In this episode of Developing Carbon Stories, we are speaking with Greg Murray, CEO, and co-founder of KOKO Networks—a climate tech company based in Kenya that is working to introduce cleaner cooking technologies and ultimately transform people’s lives in the world’s fastest-growing cities.
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Transcript
David Reside: Greg Murray, thanks so much for joining us on our inaugural episode of Developing Carbon Stories, where we have carbon project developers come on and tell their stories behind the carbon credits that we use to achieve our climate ambitions. Thanks for joining us.
Greg Murray: Thanks, David, for having me.
DR: Now, you’ve come from an interesting background, starting off in finance and accounting in Australia, and you found yourself now in the climate change space in Africa. How did you get to where you are? What led you into the climate change space?
GM: Yeah, I was one of those who managed to get a scholarship when I was a kid working at one of the big accounting shops, KPMG, and I was in this private family business type division. Privately held companies to the $50 million revenue, we did all of the audit, accounting, tax advisory, etcetera. And I was just, you know, an 18-year-old in a suit doing university at nights working as one of the grunts and one of our clients had a film studio, they were immigrants to Australia based in Sydney, and I got a call.
I used to do menial work on their family office, basically, as the outsourced accountant. Quite elderly lady, Jewish origin. The film studio founder had been in Auschwitz, in fact, tattoo and everything, and they built this amazing animation studio. Anyway, she called me up, it’s a hubby and wife duo that built this. She called me up one day and said Greg I want you to do some research and build me a financial model. I said, “Sure sure. How can I do that? How can I help?” And she said, “I want to understand if I can reforest a large area. I can buy some land and plant a forest and use carbon credits to pay for it.”
And this was in 1997, Kyoto Protocol had just happened. Very forward thinking lady and I hadn’t heard about any of this because I’m an 18-year-old. You know, thinking about drinking beer and working hard and trying to make money, these sorts of things. So, I started reading about it, and got pretty interested in the whole intersect between environmental markets and development of technology, and you know, and business.
And that was, yeah, that was the start of a very, very long journey that’s been mostly emerging markets in focus. But yeah, it was that moment where I sort of became aware of the possibility that this externality that I was sort of vaguely aware of as a bad thing, you know, really went deep into the rabbit hole of environment and then, the potential way that capitalism as a tool might be used to solve for environment rather than just destroy it. That’s basically the origin of it.
DR: Yeah, right, and it’s interesting you bring up that concept of conscious capitalism. I read an article that you interviewed, and you described KOKO as a form of socially conscious capitalism. I guess since this is a carbon podcast, would you put carbon markets under that category as well?
GM: I think that the carbon markets have the potential to drive amazing impact and to create outcomes that wouldn’t be possible otherwise at scale that, you know, enabled the green industries of the future to be built to enable conservation and restoration to occur at a scale that would not otherwise be possible. That’s the hope, that’s the idea. The promise of carbon markets. Perhaps it hasn’t always been implemented in that manner.
You know, Carbon 1.0 and now there’s this sort of latest, you know, interest globally in the markets, but I think that remains the, if you go to the sort of philosopher architects of the Kyoto Protocol. I think that’s what was in their mind. Certainly, that was what inspired me early on about the potential to use these markets to create these sort of outcomes, particularly in emerging markets and places that are bearing the brunt of climate change, but didn’t actually historically cause it.
That’s yeah, that’s the hope, I believe that we’re living that hope. You know, we’re real, we’re genuine, we’re making it happen, but yeah, I can’t say that that’s the case for the overall markets.
DR: Yeah, definitely, I mean, it seems like KOKO uses carbon credits more as a tool to achieve a broader outcome. So, I mean, KOKO’s an interesting case. I mean, it has an extensive operation, you know, in house, it has manufacturing, distribution, you know, infrastructure, community engagement, as well as carbon credits. You know, I guess it’s such a highly integrated organisation. Was this always the goal when you co-founded KOKO or was it born more out of necessity?
GM: You know, why are developing countries called developing countries? Because a lot of the actual underlying systems and markets haven’t been developed. It would be nice if you had an ecosystem of subcontractors that you could, just, you know, just focus on doing one thing and sub out the rest.
MBA theory from the West is that you focus on just doing that, but as you get into, you know, less developed markets, you find that you need to actually build not just a niche piece of the puzzle, you can’t stand on the shoulders of giants, you’ve got to build the entirety of the puzzle.
For us, we’re building an entirely new industry, which is around actually solving The Dirty cooking fuel crisis through replacing The Dirty cooking fuel industry, which is, in Africa alone, it’s $30 billion that’s spent on deforestation-based charcoal.
It’s an industry that engages, you know, millions of people, right, and is massively destructive. You know in order to solve that energy industry, that dirty fuel industry, you need to replace the fuel with a clean fuel, at some scale.
There hasn’t been a new mass market consumer fuel introduced in Africa for over 100 years. To do it you need to be combining customised technology, customised infrastructure, customised policy, and institutional capital, and a whole lot of hard work. It’s not easy to solve this problem, you know we had 500 staff before we had revenue, five years into our existence. You know, it’s a sort of, you know, deep tech type bet that you don’t usually get permission to build in this part of the world.
It’s the sort of 1st principles R&D that goes on in a place like, you know, London or Sydney or San Francisco, but ultimately, we said, let’s go, let’s go build our new facilities in East Africa and fundamentally see what’s required.and and have a very very open scope, not sort of rule anything out, and that means that means we write code, but we also write legislation.
We design hardware, and we manufacture it in house on our own, in our own facilities. Would it be nice to contract manufacture? Sure, but when you’re building a new industry, you know, you’ve got to provide a take or pay contract to the contract manufacturer, and when the demand is uncertain because it’s a new industry, you can’t really do that.
So, you know, we’ve found that we’ve had to build each of the building blocks, thankfully, by partnering with the liquid fuels infrastructure owners, we don’t have to build that.
We don’t have to put the CapEx into building that. You know the arteries for liquid fuels distribution do exist on the continent and we’re able to partner with those infrastructure owners and make that happen at scale, and that makes the solution low cost as well.
And we have 1200 staff today. Three years ago, it was 100 staff. Three years from now, it will be something like 5 to 6000 staff.
So, we’re in this very, very significant growth curve right now, and it’s complex, but it’s working and it’s actually delivering the outcomes on the ground, which is just a whole lot of block and tackle hard work, turning up every day by our commercial and upgrading teams, our software teams, our product teams and manufacturing teams, our policy teams. That’s what’s required to actually solve the charcoal cooking fuel crisis.
DR: And so, this charcoal cooking fuel crisis, The Dirty fuel Crisis in Africa, particularly at the moment, I suppose in Asia as well. You’ve come to that area from, you know, as you would put it in the business case, for someone’s tree planting operation in 1997. I’d be interested to see or to hear about how you heard about this significant challenge, and then I guess the KOKO is also an opportunity… How did you sort of come about to be in this particular niche of climate change development?
GM: So, about 15 years ago I was set up with a business partner, another one of the KOKO co- founders. I set up a clean technology venture investment group, which is the founding investor in KOKO and that was reflecting on about two years of travelling around in sort of the 2003-to-2005-time frame, travelling around Latin America or Asia, Africa and really going deep on this intersection between environment, business, technology and development. And looking at interesting businesses that we might invest into or build into it.
It was during that time in southern and eastern Africa that I stumbled over charcoal. It’s a huge industry. It’s all informal. Unlike deforestation in, say, the Amazon, it’s very much a soybean and cattle phenomenon right, and we’re all familiar with that. We all understand the big corporates who’s in our own appetite for beef and soybeans that’s driving that industrialised deforestation.
For companies in Indonesia it might be palm oil, right? And so we get commodity supply chain driven deforestation. But as folks in Australia, the UK, Europe, you know, America, that haven’t spent too much time on the ground in sub-Saharan Africa. You know, it’s a little bit invisible, that charcoal market because it’s informal. There’s no big charcoal player that’s, you know, doing industrialised charcoal.
It’s literally tens of millions of people chipping away at the edges every single day in order to feed the demand of the cities. It’s urban demand, It’s not rural demand. It’s urban demand and this is a short-term income earning activity by taking out trees, carbonising the wood, and having the charcoal on the bikes, on the trucks, going into the cities and then it’s informally retailed. But you know, during that time back then, I was saying geez, because you travel around in some of these rural areas and there’s no agricultural commodities coming out. The only thing that’s coming out is bags of charcoal and the scale of it. It’s like, okay, where’s it going? What’s the price of this energy commodity?
And so, I literally just started measuring it, hiring a local guy to go out and actually understand, you know, what things cost. What is the retail price? Hiring scales, right, undertaking to the Household Energy service. Trying to understand what is this market and then running back of the envelope calculations to try and figure out, okay what is this on a per household basis? It’s nuts what people are paying for putting energy into heat, into food, and so on. And then you blow that out and then you look at the impacts of it. It’s, you know, 600,000 deaths per year on the continent. It’s a billion tonnes of carbon emissions. It’s 2,000,000 hectares annually of deforestation just for charcoal. You know, it’s nuts. It’s insane, in fact.
But it’s not new. It’s just that there hasn’t been the investment in, you know, technology that’s designed for the price points that is required that you need to hit to deal with the poverty levels, right? That’s the problem. There was a charcoal cooking fuel price crisis in the City of London in the late 1400s. Charcoal is what everybody used. Not mineral coal, but charcoal from the forest. And the whole of England was denuded of trees. And the only reason that was solved was the discovery of mineral coal on the ground.
This is preindustrial revolution, pre steam engines. People switched from, there was an energy transition from above ground, coal from the forest, to below ground mineral coal.
Right, and then there was another energy transition that happened when oil was discovered, you know, Rockefellers and so on in America, right and everyone called it their new light back then, but you look from a volumes perspective and kerosene was actually used more for cooking, and so there was this switch from mineral coal to kerosene for cooking, and so you know, you’ve seen these switches over time as company and its countries rather modernised and that’s going on in different stages at different rates in Africa.
Fundamentally, you’ve got this sort of hard reality that there’s only three fuels that have any sort of market share in the $47 billion market. As the cooking energy market in urban sub-Saharan Africa, that’s the World Bank’s numbers. 30 billion of that’s charcoals, that’s the vast majority.
And then there’s a little bit of action at the rich end of the spectrum, which is fossil LPG, right, that might be around 5 billion. And then there’s a little bit of action at the bottom end, being kerosene.And that’s largely in places that have subsidised the hell out of kerosene, like in Nigeria, or places where the deforestation, the forests have run away to the extent that the London price crisis of the late 1400s has now hit that particular city. And people have been priced out of charcoal and are now going into the lower cost alternative.
Then you know if you think about the three forms of energy, right? There’s a gas. There’s a solid. There’s a liquid. It’s all portable energy in these markets, right? It’s all portable gas. There’s no pipes going into your home. The electricity is generally not stable enough to enable electric cooking, and the appliance efficiency equation doesn’t really work if you’re getting really cheap appliances for electric. And so, the cost of cooking electricity is quite high, so you end up with a portable gas, a portable solid, and a portable liquid.
The fuel that wins from a straight cost perspective is the portable liquid, and our simple thesis some years ago, nearly a decade ago now, was what about a more sensible liquid than kerosene?
Right, what about a liquid that’s renewable that can be produced sustainably at scale? That’s already a large market. What about a liquid that can leverage the existing arteries for liquid fuel distribution? And what about a liquid that creates an emissions reduction outcome that enables us to leverage carbon?
To fundamentally lower the cost of the solution to consumers, they were the set of theses, what is it going to take to do that? And then we did a proof of concept, and then based on that proof of concept we said okay, we see there’s clearly demand, let’s go and build and spend what ended up being five years building the hardware, the software, the legislation building our factories.
Before we finally turned on the network operator, that’s parlance, so we have a network operator in the city of Nairobi the whole metro area of Nairobi. We turned on that network similar to the way you turn on a mobile network.
In Q4 of 2019, five years into KOKO’s founding and commenced earning revenue by retailing Super Clean Liquid bioethanol at scale. Now, two and a half years later we’re at about 20 to 22% of all Nairobi homes cook with us every day and they’re scaling vertically. We’re rolling out across other cities. We’re investing in new countries as well, but it’s been that sort of journey. But essentially, yeah, long time and it’s now 17 years ago that I stumbled across the charcoal markets in southern Eastern Africa and just got OCD focused on how stupid it is that in this day and age that this is the way that we humans are still cooking like it was 1400 there’s got to be a more sensible way to put energy into food that can solve for the ,you know, affordability challenge. That was basically the Genesis.
DR: Yeah, OK, that’s fascinating. I mean, so would you put down the lack of solutions before KOKO? The lack of effective solutions in this space just because of the lack of awareness, particularly in more developed countries. With this, the concept that people are still cooking food with charcoal? Obviously, it seems quite a foreign to someone growing up in, you know, Sydney or Melbourne, you know? Like we did.
GM: Well, I yeah. I think it’s a, It’s an awareness issue too, but it’s more than that.
You know when we set up KOKO, I think during that year there was $30 million worth of venture capital that went into the whole continent of Africa. Yeah, maybe it was something like $5 billion last year and so that’s only like 8 years or something, right?
But if you’re doing deep tech, you know you talk to the VC’s of the world and there’s a clear divide between the 90% of them that don’t touch hardware because it’s bloody hard.
Yeah, it’s really hard. You know you gotta build your own factories and stuff. It’s really hard, and so you know if you then say okay, look at those that are doing emerging market venture capital, right?
That don’t like hardware, and that’s more like 99% yeah and so I do think that there’s a lot of importing or decosting solutions from the West into emerging markets that happens. There’s very little. I think there’s Inadequate first principles invention, R&D, and building of solution that’s targeted for the needs of consumers in this part of the world.
And so, we took a very first principle to understand what the customer really wants and then built that for them rather than, you know, let’s take something that’s worked In, you know, in the West and then try and find a way to make it cheaper or less safe and decost it and and subsidise it.
LPG is a good example. You know it’s only really scaled in middle income nations like India, Brazil, Indonesia because of massive and sustained government subsidy. Right and that’s how they’ve solved the affordability challenge in wealthier nations. Whereas governments in this part of the world do not have the money to be able to, even if they wanted to subsidise fossil LPG gas, they do not have the money to do it.
And so, it’s been out of reach, that tool. And yet they you know, yet clearly there’s an affordability challenge for modern energy, and so you know we said look rather than decost the thing and make it you know you know crappy, I’m afraid, but make it sort of low cost and not really durable and you know breaks in six months. You know that’s one way to solve the affordability challenge.
Or rather than, you know, rush into subprime consumer lending in order to spread the you know which is what some of the solar guys have rather than do those things. The third answer, and I think the right answer is to harness global carbon markets and use them to share the value of carbon within consumers at scale.
So, we’ve got a funnel of money from carbon markets that’s going into the hands of Kenyan households at scale that enables us to solve this problem even in households that are earning 50 to $100 a month in household income.
They are our customers. They’re buying fuel from us every day. That’s been fundamentally enabled by carbon and wouldn’t be possible without it.
DR: Yeah, so could you talk a bit more perhaps about the way that carbon markets can have an influence on the pricing and the availability of the equipment that you can provide to households. And I can’t remember the figures, but I remember it seemed to be a pretty significant help for households that might not otherwise be able to afford this sort of equipment.
GM: When you’re thinking about affordability if you’re a low income household in urban in, say, Nairobi, there’s three dimensions to it. There’s the cost of the appliance, there’s the cost of the fuel, and then there’s the bundle size in which the fuel is made available.
They’re the three dimensions that you’ve got to get right. You can’t choose two out of three.
You need to hit all three right and low-cost fuel that is delivered in small bundle sizes with an appliance that’s low cost as well. So pretty significant challenge when you’re talking about, you know a really high quality appliance and fuel that has a price that fluctuates and you know it’s a challenge that the LPG, the fossil LPG guys have had, is you know, how do you make the fuel available in small bundle sizes, because the minimum refill bundle, the six KG cylinders that they have is about $15 in Nairobi today, and so if you’re a telco, you know telcos in this market the dominant one is called Safaricom. It’s a Vodafone subsidiary and basically their most popular bundle size for selling airtime or data bundles is $20.
So, if they had a minimum bundle size of $15, their revenue would fall off a cliff because it would become unaffordable. Why? Because nobody’s got salaries. These nice, neat payments at the end of the month. People are earning their income daily.
They’re self-employed, right? Or running the incomes from wage labouring on a daily basis, and so their expenditure needs to also be basically daily or weekly and smaller bundle sizes and so, how do we do it?
And so, the form factor how we distribute the fuel is through this network of high-tech fuel ATMs. So, we have now about 1300 of these high-tech fuel ATMs inside. Think of them as sort of unbranded, Seven-Eleven type corner stores, right? Like if you go into a you know Seven-Eleven in New York or London, you’ll see a cash ATM, right? It’s the same sort of model, so we dropped this machine in the corner of the store.
It’s about the size of a tall, thin coke fridge and 65 centimetres wide, 2 metres tall, and we punch a hole in the wall that enables our fleet of smart micro tankers to refill the fuel ATMs. So, there’s a fuel line that goes in a vapour recovery line that goes out, and so that’s how we achieve the proximity. So, this dense network of these full ATMs is within a short walk of everybody’s front door, right, and that’s the whole point.
If you’re selling Coca-Cola, beer, cigarettes, rice, sugar, maize meal, in the mass market economies in emerging markets, you need to be within a short… it’s a convenience foot-based retail plate, right, and so how do you get this fundable liquid in small bundle size within a short walk of everyone’s front door? That’s the fundamental last month problem that we’re solving.
It’s pretty easy to get a flammable liquid to a petrol station, but getting it through the last mile, that’s what took us 5 years to crack and required building this whole new suite of last month field distribution and then use technologies right in order to make it work.
We’ve had to write a tonne of software around, you know, it’s a wicked logistics challenge. These ATMs have 350 litres capacity, and we have trucks that visit them every day. Right, you can’t have bigger tanks because you got a little tiny space in these shops, right? ATMs are a significant part of the shop, right, some of them are hole-in-the-wall type shops, right?
And so, and then fuel. There’s a morning and evening lines business, you know we have 70% of our fuel is sold after 6:00 PM, which is logical because everyone’s coming back from work. They’re getting their fuel coming and cooking, right?
There’s just a lot you simply cannot solve this, this fuel availability. You know fuel up time, we call it in terms of you know, the ensuring that the ATM stuck out. You can’t solve that without technology. We have these 15 sensors inside each fuel ATM that are setting a real time data heartbeat to our network operations Centre.
Think of a telco knock that’s monitoring its space stations, its towers. Same idea, right? But our baby towers are these few ATMs so that we can see you know ethanol vapour content. We can see you know someone’s trying to shake it. We can see if it’s on mains electricity or if it’s on a two-day battery backup as well.
Right and of course, we can see real time inventory levels. We can display the behaviour change messaging around cooking tips and fuel conservation tips as the fuel’s being dispensed on the actual screen, so there’s a tonne of this stuff that’s controlled centrally. That’s why we’re called Copa Networks. It’s this dense network of agent stores.
You know small business partners of ours that have this machinery that we own and that we service like a renewable fuel utility that ensures that this fuel is always available. That our brand doesn’t suffer from stock outs, et cetera. That’s basically the play.
And carbon, you know, carbon fundamentally plays such a massive role in ensuring that the appliance is affordable, ensuring that that as a really as a really concrete example, right now, you know Putin’s invasion of Ukraine. Yeah, that’s driven up fuel prices everywhere. You’re seeing a lot of noise in rich countries and poor countries around how do you deal with the consumer impact of spiking fuel prices? Whether it’s British Gas prices or whether it’s you know whether it’s Kenyan kerosene prices.
Right now, the Government of Kenya has a $0.50 per litre subsidy to cushion the consumers from the impact of Putin’s war in Ukraine, and right now, KOKO has a carbon discount to cushion consumers from the impact of Putin’s War on Ukraine.
This smoothing function around this sort of this bundled carbon and fuel business that we have this bundled platform that we have enables us to, you know, to delight customers to serve them every day, to make them happy, right and to fundamentally use the fuel on a daily basis, even as commodity markets go haywire in the real economy with regards to fuel. Even as you know, food prices have, I think the flour price here, the wheat flour price has gone up 80% in the last 6 months, I mean people are doing it tough you know.
Carbon fundamentally helps us lower the cost of living for our customers. You know, that’s how important it is. And for us, you know, increases in the price of carbon that we achieve directly translate into lowering the cost of basic energy services for consumers. It’s this direct and causal relationship that’s quite unique.
DR: It’s a really interesting way to look at it now. I’ve heard you mentioned before one of the key points of difference of KOKO is you know, particularly in the African market is you have really good customer service, and so do you see the carbon financing that you receive as a way to really support that pillar of your business?
GM: Yeah, I mean, what do we mean by customer service? We have a call centre, we have a field based customer service team. We have an agent network management team.
So, if you’re familiar with how mobile network operators work in emerging markets, it’s quite similar to the commercial and operational footprint, except of course we’re not moving a digital commodity. We’re moving a physical, flammable liquid safely into the extremities, right, and ensuring that so, so you have to do that extremely carefully with SOPs that we’ve written, with standards that, we’ve actually written the national standards in Kenya, under which we’re regulated, you know, and that process itself took two years, right? It’s nuts, the sort of regulatory work we have to do to operate.
But it’s right, it’s the right way to sort of build an industry sustainably, safely, and so customer service. It’s about you know when you think about what moves a new solution, sort of, how do you get a technology to go from sort of earlier adopters to really, you know, like we’ve done sort of crack across the chasm into the mass market of adoption? You really need to get that word-of-mouth engine rolling on the ground. In Nairobi today, in mass market, we are a top five consumer brand.
You knock on anybody’s front door of any of the low-income houses where the bottom 70% of incomes live. Knock on anybody’s door whether they’re a customer or not, they’ll know us. They’ll love us. They’ll have a very good opinion of us. So that’s only possible because if there’s been a you know a challenge, for example, if they’ve left the appliance outside and you know it’s rained, and then the mineral fibre sponge that absorbs the ethanol, that’s one thing that happens, they forgot to bring it inside.
Now that’s a $1.00 consumable fix you know, and we do it within our repairs and maintenance centre in our Network Operations Centre. All they’ve got to do is pull us up and say look, something’s gone wrong so don’t worry we’ll sort it out you know they can drop it off at their agent location and do the reverse logistics. We take it back, we fix it and what you’ve done then is, you know a customer that’s been in it potentially quite frustrated, now becomes your biggest advocate and guess what? You get their neighbour, you get their sister, you get their mum, you know you, you’ve got three new customers out of one relatively low cost, but sensible active brand building and customer service.
That’s what we mean, and that’s a critical part of why we’re growing vertically is this heavy attention to focusing on the customer, solving their problems, and definitely carbon as a material sort of revenue source of the business that enables those sorts of investments to be made nationally.
I don’t think it would be possible without it.
DR: Yeah, right? I mean it just strikes me as amazing how much infrastructure and work had to be put in before it could be, as you mentioned, the switch could be switched and there’s service be provided. And yeah, and now that it is, you know you’ve expanded into three cities. Is that right? You’re in Nairobi, Mombasa, and Kisumu at the moment?
GM: Yeah, and then and then our first rural network and a place called Siaya County now in Western Kenya about an hour and a half outside of Kisumu. We are doing the first principles R&D work to learn through doing about, you know, tackling, tackling the solution beyond the big cities as well. And we think there’s a real opportunity to do that, and so far so good. Siaya, it’s about a week and 1/2 old, and we’ve already got 1000 new households in a place that is, you know, rural.
But you know, it’s also got no trees left because of charcoal. It’s got .42% forest cover as a result of charcoal deforestation right now, and so people actually don’t. You know it’s like sort of Haiti, and people have this sort of idea that in the rural areas folks will just go and collect wood, but if you’ve been to Haiti you know there’s no wood, there’s no trees and so the cost of charcoal in Haiti is actually higher in the non-urban areas, because you’ve gotta smuggle it in via the boats from Dominican Republic, into border Prince and then truck it up country. And so, you’ve got additional logistics costs.
And so, you know, we learn a lot through doing as we go into these new geographies. But yeah, we do think that there’s a…like we’ve committed to do in Rwanda, which is a more densely populated country. We do think there is a sort of a universal access network that is out there that we can solve this problem properly, not just for the urban citizens.
DR: And of course, the logistical challenges of delivering the service in a rural setting versus an urban setting would be, I mean to me it seems like a much more challenging scenario. I mean, how have you sort of addressing the issue of I guess population density you know might be an issue. Being able to deliver services.
GM: Yeah, you hit the nail on the head. I mean it’s an evolution of our field distribution hardware. It’s going to be part of it. You know, we’ve built this ATM form factor for dense urban environments with a 5000-litre micro tanker that delivers every day, right?
Well, you don’t need that in a village. You know. In fact, that’s probably silly because you don’t have the space constraints. What I think it looks like just to paint a picture. We’re not there yet, but in rural…but you know, if you have you ever seen those pictures of the early days of the rollout of the petrol industry in America in like the 1920s and stuff you see this sort of general store in a village.
And it’s got like an underground tank and a little pump like that, and people would bring their, you know, bring their buckets, their Jerry cans to get their kerosene to go back and light their lamps. You know that’s sort of what it looks like. I think it’s probably something like a, you know, instead of a 350 litre above ground ATM, it’s probably more like a 3000 litre below ground tank. Right, properly set up just like in front of a general store in the village.
And there’s actually, there’s a solution that we’ve built and tested. I’m not sure we’ve publicly announced it, but it’s a sneak peek. It’s working. It’s fun, we’re calling it KOKO Everywhere. It’s basically a solution that enables a small entrepreneur to have a dozen full canisters in their shop and customers bring their empty canister and then they use an app with the handheld device that we give the entrepreneur and it basically swaps the empty for the full right whilst, because our customers, they all have an account, right?
We have visibility on all of our customers, just like a Telco, and there’s an NFC chip in the neck of the customer that’s actually coded to the customer, so when you dock it in the fuel ATM it says Hi David, please enter your PIN, checks the clouds, and says okay, you’ve got 300 shillings worth of credit, and you can buy $0.30 or $0.50, so that’s how it works at the moment in the form factor, we’ve been able to take that same idea of maintaining that we set the fuel retail price through the platform, through the wallet.
But maintaining that same low fuel retail price has enabled us to extend the reach of our fuel ATMs and run this sort of canister swapping approach. And so yeah, you can see you know I can see that sort of working where you’d have a, you know a hub and spoke approach where you’ve got a, you know general store with an underground tank, and then you’ve got these other entrepreneurs coming in, you know.
Motorbikes for example with you know 15 canisters and they’re able to go and then basically service their village. And so, the guys that are doing the transport are really the guys that are doing that as a business opportunity. That’s, I think where it’s going, but yeah, give us, give us, you know, give us another year before we’ve got that operating at scale.
It’s working now. It’s sort of a you know 100 shop scale, but to really sort of systematise that, and push that out over the whole network and to enable us to sort of triple our fuel retail points of presence without necessarily tripling our ATM network CapEx. That’s what we’re trying to solve for now I see, and I guess I mean this sort of.
DR: This makes me think of. I mean, you’ve mentioned you that’s operations of going international beyond Kenya. I mean, there’s it seems like something that work quite well with. With that aspiration, do you have any updates on moving beyond the border?
GM: Sure, in January we signed an investment agreement with the Government of Rwanda, who really wants to solve this problem. You know Rwanda is quite crowded in terms of the density. Even in rural, they call it the land of 1000 hills. And so, you know, as you take trees out of the hillsides, the hillsides degrade. And you’re actually, you’re actually reducing your arable land, right? And so, deforestation everywhere is a food security problem, right?
Deforestation, charcoal deforestation, drives food security, but particularly in a very hilly place, and so this is, you know, this is front and centre for the Rwandan government. They are genuine about trying to solve this problem.
You know the challenge is that historically, you know, governments basically have only had one tool in the policy toolkit to solve this problem. Governments understand, they’re on the ground, they understand that to beat dirty fuel, you have to, you know, to beat like charcoal, you have to switch the fuel. And the only fuel, the only modern fuel that’s been available is fossil LPG.
But Fossil LPG, the policy prescription, is massive amounts of subsidy, right? And that’s what’s worked in Indonesia, Brazil and India. If you don’t have the balance sheet to be able to fund those massive amounts of subsidy, charcoal will reign supreme, right, and so that’s what they’re grappling with, and we basically approached the Government of Rwanda in conjunction with our joint venture partner in Rwanda.
It’s a group called Dolberg Climate Ventures, and basically said look, look what we’re doing here in Nairobi. We’ve actually cracked it. It’s taken us a long time, we’re scaling vertically, we’d like to come and do this in Rwanda.
But our OCD focus is on lowering the prices to consumers of cookers and fuel and so on. And so, the challenge, you know, there are toll gate taxes on pretty much everything in emerging markets by tollgate taxes I mean import tariffs, I mean excise duties, I mean VAT. So, these are toll gate taxes that serve to drive up the cost of goods and services.
And of course, charcoal, which operates in the informal economy, doesn’t have any of these toll gate taxes, and so, whether intended or not, the baseline fiscal policy stance of most African nations is to favour charcoal. That’s the fact, versus a new thing that’s coming in that hasn’t got, you know, specific exemptions from those tollgate taxes.
And so, we proposed, we said, look, we’re a sustainable infrastructure, investor, and developer. We build the sustainable infrastructure. We solve this problem. We propose to come in and make a $25 million investment into Rwanda to build a countrywide network, employ 501 citizens and fundamentally solve this problem at some scale and we do not want any of your money. We don’t need any subsidy. So, unlike the fossil LPG guys, they’re basically asking for government money to scale this solution. We’re not doing that, but we’re saying, please. In return, we ask that you commit to 10-year removal of VAT input duties. Excise taxes on all the fuel and all the hardware. The consumer hardware, the network hardware and commit to not directing export tariffs on carbon credits.
We’re very open about how carbon works right and basically saying look instead of government money, we have a B2B solution we’re selling to corporates in Western or in wealthier markets, and we use that money to solve the affordability challenge.
This is a mechanism. This is by design as a founding thesis it’s working out scale.
What do you say? And they looked at it 10 ways to Sunday and took it all the way up to the cabinet, and to the president and formally approved. So, we signed that with the one in development for the Ministry of Infrastructure, Ministry of Finance in January this year and are now putting pieces together. So yeah, it will. It will be the next, the next country we go live in next year. It’s a big process.
It won’t take us the same number of years as it did in Nairobi, but it’s not a small undertaking to build a network. There are a dozen different work streams, a couple hundred people that we have to hire, train, bring on board, you know, software integrations, infrastructure, preparation, quite a lot of implementation of the government agreement in terms of the national standards and a range of other things that have to be written fast.
You know, that’s basically the process that we’re taking, and in fact we’re engaged with similar government negotiations around agreements in, you know, in half a dozen other countries. That’s basically the plan. So, if we can remove those toll gate taxes, and we’ve committed in the agreement to pass them 100% to consumers in the form of lower prices.
And then obviously use carbon to lower prices even further and you know if we can get those agreements with governments, then that determines our order of travel because there are 60 low-income tropical forest nations that need these networks. There are 60 of them.
Yeah, and so we have to be able to figure out how we can basically serve the maximum number of customers in the minimum amount of time. And yeah, energy is at least free market sector of them all. There’s always taxes and subsidies based on what’s in favour at any one time. And so, it’s forward leaning governments that are genuine about actually solving the problem rather than just talking about it. We’re open for business. We’re happy to come and invest.
DR: That’s amazing, I’m conscious of time. I think we’ve sort of reached the end, but I mean I have about 1000 more questions which I’d love to ask, but we’ll have to leave it there.
I really appreciate you taking the time and answering these questions and just sharing with us your insights and the opportunities and the challenges and KOKO and your own journey. Thanks so much for coming on.
GM: Thanks David, cheers.
