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Financing watermill upgrades: the business case for scaling up through banking support by B Parthan


Table of Contents

Boiling Point
Front cover of Boiling Point issue 51
Issue 51 (2006) Sharing information and communicating knowledge
ArticleFinancing watermill upgrades: the business case for scaling up through banking support
AuthorB Parthan

[top] [end]Introduction

This summary report prepared by IT Power presents the business case for supporting the upgrading of traditional watermills (gharats) with improved technology. This report aims to encourage rural and agricultural banks to offer appropriate finance for new projects. The report provides an overview of the technical, financial, social and market characteristics of watermill upgrades.

[top] [end]Background

The principal use of hydropower in the Himalayas is through traditional watermills for grinding grain. These mills typically develop less than one kilowatt of mechanical power at low efficiency. Many of the traditional watermills are now being abandoned and the remaining mills face increasing competition from diesel and electric mills.

Since 1996, IT Power, in association with the Himalayan Environmental Studies & Conservation Organisation and the Chamoli Watermillers Association, has successfully demonstrated cost-effective solutions for upgrading traditional watermills. These have been developed with the participation of the watermillers and local manufacturing partners; and have been demonstrated under local conditions since 1999.

[top] [end]Technology

[top] [end]Traditional watermills

The concept and main components of a traditional watermill are illustrated in Figure 1, consisting of a grain hopper, millstones, water chute and wooden runner. The grinding capacity of the traditional mills ranges from 5–10 kg of flour per hour, with an efficiency of less than 20%.

Figure 1a:Schematic of traditional watermill
Figure 1a:Schematic of traditional watermill
Figure 1b: Traditional watermill – upper section
Figure 1b: Traditional watermill – upper section

[top] [end]Upgraded watermills

An improved watermill has been developed to maximise the grinding capacity of the existing mill-stones at an affordable cost, so that watermills will be able to compete effectively with diesel mills. The upgraded mills have proven capable of grinding at 20–25 kg/hour, typically a three-fold increase. The new runner fits under the existing mill-house and can use the same mill-stones. Figure 2 depicts the upgraded watermill and identifies the new components.
Figure 2a: Schematic of upgraded watermill
Figure 2a: Schematic of upgraded watermill


To improve efficiency and durability, the runner is made of metal, comprising a steel shaft and improved bearings. The runner has been designed to achieve an efficiency of above 50% and to have a geometry that is suitable either for casting, or fabricating at a local welding shop. The upgraded mill is intended to operate at roughly 200rpm (revs per minute) to achieve peak output; the traditional watermills run at less than 100rpm.

Figure 2b: Upgraded watermill
Figure 2b: Upgraded watermill
The new runner can operate with the existing wooden chute although this is often replaced with a new chute made from GI Sheet. An additional improvement is the provision of a PVC pipe and nozzle, which directs a more powerful jet on to the runner, as indicated in Figure 2(b).

A limited amount of civil work from a mason may be required to make small modifications to the powerhouse, and to ensure that the intake canal is in robust condition. The new system requires some technical assistance to ensure that the equipment is installed for optimum efficiency, and to train the miller in the necessary maintenance tasks. This assistance can be provided by the Chamoli Watermill Association, who have already overseen the installation of more than 100 demonstration units.







[top] [end]Cost estimates

[top] [end]Investment costs

The initial expenses for upgrading a traditional watermill are presented in Table 1.
Table 1: Watermill Upgrade Costs
Table 1: Watermill Upgrade Costs

[top] [end]Operation and maintenance costs

Operation and maintenance costs primarily consist of the replacement of parts that are subject to wear and tear.

As the life of the components are proportional to the hours of operation of the watermill, the costs given in Table 2 represent an average watermill upgrade. The cost of labour contributed by the watermiller himself is not considered.
Table 2: Average operation & maintenance cost
Table 2: Average operation & maintenance cost
It can be seen that in order to benefit from this technology, a watermill owner has to find at least 15 000 Rs to invest in the upgrade of his mill, plus 2000 Rs/year in annual maintenance costs.

[top] [end]Market opportunities

In the hilly regions, large quantities of wheat and millet are grown and consumed locally, all of which has to be processed by grinding. This was the exclusive role of the watermill until diesel and electric mills became available to offer a faster (but more expensive) service.

A market survey of 500 households in Chamoli district, within the service area of two upgraded watermills, revealed that the average household produces between 270 and 350 kg/year of wheat (60%) and millet (40%). Since an upgraded mill should aim to process at least 20 000 kg per year to achieve an attractive income, it is apparent that the market opportunity is for upgrading those mills which can service at least 75 and preferably 100 families. A second essential aspect is that the mill has access to sufficient water to maintain its operations throughout the year, even if processing speed is somewhat reduced in the dry season.

As long as the service is quick and reliable enough, local families have shown a strong preference for ‘gharatatta’ (watermill flour) which has the best quality and lowest processing cost: typically 0.75 Rs/kg with payment in kind (known locally as Bhagwari), compared with 1.5 Rs/kg cash payment at diesel mills.

There are estimated to have been nearly 200,000 watermills at one time, spread across the Himalayan states of India. Hence the possibilities for replicating the pilot schemes are enormous. A 2003 survey in Chamoli district alone has revealed the existence of 2160 watermill sites, of which 1150 (53%) are still in operation.

It is also worth noting that 3 times as much wheat flour is bought from the market as is grown locally. There is therefore a good opportunity for watermillers to import grains from other wheat growing areas of the country and grind them in their mills for local sale of gharat-atta.

[top] [end]Social relevance

A survey to assess the social impacts of watermill upgrades was carried out in Urgam, Gadora and Tangsa villages, Chamoli, in April 2003. This involved village meetings, and interviews with individual millers and their customers.
Figure 3: Village meeting with women of Gadora
Figure 3: Village meeting with women of Gadora


For the end-users, principally women, upgraded watermills were seen to bring benefits in terms of saving both time and money, as well as better quality flour (compared with a diesel mill). Those who had to travel far to the mills had more to gain from a faster service since it could save them a second round-trip to collect the processed flour.
Figure 4: Interview with a mill-owner at his mill
Figure 4: Interview with a mill-owner at his mill


To the miller, the benefit has been a major increase in business and hence increased earnings, and the ability to operate their mill as their sole source of income.

The only negative aspect has been among millers of traditional mills who feel they have lost customers to the upgraded mills. These millers have been encouraged to invest in upgraded machines themselves.



[top] [end]Business and finance aspects

[top] [end]Financial analysis

A detailed financial analysis has been carried out on the business viability of watermill upgrade schemes, based on the existing experience with watermill upgrades. An analysis of a traditional watermill business without the upgrade was made to quantify the baseline case. The comparative results are given in Table 3.
Table 3: Comparative financial analysis
Table 3: Comparative financial analysis
The following key results were drawn from the analysis:

  • A six-fold increase in income can be expected for a watermill upgrade compared to a traditional watermill. The income increases from Rs 217/month to Rs1290 /month.

  • A watermill upgrade will have a high internal rate of return (over 75%) servicing a loan from a commercial bank. The miller will still have an increased income on a monthly basis after providing for loan repayments;

  • The average monthly repayments on a loan of Rs. 10 600 will be Rs 380/month over a three year period. The average repayment represents only 29% of the monthly income generated;

[top] [end]Business framework

A possible business framework for watermill upgrades has been developed based on the rural banking system, the current institutional arrangements for watermill upgrades, and the social and market aspects. A proposed framework is shown in Figure 5, summarized as follows:
Figure 5: Proposed business framework for watermill upgrades
Figure 5: Proposed business framework for watermill upgrades
  • An intermediary provides the technical services such as site appraisal, procurement, loan application, and supervision of installation, and co-ordinates with the manufacturer and the local banks on behalf of the miller. The Chamoli Watermill Association has agreed that it can play the role of the intermediary at least during the initial phase of market development.

  • The millers get a loan from the local bank to cover the hardware and civil costs of the watermill upgrade. The nationalised banks and the regional rural banks have previously expressed willingness to lend to watermill upgrades as a regular loan. The Regional Rural Banks may seek refinance from NABARD (National Bank for Agricultural and Rural Development).

  • The manufacturers who have built watermill upgrades in the past supply the hardware. The intermediary and a civil contractor carry out the installation and commissioning. The costs are financed through a combination of loan and contribution from the miller.

  • The upgraded watermill generates increased business and the miller is able to repay the loan on schedule after providing for the miller’s own needs.

The relevance of the business framework was demonstrated in November 2003 when two millers obtained loans from a nationalized bank and a regional rural bank and upgraded watermills. A sustained effort is now needed to scale-up the business model so as to bring significant impacts for the many potential beneficiaries.

[top] [end]Conclusions

  • Upgrading traditional watermills is an effective and sustainable way of meeting essential agro-processing needs in the Himalayan region using an abundant local energy resource

  • The technology for watermill upgrades is now proven, understood and components are being manufactured locally. Capacity has been developed in the hills for those wishing to specify, own and operate these upgraded watermills. Today a critical mass of installations exist as a basis to increase the scale of efforts

  • The number of watermills installed and the years of operating experience so far provide a firm basis to estimate the investment and operating costs of the watermill upgrades. The total investment cost for a watermill upgrade is estimated to be around 15 000 Rs, with annual O&M costs around 2000 Rs/year

  • A large number of watermills in Uttaranchal and other parts of the Himalayas are not functional or use traditional technology and are candidates for upgrades. There exists a market preference for flour ground by watermills, however it is important to have a critical service level of 75–100 families, and a consistent water supply, in order to ensure viability;

  • A social impact assessment concluded that upgraded watermills were perceived as a faster and cheaper means of grinding flour. The quality of the flour was also considered to be the best available. The income generated is sufficient for millers to run their business as their sole source of income.

  • The upgraded watermill results in a six fold increase in income and can comfortably service a commercial loan. This presents an opportunity for local banks to lend to watermill upgrades.

  • A business framework involving the miller, watermill association, manufacturers and local banks needs to be galvanised to facilitate widespread uptake of this technology.

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[top] [end]Contents: Boiling Point 51 - Sharing information and communicating knowledge

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Theme Editorial - The Gift of Knowledge - The Upesi Rural Stoves Project - HEDON-The Household Energy Network - Locally-made solar panels for small appliances - Sharing knowledge and spreading information using the Internet - Promoting Solar Cookers Through The Solar Cookers International - Improved Cookstove Technology For Rural Livelihoods For Women - Improved Cookstove Dissemination - HERA Household Energy Programme? - Household energies to improve the quality of life of rural communities - Financing watermill upgrades - Who Benefits From Solar Home Systems In India - The Human And Livelihoods Cost Of Fuel-switching In Addis Ababa - Consensus Reached By Participants At The International Workshop - Monitoring The Charcoal Production Of An Area Under A Sustainable Licensing System - Whats Happening In Household Energy BP51 - Energy News From Practical Action BP51



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