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Red Ceramics - Case Study
Red Ceramics Association (ACR)
of Alpacoma in the city of La Paz, an association of 40 members that produce clay construction bricks in furnaces originally fueled by used lubrication oil and sawdust.
In 1997, the project sponsors paid for the necessary design studies to extend an existing natural gas distribution system in the upper outskirts of the mountain area where their furnaces are located and obtained the necessary permits to replace their highly polluting fuel with natural gas.
The ACR project set out to: A) Improve the productivity and increase the efficiency level of their furnaces by 45%; B) Cut-off fuel gas emissions and enable ACR to comply with environmental regulations; C) Strengthen the association’s entrepreneurial capability; and, D) Improve the social conditions of the communities of Alpacoma. Thirty of the forty ACR members participated in a process described in the pictoral profile here:
,"Chronicle of Successful Entrepreneurship in an Adverse Environment".
Red Ceramics is a Case Study of what is generally viewed as an informal industry grouping that, upon deeper study, has many sophisticated qualities. It demonstrates what can be accomplished with proper assistance and tenacity. It illustrates the oft-cited importance of land tenure. Further, it shows that disasters happen and can be managed.
An energy enterprise? Energy for enterprise.
Coping with natural disasters
The importance of land tenure
The Policy-Enterprise-Technology Balanced Approach
The Enterprise-Customer Connection
The Red Ceramics Association (ACR) was officially incorporated in 1992, uniting family-owned brick businesses during their mandatory resettlement in Alpacoma, Bolivia. The association informally existed long before that and the tradition of family-owned brick businesses in the area stretches back over 100 years.
Red Ceramics - the Association - is referenced here as a case study due to the Association's entrepreneurial role in helping over 30 families switch from sawdust, lubricants and wood scraps as their primary fuel for the brick kilns to grid-connected natural gas.
The Energy Need:
Brick production with the customary low quality fuel mix was inadequate for a number of health, environmental and economic reasons
. Furthermore, in response to air pollution complaints by neighboring communities, the Municipality of La Paz issued an order in October 1997 for the closure and demolition of kilns that used the low quality fuel mix. The order allowed continued operation only for kilns fueled with natural gas. Using natural gas as fuel could provide higher and more stable brick quality, steadier and shorter daily production cycles, safer working conditions and fewer and cleaner emissions. However, as the natural gas grid did not service the Alpacoma site where the ACR members had been relocated, the brick producers were required to undertake, at their own cost, an extension of the grid to their location.
$202,160 (disbursed in seven tranches between September 1999 and December 2000) to cover the costs of: grid extension study and permits, main pipeline extension, secondary distribution grid, individual connections, kiln burners, safety equipment and pressure measurement gauges. The financing was passed on as micro-credit loans to the members of the Association. A contract was signed with Caja Los Andes (CLA) a local micro-finance institution, for the provision of collection services, to make it easier for the end-users to repay the loans.
E+Co helped members of the association gain title to the land where their kilns were located, helped draw up and negotiate the common terms and individual contracts and managed to-be-expected differences among the members over time. The in-country investment officer was invaluable to the process of navigating Bolivia’s legal and regulatory structures and intermediating with the local gas utility.
30 natural gas grid connections were installed, supplying gas to both kilns and households. The entire loan has been repaid in spite of a landslide in March, 2003 that damaged much of the grid infrastructure and destroyed six of the members' kilns. A six month moratorium was declared on everyone's debt obligations and a 12-month moratorium for those individuals whose kilns were affected. Repayment then resumed, achieving near-complete repayment by the end of 2006, save for two of the brick makers most harshly affected by the landslide. Full repayment was achieved in November, 2007.
Aside from the social, health and economic benefits to the families and workers, an impressive 90,000 tCO2e have been avoided over the lifetime of the investment as ~12,000 t of wood products and 360,000 L oil products were replaced.
 The quality of the bricks produced with the low quality fuel mix was erratic, and therefore commanded a lower market price; preparing and stockpiling the sawdust required ample drying space and was highly susceptible to weather conditions (wind meant lost fuel and rain meant halted production due to wet fuel); fueling and stoking the kilns was an unhealthy task due to the heat and smoke, and the low heat efficiency of the fuel meant that this job had to be sustained round-the-clock as long as fuel and weather conditions permitted; and the kiln operation generated constant air pollution, including high levels of greenhouse gas emissions and toxic fumes (from used lubrication oil and used car tires).
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1) An energy enterprise? Energy
The example of Red Ceramics challenges conventional notions of what can be considered an energy enterprise. The loan was disbursed to the trade association, who in turn extended payment to the contractors, Gasserv Constructores, who built the gas grid extension and installed the connections. Although in strict analysis, the latter company might be considered the “actual” energy enterprise, the driving energy and entrepreneurship that made the project a reality in this case was displayed by ACR. E+Co essentially intervened on the other side of the enterprise-customer relationship, providing end-user finance that was coordinated and mediated through the Association.
The lesson to be learned is that it is important not to overlook potential investments that can have positive and innovative impacts simply because they do not seem to conform to pre-conceived notions of what a clean energy SME transaction should look like. Even the typology of business types outlined in this toolkit is far from complete and should be expanded, or disregarded, as new opportunities present themselves; Red Ceramics is an example of such an opportunity. As long as the essential policy and technology pieces are in place, the cash flow projections and debt service coverage are reasonable, there is a strong champion (in this case the Association), the risks have been examined and there are compelling social and environmental reasons to get involved, then by all means, get involved.
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2) Coping with natural disasters
The brick-makers, after the landslide, needed only a six month suspension of repayment (12 months for those who lost their kilns) in order to rebuild, repair and bring their businesses back on track. There are perhaps some traits of this deal with the Red Ceramics brick-makers which bear exploring.
First, suspending all repayments was necessary otherwise the brick-makers would not have been able to recover and may have defaulted on their obligations. Second, the fact that the investment was being used for productive purposes probably helped to speed recovery as well. Natural gas was a cheaper alternative to the traditional fuel mixture and also resulted in a higher quality product that fetched a market premium. Its use also avoided the 10-15% production losses that resulted from traditional firing. The resiliency of the community is a testament to the decidedly entrepreneurial-like nature of the activities undertaken there and energy's role in those activities. Other possibilities that may have contributed to the remarkable recovery include the historical solidarity amongst members and the Association.
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3) The Importance of Land Tenure
Property rights have been highlighted as a “deal-breaker” as long as there has been development finance. Instead of being a transaction killer the possibility exists, as shown here, for reframing what would normally be an obstacle into a new service that can be provided in the context of the financial and service intermediation process. Consolidating the end-users’ ownership over the land where their productive facilities were sited became not only a means to achieve more solid contractual commitments for the repayment of the loan, but also a means for empowering them as respectable, serious, entrepreneurs.
This attitude of empowerment and responsibility became evident later, when the renegotiations of the terms of repayment after the 2003 landslide got underway. Despite several of them losing their production facilities, and in some cases their homes, all of the brick producers stood by their commitment to repay E+Co for the initial financing. In terms of the task of rebuilding the main gas pipeline damaged by the landslide, the public gas utility YBPF indicated that it could only legally undertake the rehabilitation of the system if the Association transferred the property of the Alpacoma system at no cost. The ACR members rejected this proposal and elected to take on the burden of rebuilding the system at their own cost, which E+Co’s temporary debt service moratorium enabled them to do.
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1) The Policy-Enterprise-Technology Balanced Approach
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2) The Enterprise-Customer Connection
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