Crisis of price or inertia?

Samisoni Pareti
Deep in the Highlands of Papua New Guinea, homes are increasingly using solar-powered lights. Across the sea to the semi-autonomous island of Bougainville to the east, a growing number of vehicles run on cocofuel.

Wind power... start-up capital expensive.

School children in some of Solomon Islands’ remote atolls are in regular communication with their friends and families around the world using electronic mail that is sun-powered.

Further east in Fiji, almost 50 percent of the energy needs of the country’s industries run on hydropower. Its own power utility is constructing a wind farm it hopes will generate 15 megawatts of electricity.

Investigations for harvesting wind energy have also begun in the Polynesian islands of Samoa, Cook Islands and Tuvalu.

Indeed no one ought to look very far to find real time examples of how islands of the Pacific are attempting to abandon their reliance on fossil fuel in favour of renewable energy. Such an approach is driven right from the top.

Meeting for the first time in April in the Cook Islands since their leaders formed a joint political entity, the Pacific Islands Forum, energy ministers of Forum-member countries endorsed renewable energy initiatives.

That meeting also gave the greenlight for the establishment of  a bulk petroleum purchasing facility for the islands of the region hard hit by the rising world oil prices.

But are all these initiatives shielding islanders from the devastating effects of oil price hikes? Is the price shock leading countries of the Pacific to reduce real dependence on fossil fuel? Is it a crisis caused entirely by price? Or is it partly one of inertia, the inability to bite the bullet and walk the talk?

Limiting Renewables

Proponents of renewable energy will be the first to admit that it is not the panacea to all our energy ills.

While clean, the start-up capital is expensive and its capacity to totally replace fossil fuel is virtually impossible.

For instance, while 2500 people have signed up so far for a World Bank-funded solar lighting project in Papua New Guinea, all of the signatories are school teachers.

It has only been able to work because it targets those who have the earning capacity to buy and repay the bank loan.

In fact, the World Bank says its subsidies has seen the prices of solar PV kits drop from 4200 to 2100 Kina. Yet, 2500 people in a country of almost 6.1 million people is all but a mere drop in the ocean.

In May, the international media picked up a story on how vehicles on the war-torn island of Bougainville are running on cocofuel.

“Doesn’t it sound good if you really run your car on something which falls off a tree,” Matthias Horn, a Bougainville resident of German origin, told the BBC.

Similar initiatives have been launched in the Marshall Islands, Vanuatu and Fiji.

There are, however, several limitations with cocofuel.

More diesel... Fiji Electricity Authority estimates that hydro power provides 30 percent of Fiji’s energy needs while diesel soaks up 70 percent.

Vanuatu, for instance, discovered that coconut oil can only be used as fuel at the minimum ambient temperature of 17°C. So before it could be used large scale, engineers have to find a method to keep cocofuel heated.

Other countries like the Marshalls—as shown in a Pacific Islands Applied Geoscience Commission study of 2004—have the added drawback of senile coconut groves.

Depressed coconut prices over the years meant there has not been an aggressive replanting programme.
Marshalls and other smaller atoll nations which lack deep river systems cannot go into hydro energy like their bigger nations in Melanesia.

Yet as has experienced by Fiji in recent years, even that has its own built-in constraints.
 
Figures tell the story

In 2002, hydro power supplied 75 percent of Fiji’s energy requirements and diesel provided the remaining 25 percent.

By August 2006, an incredible turnaround happened with the Fiji Electricity Authority estimating that hydro power now provides 30 percent of Fiji’s energy needs while diesel soaks up 70 percent.

Together with soaring demands and fuel prices hitting the roof, the authority said its diesel bill more than quadrupled from F$21.5 million in 2002 to F$90 million by August last year.

Now that Pacific Islands Forum countries have agreed on a bulk petroleum purchasing scheme, its small islands state members especially, hope to reap the most benefits.

The Forum Secretariat’s fuel expert, Jared Morris, had explained to this magazine some time ago the logic behind the scheme.

“Bulk procurement does not necessarily mean you have to buy the product together. “There are two ways of achieving an intent for bulk procurement. One is to procure jointly, the other is to jointly procure.

“Procuring jointly means you present yourselves, you aggregate your demand and you present yourselves in a consolidated manner to the market and the market responds by giving a rate to the countries as a group but each country acts on the price independently.

“To jointly procure is where you get an entity to procure on your behalf.”

Included with the arrangement is the need to establish an oil storage at a designated island and the importance of a reliable, safe and inexpensive shipping network.

Jared estimated in a study he did in 2005 that such a scheme could save $30 million in 10 years.

But when exactly such a scheme will be ready to go and for each islands nation to start counting the benefits in dollar terms is anyone’s guess.

Such a bulk procurement scheme had been talked about in the Pacific for almost 10 years now and islanders have yet to feel any benefits.

So apart from renewable energy initiatives like the World Bank’s teacher solar lighting project in Papua New Guinea, are there similar initiatives around the region that have brought immediate relief to energy users?
Regional bureaucrats will answer that by referring you to the regulatory framework models of the two Samoas and Fiji.

As shown by the story on page 17, American Samoa, Samoa and Fiji are three countries that offer lower fuel prices when compared to their other neighbours in the region.

FUEL PRICES

Through state interventions in the two Samoas and a vigorously sensitive fuel pricing template in Fiji, consumers in these three islands today are not paying as much as their Pacific neighbours for a litre of fuel.

Empowered... rural communities in five Pacific islands nations can qualify for solar units under a World Bank/ANZ partnership.

Yet, the accrued benefits are limited because the price of oil in the world market continues to rise. And it is showing no signs of dropping in any dramatic fashion any time soon.

Fuel may be cheaper in Fiji when compared to Vanuatu, but that is no consolation to vehicle owners who continue to be bombarded with constant oil price hikes.  

Fiji’s ministry of finance said its Prices and Incomes Board (PIB) regulated seven price interventions in 2006. Of these, four were upward movements.

There have been three interventions so far this year and all have been price hikes. The country is bracing itself for another major hike in July. Public transport service providers have already begun agitating for a proportionate rise in fares.

So if renewable energy has limited capacity, the benefits of a regional bulk purchase scheme not taking immediate effect and state interventions unable to keep pump oil prices down, what else can be done?

The answer lies in what the countries of the Pacific has not yet done, either because its leaders do not have the stomach to call for it, or the people they lead won’t allow it to work.

Since the price of fuel began to spiral out of control two to three years ago, no islands leader or government has advocated austere but necessary energy conservation measures.

Car pooling has not been urged, walking not encouraged, bicycles not being sold cheaply, home energy efficiencies remained unimproved, white goods with heavy carbon useage still retailed and diesel power not rationalised voluntarily.

No island government is biting the bullet by pushing for lesser dependency on fossil fuel and greater usage of ecologically-friendly and personally healthy energy initiatives.

NO BETTER OPTION

Admittedly, such initiatives would be painful to implement initially, but if immediate relief to rising fossil fuel price is what the islands want, then there may be no better option.

For Paul Fairbairn, SOPAC’s Manager for Community Lifelines, says why some islands countries are not advocating such conventional energy conservation measures is obvious.

“If you have to reduce peoples’ dependence on user vehicle, you have to have a good commuter train system and that comes with transporting volumes of people, it comes with having an infrastructure that’s reliable and which provides a level of service.

“I mean at the moment if you look at the bus service here in Fiji, there is congestion during peak hours, what are your alternatives? I think your alternatives are limited.

“Other Pacific islands countries are smaller, your populations are quite small so your economies of scale are limited to putting in large transporting infrastructures.

“Obviously, roading needs to be improved so you reduce the impact on vehicles, reduce the wear and tear which would obviously have an effect on the efficiency of your vehicles.

“There’s been a move in Fiji, I’m not sure how effective that is, but a lot of taxis are now running on gas and I think that’s quite an encouraging option to use.

“The use of bicycles, well if you want to commit suicide then use them. The roading infrastructure is really poor and as a result they would not be appropriate.

“The other thing is the drivers’ skills particularly buses and taxis are very, very poor. Anyone riding a bicycle is risking his or her own life.

“If you look at the accident rate, virtually two out of three accidents always have a taxi involved in it and as a result of that, why would you get on a bicycle?”

Samoas the cheapest but Fiji is pro-poor   Fiji’s poor may be the most protected from sky high fuel prices, figures released by the Pacific Islands Forum Secretariat suggest. According to the just released Pacific Fuel Price Monitor of the Secretariat, Fiji was retailing kerosene at the lowest price of 70 US cents a litre in the months of January and February this year. The other competitive fuel pricing nation—Samoa—was retailing kerosene in the two months at 80 cents. Papua New Guinea and French Polynesia pegged kerosene pump prices at 90 cents during the same period. Fiji actually landed kerosene at 62 cents, the same as Samoa but at a lower tax rate—shaved last year by the ousted government of Prime Minister Laisenia Qarase as a pro-poor gesture. That gave Fiji the edge. According to the Fuel Price Monitor, two islands nations—Kiribati and Tuvalu—imposed zero tax on kerosene, but fuel landed in both countries at 100 cents per litre. Vanuatu—reflective of its non-income tax policy¬—had the highest retail price of kerosene at 165 cents followed by Niue at 135 cents. The monitor observed that the high prices were pushing airfares upwards in the region. The effectiveness of the two Samoas interventionist policy on fuel is reflected in the pump prices of petrol and diesel in the first two months of the year. Samoa had petrol at 55 cents and American Samoa at 64 cents. Compare that with the Cook Islands which had petrol pump prices in January and February at 160 cents and French Polynesia at 155 cents. American Samoa was retailing diesel during the two months at 79 cents, Samoa at 80 cents and Fiji at 85 cents. Australia comparatively had diesel pump prices at 54 cents per litre during the same period. Vanuatu again had the highest pump price at 152 cents, followed by the Cook Islands at 150 cents and Niue at 140 cents. Banks offer ‘renewable’ loans Kerosene users in rural communities of five Pacific islands nations will now be able to purchase their own solar power units under a partnership between the World Bank and ANZ Bank. Rural dwellers including those in schools and similar institutions will also be able to buy pico (mini) hydro and biofuel units. This renewable energy initiative will only apply to current kerosene consumers who are living outside the main urban centres of Papua New Guinea, Solomon Islands, Vanuatu, Fiji and the Marshall Islands. “Access to electricity can be as low as seven percent in rural areas of Papua New Guinea to a high of 65 percent in Fiji,” the World Bank said. “However, power generation has been heavily dependent on diesel and most lighting is still provided by kerosene lamps. “With the cost of diesel and kerosene soaring in the past two years, many rural households have been spending 25 percent or more of their income on fuel. “Schools in Papua New Guinea have been spending around 70 percent of their budget on diesel for electricity.” This scheme is additional to the successful renewable energy initiative the World Bank currently runs in PNG. The other is the teachers’ solar lighting project where over 2500 teachers have been able to afford to purchase solar photo-voltaic units. Another 5000 are on the waiting list. Ton De Wilde of the World Bank’s Sydney office, said the bank’s guarantee makes it viable for a commercial bank like ANZ Pacific to be involved. “It might be better to look at this as a tariff, like people who are connected to the grid pay,” said De Wilde. “The difference is that after the loan is paid off after three to five years, depending on the cost of the equipment, the customer owns the equipment and doesn’t have to pay anymore.  “The scheme has been designed not so much based on low or high interest rates, but focused on keeping the monthly payment equal or lower than what people now pay for the cost of kerosene they use for lighting purposes.  “To achieve this, longer term loans (3 to 5 years) are needed.  “Loans of this length were not available for this type of equipment.  “For that purpose, the World Bank is providing a partial credit guarantee managed by ANZ, but also available from other qualifying financial institutions (unfortunately there aren’t too many, but like in PNG, the PNG Teachers Savings and Loan Association qualifies).  “In the case of ANZ, this guarantee changes the risk profile of the customer and in the case of ANZ makes the customer a preferred client, who now can benefit by receiving long-term loans and indeed an interest rate reserved for preferred customers. Depending on the country, the rate is in the range of 11 to 14 percent .”