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Clean Cooking in Mozambique : Deep Dive with Experts

From energypedia

Energypedia and AMER organised a webinar on clean cookng energy on 02 June to discuss about the opportunities for the private sector with regard to access to finance- The webinar was a follow up to the webinar, Clean Cooking in Mozambique: Market Status and Opportunities for the Private Sector.

Link to the webinar presentation: Cozinha Limpa em Moçambique - Oportunidades de financiamento (Portuguese)

Moderators

  • Helena Macune
  • Ana Dionência Munguambe

Panellists:

  • Gervásio Mavengue, EnDev / GBE
  • Taira Pene, Fundação para o Desenvolvimento da Comunidade – FDC
  • Florência Saide, Sogepal
  • Norato Xerinda, MozCarbon
  • Aldina Sindique, Carbonsink
  • Célio José Barnete, Pamoja

Panel Discussion

How has the sector evolved since you started working in the clean cooking sector, what changes have you noticed (regarding policy, funding...) ?

MozCarbon: The clean cooking sector in Mozambique has evolved a lot since 2013/14. Since, then, many new players have entered the sector, who have also introduced new and better quality stoves. There has also been an increase in stove testing for quality verficiation. This has also been possible due to GIZ's program that encourages companies to test as well as monitor the impact of their cookstoves.

We have also noticed increased end-user awareness egarding the importance of using improved stoves and their benefits. For example, the sale of the Mbaula stove has increased without much advertisement/marketing as many people are aware of its benefits.

There are also many financial models being implemented that support the sector. For eg. the Results Based Financing (RBF) is a good financing mechanism because it encourages serious market players. It has seen the emergence of various funding sources such as FAZER, BRILHO and Clean Cooking Facility For Africa.

The cooking sector has evolved a lot due to the financing opportunities that have appeared and not only because of the financing models presented but also because the institutions that operate in the area of improved cook stoves have gained awareness in relation to sources of financing, in addition to the traditional ones, such as BRILHO and FAZER. It is noteworthy that there has been a great change and evolution, because other forms of financing namely Carbon Credits that support companies to develop their businesses in a sustainable way. Recently, a company in Mozambique received a 20 million dollars fund for the implementation of carbon projects in Mozambique.

Due to the access to funding, several companies have been encouraged to improve the quality of the stoves produced locally, and the number of stoves produced has also increased.

MozCarbon for example was not able to produce 1500 stoves per month, but now can produce more than 10,000 to 15,000 stoves per month. It is true that some issues still need to be improved, regarding the Government's help in facilitating some processes, such as reducing import taxes on stoves due to high costs and customs duties. Besides these advances, such as the use of woody biomass (firewood and coal) there are also projects that are a little more advanced, such as the use of ethanol, gas, etc.

Can Testing Policy contribute as a barrier to companies in the ICS sector?

CarbonSink: No, on the contrary, it is still an incentive to improve the quality of the stoves and there is no longer the need to import stoves from abroad. For Carbonsink, there is no longer the need to import stoves because the stoves produced locally have a good quality.

Since most of you have received some type of RBF funding from different donors, can you share what the process was like for obtaining the fund, the application process, obtaining seed money, or any challenges you have faced

Sogepal: To obtain the RBF funding, the process is not difficult, companies must simply met the requirements. This requires some effort by the companies, because they must pre-invest to benefit from the funding. Sogepal has already benefited from this funding, the difficulty however was in the self-financing, because this is one of the prerequisites of RBF. For example, 9 years ago Sogepal did not have the capacity to start a contract in order to produce the stoves and then access the financing, this was the biggest difficulty, but they had to adopt certain internal changes in order to revert the situation, such as the charging system, to use the same amount to produce more stoves.

Pamoja: The company benefited from RBF funding, but faced difficulties, as it was the first experience with this type of funding. In the monitoring process, which is regularly done, we had to get used to this way of working, because it consisted of checking all the activity, going to the consumers to certify the progress of the process. We ended up doing well.

What is the financial literacy like among your customers?

Pamoja: It takes a long time for customers to pay and several buy the stoves on loan, usually over a period of 18 months. One of the biggest challenges we have is to get the customers to pay. By keeping track of the customers, we follow up with them and see which ones have paid and which ones have not. However there is a difference between the rural area to the urban area. Having started operating in the rural areas, the payments were not very good due to their poor financial conditions, while in the urban areas the situation was the opposite.

What kind of financing options do you offer to customers? Can you share them with us?

CarbonSink: The company works mainly with third parties, because CarbonSink's main activity is carbon Credits. The whole network of production and distribution is done by third-party companies. The financing modalities adopted is based on these third-party companies that mostly use cash payment and installments.

On top of this, another payment option that exists is carbon financing and is also a source of additional revenue. Thus, Carbonsink subsidizes the stoves to the clients by taking into account this additional revenue from carbon credits. In summary, the payment options are cash, installments and carbon financing.

One of the challenges that is faced in this sector is in payment, because after the stove is sold, the promoters must come back again to collect the second part or the remaining installments.

Is anyone aware of an existing funding line for ICS companies in Mozambique? Can you tell us more about it

MozCarbon: Financial institutions such as credit lines and banks mostly focus on energy solutions such as solar systems for homes and irrigation. There is little awareness among these institutions about the clean cooking sector. There is a need to connect the financial instituions with the clean cooking businesses and also showing that these businesses are profitable, althought today, the businesses are neglected by the financial institutions.

Sogepal: We are aware of the credit line, BCI which is not directed particularly for the clean cooking sector but is focused on the entire renewable energy sector. I am not sure if it is still in force. Althought, it was a well designed credit line, many companies in the sector could not benefit from it as they did not meet the eligibilty criteria.

How can a startup in the improved stoves sector access opportunities (Carbon finance)?

Carbonsink: Regarding carbon credits, Carbonsink has been collaborating with local companies, mainly in the area of carbon credit certification. What we have realized is that many companies that are working in clean cooking or renewable energy, already perform their activities normally, but with the awareness that there is this additional revenue, through the certification of projects for the generation of carbon credits, which are then sold, project can be viablie in the long term. Since most seed funding are given for a few years, in 3, 4 or 5 years, after that funding is over, the startup can have access to the carbon financing and sustain themselves.

EnDev: EnDev as a program not only has the results-based financing (RBF) scheme, but also has been supporting companies since 2013. Some of the panelists of this webinar have benefited from the technical and financial support provided by EnDev. EnDev also provides grants that help the company to stabilize in the market, expand in the market, the whole process including the administrative part with trainings, everything to help the company to be profitable, and only after the company stabilizes, then it can already benefit from the RBF financing. In short, EnDev prepares companies so that they are eligibable for the RBF.

What channels do customers use to repay the amount of the remaining installments? For example: cash, mobile transfer, bank transfer, etc.

Mozcarbon: We work with associations in Marracuene and Boane to use revolving credit, known as xitique, and this is already very positive. And another experience that we had was in Sofala, in which the type of payment was by installments, in which they coupled with a solar system from another company that used the PAYGO system, where the value of the stove was included within the kit of the solar system, and we were able to recover the revenues from the stoves, and not only that, but we also have a very well equipped call center that does the work with the clients in order to facilitate the payment process, and this pressure on the clients, was even because of the financing received by institutions like FAZER, BRILHO, etc., that put pressure on us.

CarbonSink: The sales promoters collect the client's information, and have an application that allows the collection of the families' geographic data, and each promoter is responsible to go back to the family that made the sale in the first installment to go collect the remaining part, and not only, but also for the case of other service providers, there is the possibility of a call center, to manage the collections issue, because sometimes it is not the promoters who do the collections, but the database managers, through calls to remind the clients that there is a second or third installment to be paid, and this is how they work to make sure that the installments are finished.

Pamoja: We use an application that is integrated to SmartStove. When there are five days left to make the payment, the application sends automatic messages to the client, reminding about the payment. Because they use PAYGO, as soon as the payment deadline is over, the stove stops working and with PAYGO the payments have improved a lot, because in the past, the clients would give excuses not to pay the rest and the stove would keep working.

Do you offer end-user financing only to households or also to institutions (small businesses, hotels, restaurants, etc.)?

Mozcarbon: Currently, our focus is on the distribution of stoves for family use, but also for productive use, although this group is very small in terms of acquisition.

What are the gaps in terms of market intervention that the operators perceive as being from the regulatory authority? To facilitate the consolidation of the presence of brands in communities - Directed to operators/service providers?

Mozcarbon: Companies in the energy sector have a very open space to work, and at the beginning of the webinar, the strategy of using Biomass energy was presented, showing that the Government is interested that institutions, companies, and society in general, change energy sources, including clean cooking, and this leads you to think that there are no big gaps. The gaps or challenges as always are related to the high taxes that have to do with the production of renewable energy devices, for example to produce stoves, or even for those who want to import tend to pay 50 to 60% of the value, and even we who produce the aluminum-based stoves, pay taxes to import the raw material.

Did you receive any special funding during the COVID-19 pandemic? What kind? Are the installment payments you offered to end consumers fixed? Have you readjusted them since the COVID pandemic? What kind of support did you have to do this?

Mozcarbon: Mozcarbon received the financial support from FAZER called COVIDPlus. During this period, MozCarbon grew its production and also had more sales, since it started operating, and this is due to the support of the FAZER program. With this support it was possible to reduce the initial acquisition fee from 50% to 30% and extend the payment period. However our experience shows that customers tend to pay within 30 days of paying the first instalment. Before the payment was 30% cash and 70% instalment, but now the experience is 65% cash and 35% instalment. Note that in our company the promoters no longer go to the houses to collect but to distribute the stoves.

As far as payments are concerned, our company offers different possibilities to the client, he/she can pay in installments with a down payment of usually 50% and the rest is paid over 90 days. With FAZER financing, for example during COVID, we reduced the minimum down payment to 30%, and the rest would be paid over 90 days. We also finance through carbon credits, because it helps to cover some of the gaps along the value chain, including reducing the price of the stove, compared to what would be the market price.

Sogepal: We also received funding from FAZER called the COVIDPlus I and II, and it was possible through this funding to increase the internal stock, purchase raw materials, and also continue the sale of products to final consumers. This funding was of great help during the COVID pandemic. For concerns regarding payments, there were some adjustments in the payment collection process. Before the pandemic, the payments were made weekly, with visits to the customers' homes, but during the pandemic, we had to make some adjustments. Since certain clients lost their income, the payment modality was changed on both the company's and the clients' side to facilitate both parties. We tried to constantly maintain client relationship, and thus ended up maintaining a good relationship with the customers. Because more than 80% of their clients do not pay cash/prepayment, but by installments, we had to adjust taking into account the reality of each client.

Pamoja: Before the COVID period, the payment was made over a period of 12 months, and also the down payment was a bit high, but we realized that the pandemic affected everyone and the customers no longer had the ability to pay on time, so we extended the period from 12 to 18 months, and also reduced the down payment, and this made the customers continue to subscribe to our services.

Carbonsink: We had to reduce the price of the product, since many families lost their economic power, and with the funding from FAZER via COVID-Plus, it was possible to reduce the price of stoves, so that more families could have access to them.

Does your company collaborate with other financial institutions (FIs) or mechanisms to offer financing to the end user for the purchase of the stoves?

Carbonsink: Mozcarbon does not collaborate with other institutions, but welcome any institution that is interested in acquiring improved stoves. Companies should start thinking about collaborating with these institutions, and MozCarbon has already started thinking about how to formalize these institutions so that they can acquire improved stoves. And maybe one thing that should be done is to link the companies with NGOs and with those institutions that already work with revolving credit, so that the communities can acquire the stoves, including a value for the stoves. We are in the process of collecting data and indicators to better intervene in order to include the improved stoves component in the communities with which we have experience, Marracuene and Boane

What energy efficiency standards does the lab consider? Can we schedule a technical visit?

FAZER: The minimum energy efficiency is 40% compared to conventional stoves, and one can indeed visit the laboratory, it is an open space to receive visitors. The laboratory is called the Center for Biomass Energy Certification and Testing and is located on the campus of the Eduardo Mondlane University (UEM) in Maputo.