Funding
For Vanuatus Rural Electrification
By Chin Ching
Soo
11 August, 2004
Countercurrents.org
The
implementation of this project should sound like a development dream
come true. A micro-hydro project in rural Vanuatu with a planned capacity
of 75kW to supply three villages that includes 200 households, medical
facilities, 2 kindergartens, 2 primary schools, a vocational rural training
centre and numerous community halls, churches and provincial offices.
This project not only aims to serve the community for their present
energy needs but to also present a development opportunity using renewable
energy. The project feasibility report (finalised in 2002) calls for
the Vanuatu government to provide the financing and policy management
for the project and for the involved communities to participate throughout
the whole project cycle and have final ownership and responsibility
for operations and maintenance. Community participation will be facilitated
and supported by an external implementing contractor i.e. an NGO.
Currently, without hydropower, the communities are using diesel generators,
biomass and kerosene. These sources of fuel have adverse environmental
consequences. What is more, since diesel and kerosene have to be imported,
they are a financial burden on these communities that do not have a
strong cash economy. Expensive energy sources also limits the economic
growth opportunities for these communities. The effected communities
and the Government of Vanuatu want this project to happen, so much so
that the Prime Minister of Vanuatu officially laid a statue in commemoration
of the POSSIBLE establishment of the Talise Village hydro project on
Maewo. Sourcing funding is the main hurdle to overcome in turning this
project from possible to actual.
This project differs from the utility or the independent power producer
model of rural electricity supply, whereby a government or private owned
company will sell electricity to the community. Similar community owned
approaches to rural electrification have been implemented in Solomon
Islands, another Melanesian country, for example in Bulelavata (1).
In Bulelavata, the community, as the owner of the hydro system, was
involved in all phases of the project cycle. In real terms, this actually
meant: endless hours of discussions about development plans, budgets
and management guidelines, the pooling together of resources to contribute
to project financing; local men and women digging and moving earth to
build the hydro system; attending numerous management and technical
training workshops and the organizing of child minding so that the women
could participate in the hydropower project. So after this long and
tenuous process of developing the hydro system, it is no wonder that
the Bulelavata community and especially the women found that the significant
qualitative outcomes of electricity were solidarity and empowerment
(2). The community also appreciated the quantifiable advantages of electricity
such as lighting and income generation.
So in a nutshell, here is a renewable energy project that will be finally
owned and managed by local communities, supported by capacity building
processes and government environmental and development policies. It
is a project that will use technology in an environmentally friendly
manner to assist communities with their own sustainable development,
in other words a dream development project.
Vanuatu is considered a Small Island Developing State (SIDS) and a Least
Developed Country (LDC, the official status designated by the UN to
the poorest countries in the world). It is quite a challenging combination
of circumstances to bear for a country that only gained independence
in 1980 from the UK and France. Like other South Pacific countries Vanuatu
heavily depends on aid from donor countries such as Australia, New Zealand,
U.K., France, China, Japan, EU and international organizations. In 2003
foreign aid represented 20% of GDP (3).
This hydro project has strong government support and has been included
in the Government Investment Program and is seeking any possible foreign
donor funding. It has been at least two years since the feasibility
report has been conducted and the project is still awaiting the go ahead
for implementation. Supposing that receiving foreign aid is the only
alternative for project implementation and considering that a significant
portion of this countrys GDP comes from foreign aid, the question
then is:
Why is it taking so long to find funds for a community rural electrification
project?
Is it a question of whether rural electrification is beneficial?
Internationally, the role of energy has been recognised as imperative
to addressing poverty alleviation. As stated in a UNDP document:
These ambitious objectives (of the Millennium Development Goals
(MDGs)), particularly the overarching goal of halving extreme poverty
by 2015, simply will not be met if the world cannot make progress in
extending the efficient and affordable energy services to the 2 billion
people who currently rely on traditional forms of energy for heating
and cooking and to the 2 billion who have no access to electricity.
Indeed, all the MDGs will require vast increases in the quality and
quantity of energy services in developing countries if they are to be
achieved. (4)
Around 70% of the South Pacifics population has no access to electricity
(5). These communities are part of the 2 billion figure quoted above.
Electricity by itself does not yield economic development. Nevertheless
electricity does represent a tool capable of enhancing economic, educational,
infrastructure and health sectors. In rural areas it has been observed
that electricity has an additional vital role as a vehicle of information
flow, enabling communities to participate in affairs beyond their village
confines and making national political and social cohesion a meaningful
concept (6).
Numerous players in the development field have acknowledged the many
varied benefits of rural electrification e.g. UN, World Bank, World
Energy Council, Asian Development Bank. Many South Pacific Governments
recognize rural electrification as a development priority. For example
the Pacific Islands Energy Policy and Plan (PIEPP, Oct 2002) has a specific
chapter targeting rural and remote islands areas. The PIEPP was coordinated
by six South Pacific regional organisations, as well as the UNDP and
represented twenty-two South Pacific countries, including Vanuatu.
So it can be concluded that the difficulty in finding funding for the
Maewo hydro project cannot be mainly due to the lack of acknowledgment
or recognition, by the international aid community, of the benefits
that rural electrification can bring to the effected communities.
Is it then a question of whether current donor funding strategies are
appropriate?
There are many organisations, institutions and governments currently
trying to tackle the challenge of energy provision. Taking into account
that sustainable development requires energy services that must be environmentally
sound, safe, affordable, convenient, reliable and equitable, the provision
of energy just seems a colossal task (especially when climate change
issues and zero emissions energy are considered). Increasingly it seems
that a private-sector model has been adopted by many current multilateral
strategies to address this challenge of energy provision. In this model,
public funds assist in generating the right conditions for private investment
and market mechanisms to flourish.
An example of such a grant institution is the Global Environment Fund
(GEF). As stated on the GEF website (7):
GEF is an independent financial organisation that provides grants
to developing countries for projects that benefit the global environment
and promote sustainable livelihoods in local communities.
The GEF is huge. With 176 member countries (8), the GEF has spent $884
million (from 1991 to 1999) on 227 climate change projects, which was
matched by more than $4.7 billion in co-financing (9). The implementing
agencies for the GEF are the UNDP, UNEP and the World Bank. The GEF
aims to assist the development of energy supply through market barrier
removals and commercialization of energy technologies. For example Operational
Programme 6 has the theme of promoting market development of renewable
energy by removing barriers and reducing implementation costs. So once
GEF projects are successfully implemented, market forces will be able
to promote sustainable livelihoods in local communities throughout the
world.
Likewise another player in the energy field, the Global Village Energy
Partnerships (GVEP), has an objective to bridge the gaps between investors,
entrepreneurs and energy users in the design, installation, and operation
of replicable energy-poverty projects (10). Another objective is to
facilitate policy and market regulatory frameworks to increase the availability
of energy services. These objectives suggests that access to modern
energy services by the rural poor in developing countries should be
encouraged to be provided by investors and entrepreneurs with assistance
confined to policy and market regulatory frameworks.
While multilateral agencies approach energy provision from a private
sector point of view, bilateral aid donors to Vanuatu rarely include
energy provision in their aid programs (why, I am not sure). Australian
aid to Vanuatu for 2004 is totaled at 30.9million (11) with most aid
going to assistance in strengthening the legal sector, police capacity
building, assistance to the Ministry of Finance and Economic Management
to improve their fiscal management policies, health and education. New
Zealand aids current priorities are basic education, governance
and economic development (meaning providing consultants to the Ministry
of Finance and Economic Management) (12).
For Vanuatu (and other South Pacific countries) it will be very challenging
to follow the private-sector model of energy supply. The Vanuatu economy
has many structural problems common to poor island countries. Adult
literacy rate is 34% (13) and about 80% of employment is in the rural
areas and consists of agricultural subsistence production (14). Due
to the geography of the archipelago, Vanuatu has markets that are very
thin, difficult to serve and without significant economies of scale.
Economic development has also been hindered by Vanuatus dependence
on a few commodities for export earnings, such as cocoa, timber, beef
and copra, which have volatile prices on the world markets.
It appears that the current private-sector models strategies for energy
provision are not that appropriate to Vanuatu. The question then is
who can provide the investment for an energy supply for small communities
who do not have significant cash incomes, who are dispersed over mountains
and seas, usually without local experience in technical and financial
aspects of an energy system and largely without the economic linkages
for exploiting electricity-based small enterprises?
It has been stated that almost all South Pacific rural communities will
never have electricity unless the project capital costs are heavily
subsidised (15). A more achievable rural electrification scheme in the
South Pacific may be one where the upfront capital costs are heavily
subsidised and a users tariff is collected to cover the operational
and maintenance (O&M) costs of the system. This is the model that
the Maewo project is following. The capital costs will be subsidised
by the Government, foreign donors and communities (with cash and in-kind
contributions). Since, the project uses renewable energy, where fuel
costs are minimal, electricity tariffs can be set at an affordable rate
to only cover O&M costs.
So what is a SIDS/LDC, like Vanuatu to do? Will Vanuatu be caught in
a vicious cycle of trying to chase funds marked for project sites where
cash based economic linkages are assumed while these economic linkages
cannot begin to emerge until affordable and reliable energy supplies
are developed? Or will multilateral agencies and other donors modify
their strategies to better suit the development needs of Vanuatu and
other SIDS/LDCs?
Currently, there are special forums for SIDS (16) and a special LDC
fund incorporated into the GEF. However, more innovative strategies
do need to be developed to address the specific needs of communities,
like the ones in Maewo, who are still waiting for assistance to develop
their energy resources.
1. www.apace.uts.edu.au
2. Bulelavata Women Speak - Donnella Bryce and Chin Ching
Soo, Energia News 6.2 www.energia.org
3.Arrested Development: Vanuatus Suspended Accession to
the WTO , Michiko Hayashi, Feb 2003
4. Energy for Sustainable Development - A Policy Agenda,
pg 9, Edited by: Thoman B Johannsson and Jose Glodemberg, 2002
5. Pacific Islands Energy Policy and Plan pg 2, Committee
of Regional Organisations of the Pacific (CROP), Oct 2002
6. Small-scale village electrification: an NGO perspective,
Paul Bryce and Donnella Bryce, Oct 1998
7. www.gefweb.org/What_is_the_GEF/what_is_the_gef.html
8. www.gefweb.org/participants/
Members_Countries/members_countries.html
9. http://www.gefweb.org/Projects/Focal_Areas/focal_areas.html
10. www.gvep.org
11.www.ausaid.gov.au
12. www.nzaid.govt.nz/programmes/c-vanuatu.html
13. Human Development Report 2002, UNDP
14. Arrested Development: Vanuatus Suspended Accession to
the WTO , pg 5, Michiko Hayashi, Feb 2003
15. Sustainable Rural Electrification in the Pacific Islands -
Mission Impossible?, Solomone Fifita
16. http://www.sidsnet.org