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Funding For Vanuatu’s Rural Electrification

By Chin Ching Soo

11 August, 2004

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 country’s 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 Pacific’s 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 aid’s 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 Vanuatu’s 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 user’s 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.

2. “Bulelavata Women Speak” - Donnella Bryce and Chin Ching Soo, Energia News 6.2
3.“Arrested Development: Vanuatu’s 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

13. “Human Development Report 2002”, UNDP
14. “Arrested Development: Vanuatu’s Suspended Accession to the WTO “, pg 5, Michiko Hayashi, Feb 2003
15. “Sustainable Rural Electrification in the Pacific Islands - Mission Impossible?”, Solomone Fifita






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