| Energy: ENERGY SECURITY A PRIORITY |
Finding innovative solutions a must
Shane Fairlie
Niue was recently without power for an entire week. As a result, water supply was shut down, telephones cut off and schools, shops and homes were in darkness. The nation with a population of just 1500 people was immobilised.
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Endorsed... Energy Ministers Dr Sione Nailasikau Halatuituia from Tonga and Siriako Usa from the Solomon Islands sign the Ministerial Energy Communique with SOPAC Director, Cristelle Pratt.
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It was not just a government concern, it was a business inconvenience and a consumer problem. Basic services such as healthcare for the sick and schoolling for children were seriously affected.
If the power failure in Niue had continued, the economic fallout would have ernomous, and it could even endangered lives.
At a recent meeting of Pacific Energy Ministers and officials in the Cook Islands, 17 ministers and more than 50 officials, donors and observers heard Pacific Islands Forum Secretariat adviser, Padma Lal, said that when there are energy problems, everybody suffers.
“Energy security underpins not only economic growth and fiscal management, but also the ability to alleviate poverty and improve services such as health and education,” Lal said.
Based on a mandate issued by the Pacific Islands Forum Leaders in October 2006, the Rarotonga gathering (April 23-26) was the first meeting of Pacific Energy Ministers in more than a decade.
Ministers reviewed regional and national energy initiatives and policies and considered technical presentations on energy efficiency, renewable energy and bulk procurement of petroleum products.
Coordinated by the Pacific Islands Applied Geoscience Commission (SOPAC), and the Energy Working Group of the Council of Regional Organisations, ministerial talks followed two days of dialogue between officials to examine the progress of the Pacific Islands Energy Strategic Action Plan.
SOPAC director, Cristelle Pratt, said energy issues discussed a decade ago were now more relevant than ever before and the meeting was an important opportunity to address critical energy security challenges affecting the ability of countries to realise their potential.
“We are in the midst of an energy crisis in our region, and with some urgency, we need to look at considered, pragmatic and creative ways to see our way through it.
“Energy is also a key driver of economic growth that has a significant impact on education, the environment, health and social welfare and must be included in national plans for economic development,” Pratt said.
INNOVATIVE SOLUTIONS High on the agenda for officials and ministers was finding innovative solutions to Pacific problems caused by the global fuel crisis.
“Pacific Islands countries are the most vulnerable in the world to the impact of rising world oil prices. If oil rises by just $10 a barrel, some countries face a loss of up to 14 percent of gross national income which will have a major effect on the social welfare of local communities,” Pratt said.
Federated States of Micronesia’s energy minister, Akillino Susaia, said because of high costs and big risks for oil companies operating in smaller countries, there is a need to examine bulk petroleum purchasing to increase bargaining power and help provide security, affordability and stability of energy supplies.
As a matter of urgency, ministers endorsed a regional fuel procurement strategy, aimed at presenting a package of measures for immediate implementation to the Forum Economic Ministers and Leaders in 2008.
SOPAC energy adviser, Jan Cloin told the conference that more needed to be done with available resources to tackle energy problems, especially rising fuel costs.
“The first step we need to take is to do more with the energy we are already using. Biofuels also can make an important contribution to energy security and supply but they must be economically viable and environmentally sustainable.
“Oils from coconuts for example, and ethanol from sugar cane and starchy crops like cassava can help replace up to 30 percent of our fossil fuel usage in the region,” Cloin said.
Ministers agreed that biofuel promotion and standardisation must be integrated with petroleum sector strategic developments.
Pricing mechanisms should be transparent and targeted, and more regional support was needed to explore renewable initiatives such as wind, biomass, solar, hydropower and biofuels.
Throughout the region, there are renewable success stories. Photovoltaic energy powered communications is improving education services for children in the Solomon Islands, biofuel and solar energy supply some nursing stations and villages in Fiji, and wind energy is being used by communities in the Cook Islands.
However, significant challenges face Pacific countries exploring renewable options. There are land ownership issues, ongoing damage caused during the cyclone season, limited technical expertise for maintenance and repair of equipment such as wind turbines, and energy provided can be of poor quality.
Ministers concluded the four days with a Ministerial Energy Communiqué that declared a joint commitment to overcome energy challenges.
The communiqué highlighted the need for an increase in donor technical assistance and the creation of economic policy and energy legislative frameworks that encourage cost-effective and efficient energy initiatives.
Cook Islands Prime Minister, Jim Marurai, said in his opening address that urgent action was required by countries to make energy a planning and development priority.
“At the national level I see a particular need to take an aggressive approach to ensure energy sectors and issues are acknowledged and become fully integrated into national planning and development processes,” Prime Minister Marurai said.
The communiqué also emphasised the need to share experiences and develop expertise in the energy sector, as well as to enhance coordination between the private and public sector, and between countries, donors and other stakeholders of climate and energy activities.
“Having countries from all over the Pacific endorse a new whole of government approach to energy use and consumption as a development imperative is a great outcome. By getting policy and implementation right, energy savings of up to 80 percent can be made through improvements and conservation, which will greatly boost living standards,” Pratt said.
Ministers and officials will urge Forum Leaders to include energy issues in the economic planning and reform agenda of Forum Economic Ministers from 2008, and are anxious to meet again in 2009 to review progress on actions commenced.
In the meantime, Cloin says efforts to increase public awareness of energy issues must become a priority for energy stakeholders.
“The first act required is to stop and think about the energy we are using at the moment and how we can use it in a more effective way and we can start doing this right now.”
Participants included ministers from Australia, Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Marshall Islands, Nauru, New Zealand, Niue, Papua New Guinea, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu and Vanuatu.
LEARNING FROM THE SAMOAS
Using competition to lower fuel prices
By Dionisia Tabureguci
In these days of volatile global fuel prices, it has been suggested that Pacific Islands countries could learn something from the model used by Samoa and American Samoa for the supply of their national fuel needs.
In their policy dialogue paper titled “Harnessing Competitive Forces to reduce Fuel Costs in Small Islands Economies”, Apurva Sanghi and Alan Bartmanovich highlighted how the two countries, being among the smallest Pacific islands states, “have harnessed competitive forces to lower fuel prices, resulting in economy-wide benefits.”
Sanghi is a senior economist in the East Asia and Pacific Infrastructure Division of the World Bank, while Bartmanovich was regional petroleum adviser at the Pacific Islands Forum Secretariat. He is presently principal energy consultant for Ouro Preto International, based in Canberra.
Their paper was published in the recently released March 2007 issue of the Pacific Economic Bulletin.
“Understanding the ‘Samoan models’ has important implications for other small islands states concerned with spiralling fuel costs and their adverse development impacts,” they wrote. So what have the two Samoas done which could help other PICs? The scholars noted the two countries:
• Have publicly owned fuel import terminals and so are able to reduce their reliance on the fuel terminals owned and operated by multi-national oil companies.
• In this way, they lower entry barriers to new suppliers; promote competition between potential fuel suppliers through periodic international tenders for the operation of their terminals; rely on rigorously enforced, formula-based fuel price reviews, which are applied on a monthly basis.
“Consequently, the two Samoas, with their populations of only 177,000 (Samoa) and 58,000 (American Samoa), now outperform their much larger islands neighbours in having the lowest fuel prices (before tax) in the region.”
A comparative fuel price analysis done by Sanghi and Bartmanovich across 17 PICs also showed that the two islands countries have managed to consistently keep their fuel prices at reasonably low levels as a result of supply model. This ownership, competition and regulation model, whereby the operation of a publicly-owned terminal is periodically tendered out to pre-qualified multi-national oil companies, with a terminal fee paid to government for the purpose of funding maintenance and capital works in the terminal has worked well,” the two men wrote.
“In Samoa, two tenders have been awarded to date, the first in 1998 and the second in 2003. The 1998 tender was awarded to Mobil (now ExxonMobil), leaving the second supplier BP, without any business. BP was given the ultimatum to leave Samoa at short notice.”
The 2003 tender was won by Shell, thus obliging Mobil, under the terms of their 1998 contract, to sell their terminal to government. In American Samoa, the process started after the US Navy handed over their surplus World War II fuel storage facilities to the island government at the end of the war.
The government set up an Office of Petroleum Management and, over the years, contracted out the six operations to a series of private companies. In the late 1990s, Mobil won the operating tender and the lion’s share of supply in American Samoa.
Since then, terminal operation have moved from Mobil to BP and, in early 2005, to a new local company, Petroleum Services Inc., while Mobil and BP retain joint supply.”
Sanghi and Bartmanovich concluded the two Samoan examples show that even in the smallest of the small islands economies, beneficial competitive pressure can be brought to bear on powerful multi-national oil companies.
“The Samoan experiences provide a basic and replicable blueprint for other small islands states in how to use competition to lower the price of a critical input such as fuel,” they wrote.
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