Oando, affordable clean cooking fuels for Nigerian households
Oando Marketing PLC provides integrated energy services in Nigeria and internationally. In collaboration with Alitheia Capital, a Nigerian advisory firm, Oando aims to provide Nigerian low income households with affordable and accessible clean cooking fuels through low weight Liquefied Petroleum Gas (LPG) cylinders with integrated cooking rings.
The inclusive business initiative
The initiative is built on two parallel value propositions - sell the integrated stove/cylinder product and also provide financing for the initial purchase of the stove via a microfinance fund. Commercially, the project is primarily driven by the objective to deepen and extend Oando’s existing LPG value chain coverage to reach end consumers in areas that are currently difficult to reach and increase the use of gas across Nigeria. From a development perspective, low-income households1 directly benefit from access to a more environmentally friendly and affordable fuel alternative to currently used cooking fuels such as kerosene, firewood, electricity or charcoal.
Despite having a considerable amount of gas reserves, Nigeria – compared to countries with similar gas resources – is currently only using a small part of its gas resources domestically and LPG utilization rates are low. Oando’s market research has shown that only 1.7 per cent of target households use LPG as primary cooking fuel and Nigeria’s annual per capita LPG consumption is currently more than 3kg below West African averages. Yet the research also revealed that willingness to change cooking fuel is high amongst respondents. Over 73 per cent of respondents said they would consider changing fuels if they had a choice, and of those, 73.7 per cent indicated that they would prefer to switch to LPG. Thus, demand seems to be greater than supply. The lack of infrastructure at the “last mile” (to the homes of poorer consumers) and the lack of suitable/affordable product options for low-income households are some of the key reasons for limited use of LPG as the preferred cooking fuel. So by developing a low cost stove/cylinder product along with suitable distribution and finance systems to reach low-income households, Oando’s main commercial driver is to tap into the currently underserved gas market for base of pyramid consumers and thus expand its business in a sustainable and profitable way.
By providing low income households with gas cylinder stoves the initiative aims to serve up to one hundred thousand low-income households by the end of the first year and up to two million low-income households by the fifth year. Social, economic and environmental benefits include:
- A reduction of negative health impacts – LPG reduces Indoor Air Pollution (IAP), which is caused chiefly by the burning and subsequent inhalation of solid fuels and estimated to be the fourth highest health risk factor in Africa. Women and children below the age of four are those most often impacted by the health implications of burning solid fuels in the house, so the existence of clean cooking fuel alternatives benefits them most.
- A reduction of carbon emissions and deforestation – By replacing solid fuel stoves the project reduces black carbon, which is the second most important contributor to global warming. Oando’s market research indicates that the project has the potential to create estimated emissions savings of 2.2 million certified emission reductions (CERs) over its first five years. A change in consumption patterns away from fuels such as firewood and charcoal also has positive impacts on deforestation.
- Opportunities for micro-entrepreneurs – Oando’s distribution model creates income opportunities for micro-entrepreneurs via a franchise model. Over the course of five years, 37,398 people are expected to come on board as micro-franchisees via the initiative.
Innovation and scale
The project’s innovation is its business model that offers a holistic approach to address the low utilisation rates of LPG in Nigeria with positive social and environmental impacts. The initiative combines both product innovation (provision of a low weight, low cost product) and innovation in the value chain (both through financing and distribution model that reaches previously untapped market segments).
Objectives of Facility engagement
The Business Innovation Facility supports Oando in creating stakeholder momentum to drive the implementation of a large-scale Generic Fuel Switch campaign in Nigeria by identifying and approaching relevant stakeholders from different sectors, designing an initial plan for an industry wide marketing campaign, describing levers, activities and targets, and brokering partnerships.
The project sold 90,000 stoves in Year 1 benefiting an estimated 7,000 households. It expects to reach break-even by the end of 2013 if it reaches its target of selling 500,000 stoves.