Energy and Poverty Linkages in the Pacific Island Countries - Policy Implications for the Achievement of the MDGs

1. Energy and Poverty Linkages in the Pacific Island Countries - Policy Implications for the Achievement of the MDGs Thomas Lynge Jensen, Associate Programme Specialist, Regional Energy Programme for Poverty Reduction (REP-PoR), UNDP Regional Centre in Bangkok (RCB) Follow-up Sub-regional MDG-based Workshop for North Pacific Countries, Pohnpei, 26-29 June 2007

2. Purpose of Presentation • To provide an introduction to some of the key energy challenges and opportunities in Pacific Island Countries (PICs) concerning energy access and poverty reduction; and, • To set the scene for the presentation on the MDG Energy Costing Tool

3. Energy Services • Energy services refer to the services that energy provides and energy appliances require • What matters most for poor people is: a) the energy service not the source; and b) whether the energy services are reliable, affordable and accessible • Without access to adequate quantity and quality of modern energy services, achievement of the MDGs will not be possible. The Pacific Energy Ministers formulates it this way: ‘Energy is a key driver of economic growth, with a significant bearing on education, environment, health and social welfare in Pacific nations. Energy and economic development need to be integrated and prioritised in national strategic development plans’ - Communiqué, Pacific Energy Ministers Meeting (PEMM), Cook Islands, April 2007

4. Energy Services and the MDGs

5. Energy Services and the MDGs • Any realistic hope of meeting the MDGs requires access to at least three types of improved energy services: • 1) Energy for cooking; • 2) Electricity for lighting, ICT, and appliances to support household and commercial activities and the provision of social services; and • 3) Mechanical power to operate agriculture and food processing equipment, to support enterprises and other productive use, and to transport goods and people

6. Key Challenges in the PICs

7. PIC Development Context • The energy sector issues facing the PICs cannot be separated from the wider development challenges which among others include: • Smallness and remoteness • Internal inequalities • Globalisation • Development assistance • Migration • Population growth • Governance

8. PIC Development Context • Economic and environmental vulnerabilities: • Numerous studies have documented the susceptibility of small island states to external economic fluctuations and environmental shocks • ‘That Pacific Island countries are extremely vulnerable to oil price shocks, a fact of deep concern. Even moderate increases in world fuel prices cause significant damage to their economies’ – Communiqué, Pacific Energy Ministers Meeting (PEMM), Cook Islands, April 2007 • The UNDP Regional Centre in Bangkok (RCB) via the Regional Energy Programme for Poverty Reduction (REP-PoR) is in the process of developing an Asia-Pacific Oil Price Vulnerability Index (OPVI)

9. PIC Development Context • The OPVI have with two components: • 1) OPVI-Econ.Reflects the economic capacity of a country to absorb the adverse economic impacts of rising oil prices. It is a summation based on: a) real GDP growth rate; b) balance of payments; c) current account; d) budget balance; e) import cover; and f) share of net oil fuel subsidy/tax revenue in GDP • 2) OPVI-Energy. Seeks to capture oil dependence in a country’s energy demand and supply patterns to determine its vulnerability. It is a summation based on: a) oil intensity of GDP; b) oil reserves to production ratio; c) oil import dependence; d) share of oil in primary energy consumption; and e) share of transport in oil consumption

10. PIC Development Context • Asia-Pacific countries by oil price vulnerability. Preliminary results from 24 countries: • Work in progress. Other combinations of economic and energy variables are being worked on as well as determining weights between variable

11. Poverty in a PIC Context • Hardship and poverty are genuine issues in all PICs • There is still no agreed definition of poverty in the PICs or how to measure it – thus it is difficult to demonstrate that specific energy sector interventions actually reduce poverty or hardship levels • The great majority of persons considered by any definition to be in poverty live in Melanesia – in particular in PNG, Solomon Islands and Vanuatu • In the Pacific attempts to alleviate poverty based on income generation have not worked well

12. Links between Energy Use and Poverty Reduction • Until recently programmatic linkages between poverty/hardship and energy in the PICs were not specifically considered by Governments, donors, UN system, regional agencies, etc • Though it is clear that increased wealth increases the use of modern energy forms, it is not clear that the provision of modern energy sources increases wealth (or its equitable distribution) • In rural areas electricity is almost exclusively used for lighting and entertainment. Very little is used for income generation (often not even enough to pay for the extra cost of electrification) • The the provision of energy access to low income rural communities by itself is unlikely to result in a reduction in poverty if measured by income alone

13. Inadequate Access to Modern Energy (#1) • Significant energy access gap exists concerning electricity and/or petroleum fuel access in PNG, Solomon Islands, Vanuatu, Fiji, Marshall Islands, FSM and Kiribati • To some extent biomass access is becoming a problem in urbanized atolls (e.g. S Tarawa) and in cities such as Port Moresby and Honiara • Power utilities are reluctant to extend further into rural areas since the return on investment is usually negative (even with capital cost subsidies) • With regard to petroleum fuel in rural areas, there may be occasional shortages in all the PICs as storage reserves are usually small and the deliveries are not always on time. However, in some remote islands (e.g. Rotuma, Fiji), shortages have been common for several years or more

14. Inadequate Access to Modern Energy (#2) • In many PICs, the fuel costs in outer islands are exorbitantly expensive • In all PICs there are low income households who use little petroleum fuel and/or electricity because of their high cost even when they are easily accessed • Insufficient human and capital capacity in PICs to develop rural energy access at a rapid rate • In PNG and the Solomon Islands (and to a lesser extent in Vanuatu), access to energy has been slow to develop due to a fragmented social structure, land tenure issues, political instability and often a low priority by government, donors, etc for energy access development

15. Inadequate Access to Modern Energy (#3) • Typically off-grid electricity supplies are diesel mini-grids that are intermittent, expensive on an energy cost unit cost basis and unreliable • Solar energy has emerged as the primary rural electricity supply source in a few countries. Unfortunately with the exception of the Kiribati experience, the development of small-scale solar power in PICs has been ad hoc and generally donor driven with little consistency of either technical systems or managing institutions among projects. Thus sustainability has often been poor

16. Limited Collection, Availability, Access, Analysis & Dissemination of Detailed Energy Information • There has been a decline in the availability of reliable up-to-date energy data in many PICs over the past decade • Energy data is spread over many government departments, organizations and sectors, making it hard to consolidate • Data reporting is often of poor quality with obvious inconsistencies, data often is not made available until long after collection, and private (and sometimes even government) energy suppliers often refuse to provide energy production and sales information • In general the staff of PIC energy offices, and often national planning offices, do not do much analysis and possibly therefore may be unconvinced of the practical value of good data • Poor data leads to poor analysis of issues and problems

17. Meeting Some of the Challenges

18. Facilitating Access to Modern Energy (#1) • National and regional programs that analyse and improve the understanding of linkages between energy access and hardship/poverty reduction in the PICs • Poverty alleviation through energy access provision needs to be much higher on the agenda of national, regional and international organizations • Enhance the reach of energy institutions to rural and remote areas including: 1) Public Private Partnerships (PPPs); 2) off-grid rural electrification mechanisms that provide technical support and general management through an urban utility; and 3) private independent power producers (IPPs) • Change laws and regulatory frameworks so urban utilities don’t block or stymie the development of IPPs, etc

19. Facilitating Access to Modern Energy (#2) • Programmes that expand the electricity supply to rural government stations and nearby facilities • Demonstrate effective models for improving energy access to rural areas that are integrated with programmes in the area of agriculture, health, education, etc • Assist countries with rural islands (all but Niue and Nauru) develop improved petroleum purchasing, delivery and storage mechanisms to ensure a continuing supply of fuel at each island

20. Facilitating Access to Modern Energy (#3) • The Pacific Energy Ministers Meeting (PEMM), Cook Islands, April 2007 endorsed a regional bulk fuel procurement initiative and the Framework Agreement approach proposed to implement this • ‘Samoan models’ for supply of liquid petroleum based fuel products. The two Samoas, outperform their much larger island neighbours in having the lowest fuel prices (before tax) in the region: a) Publicly owned fuel import terminals, i.e., the terminals are not owned by multi-national oil companies; b) Both countries periodically (every 3–5 years) call for international tenders for fuel supplies and for the operation of their terminals: and, c) Both countries rely on rigorously enforced, formula-based fuel price reviews, which are applied on a monthly basis

21. Facilitating Access to Modern Energy (#4) • Technology options based on indigenous energy sources need to be accorded a higher priority in particular solar and bio-fuel: • Concerning remote islands of the Pacific, hardship might well be reduced more effectively by providing a small amount of low voltage direct current (DC) power for a few hours per day to a large number of households through solar PV to meet basic lighting needs and radio access • The most promising renewable energy source for poverty reduction is bio-fuels, particularly from coconut oil since not only does this provide for local energy in rural areas it also provides an opportunity for income generation • The Outer Island Electrification Strategy (OIES), Republic of the Marshall Islands focus on the following technology options: 1) solar lanterns; 2) PV systems: and 3) diesel generators operated on diesel and/or coconut oil

22. Facilitating Access to Modern Energy (#5) • Some of the key findings from a draft Pre-feasibility Study on Biofuel Electrification on Remote Atolls in the Marshall Islands: • The application of solar energy is the most appropriate technology for small scale household use on the outer islands • For higher levels of electric power demand coconut oil appears to be an appropriate fuel • Coconut oil based village bio-fuel systems are an effective way to provide medium-power electricity needs to a nucleus community, provided sufficient copra is available and the community has a high degree of organisation • The cost of coconut oil production on Ebon Atoll would be slightly lower or similar to the price of imported diesel from Majuro. Without subsidies it would not be cost effective to provide power to the communities on Ebon Atoll using coconut oil

23. References • Pacific Rapid Assessment and Gap Analysis, final draft, November 2005, prepared by Herbert A. Wade and Peter Johnston for UNDP Regional Centre in Bangkok (RCB) • Energy Access and Poverty Reduction in the Pacific Island Countries (PICs) - An Overview of Some of the Key Challenges and Opportunities, final draft, March 2007, UNDP Regional Centre in Bangkok (RCB) • Communiqué, Pacific Energy MinistersMeeting (PEEM), Cook Islands, April 2007 • Energy Services for the Millennium Development Goals, UN Millennium Project, UNDP, World Bank & ESMAP, 2005 • Rural Electrification Survey Report, Government of Fiji, First Draft, 2006 • Pre-feasibility Study on Bio-fuel Electrification on Remote Atolls in the Marshall Islands, draft, Government of RMI, MEC, UNDP and SOPAC, June 2007 • Harnessing competitive forces to reduce fuel costs in small island economies, by Apurva Sanghi and Alan Bartmanovich, Pacific Economic Bulletin, Volume 22, Number 1, March 2007

24. End of Part I – Thank you