3
The Case Studies

SOLAR PHOTOVOLTAICS

Nigeria receives a large income from oil production and the export of natural gas to neighboring countries in West Africa. In 2001 petroleum consumption accounted for the lion’s share of Nigeria’s total energy consumption—61.4 percent. Natural gas accounted for 31.7 percent, hydropower for 6.8 percent, and coal for 0.2 percent.1 However, Nigeria’s electric power network serves only 36 percent of the population, mostly in urban areas and often intermittently. This lack of service has a significant impact on nearly all of the country’s development goals. In urban areas, which are mostly served by the grid, frequent power breaks affect the viability of existing industries and the development of new ones. Expensive private generators are frequently the only recourse. Small businesses and homes in poor neighborhoods are often bypassed by the grid, and power theft is a common problem. In rural areas, unlit homes and communities prevent children from completing their homework at night and thus have a negative impact on education. The lack of TVs, radios, refrigerators, stoves, cell phones, and other electrical devices reduces the quality of life and opportunities for small business, and results in the uncontrolled migration of potential agricultural producers to the cities. Lack of an energy-dependent infrastructure, including communications,

1

U.S. Department of Energy, “Country Analysis Briefs, 2003,” http://www.eia.doe.gov/emeu/cabs/nigenv.html.



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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria 3 The Case Studies SOLAR PHOTOVOLTAICS Nigeria receives a large income from oil production and the export of natural gas to neighboring countries in West Africa. In 2001 petroleum consumption accounted for the lion’s share of Nigeria’s total energy consumption—61.4 percent. Natural gas accounted for 31.7 percent, hydropower for 6.8 percent, and coal for 0.2 percent.1 However, Nigeria’s electric power network serves only 36 percent of the population, mostly in urban areas and often intermittently. This lack of service has a significant impact on nearly all of the country’s development goals. In urban areas, which are mostly served by the grid, frequent power breaks affect the viability of existing industries and the development of new ones. Expensive private generators are frequently the only recourse. Small businesses and homes in poor neighborhoods are often bypassed by the grid, and power theft is a common problem. In rural areas, unlit homes and communities prevent children from completing their homework at night and thus have a negative impact on education. The lack of TVs, radios, refrigerators, stoves, cell phones, and other electrical devices reduces the quality of life and opportunities for small business, and results in the uncontrolled migration of potential agricultural producers to the cities. Lack of an energy-dependent infrastructure, including communications, 1 U.S. Department of Energy, “Country Analysis Briefs, 2003,” http://www.eia.doe.gov/emeu/cabs/nigenv.html.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria transport networks, and health services, further discourage the growth of local economies. Solar photovoltaic (PV) systems are renewable energy sources whose application globally has been limited primarily by the intensity and duration of sunshine in the places in need (and the related availability of the land needed to set up collectors for large-scale applications). The cost and efficiency of PV cells are yet another problem. In recent years, the cost of such systems has fallen along with the cost of purified silicon, the semiconductor at the heart of a solar cell, and the efficiency of manufactured solar cells has risen, with the result that the cost of generating solar electricity is only slightly higher than the average cost of power from the grid. Solar photovoltaics may not be ready to generate electricity for the grid, but it can be the technology of choice for communities that lack access to the grid or where the grid is unreliable. A large part of Nigeria is in that category most of the time, and yet the government finds that many Nigerians do not consume enough power to justify the expense of extending the grid into rural or isolated regions. Small-scale solar PV systems may provide the solution, if it can be demonstrated that, with certain incentives, private enterprises can fulfill that need, while ensuring sustainability by making a profit and ensuring efficient use by enabling consumers to afford the cost. Although developing countries now have a great deal of experience with the installation of solar home systems, there are few places in which an extensive residential area is illuminated for an extended period by solar PV. It is well known that most of these installed systems fail. The principal reasons are not technical, but failures of the business model and poor adaptation to local customs and capabilities. These failures include the lack of training for users, the lack of service and maintenance, and the lack of ownership felt by the users. The last is characteristic of systems that are donated by universities or nongovernment organizations (NGOs) for demonstration purposes. These systems typically are in operation for less than a year.2 Solar photovoltaic systems suitable for rural households—solar home systems—usually consist of several components (see Figure A-1 in Appendix A). They include a PV module containing the silicon cells to be mounted on the roof or another sunny spot, a battery for storing electrical energy for use at night, a charge controller, wires and structural frames, and outlets for lights and other appliances. Such a system can operate several fluorescent lamps (often four), a radio or black and white television, and perhaps a fan. The system normally operates on 12 volts, direct current. Long-lasting, deep-cycle batteries, which can discharge 2 Mark Hankis, “Fresh Ideas Needed: Building the PV Market in Africa,” Renewable Energy World 9 (September–October 2006):103–115.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria 80 percent of their charge during extended overcast weather, are best, but automobile batteries, commonly available in Nigeria, also could be used. The charge controller prevents damage to the system in the event of overcharging by the solar module or prolonged battery discharge from overuse. Other requirements are installation, periodic battery replacement (once every five years for a deep-cycle battery), and user training; they are often part of a service contract for maintenance. The cost of a 40-peak watt system is about $350–$500 worldwide, depending largely on the input duties on the solar panel, but this cost is beyond the reach of most Nigerians whose annual per capita income is about $250. Further complicating the situation, on August 31, 2006, the street price of kerosene, widely used for cooking and lighting, was raised to 650 naira, or about $4.60, for 4 liters (gallon). With this price increase, kerosene, which is mostly imported, became the most expensive petroleum fuel in the country. As recently as 2003, the price had been $0.78 for 4 liters. The alternative for many families is firewood, and so Nigeria’s forests were put at greater risk by the government’s increase in the price of kerosene.3 That price will be a key indicator of the willingness of people to pay for solar electric systems for their homes. The task of the hypothetical case study workshop was to determine whether such a system could be made affordable for Nigerians. To do so, the workshop studied the Solar Electric Light Company (SELCO) in the state of Karnataka, India (http://www.selco-india.com). SELCO was founded in 1995 with initial financing from the Rockefeller Foundation. It was the first rural solar company in India to be engaged wholly in designing, marketing, and servicing a wide range of solar-powered equipment and installations for lighting, TV and radio, water pumping and purification, and many other applications. The members of the workshop panel represented business, government, and academia. Two of the participants are directors of successful Nigerian companies that sell solar photovoltaic units, one established by Siemens Corporation and the other self-started. Both rely on large contracts from hotels and other large entities and appear to be highly profitable, but neither is at present serving rural villages. Two university groups that have developed solar PV units and donated them to villages also were represented. The head of the National Agency for Science and Engineering Infrastructure was present as well. He described his ongoing efforts to develop a critical mass of Nigerian solar specialists and to establish by 2007 a solar photovoltaics cell manufacturing facility. Funds for the facility have been released by the government, and Princeton University is assisting with the training in silicon amorphous film deposition. 3 The official price is now 53 naira per liter, or $1.50 per gallon, but kerosene at that price is very scarce. The street price is three times higher.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria BUSINESS PLAN FOR SELCO IN INDIA A key element of the SELCO business plan is linkage with rural banks that will provide loans for PV systems. Under their Solar Lighting scheme, these banks are now offering consumers three- to five-year loans for 90 percent of the solar unit cost at an interest rate of 12–12.5 percent, which is below commercial rates. SELCO assumes complete responsibility for performing all the other tasks: (1) organizing awareness campaigns in rural areas, including demonstrating PV systems; (2) identifying and prequalifying potential beneficiaries; (3) training local technicians, installers, and service personnel; (4) installing solar home systems purchased through the lending bank; (5) educating users; and (6) providing after-sale service and maintenance. SELCO offers consumers a “lease to own” scheme in which the consumer pays a quarter of the total system cost, including service and installation, as an upfront payment and receives the rest as a loan. SELCO procures systems from reputable manufacturers only after securing factory guarantees of quality, which are passed on to the consumer as performance guarantees. It has set up branches in villages, and its teams of local technicians on motorcycles ensure quick after-sale service and regular collection of loan installments. A typical SELCO branch is staffed by its own technicians, salesmen, and collection agents, all hired locally. The technicians work for SELCO on a salary and commission basis, and thus they have an incentive to sell more systems. The company now has 170 employees in 25 centers and over $3 million in revenues a year. Reaching this point did not come easily. Initially, solar units were installed at no charge in prominent locales such as the house of the local village chief and the local religious building. These systems acted as demonstrations to other villagers and local financial institutions. From its earliest years, SELCO realized the importance of consumer financing, and it spent much of its human and financial resources on informing bankers about the usefulness of solar technology. In four to five years, SELCO was able to convince more than 550 managers of seven different local banks of the value of financing solar home lighting systems. After SELCO conducted several rural bank sensitizing programs—such as training bankers in technology assessment, arranging demonstrations on bank premises, and holding bank and customer meetings—bankers’ confidence about financing solar home systems steadily increased. In 2002 the cost of household systems was $600, the same as a motor bike. Now, after efforts to open new markets and the appearance of competition from other companies, the cost is about $400. At present, SELCO has 50,000 customers in the state of Karnataka and agreements with all the banks in the state to finance solar electric systems, based on no collateral except the system

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria itself. More details on SELCO and the hypothetical Nigerian company described in the next section appear in Appendix A. SOLAR HOME SYSTEMS IN NIGERIA After looking at SELCO, the workshop considered a hypothetical enterprise called the Solar Energy Company of Nigeria Ltd. (hereafter the Company). After reviewing all the elements, the participants concluded that in Nigeria a 40-watt system could be produced and sold for about 75,000–80,000 naira, or about $500–$600. It would be designed to provide about four hours of light at night when there is adequate sunshine in the daytime. For an additional $250, a 50-watt system with an inverter could also support a refrigerator. At present, no companies in Nigeria are providing a similar product, although several university-based NGOs have installed home solar systems for free in villages on an experimental basis. The only major competition is the Power Holding Company of Nigeria (PHCN), which maintains the grid but does not provide power to the villages. However, under law it is the sole supplier of power to homes and businesses, and so it could challenge the legality of a solar energy company. The Company, like SELCO, would have to import, at least initially, the solar module containing the silicon wafers, but, as the local industry develops, it will be more economical to buy them locally. The same is true of the deep-cycle battery. The factory offers a three-year warranty on the battery, but the Company may have to offer the banks a five-year warranty, which will require careful maintenance of the batteries. The inverter is already available locally. Nigeria has experience and core competency in solar energy. Many small companies are serving niche markets, including solar water heating and drying, and several universities have ongoing research programs. The potential market is huge, possibly up to 100 million people who are underserved by the national grid. A potential local problem in some areas is that users may become discouraged during the rainy season when sunlight is in short supply for several months. A program of battery exchange may be a useful complementary service during such periods. The Company could begin operations with as few as five persons, plus two-person teams of installers with cell phones and motor bikes able to complete two installations plus sales per day. Other requirements are a central office space for storing materials and a small showroom. Marketing could begin simultaneously in an urban area, where paying customers and credit are more plentiful, and in a selected rural area with good road access. In rural areas at least, buyers will require microfinancing. The Company will have to plan a campaign with banks on behalf of buyers

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria that includes demonstration of the system and the existing guarantees. The SELCO experience in India, described in Appendix A, would be instructive. The Nigerian Association of Small and Medium Enterprises (NASME) has a microcredit arm that could be useful. Usually, this microcredit is directed at start-up businesses, but the argument could be made that electric lighting would give consumers an opportunity to undertake work or conduct a small business in the home to repay the loan. In addition, the government could offer consumers incentives such as tax deductions or free service contracts for investing in renewable energy sources that would subsidize part of the purchase. FINANCING THE ENTERPRISE Although any individual, entrepreneur, investor, or company already engaged in other aspects of solar energy or of service delivery in rural areas could establish a solar energy sales and service business, the major problem facing most of them will be first-stage financing. Fortunately, several sources in Nigeria might have a particular interest in businesses of this sort. For example, the Small and Medium Industries Equity Investment Scheme, or SMIEIS, offers equity loans under the condition that SMIEIS takes an equity position in the borrowing firm, which it can convert or sell after a fixed time period. SMIEIS was created by the Committee of Bankers in Nigeria on the premise that all Nigerian banks would agree to contribute 10 percent of their before-tax profits to provide something like venture capital for small and medium-scale Nigerian industries. SMIEIS is intended to stimulate economic growth and development, develop local technology, and generate employment. The participating banks for equity investment under this scheme have currently set aside over 5 billion naira for an alternative approach to financing small and medium-size enterprises (SMEs). The government of Nigeria must, however, provide some form of incentives that would encourage the private sector to make a significant contribution to providing electric power to rural areas. Such incentives could include some form of loans or loan guarantees for start-ups, lower tariffs on goods imported for solar systems, price subsidies for consumers, or coupons that help enable consumers to pay for service contracts on installed units. (If the total cost is subsidized, the service contract should be included in the base price. If the service contract alone is covered, it could be a separate item. In either case, the service contract should not be optional. Certainly, the banks will require it.) The incentives should not include direct payments or contracts to companies to provide solar electric systems at no cost to consumers. Experience worldwide has demon-

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria strated that such an approach is a formula for corruption, noncompliance, nonsustainability, and a short lifetime for the installed system. WATER PURIFICATION Life expectancy in Nigeria is 46 years. Water-borne diseases account for the second largest loss of disability-adjusted life years (DALYs) after malnutrition, and a large part of the disease burden is diarrheal disease, most seriously in children. Only 60 percent of households have access to improved sources of drinking water,4 although it is widely believed that no community in Nigeria receives safe drinking water from the government. This situation affects both rich and poor; even those who rely on deep bore wells cannot reliably secure uncontaminated water. Of Nigeria’s 320 million cubic meters of water, 86 percent is surface water. Forty percent of the population, mostly in rural areas, has access only to surface water. The water table ranges from 300 meters in sedimentary areas to 70 meters in basement areas. Water can be found above 70 meters, but with much saline intrusion. In Nigeria, water is sold on the street in containers ranging from sachets in plastic sacks to bottles of mineral water, and the quality of the water varies widely despite the efforts of the National Agency for Food, Drug Administration and Control (NAFDAC) to control and license all providers of water to the public in plastic sachets or bottles. Water sellers often get their water from wells. Some is boiled or treated with ultraviolet radiation. Some facilities are inspected, but the water is not tested. Street water sells for 5 naira ($0.04) for a 500-milliliter bag and 40–60 naira for a bottle. Commercial bottlers can get water from industrial steam as well as from natural springs. But even bottled water is sometimes contaminated by users after purchase by, for example, adding locally made ice. In Nigeria, demonstrably safe water is more expensive than petrol. The health costs of not having safe water are even more expensive. For many rural populations, there has never been an alternative to drinking contaminated and sometimes turbid water. As a result, many people have never had clean water. Some potential users argue that the resistance developed by people to water-borne diseases will be lost if clean water is provided. But children under age five have no resistance, and many people suffer from diarrhea. Education will play a critical role in the adoption of safe water technology and handling practices in the communities served. When people understand the high costs associated with drinking unhealthy water, including ill health, death of children, loss of working hours, and hospital fees, they will realize the economic 4 UNICEF, http://www.unicef.org/infobycountry/nigeria_28236.html.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria benefit of paying a small price for treated water. This realization will provide an opening for private companies to enter the market for safe domestic water. Technologies for Water Purification Many effective technologies are available for home-scale water purification. Some are chemical-based, such as treatment with chlorine; some are thermal, such as boiling and solar heating; some are mechanical, such as ceramic filtration; and some utilize radiation, such as ultraviolet (UV) treatment. Many of these technologies are essentially free, such as the SODIS system developed in Switzerland, which requires only a blackened used soft drink bottle and four hours on a sunny roof, although they may require extensive training for users to acquire the discipline necessary for health protection. Indeed, discipline and sustainability are key elements of success in providing safe water to rural households. Sustainability implies freedom from the exigencies of the government public works process and the vicissitudes of donor financing. The market for an essential commodity such as safe water will never become smaller; to the contrary, it will increase as the population grows, and in it lies an opportunity for the private sector to sustainably fill this need. The hypothetical case study examined two different technologies that have been successfully exploited by private, profit-making companies in other parts of the world: mechanical filtration using specially prepared ceramic vessels and mechanical filtration combined with ultraviolet irradiation. Both technologies have their own competitors—other mechanical filters such as cloth (the least expensive and most affordable technology for remote villages) and different designs of UV filters—which lends some flexibility to the application in Nigeria. The ceramic filter, called Filtron, was developed in Nicaragua by Potters for Peace (http://www.pottersforpeace.org). It is intended to purify drinking water for home use. The cost is very low, but consumer training and discipline are important for proper application. The UV filter, developed by WaterHealth International (http://www.waterhealth.com) in California for developing countries, is applied on a community scale to produce potable water for all domestic uses except laundry. It is marketed to small commercial water sellers and village cooperatives in Mexico and India and to franchised “water stores” carrying the WaterHealth brand in the Philippines, all of which have been able to pay off their loans and make a profit. For each technology, the important element is the business plan for selling safe water to poor consumers. Other technologies could also be used with similar business plans. One example is the “Bring Your Own Water” system installed in Muramba, Rwanda, by Engineers Without

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria Borders–USA.5 Other technologies employ parabolic mirrors to increase the radiation dose or use SODIS after filtration. Simple, low-cost technology such as using sari cloth for water filtration has shown to be effective in removing cholera bacteria from water in Bangladesh. Other, more advanced technologies based on nanotechnology are still under development and showing promising results.6 The use of each technology, however, must be accompanied by education about the value of safe water and proper maintenance. Ceramic Filters The Filtron ceramic filter is intended primarily for household use, ideally as part of an overall water delivery system. The most economical filter consists of a porous clay pot perched inside a lidded 5-gallon spigoted receptacle made of plastic or clay. The pot is saturated with colloidal silver, which acts as a germicide/disinfectant. The simplest unit has a flow rate of about 2 liters of water per hour, which is enough to provide a family of five to six persons with drinking water. Another model processes 6 liters per hour. The filter has been laboratory tested successfully in over 10 countries on four continents, and it has been pronounced effective in eliminating coliform bacteria, parasites, amoebae, and Vibrio cholerae from water. Some 100,000 Filtrons are in use throughout the world, serving about 500,000 people. Potters for Peace exclusively trains ceramicists in developing countries to make Filtron filters for a small fee; there is no license cost. The cost of the product depends mainly on the local cost of labor and electricity or fuel, and it varies between $5 and $25. In Nicaragua, the cost is $7, and the Filtron lasts about two years. A designer model of the Filtron is available for up to $100. It features the same water-purifying effectiveness in elegant containers designed for a more affluent clientele, which opens up the possibility of manufacturing for a second market of consumers. The cost of a factory that employs two to four persons is about $10,000, which can be recovered in as little as nine months. Potters for Peace offers the plans of the press and other equipment free of charge, or it will refer the client to mechanics who build a press to order at a cost of $800 for a portable system able to produce about 50 clay filtering elements a day. Usually the producer is already in the ceramics business and so may already have on hand the equipment and skilled personnel. 5 Engineers Without Borders, http://www.edc-cu.org/pdf/EWBRwandaJuneSummary.pdf. 6 Thembela Hillie et al., “Nanotechnology, Water, and Development,” Meridian Institute, Washington, DC, 2003, http://www.merid.org/nano/.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria At the conclusion of the hypothetical case study, Ron Rivera from Potters for Peace visited the ceramics laboratory of the Federal Institute for Industrial Research in Lagos, and in one day he and lab personnel made two prototype Filtrons. A diagram of the Filtron is shown in Figure B-2 in Appendix B. Ultraviolet Filtration The patented UV Waterworks (UVW) unit is at the core of systems sold by WaterHealth International (WHI) to franchisees that produce and sell potable bottled water to consumers at prices below those of packaged bottled water. Other WHI products, such as community water systems, are sold to governments or communities directly, and provide enough safe water to meet all daily domestic needs, including hand and food washing and bathing. Operating costs for a system that can serve at least 3,000 people are less than $4 per person per year. Treated water is sold to recover the investment and maintenance costs of these systems at prices that are within reach of the populations being served (see Figure B-1 in Appendix B). One of the features of the UVW system is that the UV source is suspended above the water being treated rather than being submerged in the water, where it would be exposed to corrosion and biofilm formation. Water passing through the system is irradiated at high intensity amplified by reflection. Its fewer maintenance requirements enable the UVW system to be operated in areas where labor pools may lack technical knowledge or specialized education. Very little maintenance is required—the lamps must be changed annually, and the filters require periodic backwashing and replacement to avoid biofilm accumulation. UVW technology is also designed to be fail-safe. If any type of malfunction occurs, such as a power outage or a drop in radiation dosage, an automatic valve closes the entry port to the device, ensuring that contaminated water cannot flow through the system without being disinfected. WHI’s systems can be powered by solar or wind energy or a generator; some units have even been run on a car battery for two weeks in an emergency. WaterHealth’s systems are distributed using several different business models in different countries, all by means of local sales agents. One of WHI’s earliest commercial successes was in Manila. In 1997 WHI established a subsidiary in Manila to manage franchises that use the UVW technology to provide lower-cost alternatives to bottled water. WaterHealth Philippines works with entrepreneurs who wish to open water store franchises in Manila, and then sells them the UVW units imported from California. The subsidiary enables local “mom and pop” store owners to own and operate their own WaterHealth-branded water

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria stores. The owners benefit from WaterHealth’s expertise (e.g., in terms of where to open their stores and how much foot traffic versus deliveries they should expect) as well as technical services. All franchisees are trained to operate their stores in compliance with the highest sanitary and quality standards. Water is sold from storefronts in sanitary containers. In the thriving Manila market, over 3,000 water stores are now vying for business. The franchisee pays about $8,000 for a turnkey operation plus franchise fees. An alternative model, the community water system (CWS), can be established as a decentralized “microutility” in areas previously thought to be unreachable. A typical CWS is designed to provide a community of up to 3,000 people with up to 20 liters of safe drinking water per person per day. Systems are modular and scalable—they can be configured easily to serve larger or smaller populations. In India and Mexico, WaterHealth markets the CWS as a “microutility” to governments, entrepreneurs, or village organizations, which recover the investment in the community water systems through the sale of treated water to villagers. For the purchaser of a CWS, it is a turnkey operation, including water storage and, if necessary, the pipes to bring the water to the village for treatment from a distance of up to 2 kilometers. Profits are made all along the value chain. WHI sells equipment to a local affiliate, who markets the units, with a service contract, to local franchises, entrepreneurs, or village organizations. These groups typically sell coupons to families to redeem for water, and some end users opt to pay extra for home delivery in special containers. Each CWS includes an educational program, usually conducted by an NGO under contract, that encompasses health and hygiene issues and encourages people to use clean water. A standard CWS, with an installed capacity of 65,000 liters per day, can produce enough purified water to meet all the daily needs of a community, provided the water source is available. The cost of this turnkey operation is about $50,000, or about $17 per person, which is lower than alternatives of similar capacity, such as bore wells, that normally provide no disinfection, filtration, safe storage, or education on health and hygiene. By comparison, municipal facilities cost about $100–$250 per person to build, and bore wells are similar. WHI projects that village water boards or local organizations should be able to generate a surplus of $24,000 a year acting as a small utility after communities fully adopt a CWS. And in Nigeria … Because the workshop considered two very dissimilar technologies, it had to decide whether to consider two hypothetical companies or one. Filtron production is relatively quick to organize at low cost; a WaterHealth–

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria ees might be working. Radio can be very effective, reaching a larger population. The second level of the marketing effort would be branding and identifying the product itself. Scientifically based testing must be emphasized to allow the buyer to distinguish safe water from unapproved and inferior products. (In this context, it is important that the selected technology filter out turbidity in the water to distinguish the appearance from that of untreated, boiled, or chlorinated water without filtration. The effectiveness of the filtering process would then be obvious.) As for the competition, the association of the companies that sell water in plastic bags in Nigeria should be engaged and employed to distribute safe water or sell Filtrons instead of competing with community water systems. They could also sell low-cost water quality kits, such as the Hach test described in Appendix B. Nigeria should serve as an excellent market for safe water, because 100 million people are without. Furthermore, local ownership of industries is more widespread in Nigeria than in other African countries. The culture of business and entrepreneurism in Nigeria could lead many to enter this business, including many sellers who presently lack the technology to purify the water they sell. In the case of Filtron, all material and labor, except the colloidal silver, can be obtained locally. The greatest challenges, however, stem from the very same factors that produce the advantages. The large potential market includes many consumers who have a history of using contaminated and turbid water and who do not understand it is a cause of their health and infant mortality problems. The educational campaign is critical to activate the market. Furthermore, the large number of potential entrepreneurs practically ensures that a short time after a business appears to be successful, or even before, a large number of counterfeit products will appear on the market. For UV-treated water, the difficulty will be significant, because the product will come into direct conflict with traditional water sellers, most of whom do not take care to purify properly the water they now sell, and they will most likely sell at a lower price. Some may mimic the brand. Steps must be taken to clearly brand the product in a way that is hard to imitate, and to emphasize safety and reliability in marketing activities. Start-up funds can be sought from NGOs such as Water International or Rotary International. Rotary tends to be business oriented, and so it could be helpful in creating new enterprises and preparing business plans. But to introduce filtration and purification on a scale that would serve the most people who are presently outside the water districts, banks or the government must play a clear and significant role in financing new enterprises. Family health extension agents could assist families and communities in providing education, especially information that

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria explains why they need safe water and evaluates the various possibilities for purification. ANTIMALARIAL ARTEMISININ COMBINATION THERAPY (ACT) At this time, no developing country government is able to ensure a supply of ACTs for all of its population, because only one company supplies the medication recommended for malaria and there are only a few monopolistic producers of the raw material, and the price is high. That situation, however, is fluid and already beginning to change. Other countries, including several in Africa, plant and harvest Artemisia annua. And other pharmaceutical companies, including generic manufacturers in developing countries, should be able to produce ACTs within a year or so, because at least two new coformulations will be available for licensing. At the same time, there is an international effort to subsidize the price at the national level (for more from the hypothetical case study, see Appendix C). Present Need for Malaria Chemotherapy Malaria has been a major cause of death in Africa for millennia. During the twentieth century, malaria took 150–300 million lives, surpassing war, famine, and all other infectious diseases. Today, malaria kills 1.2 million people worldwide each year, 1.1 million of them in Africa and 1.0 million of them children under five years. In Nigeria, 85 percent of the population is at risk of contracting malaria, and 60 million people experience more than one malaria attack per year.7 It is not uncommon for small children in endemic areas to have four or more episodes per year requiring treatment. Malaria affects the ability of children to learn in school, and even to attend school, and stunts economic growth because of its effect on worker productivity and the time devoted to caregiving. The high malaria incidence in Nigeria puts at risk the potential for reaching the Millennium Development Goals.8 Since the seventeenth-century discovery of quinine in Peru, malaria has been treatable, but historically the supply of effective drugs has met the needs of only a small percentage of the sufferers. Introduced in 1945, the synthetic chloroquine became available at low prices in tropical countries in the 1960s and was effective for decades. Eventually, however, parasite resistance to chloroquine evolved in Asia, and it has now spread 7 Communication Initiative, http://www.comminit.com/trends/issuestrends/sld-2098.html. 8 UN Millennium Development Goals, http://www.un.org/millenniumgoals/.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria throughout Asia and Africa. Chloroquine can be purchased for about $1 per course of treatment in much of Africa, but it is increasingly impotent against falciparum malaria, the severest form of the disease. Some other antimalarials have been available for many years, but none of them is as safe and effective—or as affordable—as chloroquine was, and resistance to most of them develops more easily than did resistance to chloroquine. Much work has gone into developing vaccines against malaria. Currently, a small number of experimental vaccines are showing promise, but none is ready for widespread use. The drug class the world is depending on to carry malaria control into the future is the artemisinins, a family of compounds made from extracts of the plant Artemisia annua. A. annua had been used for centuries in China against fever, including the fever produced by malaria. At present, where it has been used, artemisinin therapy is safe and effective. It works very quickly and kills several of the stages of malaria parasites—in fact, more than any other antimalarial known, including chloroquine, when it was effective. In 2001 the World Health Organization (WHO) recommended that oral artemisinin derivatives be adopted as the first-line treatment for uncomplicated malaria. They are also as good as quinine for severe malaria, and, when used appropriately, some are better than quinine for noncerebral, severe malaria.9 WHO and the global malaria community also recognize the value of using artemisinins coformulated (i.e., two drugs in one pill) with another effective but unrelated antimalarial, in what is referred to as artemisinin combination therapy, or ACT. There are two reasons for using the combination. First, artemisinin derivatives given alone require a seven-day course treatment, but, in combination, the course of treatment can be reduced to three days, which should result in a much higher proportion of people completing treatment. The second and main reason for combining drugs is to inhibit the development of resistance to either drug, similar to what is being done today for HIV and tuberculosis. If the mutant parasite is resistant to artemisinin, it will be eliminated by the other drug. The artemisinin compounds have shorter half-lives in the body and work more quickly than other drugs, thereby reducing the likelihood of a resistant population. Different modes of antimicrobial action will reduce the risk that the parasite will develop resistance to both drugs at the same time. ACTs have been effective in every site they have been tried, including highly endemic areas in Africa. However, ACT is not useful as a prophylaxis because of its short active life in the body. Widespread use of artemisinin monotherapy—that is, using artemisinin alone—could 9 World Health Organization, “Facts on ACTs,” http://www.rbm.who.int/cmc_upload/0/000/015/364/RBMInfosheet_9.htm.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria encourage resistance and is the biggest threat to the long-term viability of this family of compounds. The main drawback to ACTs is their price: they are 10–20 times more expensive than chloroquine at their wholesale price, which is $2.40 per adult course of treatment. At the retail level, the price may be 10 times higher. Today, the supply of ACTs is far smaller than the number of sufferers, in large part because effective demand has been limited by cost (even with some financing aid currently available for antimalarials). In the urban environment, children, who suffer an average of three or four attacks a year, are usually treated with chloroquine. But because chloroquine is ineffective, each incidence may be treated multiple times. When the patient feels better, the treatment is stopped, often prematurely, further promoting resistance. Because chloroquine has a long shelf life, it is saved for the next occurrence. In rural areas, where the incidence is higher, a family could spend up to 40 percent of its income on malaria treatment. Although ACTs are far more expensive, they do not require multiple treatments for the same infection, and they reduce absenteeism from work and school, dedication of time from a caregiver, and the risk of death or permanent neurological damage. Treatment with ACTs as a public health measure is cost-effective, because they cure a potentially fatal, and more often debilitating, disease for just a few dollars. At present, however, no funds are available from the Nigerian government for the treatment of malaria. Under a new Nigerian government policy, children under five will receive ACTs without cost, but only at public sector facilities. As in other African countries, the majority of people purchase malaria drugs through pharmacies, drug sellers, and neighborhood kiosks. Many, particularly in rural areas, have little access to public facilities. Part of the reason for the high cost of artemisinin drugs is that much of the supply of high-quality artemisia leaves needed to manufacture the drug is controlled by dealers in China and Vietnam. Chinese companies extract the artemisinin and produce monotherapies and ACTs that are sold internationally without prequalification by international standards, despite WHO recommendations, or they sell the artemisinin directly to overseas buyers. WHO and several international donors are setting up an infrastructure to distribute ACTs at a subsidized price, but WHO requires the formulation to be manufactured according to a WHO standard based on current Good Manufacturing Practices (cGMPs). To date, only one firm has met the standard, Novartis of Switzerland. It buys the raw material from China and Vietnam and manufactures an ACT with the brand name Coartem. Coartem costs more than $20 for a course of treatment at pharmacies in Lagos. Artemisinins are also sold in blister packs that contain

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria two kinds of pills—artemisinin and another antimalarial drug—which means that the patient can choose to take only the artemisinin, essentially a monotherapy with the consequent risk of generating resistance. The Nigerian government has signaled its intent to ban chloroquine and all artemisinin monotherapies, which may drive the pharmaceutical companies to produce ACTs. However, if the ACTs are not formulated under WHO-approved practices, they may not be accepted in international trade and likely will not qualify for a global subsidy should one come into being. It is estimated that Nigeria has more than 100 million cases of malaria per year. However, the market for ACTs is generally calculated on the basis of the “real demand,” which takes into account national policies and funding available for purchasing by consumers, government, or donor agencies. That figure is about 10 million courses per year for which payment is available, or about 1 out of 10 actual cases. When the supply of ACTs is compared with “real demand” rather than the number of cases, the shortages vanish, and with them the incentive to increase the harvest of artemisia. It is clear that ACTs will never be available to the majority of infected people in Africa until there is global system of affordable supply. Global Aid for Antimalarial Drug Purchases The Global Fund for AIDS, Tuberculosis and Malaria provides funds to governments for approved plans covering all types of interventions for these diseases. Assuming funding is available, it will spend $2.2 billion over five years. Global Fund rounds two and four committed to Nigeria about $41 million for malaria control, and up to a possible $130 million over five years, of which $16 million will be used to purchase ACTs. The World Bank plans to disburse $180 million to Nigeria for malaria control in 2007. The (U.S.) President’s Malaria Initiative (PMI) will provide 15 countries with $1.2 billion over five years for malaria control, some of which will go to purchase insecticide-treated bed nets and DDT spraying. In addition to helping governments pay for antimalarials, the World Bank is leading an effort by the Roll Back Malaria partnership to develop the architecture and identify funding for a global subsidy of ACTs, which would be carried out at a very high level (i.e., national frontier or factory gate) and would allow drugs to flow through both the public and private sector supply chains and reach all consumers at low prices.10 In 10 Kenneth J. Arrow, Claire B. Panosian, and Hellen Gelband, Saving Lives, Buying Time: Economics of Malaria Drugs in an Age of Resistance, Washington, DC: National Academies Press, 2004.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria this way, an effective treatment would be available and affordable—that is, it would cost about the same as chloroquine and should cost less than an artemisinin or other monotherapy. ACTs will be sold to governments, NGOs, and private distributors at the heavily subsidized price. Only good-quality, prequalified drugs will enter the market. But, unless the public and professionals receive the information needed to facilitate the switch to ACTs, it is unlikely that the market will grow to include the people with real needs. An important meeting was held on this topic in Amsterdam on January 18–19, 2007. The state of agreement was described in the official summary: There was a broad consensus reached during the meeting that the subsidy should be implemented but there were still some legitimate concerns about the subsidy that needed to be further elaborated. However, there was general agreement that careful planning and consultation with partners would ensure that the potential negative implications are minimized and that these concerns were not sufficient to prevent the implementation of the subsidy from moving forward. It was agreed to move forward with the design and that all key stakeholders would remain engaged in this process in the coming months and that the subsidy could be ready for launch as early as fall of 2007. The overall goal of the ACT subsidy will be to increase universal access to and use of ACTs by bringing the price down to the same level as chloroquine and sulfadoxinepyrimethamine and as such diminishing the use of ineffective antimalarials and artemisinin monotherapy.11 Where governments turn to international finance to purchase drugs—whether from the Global Fund, the World Bank, bilateral donors, or others—some restrictions are generally imposed to ensure that the drugs purchased are of good quality. All these institutions rely heavily on WHO’s standards for cGMPs. Several Nigerian companies are cGMP-certified for other drugs. “Prequalification” is a newer and higher level of approval developed for AIDS, tuberculosis, and malaria drugs. Prequalification requires meeting cGMPs for the process, as well as demonstrated product effectiveness against the disease.12 Any Nigerian company intending to produce drugs 11 “Meeting Report,” Expert Workshop and Consultative Forum on a High-Level Buyer Subsidy for Artemisinin-Based Combination Therapies (ACTs), Royal Tropical Institute (KIT), Amsterdam, January 18–19, 2007, unpublished. 12 According to WHO (http://mednet3.who.int/prequal/), the elements of the prequalification procedure are as follows: (1) the manufacturer must provide a comprehensive set of data about the quality, safety, and efficacy of its product, including details about the purity of all ingredients used in manufacture, data about finished products such as information about stability, and the results of in vivo bioequivalence tests (clinical trials conducted in healthy

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria that might qualify for foreign funds will have to meet these standards, even if the drugs are used only within the country. The Nigerian government has announced its support for the various WHO initiatives, and it has mentioned a timetable for dropping chloroquine and artemisinin monotherapy from Nigerian markets. President Olusegun Obasanjo of Nigeria has said that he wanted the ACTs market to be driven by the local private sector, and that the government might advance about 40 percent of start-up costs, as was done earlier to encourage the production of cassava by providing cuttings for planting at a subsidized rate. The government might even go as far as banning the importation of ACTs in the future. The advantage to Nigeria of building up national ACTs production, as opposed to relying on imported products as it does now, even at subsidized prices, would be security of supply and the creation of an export industry with jobs in both the agricultural and manufacturing sectors. Prospects for an ACTs Industry in Nigeria Producing ACTs requires several different processes, both agricultural and industrial. It appears unlikely that in Nigeria a single company would try to take on all of the processes involved. However, because the interactions among several partners would be a relatively simple part of the enterprise, the hypothetical case study workshop held on April 24–25, 2006, decided that the hypothetical enterprise would be a single company that would incorporate all the necessary processes, from cultivation to manufacture. The participants concluded that any one of the component phases of the business could be operated at a profit: growing artemisia, growing plus extracting artemisinin, producing artemisinin derivatives, and manufacturing ACTs. The workshop named the company Nigerian Anti-Malarials Ltd. Its objectives are to profitably produce ACTs to be sold in Nigeria at an affordable price through the cultivation of A. annua in Nigeria the local extraction and purification of artemisinin the production of artemisinin derivatives, possibly in collaboration with advanced laboratories volunteers); (2) the team of assessors evaluates all the data presented, and, if satisfied with the evidence, sends the product to professional control testing laboratories contracted by WHO in France, South Africa, or Switzerland for analytical verification of quality; and (3) if the product is found to meet the specified requirements and the manufacturing site complies with GMPs, both the product linked to this manufacturing site and the company are added to a list hosted by WHO on a public web site.

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria the local manufacture of ACTs that are globally competitive under cGMP-compliant conditions Nigerian antimalarials would face competition from several very different sources, including other foreign and local companies growing artemisia elsewhere in Africa, other firms making and marketing ACTs in Nigeria, and companies using alternative technologies for producing ACTs or offering alternative products. If the Nigerian company does not qualify for subsidies and grants, the most serious competition would be from other companies benefiting from such funding, which would enable them to sell at a price below cost. Aside from China and Vietnam, significant artemisia production is under way in Kenya and Tanzania, and start-ups in Senegal, Madagascar, Ghana, and Cameroon have stated their intentions to manufacture ACTs for the African market. Furthermore, a Chinese producer recently informed the minister of health of its intention to manufacture ACTs in Nigeria, using artemisinin from undisclosed local sources. Alternative technologies, including the synthetic or bioengineered manufacture of artemisinin, are in development, but they are not expected to appear on the market for at least 5–10 years. The most competitive alternative products are mainly the older, less effective (but less costly) malaria drugs. An educational campaign will be needed to convince the public of the superior performance of ACTs in reducing suffering and loss of life, as well as the cost benefits when the costs of hospital care and loss of productivity and wages are included. On the positive side, Nigeria has the largest internal market for antimalarials in the world, estimated at 25 percent of the total global need. A company with WHO prequalification would have an opportunity to serve a large market in other countries of West Africa as well. The Nigerian pharmaceutical industry includes several companies that claim they have the capability to achieve prequalification for ACTs, although the fact that only one company in the world has so far succeeded demonstrates that the challenge is not trivial. As for the raw materials, recent trials with a variety of A. annua cultivars suggest that Nigeria has good growing conditions and may be able to produce multiple harvests annually with a good yield of artemisinin. The government has announced strong support for the local production of ACTs, and it appears to have the political will to provide concrete assistance. Success would open a niche market for Nigeria in the West African region and create jobs for the populace. On the negative side, the inadequacy and unreliability of the infrastructure, including electricity, water, and roads, will be a problem. And there are few local suppliers of pharmaceutical supplies, which means that many materials will have to be imported, most specifically solvents

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria for artemisinin extraction, which are currently unavailable on the local market. Another problem is the large market for non-ACT malaria remedies and the large supplier base for counterfeits and imitations. Furthermore, although the government has shown goodwill in addressing some of these problems for the ACTs market, there is a history of lack of implementation of government policies. Growing Artemisia annua Growing artemisia could be a profitable opportunity for farmers. It would enable them to generate income from a new cash crop with a guaranteed market, at least in the short to medium term. Because it is a medicinal plant, farmers producing it would be eligible to receive donated land from the state. Unlike coffee and tea, the major cash crops in the region, A. annua is an annual, and its acreage could be adjusted each year in response to the market. Artemisia can be grown under a wide range of conditions. Internationally, relatively little standard agronomic research has been devoted to improving the artemisinin yield of A. annua. Research on selection and breeding might improve yields in tropical Nigeria and elsewhere. In China and Vietnam, the largest producers of A. annua at present, most A. annua is still collected in the wild. Trials of different cultivars of the plant have been carried out on a small scale in the humid Nigerian lowlands in the South-South region in Calabar, which has an annual cycle that avoids the dry season. Elsewhere, cultivation is begun immediately after the dry season in February and March, and then planting begins again in July and August. The use of drip irrigation may be necessary for production on a large industrial scale. A senior researcher and his colleagues at the University of Calabar have undertaken considerable work to assess the artemisinin yield of various A. annua cultivars and to increase the efficiency of plant production. The capability of the Calabar group is a valuable resource as the nation contemplates the manufacture of effective malaria drugs. These researchers have led in the scientific testing of different artemisia varieties under different conditions to find the best cultivars for Nigeria, and they are in the final stage of negotiations for an industrial plant that could enable them to extract artemisinin from the leaves on a commercial basis. Extraction and Purification of Artemisinin The most commonly used process to extract artemisinin from artemisia leaves is solvent extraction, a well-known, reliable method. It is not vulnerable to electrical outages; it can be carried out in the tropics in

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria open buildings with no walls; it operates at relatively low temperatures; it carries no risk of explosion; and it is not protected by patents. Solvents can be recovered and recycled, which lowers the cost of the process and helps to protect the environment. The usual solvent is hexane, with an additive to protect against explosions. However, at present in Nigeria the solvent must be imported. If a new extraction facility is to be built for artemisinin production, turnkey plants are available from U.S. and European manufacturers, but the price is high and the scale, which is based on anticipated demand, is uncertain. Initially, it may cost about 15 percent more to grow, extract, purify, and derive artemisinin locally than to import artemisinin derivatives directly. To encourage local production, government or donor subsidies may be needed. Alternatively, the company could go into partnership with a foreign producer to share the cost of the extraction plant in Nigeria and send the material for purification and manufacture of the derivatives to an advanced laboratory. The Calabar group has received a preliminary offer from a Chinese company to import—and operate for six months—a plant to extract artemisinin and another small plant to produce artemisinin derivatives, all apparently below cost (i.e., subsidized by the Chinese company or government). The potential buyers for the products of extraction or the derivatives for the final manufacture of ACTs have not yet been identified. Manufacture of ACTs Several pharmaceutical companies in Nigeria are either presently marketing a combination therapy for malaria (consisting of two separate malaria drugs in blister packs) or stating their intention to manufacture ACTs. It would not be difficult for these companies to operate under the cGMP conditions certified by WHO, which would permit the product to be sold in Nigeria and other countries that are willing to accept the import. However, because the price of the product would be based on the full manufacturing cost, the market is likely to remain very limited. Without WHO prequalification, a company would not likely be eligible for international purchases using funds from the Global Fund, nor for a subsidy if that option materialized. The cost of a facility to manufacture ACTs, which is high, is estimated in Appendix C. If a facility becomes a reality, it probably would be through an existing Nigerian pharmaceutical company, possibly one of those currently making blister packs or considering ACT production. Funds for additional equipment may be available from a commercial bank, an international finance agency, or a joint venture with a foreign company. The high probability of a government contract, at least for the

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Mobilizing Science-Based Enterprises for Energy, Water, and Medicines in Nigeria population under age five, could make such a facility an attractive package. However much depends on the structure and application of the international subsidy for ACTs that is clearly in the works and the capability of the firm to achieve prequalification from WHO.