Sustainable CSR Idea for Rural Electrification

Submitted for IIMB Ideas for sustainable CSR

Sanjeev Kumar, Kaushik Kochhar (MDI, Gurgaon)

Executive Summary
India is witnessing corporates mature as corporate citizens of the country. From miscellaneous acts of philanthropy to sustainable corporate social responsibility (CSR) initiatives, organizations have come a long way in the way they give back to the society. Are they making a real difference? Are they building processes, which are sustainable, or merely delivering products? In this paper, we critically analyse the current CSR activities and propose a sustainable CSR idea that is easy to implement, does not harm the environment and solves more problems than one.

Contents Executive Summary ............................................................................................ 1 Introduction ....................................................................................................... 3 Current CSR Initiatives ....................................................................................... 3 Need for Sustainable CSR ................................................................................... 4 Why Rural Electrification?.................................................................................. 5 Proposed Idea .................................................................................................... 8 Concept&Implementation Model ................................................................... 9 Challenges .................................................................................................... 10 Conclusion ....................................................................................................... 10 References ....................................................................................................... 11

Introduction
The term Corporate Social Responsibility off late has garnered a lot of attention in India and abroad. The term may be new but the concept isnt. In 1965, the then Prime Minister of India, Lal Bahadur Shastri issued the following declaration on the Social Responsibilities of Business: [Business has] responsibility to itself, to its customers, workers, shareholders and the community every enterprise, no matter how large or small, must, if it is to enjoy confidence and respect, seek actively to discharge its responsibilities in all directions. and not to one or two groups, such as shareholders or workers, at the expense of community and consumer. Business must be just and humane, as well as efficient and dynamic. Companies are taking an increasingly active role in the communities where they have a presence by following means, 1. 2. 3. 4. Partnering with non-profit and/or non-government organizations, government agencies or Independently running initiatives for social development Co-creating Being environmentally responsible by setting high standards of efficiency

Despite the many initiatives, the general observation has been that a large number of corporations have treated CSR as a peripheral item. This perception has to change CSR has to become a mainstream item. Corporations, in its pursuit to achieve their business objectives, should also strive to achieve the larger social goals. The good news is several corporations, such as Tata group of companies, Cairn India Ltd, Mahindra and Mahindra, have displayed deep and continuing commitment towards corporate social development through a plethora of actions. In this research paper, we will focus on #1 and #2. We start with a broad level analysis of the current CSR initiatives of large corporations in India. We analyse the need for sustainability and whether many of the current CSR initiatives are truly sustainable to make a permanent change in the social space. We then propose our idea for a sustainable CSR initiative for rural electrification and discuss its merits.

Current CSR Initiatives

In a developing country such as India the economic development issues are different and characterized by issues such as poverty, illiteracy, healthcare, social security and basic civic infrastructure. These have been on the governments priority list since independence and continue to remain the pain areas. 1990s has seen NGOs and social activists pursue the issues of human rights, child mortality, womens empowerment, community development and environmental conservation. The CSR activities of corporates have also been in this direction but have been by and large carried out to meet the minimal legal and regulatory framework requirements. They have also been topdown in nature. The drivers for CSR differ based on the industry sector, size of the organization and

nature of ownership private or public sector. For instance, drivers for CSR in private corporates are often brand value reputation and competitiveness. On the other hand, the main driver for public sector companies emerged to be corporate values in a study conducted by Baxi and Sinha Roy (Baxi&Sinha Roy, 2012). In the same study, the common barriers to CSR are lack of governance, lack of dedicated staff and indifference in top management and following were their key findings: 1. 2. 3. 4. Companies entered into education, healthcare, infrastructure, women empowerment etc Companies chased too many CSR products; their objectives were diffused The objectives were not renewed for a long time The lack of clarity of prioritization within companies among the objectives was significantly evident 5. The pursuit of too many objectives deprived the company any opportunity to focus on the core issues in CSR implementation and evaluation of the impact of such activities. Some of the notable CSR activities are in the areas of social impact, health, education, vocational training, applying IT to improve processes and social empowerment. (Narang, 2009) Social Impact Vocational Information Training Technology Cairn India Ltd Bharat Godavari Tata Motors GTL Ltd Aluminium Co. Sugar Mills Ltd Ltd Ltd. Multi Tata L&T GMR Tata Commodity Refractories Infrastructure Consultancy Exchange of Ltd Ltd Services India (MCX) ITC Ltd Tata Steel Ltd Grasim Sona Koyo HewlettCement Steering Packard India Rawan Systems Ltd Indian Farm Grasim Chennai Forestry Dev. Industries Ltd Petroleum Co-op. Ltd Corp. Ltd Bharat J K Lakshmi Mahindra & Petroleum Cement Ltd Mahindra Corp. Ltd National Thermal Power Corp Ltd Health Education Social Empowerment Vedanta Aluminium Ltd Hindalco Industries Ltd

The Singareni Collieries Co. Ltd ONGC Ltd

Cairn India Ltd

L&T

Need for Sustainable CSR

Rabindranath Tagore emphasized on process rather than product in his ideas about rural welfare and reconstruction. It was back in 1922 that he established a dedicated institute for Rural Reconstruction in Santiniketan. His focus was to create processes by which the villages could tackle their own problems. The institute worked in broadly three areas, research, education and extension.

But, we believe, the current CSR has been focusing by and large on the product and have been fragmented in nature. According to Debasis Bhattacharya (Bhattacharya, 2006), even though corporates have been participating in social development activities, these have remained miscellaneous. There is no organized channelization of the resources through a well defined media. We believe the CSR activities should have the following features to be effective in the long run: 1. The activity should contribute in building a process than a one time or repeated act of philanthropy 2. Dedicated manpower should be allocated to CSR activity by creating a separate unit from the corporate (or a dedicated business unit within). For example, Infosys Foundation& Infosys Scientific Foundation created by Infosys Ltd 3. There should be proven governance mechanism for the CSR activity. Success should be tracked by parameters such as utilization of allocated budget, beneficiary satisfaction surveys, independent audits etc. Strict control and monitoring mechanisms should be in place to measure the outcome of the activity 4. The goal of the CSR activity should follow Lao Tzus famous quote: Give a man a fish; feed him for a day. Teach a man to fish; feed him for a lifetime The CSR activity should empower the beneficiaries with tools, equipment and provide them an environment in which they can develop themselves. 5. The CSR should be sustainable. In line with the above features, we have chosen the area of rural electrification for our idea of sustainable CSR. We propose using sustainable energy resource the solar power in this idea.

Why Rural Electrification?

Today, Over 40% of population has no access to electricity Roughly 70% households use traditional biomass for cooking More than 70% of our crude requirement is being met through import impacting Indias energy security India spent INR 78,198 cr. on petroleum products subsidy in 2011 Sixty-five years after Independence, only nine states - Andhra Pradesh, Gujarat, Karnataka, Goa, Delhi, Haryana, Kerala, Punjab and Tamil Nadu - of 28 have been officially declared totally electrified India needs 8%+ GDP growth for lifting the bottom 40% of the population to an acceptable standard of living

If we want to serve to the nation and want to become a real developed nation, we have to address to the above mentioned facts. Every year we give away a huge amount of subsidies. We believe subsidies must be given; it is most powerful tool in the hand of government. But we must measure whether we are providing them to the real needy people or just cross subsidising for those who do not need it. For making electricity available to rural homes, Indias problem is threefold the massive investment required in building the infrastructure for the electrification project, the lack of selfsufficiency in power generation and mitigating effects on environment by choosing sources of energy wisely. Let us understand the distribution of Households by Primary source of energy for lighting in rural and Urban India (20072008)

Others 1% Kerosene 39%

Rural

Electricity 60%

Kerosene 5%

URBAN

Others 1%

Electricity 94%
Source: NSSO 2010 From the above two graphs it is clear that kerosene is the second largest source of electricity in rural homes.We also know that kerosene is an inefficient and more expensive source of lighting when compared with electricity and causes indoor air pollution. If we can provide a better solution to rural India for lighting we can solve multiple issues.

Quantum of Under-recoveries in Rs. Cr.: Sensitive Petroleum Products Petrol Diesel Domestic LPG PDS Kerosene Total Source: http://ppac.org.in/ 1.07 per cent of GDP was paid in under recoveries in 2011. Same year Total expenditures of both central and state governments on health and education were 1.27 per cent and 2.98 per cent of GDP respectively. Breakdown of per Unit Under-recovery on diesel, PDS Kerosene and domestic LPG 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

2723 12647 10246 14384 40000

2027 18776 10701 17883 49387

7332 35166 15523 19102 77123

5181 52286 17600 28225 103292

5151 9279 14257 17364 46051

2227 34706 21772 19484 78190 81192 29997 27352 138541

Source: Teri Report 2012 Note: Prices are Jan 2012 price. Desired price is the sum of refinery gate price plus transportation and OMCs margin. Realized price is price charged to dealer by OMCs.

Almost Rs.30 per Liter we give as kerosene subsidy. The real needy of kerosene are the rural people. When almost 40% of kerosene is used for lighting then why not we provide some other clean energy for lighting in rural India.

Proposed Idea
We propose making Solar Lantern and Solar Home System available to rural homes. Let us see how a Kerosene lantern compares against a Solar Lantern: Characteristic Capital cost Cost of fuel Replacement cost Availability and reparability Flexibility to reduce illumination Lumen Output Safety aspects Subsidy burden Kerosene Lantern Low Depends on usage Low Very good, even in remote locations Possible by lowering the wick Solar lantern High Nil High Poor, due to limited sale and servicing outlets No options for dimming the illumination in CFL- based lantern, possible in LED based lanterns 4-5 Times higher Safe to use One time burden subsidy(if Provided)

Low Fire and health hazards due to smoke Recurring burden of fuel subsidy

of

capital

Providing Solar Home system where an individual house can generate its own electricity through solar power can have multiple positive effects. A solar home system that provides 2-3 lights,1 mobile phone charging point shall be sufficient for a rural use. Availability of Solar system will have both social and economical impacts Impact Of Solar lighting Social Remarks Scalable solar power models can be built to provide electricity to primary health centers and education centers, thus having a large social impact Increase in working hours of Clean Energy Local employment generation ( maintenance and repair, allied industries for solar home system) Standalone power system eliminate the need for huge capital investments in power projects

Improve productivity Environmental sustainability Poverty reduction

Economical

New Job Opportunity

Local level job creation

Saving foreign Exchange

India is net Importer of Energy. The less we import the better it is towards reducing our trade deficit

Even Government is working to provide solar system but due to bad management and corruption the progress is not as it should be.

Concept&Implementation Model
In our model one or more companies, such as ABC Ltd shown below, would transfer CSR fund to an independently run Trust. The Trust would provide a loan to a NGO, which has a good reach in rural parts of the India. The NGO will tie-up with Suppliers of the Solar home system let us call it Clean Lighting System. The NGO will buy the product from supplier and sell it to Consumer.

Credit terms to consumer:

ABC Ltd

Suppliers

Product Flow of money from Fl one or more companies to trust

Flow Money to suppliers

15% down payment Loan tenor can varies from 1 year to 5 years Interest rate may varies from 4 to 6% per annum Repayment frequency is monthly or weekly

CSR Trust

Non Profit Org. BIJLI

Consumers

Loan Repayment

Loan Repayment

Financial model for sustainability of the plan

The customer will either pay in cash (unlikely because the economic condition of the target customer will be below poverty line) or choose financing option, such as 15 % down payment and balance byweekly or monthly instalments. 85 % of payment NGO would return to the trust. This will make the system responsible to collect and effective use of money. 15 % will cover operating expenses, such as administration, salaries of employees etc.

The Trust may run various other social activities. This system is sustainable as it need initial grant from companies and in later stage it has loss of only 15 % and same can be spent as CSR activity by companies. The model can be made self-sufficient in future either by increasing loan interest rate or by cross subsidizing by the trust. Alternatively, the Trust can run some other for-profit business and give part of its retained earnings to the NGO.

Challenges
We foresee the following challenges in implementing this model, Payment collection from consumers After sale service pertaining to warrantee of faulty product Local Politics

Conclusion
The main motto for the CSR is to serve for the Society. Corporate India invests in CSR activities but the real effect is not measured so it lacks effectiveness. First we need to identify the real problems in the society and collectively work to solve them. One of the major problems is availability of electricity in rural India. Providing Clean Lighting system will have both intended and unintended positive externalities. We can contribute to society and environment by supporting reduction in poverty and social upliftment there by improving countrys GDP.

References
1. Bhattacharya, D., 2006; Corporate Social Development: A Paradigm Shift, p.23, New Delhi: Concept Publishing Company 2. Baxi, C. V. & Sinha Roy, R.; Corporate Social Responsibility: A study of CSR Practices in Indian Industry, Noida: Vikas Publishing House Pvt Ltd 3. Narang, R. K.; Corporate Social Responsibility: Replicable Models on Sustainable Development, New Delhi: The Energy and Resources Institute Press 4. Hopkins, M.; Corporate Social Responsibility and International Development: Is Business the Solution? p. 127, Routledge 5. Fiscal Subsidy on PDS Kerosene & Domestic LPG Report (Retrieved from http://ppac.org.in/ on 19 Jan 2012) 6. Total Subsidy on PDS Kerosene & Domestic LPG Report (Retrieved from http://ppac.org.in/ on 19 Jan 2012) 7. Under recoveries to Oil Companies on Sale of Sensitive Petroleum Products Report (Retrieved from http://ppac.org.in/ on 19 Jan 2012) 8. Lang, K. &Wooders, P.; Indias Fuel Subsidies: Policyrecommendations for reform. Policy Brief August 2012 (Retrieved from http://www.iisd.org/pdf/2012/india_fuel_subsidies_policy_brief.pdf on 27 Jan 2012) 9. Rural energy access and inequalities: An analysis of NSS data from 1999-00 to 2009-10. TERINFA Working Paper No. 4 (Retrieved from http://www.teriin.org/projects/nfa/pdf/Working_paper3.pdf on 28 Jan 2012) 10. National Sample Survey Office (2010). Energy Sources of Indian Households forCooking and Lighting (Retrieved from http://www.indiaenvironmentportal.org.in/files/file/Energy%20Sources%20of%20Indian%2 0Households.pdf on 28 Jan 2012)