Sustainability in rural electrification
FRES believes it is important to achieve its objectives via local entrepreneurship in developing countries, with support from FRES in the Netherlands.
We have four criteria by which we measure the performance and sustainability of our local companies:
- achievement in customer growth
- improvement of payment rates
- performance on costs
- financial sustainability
For starting up new FRES companies a procedure was developed, existing of 6 phases:
Phase 1 – Pre-selection of countries, based on three options
- Market potential research
- Upon requests from governments or NGOs
- Applying for tenders issued to provide a rural area with electricity.
Phase 2 – Desk research
We collect as much detailed information as possible about laws and regulations with regard to electrification, taxes, concession areas, possible competition and the economic situation per region in a country.
Phase 3 – Market research
Components of market research:
- The level of income and household expenses on traditional energy expenditure (kerosene, candles batteries and charging mobile phones);
- The potential of the area: there have to be at least 10,000 potential customers within 10,000 km2;
- The possibility of cooperating with companies, NGOs and local partners;
- Willingness of governments to work with us, by making arrangements such as exemptions of import duties and concession zone agreements.
Phase – 4. Development of business plan
The Business Plan has to show the viability of the new FRES company. It contains the following components:
- the number of expected customers
- the target market
- the time schedule
- a financial projection of costs
- income and investments
- a well-founded financing plan
Phase 5 – Decision-making and implementation
Based on the Business Plan, the Board evaluates whether or not a new FRES company can be founded. The Board then presents the decision to the Supervisory Board for approval. When the financing has been arranged, we appoint a General Manager and a Board of Commissioners. Every company begins small to test the local conditions and best practical approach. This way, the financial risks remain limited.
Phase 6 – Monitoring and adjustment
FRES monitors and evaluates the performance of the companies against the milestones defined in the Business Plan. In the first years after start-up particular attention is paid to the number and type of customers, expenses per customer, salary and secondary terms of employment, the number and content of customer complaints, revenue recovery rates, overhead expenses and investment expenditures per new customer. Based on this information, the company’s plans and policies are adjusted where necessary.
In addition, FRES conducts assessments of the socio-economic impacts of the local company’s activities. The frequency and nature of our information supply is adjusted to the needs of our partners, financers and relevant regulators.