is, Sh750,000 divided by three; so the third one pays Sh250,000. This money is divided equally between the first and second customers: that is, each gets a Sh125,000 refund.
Now, recall that the first two customers had paid Sh375,000; so when we subtract the Sh125,000 refund from this figure, we are left with Sh250,000. So the costs are equal. This step-by-step calculation of refunds can be continued until the transformer has connected the maximum possible number of houses.
This idea is fairer than the current system where the first customer who request for a connection meets the full cost but subsequent applicants are supplied at much lower rates since the transformer has already been paid for.
But think about this: having paid for the initial installation, won’t the first customer be giving all the others an interest-free loan to get power? Yes that is true, but we should not use it as an excuse to throw out the idea. Next week, I will show how this challenge can be overcome.
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