-
Document o f The World Bank
FOR OFFICIAL USE ONLY
Report No: 37605-FJ
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
IN THE AMOUNT OF US$34.88 MILLION
TO THE
FIJI ELECTRICITY AUTHORITY,
WITH THE GUARANTEE OF THE REPUBLIC OF FIJI
FOR A
RENEWABLE POWER DEVELOPMENT PROJECT
November 2,2006
Energy and Mining Sector Unit Infrastructure Department East
Asia and Pacific Region
This document has a restricted distribution and may be used by
recipients only in the performance o f their official duties. I t s
contents may not otherwise be disclosed without World Bank
authorization.
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
Pub
lic D
iscl
osur
e A
utho
rized
-
CURRENCY EQUIVALENTS (Exchange Rate Effective November 1,
2006)
Currency Unit = Fijian dollar F$ 1.7 = US$1
US$1.4688100 = SDRl
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank IFRS
International Financial Reporting Standards APL Adaptable Program
Loan IPP Independent power producer AusAID Australian Agency for
International Development CAIDI Customer Average Interruption
Duration Index IT Information technology CAS Country Assistance
Strategy- kV Kilovolt CDM Clean Development Mechanism kW Kilowatt
CIDA Coconut Industry Development Authority kWh Kilowatt-hour CEMP
Construction Environmental Management Plan MDE Maximum design
earthquake CQS Selection Based on Consultants’ Qualifications MEMR
Ministry o f Energy and Mineral Resources DS Dam Specialists MoFF
Ministry of Fisheries and Forests DSCR Debt Service Coverage Ratio
MTR Midterm review EBITDA Earnings before interest, tax,
depreciation & MW Megawatt
EIA Environmental Impact Assessment Measure EIB European
Investment Bank NGO Nongovernmental organization EMP Environment
Management Plan NPV Net present value ERB Economic Restructuring
Program PPA Power Purchase Agreement ERR Economic rate of return
PGA Peak ground acceleration ESD Energy Services Delivery Project
Sr i Lanka PLC Power line carrier ESP Electrostatic precipitator
PMP Probable maximum precipitation FEA Fiji Electricity Authority
QBS Quality-Based Selection FHC Fiji Hardwood Corporation QCBS
Quality- and Cost-Based Selection FJD Fijian dollar RERED Renewable
Energy for Rural Development Project FM Financial management RPD
Renewable Power Development FMIS Financial Management Information
System SAID1 System Average Interruption Duration Index FMR
Financial Monitoring Report SAIFI System Average Interruption
Frequency Index FRR Financial rate o f return SBD Standard Bidding
Documents FSC Fiji Sugar Corporation / Forestry Stewardship Council
SCADA Supervisory Control and Data Acquisition GDP Gross domestic
product SCMD Supply Chain Management Department GEF Global
Environment Facility SIM Sector Investment and Maintenance GOF
Government of Fi j i SOE Statement o f Expenditures GTZ German
Agency for Technical Cooperation SPC Secretariat o f the Pacific
Community GWh Gigawatt-hour T&D Transmission and distribution
HFO Heavy fuel oil TF Trust Fund IBRD International Bank for
Reconstruction and TOR Terms o f Reference
Development Tropik Tropik Wood Industries Limited ICB
International Competitive Bidding TTL Task Team Leader ICT
Information and Communication Technology VLIS Viti Levu
Intercofmected System IDA International Development Association WTP
Willingness to pay IDC Interest during construction ID0 Industrial
diesel o i l IF1 International financial institution
IREDA Indian Renewable Energy Development Agency
amortization NEPM (Australian) National Environmental
Protection
Vice President: James W. Adams Country ManagedDirector: Xian
Zhu
Sector Manager: Junhui Wu Task Team Leader: Antonie De Wilde
* . 11
-
FIJI FEA Renewable Power Development (RPD) Project
CONTENTS
Page
A . STRATEGIC CONTEXT AND RATIONALE
................................................................. 1
Country and Sector Issues
...................................................................................................
1 Rationale for Bank Involvement
.........................................................................................
6 Higher-Level Objectives to Which the Project Contributes
............................................... 6
PROJECT DESCRIPTION
.................................................................................................
6 1. Lending Instrument
.............................................................................................................
6
Project Development Objective and Key Indicators
........................................................... 6
Lessons Learned and Reflected in the Project Design
........................................................ 8
Alternatives Considered and Reasons for Rejection
........................................................... 8
C . IMPLEMENTATION
..........................................................................................................
9 Partnership Arrangements
...................................................................................................
9 Institutional and Implementation Arrangements
................................................................ 9
Monitoring and Evaluation o f Outcomes and Results
........................................................ 9
Critical Risks and Possible Controversial Aspects
........................................................... 10
Loadcredi t Conditions and Covenants
............................................................................
11
APPRAISAL SUMMARY
.................................................................................................
12
1 . 2 . 3 .
B .
2 . 3 . 4 . 5.
Project Components
............................................................................................................
7
1 . 2 . 3 . 4 . Sustainability
.......................................................................................................................
9 5 . 6 .
. . .
D . 1 . 2 . 3 . 4 . 5 . 6 . 7 .
Economic and Financial Analyses
....................................................................................
12 Technical.,
.........................................................................................................................
13 Fiduciary
...........................................................................................................................
13 Social
.................................................................................................................................
13 Environment
......................................................................................................................
14 Safeguard Policies.,
...........................................................................................................
15 Policy Exceptions and Readiness
......................................................................................
15
... 111
-
Annex 1: Country and Sector o r Program Background
......................................................... 16 Annex
2: Ma jo r Related Projects Financed by the Bank and/or Other
Agencies ................ 23 Annex 3: Results Framework and Monitor
ing
........................................................................
25 Annex 4: Detailed Project Description
......................................................................................
27 Annex 5: Project Costs
...............................................................................................................
33 Annex 6: Implementation Arrangements
.................................................................................
34 Annex 7: Financial Management and Disbursement Arrangements
..................................... 36 Annex 8: Procurement
Arrangements
......................................................................................
48 Annex 9: Economic and Financial Analysis
.............................................................................
53 Annex 10: Safeguard Policy Issues
............................................................................................
78 Annex 11: Project Preparation and Supervision
...................................................................
110 Annex 12: Documents in the Project F i l e
...............................................................................
112 Annex 13: Statement o f Loans and Credits
............................................................................
113 Annex 14: Country at a Glance
...............................................................................................
114 Map: IBRD 35125
iv
-
FIJI FEA RENEWABLE POWER DEVELOPMENT (RPD) PROJECT
PROJECT APPRAISAL DOCUMENT EAST ASIA AND PACIFIC
EASEG
Date: November 1,2006 Country Director: X ian Zhu Sector
ManagerIDirector: Junhui Wu
Project I D : PO99308
Lending Instrument: Specific Investment Loan
[XI Loan [ ] Credit [ X 3 Grant [ ] Guarantee [ ] Other:
For LoansiCreditsiOthers: Total Bank financing (US$m.): 34.88
Proposed terms: IBRD, Fixed Spread Loan (FSL) Grace Period: 6 years
Commitment Fee: 0.25% for 2007’ Annuity repayment l inked to
commitment
Team Leader: Antonie de Wilde Sectors: Renewable energy (1 00%)
Themes: Climate change (P); Rural services and infrastructure (S)
Environmental screening category: B Safeguard screening category:
S2
Project Financing Data
Years to Maturity: 14.5 Front End Fee: Waived2
Recipient and Responsible Agency: Fiji Electricity Authority
(FEA), 2 Marlow Street, Private M a i l Bag, Suva, Fiji
I Estimated disbursements IBRD (Bank FY/US%m) I
’ The Commitment Charge payable by the Borrower i s 0.75% per
annum on the unwithdrawn loan balance, subject to any waiver o f a
portion o f such charge as may be determined by the Bank from time
to time. For FY2007 the Bank waived 50 basis points. On August 10,
2006, the World Bank’s Board o f Executive Directors approved the
following loan charge waivers for IBRD loans for Fiscal Year (FY)
07: “100 basis points o f the front-end fee wil l be waived for all
loans (other than Special Development Policy Loans) approved by the
Executive Directors o f the IBRD from August 11, 2006 to the date
on which the Executive Directors decide upon any front-end fee
waiver in connection with the Allocation o f IBRD FY07 Net Income
and Waivers of Loan Charges for FY08.”
V
-
Project implementation period: February 28,2007 - June 30,201 1
Expected effectiveness date: February 28,2007 Expected closing
date: December 31,201 1
[ ]Yes [x ] N o Does the project depart f rom the Country
Assistance Strategy (CAS) in content or other significant respects?
Ref: PAD A.3 Does the project require any exceptions from Bank
policies? Ref: PAD D. 7
I s approval for any policy exception sought from the Board?
Does the project include any critical risks rated “substantial” or
“high”? Ref: PAD C.5 Does the project meet the Regional criteria
for readiness for implementation? Re$ PAD D. 7 Project development
objective Ref: PAD B.2, Technical Annex 3 .
[ ]Yes [x 3 N o
[ ]Yes [ ] N o [x ]Yes [ ] N o
[x ]Yes [ ] N o
Have these been approved by Bank management? [ ]Yes [ IN0
The objective o f the Project i s to help the Borrower continue
to meet the growing demand for electricity in the Republic o f Fiji
at lower cost by further developing a reliable diversified
sustainable energy portfolio.
Expansion o f the Wailoa Power house wi th a duplicate penstock
and the installation o f an additional hydro generation unit o f 21
MW; Construction o f 3 MW thermal biomass generating plant in Deuba
on the island o f Viti Levu; Construction o f up to 3 MW thermal
biomass generating plant in Savusavu o n the island o f Vanua
Levu.
Project description Re$ PAD B.3.a, Technical Annex 4 . . . Which
safeguard policies are triggered, if any? Ref: PAD 0.6, Technical
Annex 10 . Environmental AssessmendIssues (OP4.01) . Safety o f
Dams (OP4.37) Significant, nonstandard conditions, if any, for:
Ref: PAD C. 6 Board presentation: None . Loadcredit effectiveness:
None
v i
-
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and Sector Issues
The Economy
1. Fiji has the largest economy among World Bank Pacific Island
member countries, and i s the least dependent on foreign aid.
Expansionary fiscal policies stimulated a rapid economic recovery
from the political crisis o f 2000 with real gross domestic product
(GDP) growth averaging 3.8 percent from 2001 through 2004, led by
increased sugar and garment exports, tourism, and construction
activity. However, the real rate o f economic growth slowed in 2005
(to 1.7 percent) and i s expected to hover between 2.0 and 2.4
percent through 2008. This decline reflects the loss o f
preferential trade arrangements in the sugar and garment
industries, and the impact o f high oi l prices. Government efforts
to stimulate economic growth have resulted in annual budget
deficits and rising public debt. The deficit rose to 7.0 percent o
f GDP in 2001/02, and at the time o f appraisal remains at
approximately 4.0 percent o f GDP. Outstanding government debt i s
expected to increase from 50 percent o f GDP in 2004 to an
estimated 55 percent in 2008. As o f 2005, 93 percent o f this debt
i s domestically held; the government has concentrated i t s
borrowings locally due to ample liquidity in the banking
system.
Electricity Sector
2. The Fiji Electricity Authority (FEA) was established,
incorporated, and constituted under the provisions o f the
Electricity Act o f 1966, and i s responsible for generating,
transmitting, and retailing electricity in Fiji. Members o f FEA
are appointed by the Minister for Energy and Mineral Resources
(MEMR). FEA has to operate in a financially viable and economically
sound manner. FEA i s also governed by the requirements under the
Public Enterprises Act. FEA’s system has an installed capacity o f
193 MW, and i t generated 685 GWh o f electricity in 2005. I t has
a staff o f 545 and serves about 135,000 consumers throughout Fiji.
In 2005, commercial sector and government users accounted for 44
percent o f total sales, followed by domestic (29 percent) and
industrial (26 percent) users. About 60 percent o f the population
has direct access to FEA power. The FEA i s currently also
entrusted with enforcing the Electricity Act and regulations,
setting standards, and examining and registering electricians, and
i s empowered to approve and license electricity suppliers to serve
certain areas. Electricity tariffs are currently determined and
approved by the Commerce Commission. The Asian Development Bank
(ADB) has recently started a feasibility study to establish a
separate, independent multisectoral regulatory body.
The Fiji Electricity System
3. Fiji consists o f more than 330 islands, although only a few
are permanently inhabited. The largest island, often referred to as
Fiji, i s officially called Viti Levu, and the FEA has the
exclusive mandate to supply commercial electricity on the island.
The FEA also provides service to two separate areas on the second
largest island, Vanua L e v u which i s about 80 km north o f Viti
Levu, and to the island o f Ovalau o f f the east coast o f Viti
Levu. Figures 1 and 2 in Annex 1 show the main features o f the
systems on each o f the islands. All major electric load centers
are close to the coast. The existing generating system serving the
132kV Viti Levu Interconnected System (VLIS)
1
-
i s a m ix o f hydroelectric and diesel plants as listed in
Table 1 in Annex 1. A single circuit 132 kV l ine brings the output
from the major hydroelectric plant, Wailoa, located near the center
o f Viti Levu, to each region. This plant, financed by the World
Bank with cofinancing from the European Investment Bank (EIB), was
commissioned in 1984 and i s a high-head plant with four Pelton
turbines having a nominal capacity o f 20 MW each. Water i s
supplied to the plant via a tunnel from the Monasavu reservoir.
However, Wailoa can only deliver a total o f 72.6 MW at maximum
reservoir level because o f high head losses along the tunnel.
4. A two-unit, 6.6 MW run-of-river hydroelectric plant,
Wainikasou, near the Wailoa Plant, began operation in 2005. I t i s
expected to deliver an average o f 18 GWh annually. The Vaturu
mini- hydroelectric plant has a single 2.8 MW unit and was
completed in late 2005, but did not begin operating until early in
2006. This plant makes use o f the water that i s released from a
water supply reservoir in the Western Region, and the plant i s
expected to deliver 19 GWh annually. The majority o f the thermal
energy i s supplied from two diesel power stations: Kinoya near
Suva and Vuda between Laukota in the Western Region. The FEA has
several smaller diesel plant strategically located to support the
network. All oil-fired plants in Fiji currently use industrial
diesel o i l (IDO), although new diesels at Kinoya are capable o f
burning vegetable oil, and the FEA i s converting 2 x 10 MW
Wartsila units at the Kinoya plant to burn heavy fuel o i l (HFO).
Both the Fiji Sugar Corporation (FSC) and the Tropik Wood
Industries Limited (Tropik) operate cogeneration plants that
provide surplus energy at times to the V L I S under a power
purchase agreement (PPA) with FEA. Tropik supplies about 2.7 GWh
annually, and FSC supplies about 20 GWh. Neither plant provides
predictable power and energy to FEA.
Production Costs and Tariffs
5. With fuel price increases over the last few years, the
variable generation cost from diesel generating units has increased
to over US$O.18 per kWh, in comparison with the average tari f f o
f less than US$O. 12. W h i l e the debt free hydropower component
o f the generation m ix enabled FEA to maintain financial viability
(see Financial Performance hereinafter), i t became clear that with
continued load growth which was increasingly being met by diesel
generation, FEA would need both to increase tariffs and substitute
diesel generation with lower cost new generation options. Building
a generation portfolio that i s largely concentrated on cheaper
renewable energy sources has been a key FEA strategy to mitigate
the adverse financial impact o f high diesel fue l prices.
6. Tariff increase. Because o f the high percentage o f
electricity generated from hydro resources, FEA did not have to
increase i t s tar i f f for many years. However, as FEA had to
increase i t s use o f diesel o i l to meet the growing energy
demand, FEA requested for a tari f f increase in 2004. On November
26,2004, the Commerce Commission approved increases in electricity
tariff rates for domestic users by 3.3 percent in 2005, 3.2 percent
in 2006, and 3.1 percent in 2007, amounting to a cumulative 9.9
percent increase over the three years (excluding the lifeline
tariff, which was not increased). The Commission also approved
increases in electricity tari f f rates by 6.9 percent in 2005,
6.45 percent in 2006, and 5.7 percent in 2007, amounting to a
cumulative 20 percent over the three years, for commercial and
industrial customers, and maximum demand tari f f customers. These
tari f f increases have been effective since January 1, 2005. While
FEA has been able to satisfy reliably most o f the electricity
demand by buying new diesel fuelled generation capacity, the rapid
increase in the price o f o i l recently forced FEA to request the
Commerce Commission for a fuel
2
-
surcharge. After much heated public debate, the Commission very
recently (September 28, 2006) approved a temporary fuel surcharge o
f F6.51 cents/kWh to be levied on al l FEA customers, with the
exception o f domestic l i fel ine customers and institutions (such
as schools and churches), effective October 5,2006.
FEA Efficiency and Expansion Program
7 . In October 2001, FEA, under the direction o f a new board
and management, began an ambitious efficiency and expansion program
aiming to transform FEA into one o f the most efficient and
commercially sound power utilities in the Pacific. The strategic
objective o f the new FEA i s to meet existing and new demand with
sustainable energy solutions, based on least cost analysis, to help
ensure that Fiji has a secure, continuous, and reliable power
supply. These solutions should minimize their dependency on diesel
through the diversification o f their renewable energy generating
capacity beyond hydropower. FEA has realized that this aim can only
be achieved through a substantial increase in new capital
investments and the introduction o f new renewable energy
technologies to the country (including wind power, solar, and
geothermal power). Although FEA has to mobilize the financing to
meet the investment requirements in the short term, their medium-
and long-term aim i s to achieve the required level o f investment
needed through increased private sector investments.
8. FEA’s expansion program over the period until 2010 wil l
total some US$294 mi l l ion for new generation capacity, o f which
about US$@ mil l ion i s expected to be provided by independent
power producers (IPPs). O f the remaining US$206 million, up to
US$71 mi l l ion wi l l be funded by internal cash flows generated
by FEA. The remaining US$135 mi l l ion wi l l be funded through
borrowings, both domestic and international. The government has
provided a guarantee for the US$135 mi l l ion o f FEA’s potential
borrowings. The first investment package has been identified. The
ADB wil l finance the required transmission and distribution
investment for approximately US$20 million, the EIB wil l finance
FEA’s 50 percent share o f approximately US$30 mi l l ion in a
joint venture, Sustainable Energy Limited (SEL), with a private
developer, which wil l develop a 38.6 MW run-of-river hydro
project, while the Bank wil l finance the improvement and expansion
o f the existing Wailoa hydro power station and two new
biomass-fueled power stations for US$34.88 million. I t i s
expected that in the coming year, FEA wil l consider further
investments in new hydro generation capacity downstream from the
existing Wailoa Power station. The Bank i s in discussion with
Government o f Fiji (GOF) and FEA to provide financing for a second
loan, which would provide long-term finance for this project, as
wel l as for IPPs through a financial intermediary. Once the
investment plan i s realized, Fiji wi l l be the first country in
the world that will obtain 100 percent o f i t s electricity from
renewable sources on a least cost basis.
FEA Performance Indicators
9. The new management resolved in 2002 that FEA:
0
0
0
be a customer-focused, lean, and adaptive organization, while
not compromising security and reliability o f the power system and
the quality o f i t s I C T systems; maximize productivity and
achieve target return to the shareholder; provide excellent and
reliable service to al l its customers;
3
-
0
0
0
0
focus on renewable energy sources for f i ture power generation,
reaching 100 percent by 2012; ensure safety o f the public,
employees, and environment at al l times; operate as a f i l ly
commercial entity; and move forward with leading-edge technology
and human resources development.
Country Employees per 1000
Fi j i (2004) 4.6 Mauritius (2004) 5 Samoa (2004) 17 Vietnam
(2003) 7
connections
10. Despite the difficulties faced by FEA because o f
extraordinary increases in fuel prices and lower-than-usual
rainfall in the catchment area o f the Monasavu reservoir, i t has
made some major achievements during the five-year period in the fol
lowing areas (see Table 1).
System Losses YO 8.6 10.6 22.1 13.0
11. Customer Focus. FEA has established a 24/7 customer call
center; customer care centers and units in department stores in the
3 major population centers, in 8 regional centers; and bill- paying
centers in 22 Morr is Hedstrom (MH) department stores throughout
Fiji. An independent survey done by Tebbutt Research for FEA’s
services. found that FEA’s overall customer survey rating improved
to 83 percent in 2004, a significant improvement from the 73
percent it achieved in 2003.
Thailand (2003)
12. Human Resources. Overall staff numbers have been reduced
from 1,050 in 2002 to 545 by mid-2006 through the outsourcing o f
noncore activities, natural attrition, terminations, and
resignations. At the same time, the ski l ls m ix has been improved
through employment o f local private sector staff. Also, five
expatriate managers were recruited to fill key positions on a
short- term basis. Concurrently local staff were identified and are
being trained to take over expatriate staff roles.
4.8 7.0
13. Collection of Electricity Accounts. FEA maintains very
strong control over collection o f electricity accounts. Unpaid
bills at the end o f 2005 amounted to only F$13.8 million. This was
equivalent to about 37 days’ sales. Only F$1.1 million, or about
8.5 percent, was overdue more than 30 days. This low level o f
overdue accounts performance puts FEA close to industry best
practice.
14. Power System Reliability. FEA measures system reliability by
three internationally accepted performance indicators: System
Average Interruption Duration Index (SAIDI), System Average In
tempt ion Frequency Index (SAIFI), and Customer Average
Interruption Duration Index (CAIDI). When the new management took
over in 2001, all three performance measures were wel l below
accepted international standards. Today FEA has achieved major
improvements in these performance measures: the average number o f
service interruptions (SAIFI) decreased from 35 in 2004 to 26 in
2005, and the average service interruption duration (CAIDI)
decreased from 62 minutes in 2004 to 53 minutes in 2005. This
compares well with, for example, N e w Zealand where
4
-
the mean C A I D I coefficient was 79 minutes in 2005, or even
with the average o f five utilities operating in N e w York state,
United States, which operate within a range o f 60-108 minutes.
15. Financial Performance. FEA has been operating profitably for
many years largely because o f the success o f the Monasavu hydro
project. The loans used to finance Monasavu from EIB, ADB, and the
Bank have been fully repaid, although a portion was refinanced
locally. FEA’s gearing (total debt to equity) o f 25 percent in
2005 i s low by international industry standards. As mentioned
earlier, FEA has maintained strong controls over both collection o
f electricity bills and i t s administrative overheads, while at
the same time achieving significant system expansion, enhancing
system reliability, and improving customer service delivery.
Despite these achievements, FEA’s financial performance has been
adversely affected over the last three years (2003-05) by low
rainfall in these years, which forced FEA to reduce generation from
Monasavu. With reduced output from Monasavu and rising electricity
demand, FEA had to rely much more on diesel generation at a time
when diesel prices were rising at a rapid pace from an average
price o f F$579/ton in 2003 to F$944/ton in 2005 and at more than
F$1,300 per ton currently. As tari f f levels have remained largely
unchanged, FEA has been unable to pass through the increased
operating cost from rising diesel costs to i t s customers.
Consequently, FEA’s profitability has suffered with operating
income margin declining from 38 percent in 2003 to 18 percent in
2005 and net income turning from a positive F$2.6 mi l l ion in
2003 to a negative F$1.5 mi l l ion in 2005. The deterioration in
FEA’s financial performance would have been even greater over the
last two years but for an accounting change in i t s depreciation
rates for long-lived assets which reduced annual depreciation
expenses in 2004 and 2005 by about F$23 million. FEA has been able
to manage i t s difficult financial situation through strict
enforcement o f cost controls and with the help o f the tari f f
increases approved in 2004 and the recent decision to levy a fuel
surcharge. However, longer-term sustainability needs to be
supported by cheaper generation alternatives and hence FEA’s large
capital investment program in least-cost renewable energy i s very
timely.
16. Progress with Renewable Energy Development. FEA has a major
commitment, embedded in i t s mission statement, to the development
o f renewable energy. I t has embarked on an ambitious program to
provide 100 percent o f energy through sustainable renewable
resources by 2012 on a least cost basis. As part o f i t s
renewable energy commitment, FEA has completed the following
actions since late 200 1 :
0
0
0
Commissioned the 6 MW Wainikasoua and the 2.8 MW Vaturu
hydropower stations; Prepared studies and called bids for the 38 MW
Nadarivatu hydropower plant; Constructed a 10 MW wind farm at
Butoni to be commissioned in early 2007; Carried out wind
monitoring studies at Tavua in Viti Levu, and in Vanua Levu and
Ovalau; Carried out a full basin study o f the Wailoa River Basin
(adjacent to the Monasavu basin), which appears to have a large
potential for both small and large hydropower schemes. This study
wil l be completed shortly; and Carried out investigations into the
use o f biofuels to replace diesel in i ts current diesel engines
and i s in the process o f designing a trial program utilizing
seven different biofuels.
5
-
2. Rationale for Bank Involvement
17. The project i s a good model for the Bank’s Clean Energy and
Sustainable Development Initiative. The GOF aims to generate 100
percent o f its electricity from renewable energy sources on a
least cost basis by 2012-the f i rst country in the world to do so.
This project i s a major milestone along the road to achieving this
objective.
18. The IBRD has provided two loans to FEA-approved in 1978 and
1980 and in the amount o f US$15 mi l l ion and US$15.5 million,
respectively. The loans financed the f i rst and second phases o f
the Monasavu-Wailoa Hydroelectric Project, wi th a total installed
capacity o f 83 MW. Both phases o f the project were implemented
satisfactorily.
19. Fiji i s covered by the Regional Engagement Framework (FY
2006-09) dated M a y 3, 2005. Under this framework, the Bank
undertook to strengthen i t s engagement with Fiji by identifying,
in consultation wi th the government, a number o f specific areas
where it can make a contribution using i ts comparative advantages.
Through a number o f dialogues between Bank management, and senior
GOF officials i t was agreed that the power sector, particularly in
light o f the Bank’s earlier engagement in this sector, would be
one o f these strategic areas. Fol lowing a reconnaissance mission
in early November 2005, the GOF formally asked the Bank to
undertake due diligence for a loan to help finance FEA’s renewable
energy development program.
3. Higher-Level Objectives to Which the Project Contributes
20. poverty alleviation through the supply o f reliable
sustainable energy, at least costs.
The project aims to contribute to Fiji’s economic and social
development, and thus to
B. PROJECT DESCRIPTION
1. Lending Instrument
21. During identification, i t was found that the increasing
price o f fossil h e 1 might endanger the financial viability o f
FEA and the investment priority should be renewable energy which w
i l l replace diesel generation. Although other instruments have
been considered, the Bank wil l finance the project through a
Specific Investment Loan, providing loan finance for three discrete
investment subprojects and grant finance for a fourth component for
human capacity development. The borrower selected a Fixed Single
Currency Loan (FSCL) with automatic rate fixing. FEA’s rationale
for the loan choice i s that the FSL with automatic rate f ixing
provides certainty in interest payments and therefore makes
projecting future cash f low easier and transparent.
2. Project Development Objective and Key Indicators
22. The development objective o f this project i s to help the
Borrower continue to meet the growing demand for electricity in the
Republic o f Fiji at least cost by further developing a reliable
diversified sustainable energy portfolio. In particular, the Bank
wil l assist FEA in diversifying i t s energy portfolio to reduce i
ts dependence on diesel oil. K e y indicators include (a) the
renewable energy capacity (MW) added to the grid; (b) amount o f
actual generation added to the grid (GWh);
6
-
(c) increased reliability measured by the increased number o f
hours that the VLIS and Savusavu systems are available; and (iv)
the reduction in greenhouse gas emissions.
3. Project Components
23. This project i s part o f a larger FEA investment program
for a total o f F$350 mi l l ion (US$206 million). A recent power
sector analysis (see Annex 9 for more details) has shown that the
proposed investments in renewable energy generating capacity are
the least cost solution for the expansion o f the energy sector.
Three international financial institutions (IFIs) wil l provide
financing for the f i rst investment package. ADB wil l be
financing the required expansion in transmission and distribution
facilities for a total o f approximately US$20 million, while the
EIB will finance FEA’s equity contribution o f US$30 mi l l ion in
a joint venture with Pacific Hydro Limited, which wil l develop the
Nadarivatu run-of-river hydro facility with a capacity o f 38.6 MW.
The Bank wil l finance the expansion o f the Wailoa Power Station
and the development by FEA o f two generation units utilizing
biomass. The Bank financed project components are described below.
More details are provided in Annex 4.
a. Wailoa Expansion
24. The Wailoa Power Station, commissioned in 1983, i s the main
generation element o f the Monasavu Hydroelectric development. The
power station comprises 4 x 20.8 MW generators driven by Pelton
turbines with a nominal static head o f around 618 m. The proposed
expansion comprises (a) duplication o f the Penstock, which would
provide an additional 8 MW and 20 GWh, and (b) the installation o f
a fifth unit wi th 21 MW capacity. The total cost o f duplication o
f the penstock and expansion o f the power house i s estimated at
US$29 million. The foreign exchange component to be financed by
IBRD i s US$20 million.
b, Deuba Biomass Power Plant Viti Levu
25. The proposed site for the 3 MW Deuba biomass power station i
s located within the existing FEA Deuba power station compound.
This i s near the Waidradra settlement in the Deuba region
approximately 50 km to the west o f Suva. The Deuba biomass power
plant i s expected to operate as base load generation to augment
the electricity generation for the Viti Levu grid. The power plant
requires 26,000 tons o f feedstock with a moisture content o f 25
percent per year. This i s to be supplied, among others by Fiji
Hardwoods Corporation (FHC), which i s in the process o f being
certified by the Forestry Stewardship Council.
c. Savusavu Biomass Power Plant Vanua Levu
26. o f the lumber processing sawmill in the Valaga Bay area.
The site i s approximately 7.5 km north from the Savusavu town
center along the Savusavu West Coast Road. The plant wi l l require
22,000 tons o f timber mill waste wi th a moisture content o f 25
percent. The main supply o f wood waste w i l l come from coconut
trees and wil l be supplied by road truck transport from the lumber
processing mill located next to the proposed powerhouse site. The
total cost o f the two biomass
The proposed Savusavu power station o f up to 3 MW wil l be
located adjacent to and north
7
-
power plants i s US$19 million. The foreign exchange component
that IBRD will finance i s US$14 million.
d. Human Capacity Development Plan
27. The B a n k i s working together with FEA and A u s A I D to
develop a Capacity Development Plan, with a part icular focus o n
the areas ident i f ied b e l o w where FEA current ly lacks in
technical capacity. This component i s budgeted to cost up to
US$3.6 m i l l i o n over a per iod o f four years and i s intended
to b e f inanced through a grant from A u s A I D . T h e P lan
includes the hiring and training o f staff, exchanging o f s taf f
with other uti l i t ies, consul t ing services to develop systems
and databases, and development o f partnerships both loca l l y in
Fiji and abroad to share skills, knowledge, and informat ion, such
as meteorological data, w h i c h wi l l also benef i t other
institutions and the F i j i a n economy in general. FEA has agreed
to undertake the Capaci ty Development P lan from other f inancing
sources (wh ich m a y include i ts own funds) in the event an
agreement i s not entered into with A u s A I D .
4. Lessons Learned and Reflected in the Project Design
28. The m a i n B a n k experience in renewable energy projects
i s in Asia. One o f the most successful projects was the Sr i
Lanka Energy Service D e l i v e r y Project (ESD). Lessons learned
f r o m this and other projects are (a) the need for r igorous qual
i f icat ion criteria for contractors and suppliers; (b) the need
fo r strong technical design capabil it ies to ensure that designs
are cost- ef fect ive but safe, and that geological uncertainties
are adequately reflected in designs, cost estimates, and
implementat ion schedules; (c) the need for strong project
management capabi l i ty preferably exercised by the supervising
engineer rather than the owner (small hydro in Chinese projects);
and (d) the need to focus o n the k e y environmental impacts (al l
projects) and to carry out adequate baseline studies ( Indian
Renewable Energy Development Agency (IREDA), the Sr i Lanka Energy
Services De l ivery project (ESD), and the Sr i L a n k a Renewable
Energy for Rura l Development Project (RERED). The Bank’s invo
lvement in biomass has been l imi ted. T h e BanWGEF f inanced a
project in Maur i t ius in the 1990s to improve the collection,
transport, and use o f bagasse. Several carbon finance projects
with biomass use, inc lud ing with sugarcane bagasse (Brazil-Alta
Mogiana) and w o o d residues (Bulgaria-Svilosa), have prov ided
insight in the need for wel l -developed biomass supply plans. M o
s t o f the lessons learned are documented o n the Bank’s RE T o o
l k i t (www.worldbank,org;/retoolkit) and have been incorporated
in the project design.
5. Alternatives Considered and Reasons for Rejection
29. In the ear ly stage o f project development, consideration
was g iven to developing the project as a Sector Investment and
Maintenance L o a n (SIM) o r a n Adaptable Program L o a n (APL),
with j o i n t f inancing by ADB and EIB. However, w h e n the
issue o f joint procurement came up during the identif ication, i t
became clear that, despite good intentions, the harmonizat ion o f
procurement procedures and safeguard approval procedures between
IBRD and ADB has no t progressed to a leve l where either one or
the other can delegate these procedures t o the other institution.
Th is would have l e d to considerable delays in procurement and
conf l ic t with best practices learned from other RE projects.
Both FEA and the banks agreed t o a m o r e ef f ic ient paral le l
f inancing.
8
-
C. IMPLEMENTATION
1. Partnership Arrangements
30. The project i s part o f a larger investment plan in which
ADB i s financing the expansion o f transmission and distribution
facilities and EIB will be financing FEA’s equity in a joint
venture with the Pacific Hydro for the development o f the 38.6 MW
Nadarivatu run-of-river hydro facility. Coordination among the IFIs
has been strong, with the Bank and EIB negotiating their respective
projects together in the Bank’s Sydney office at the same dates and
with the Bank and ADB joint ly financing a number o f studies
(power sector analysis, demand forecast, and initial financial
analysis).
2. Institutional and Implementation Arrangements
3 1. FEA will be the sole implementing agency for al l four
components under the project. I t has been responsible for project
preparation, and wil l be responsible for procurement and project
management, as wel l as monitoring and evaluation. FEA has
extensive experience implementing renewable energy (small hydro and
wind farm) projects, but not wi th biomass projects, and not wi th
the Bank as a partner in recent times. FEA has both the in-house
technical capacity, as well as a strong and disciplined management
culture that makes it an effective implementation partner.
3. Monitoring and Evaluation o f Outcomes and Results
32. Performance monitoring o f the proposed project would
include (a) the monitoring o f performance indicators as included
in Annex 3 and (b) biannual progress reports and a midterm review
(MTR) on the preparation and implementation o f the investment
components, project management, development o f hydrology data
base, load forecasts, implementation, and monitoring o f safeguards
issues identified during appraisal. Primary responsibility for data
collection, analysis, and dissemination for project monitoring and
evaluation wil l rest with FEA, which, having carried out several
similar projects in recent years, i s capable o f undertaking the
monitoring exercise in a reliable and cost-effective manner.
Additionally, the monitoring o f project implementation activities
wi l l also be conducted through the normal Bank review procedures
for procurement, regular supervision missions, the Financial
Monitoring Reports (FMRs), independent financial audits o f FEA,
and the Implementation Completion Report (ICR).
4. Sustainability
33. The subprojects to be financed under this project are part o
f FEA’s investment plan, which aims to provide 100 percent o f i t
s electricity from renewable sources on a least cost basis.
Low-cost generation wil l assist in significantly improving FEA’s
financial position, which in turn wil l make available adequate
resources to ensure project sustainability. The government and FEA
both understand that these low-cost generation options are critical
if they are to maintain cost-reflective tariffs that are not
burdensome to the population and the macroeconomy. Furthermore, FEA
has sought broad stakeholder support, including from the
government, consumers, and private sector
9
-
participants, such as the biomass suppliers. During appraisal
the Bank also verified that the proposed generation projects using
biomass as the fuel input obtain the biomass on a sustainable
basis. FEA has undertaken to only sign biomass resource contracts
with sawmills or other suppliers that obtain their raw materials
from certified plantations (and forests). The GOF plans to present
the required draft legislation for discussion and approval by
Fiji’s parliament in December 2006, requiring al l native forest
and plantations to be licensed. The draft license criteria closely
follow those o f the International Stewardship Council and were
published in 2005.
5. Critical Risks and Possible Controversial Aspects
34. The project does not include any controversial aspects.
However, the project does have some significant risks (see Table
2). Fiji has a record o f macroeconomic and political instability
and has experienced natural disasters, which could recur. FEA,
which in the last years has shown strong capacity in delivering new
projects in time, might experience negative changes in management
and staffing and could become less effective.
Risks
Political risk.
FEA’s top management may be changed due to political
interference, which could affect the project’s implementation.
Natural disasters such as drought, cyclone or tsunami cause
widespread damage to schemes. Closure o f the saw mills andlor
suppliers o f biomass and natural disasters which may cause
temporary delays and undermine the reliability o f the supply o f
electricity Adverse geological conditions in Wailoa Monasavu
tunnels result in cost and schedule overruns.
Lack o f knowledge with management o f biomass fueled power
systems, including supply management. Overall Rating
Table 2: Project Risk Assessment Risk Mitigation Measures
The recent tariff increase has created a less positive opinion
about FEA. This project w i l l help reduce cost o f supply and
enable FEA to maintain, or even decrease their tariffs. FEA w i l l
implement a communication plan informing the general public o f the
economic and social benefits o f the project. The project includes
a human capacity development plan, which focuses on deepening and
strengthening FEA’s overall management capacity in all areas.
Project technical and construction standards w i l l ensure that
the proposed installations address these risks.
FEA has contracts in place, wi th penalties for non-delivery o f
biomass resources to the plants. Alternative suppliers o f biomass
are also available. FEA has an emergency plan and shall maintain
the existing diesel generating capacity as standby.
Strict qualification criteria for contractor. Tunnel alignment
follows alignment o f tunnel in earlier project; records from
earlier project w i l l provide contractors with excellent basis on
which to bid. Nonetheless the turn-key contract w i l l carefully
apportion the geological risks to the contractor and to the owner.
The Contractor as part o f the design w i l l be required to
develop the biomass supply system, with professional management
tools and train FEA staff, among others through exchange visits wi
th operators o f biomass plants locally and abroad.
-
10
Risk Rating
S
M
S
M
S
M
S
-
6. Loadcredit Conditions and Covenants
35. The major conditions o f the loan for this project are:
a
Financial Projections; FEA to prepare and furnish to the Bank
updated financial projections (Rolling Long-Term Financial Plan)
for the next 10 years by April 30 each year commencing April 30,
2007. Debt Limitation Covenant: Commencing in fiscal year 2007, FEA
shall not incur any additional indebtedness, unless a reasonable
forecast shows that i t s net revenues exceeds i t s debt service
obligations by at least 1.1 times in 2007 and 2008, and 1.2 times
in years beyond 2008 during the term o f the debt. Financial
Performance Covenants; Commencing in fiscal year 2007, FEA shall
produce funds from internal sources (after meeting debt service
obligations) equivalent to not less than 10 percent in 2007 and
2008, not less than 20 percent in 2009, and not less than 25
percent in each year beyond 2009, o f the annual average o f
capital expenditures (including interest during construction)
incurred or expected to be incurred in the previous year, current
year and one forecast year. Cash Availability; FEA shall also
maintain a ratio o f cash availability to meet debt service
requirements o f 1.25, taking into account cash available from
previous years throughout the loan period. External Audit; FEA to
submit audited financial statements (income statements, balance
sheets, and sources and uses o f funds statements) and the
auditors’ report for the project and FEA within six months o f the
end o f each fiscal year. International Financial Reporting
Standards; FEA to fully implement IFRS from January 1, 2008.
Transmission lines; FEA shall construct any required transmission
lines for the evacuation o f the power from the generating units
financed under this project and connect this to, respectively, VLIS
and the Savusavu grid at least one month before commissioning of
the generating units i s scheduled. Darn Safety; FEA shall, within
one year o f the loan effectiveness date, implement the
recommendation o f the dam safety report to replace and upgrade the
identified safety monitoring instruments and within 18 months o f
the loan effectiveness date implement the other recommendations o f
the dam safety report, while continuing to implement i t s dam
safety programs throughout project implementation. Resource
Agreements; FEA shall enter into Resource Agreements with each
sawmill or other seller o f biomass waste to the Deuba Biomass
Power Plant and the Savusavu Biomass Power Plant on terms and
conditions satisfactory to the Bank prior to the commissioning o f
each such power plant. Except as the Bank may otherwise agree, the
terms and conditions o f each Resource Agreement shall include
those set out in the loan agreement, including a clause that states
that the seller o f the biomass waste to the FEA shall obtain i t s
raw material from nationally or internationally certified forest
resources, whether plantations or native. The certification must be
recognized by either the Ministry o f Fisheries and Forests (MOFF)
or the Forest Stewardship Council, or such other sustainable forest
certification mechanism acceptable to the Bank. FEA shall undertake
at least annually an inspection and resource audit o f each seller
o f biomass waste under each Resource Agreement to verify that
the
11
-
seller continues to obtain i t s raw materials from nationally
or internatio,nally certified forest resources, and shall provide
the Bank with a copy o f the results o f each such inspection and
resource audit for discussion and follow-up actions as may be
agreed.
NPV o f Least Cost Development Discount Rate
D. APPRAISAL SUMMARY
NPV o f All Diesel Difference Development
1. Economic and Financial Analyses
36. The Bank and ADB have joint ly fbnded a study o f power
system expansion options in Fiji,3 and FEA has identified a number
o f generation projects that are expected to contribute to the
orderly expansion o f the Viti Levu power system. The Power Sector
Analysis assessed these projects via (a) a screening analysis, and
(b) a multiyear operating cost simulation study. The screening
analysis identified the group o f renewable energy projects with
the lowest energy costs, and compared their costs against the least
cost oil-fired options. Alternatives were compared with ' data from
recent bids on 10 and 20 MW diesel units, fired by H F O because o
f i t s cost advantage over ID0 fuel, and with the newest and
largest diesel units currently serving the grid (Kinoya, 29.8 MW
installed in 2005). In order to confirm the results o f the
screening analysis and assess whether the scheduling o f these
plants wil l affect system operating costs, the Power Sector
Analysis employed a spreadsheet model to simulate the operation o f
the system (assuming historical water availability) for the period
2006-20. The study estimated that the net present value o f savings
(at 10 percent discount rate) that would accrue from adopting the
renewable based least cost development strategy (including
renewable IPP purchases) rather than an expansion plan dominated by
HFO- fired diesel units would be about F$14 mi l l ion over the
2006-20 planning horizon. Results at other discount rates are
summarized in Table 3.
Table 3: Net Present Value of Least Cost vs. All Nonrenewable
Expansion Plan
I 8 Yo I 960 I 982 I 22 I I 10% I 859 I 873 I 14 I I 12% I 775 I
782 I 7 I
37. As explained in Annex 9, the results in Table 3 are based on
conservative assumptions, using the World Bank's o i l price
indicators with regards to future o i l prices. At higher o i l
prices, the project would be much more favorable.
38. Each o f the project investments (Wailoa expansion, Deuba
and Savusavu biomass plants) was also separately analyzed to
determine their economic and financial benefits. The results o f
the analysis are summarized in Table 4 below, with detailed
description presented in Annex 9.
Power Sector Analysis, September 2006.
12
-
Wailoa expansion Deuba biomass Savusavu biomass
2. Technical
Levelized Project Cost Economic NPV Project ERR Project
after-tax ( F $ / K W h) (F$ millions) (%) FRR (Yo)
0.225 7.9 12.3 7.0 0.167 15.9 24.0 8.6 0.223 4.1 14.7 5.6
39. Each investment subproject has been designed in accordance
with international standards and best practice, which have been
reviewed and verified by the Bank. In the case o f the biomass
projects a thermal option rather than a gasification process was
chosen as worldwide experience with thermal biomass i s more solid
than gasification. The thermal option also accommodates a less
rigorous supply management system and can accept waste with
different shape and forms, eliminating an additional processing
step.
3. Fiduciary
a. Financial Management
40. FEA’s financial management capacity was assessed during
project preparation and found to be satisfactory with no specific
follow-up actions required prior to project implementation.
Financial management issues are straightforward, since
implementation wil l be through a small number o f contracts that
wi l l be easy to manage and generate a small number o f
transactions. U s e o f direct payments to contractors for the I C
B contracts as a preferred mechanism for disbursement, although not
necessary from a risk mitigation point o f view, lessens the
reliance on the designated account and provides FEA with an
efficient payment mechanism that i s subject to additional checks
and balances.
b. Procurement
41. Although FEA has been engaging in international procurement
for many years, i t has no experience with Bank procurement
procedures. FEA i s in the process o f adapting some o f their
procurement guidelines, policies, and practices to comply with Bank
procurement procedures. Training o f the procurement team in
understanding and practicing Bank procurement procedures started in
September 2006 and w i l l continue throughout the project. An
early procurement capacity assessment took place during
identification in February 2006 and was updated in August 2006 (see
Annex 8). The overall project risk for procurement i s rated as
“high.”
4. Social
42. The main objective o f FEA’s investment plan i s to assist
the government in meeting the current and future demand for
electricity in Fiji, thereby stimulating sustainable economic
growth and investments in Fiji. The overall social
impacts-improving energy supply, mitigating environmental impacts o
f the energy sector, and supporting growth, investment and
employment- are positive. Access to reliable electricity i s a key
driver o f economic growth and a direct means o f
13
-
reducing poverty by improving the productivity o f households
and industry, enhancing the delivery o f social services. Two minor
land acquisitions are planned: one for an additional access road to
the Deuba Power station (this land i s freehold land and can be
bought from the adjacent sawmill), and the other for the proposed
Savusavu Power Station (which can either be leased or bought, since
this, too, i s freehold land from the neighboring sawmill). No
people are l iving or squatting in these plots, and no one wil l be
displaced. Although most o f the land for the track for the
duplication o f the penstock i s already leased by FEA, a small
area exists where FEA wil l also need to lease some additional
land. This i s native land and the f i rst community consultations
with the owners have taken place and wil l continue until a
settlement between parties has been reached. No people are
presently living on this land, and here, too, no one wil l be
displaced.
5. Environment
43. These investments wi l l result in two positive
environmental outcomes, which in turn w i l l significantly
contribute to environmentally sustainable economic growth in Fiji.
First, the GOF’s and FEA’s strategic decision to shift electric
power generation from fossil fuel based sources to renewable
sources, as demonstrated through this project’s proposed
investments, wi l l directly lead to improved ambient air quality
as a result o f reduction in pollutant sulphur and nitrous gases.
However, although the Environmental Impact Assessment indicated
that the projects have only very minor long lasting environmental
impacts, possible impacts during construction, particularly the
required drilling and blasting required for the tunnel construction
and the concrete batching plant operations for the expansion o f
the Wailoa Power station, wi l l need to be carefully managed.
a. Wailoa Expansion
o Environmental impacts as a result o f operating the scheme are
minor. However, during construction, negative environmental and
social impacts could occur. An Environmental Management Plan
Framework (EMP) and a Construction Environmental Management Plan
(CEMP) has been proposed and was accepted by FEA.
o The Safety o f Dams (OP 4.37) i s triggered because the
investments being financed in Wailoa depend for their function on
the use o f water stored and provided for by the existing Monasavu
Dam. The most recent dam inspection, carried out in August 2006,
identified that there are no significant physical safety issues.
However, in the Dam Safety Report, i t was recommended that
attention be given to several issues, including replacing the
instruments for monitoring dam safety characteristics. FEA has
committed to implementing the recommendations with respect to the
replacement o f instruments for monitoring dam safety within one
year o f loan effectiveness and the other recommendations within 18
months o f loan effectiveness.
b. Deuba and Savusavu Biomass Power Plants
44. As with the Wailoa Expansion, the EIA was more concerned
with impacts from construction because the impact from operations i
s minimal. An EMP Framework and a CEMP has been proposed and was
accepted by FEA. Minor environmental issues as a result o f the
plant’s operations were identified, and mitigating actions have
been proposed, which are discussed in detail in Annex 10. The two
most important issues are as follows:
14
-
0
0
45.
Both at Deuba and in Savusavu, the supply and more importantly
discharge o f cooling water from the plants need to be carefi l ly
managed. Characteristics o f the discharge water should be measured
continuously. FEA w i l l sign biomass resource agreements with
sawmills, which need to assure that their timber originates from
certified plantations andor forests. MOFF, FEA, and the Bank wil l
work closely together to assure that the sawmills obtain their
timber from certified areas, and FEA has agreed to an annual
inspection and resource audit o f each seller under each biomass
resource agreement.
In compliance with the Bank’s Environmental Assessment (OP
4.01), the EA category assigned to this project i s Category B. FEA
has prepared full EIAs for each component to ensure the associated
environmental issues are adequately analyzed and understood, and
that all associated adverse impacts are captured. The EIAs (in
documents on fi le) were prepared to meet standards as mandated by
both the Bank’s OP 4.01 and Fiji’s Environment Management Act o f
2005. Stakeholders’ meetings were conducted on September 6, 2006.
The Ministry o f Environment in Fiji published the EIA during the
period o f September 14 to October 9,2006, and approved the EIAs on
October 19,2006. The reports have also been published in the Bank’s
Infoshop.
6. Safeguard Policies
Safeguard Policies Triggered by the Project Yes N o
Enviroiimental Assessment (OPIBP 4.01) [XI [I Natural Habitats
(OPIBP 4.04) [ I [XI Pest Management (OP 4.09) [I [XI Cultural
Property (OPN 1 1.03, being revised as OP 4.1 1) [I [XI Involuntary
Resettlement (OPIBP 4.12) [I [XI Indigenous Peoples (OP/BP 4.10) [
I [XI Forests (OPBP 4.36) [ I [XI Safety o f Dams (OPIBP 4.37) [XI
[ I
Projects on International Waterways (OPIBP 7.50) [I [XI Projects
in Disputed Areas (OPIBP 7.60)* [I [XI
7. Policy Exceptions and Readiness
46. This project complies wi th al l applicable Bank policies,
requires no pol icy exceptions.
47. The feasibility studies for the three components have been
finalized. Following agreement with the Bank on the Procurement
Plan FEA has posted requests for Expressions o f Interest for the
three project components before negotiations and i s ready to issue
RFPs for the three projects. Community consultations to acquire the
land lease for the duplicate penstock started in August and are
well underway, with a lease to be signed not later than January
2007.
48. The project i s ready for implementation.
* By supporting the proposed project, the Bank does not intend
to prejudice the final determination o f the parties’ claims on the
disputed areas.
15
-
Annex 1: Country and Sector or Program Background FIJI: FEA
Renewable Power Development (RPD) Project
The Economy
1. Fiji has the largest economy among World Bank Pacific Island
member countries, and i s the least dependent on foreign aid.
Expansionary fiscal policies stimulated a rapid economic recovery
from the political crisis o f 2000 with real GDP growth averaging
3.8 percent from 2001 through 2004, led by increased sugar and
garment exports, tourism and construction activity. However, real
growth fe l l dramatically in 2005 (1.7 percent), and i s expected
to remain between 2 to 2.4 percent through 2008. This decline
reflects the loss o f preferential trade arrangements in the sugar
and garment industries, and the impact o f high oi l prices. The
sugar industry, which accounts for 30 percent o f agricultural GDP
and employs more than 10 percent o f the labor force, lost i t s
European Union preferences in 2005, and faces other problems due to
the effects o f drought, non-renewal o f land leases, and uncertain
world market trends. The garment industry also lost preferential
access to the U.S. market and some preferences in the Australian
market, while confronting increasing international competition.
Fiji’s tourism industry, however, i s booming; there has been a
significant increase in tourist arrivals, attributable, inter alia,
to the decline in visits to the once-popular destination o f Bali,
Indonesia following recent incidents.
2. Government efforts to stimulate economic growth have resulted
in annual budget deficits and rising public debt. The deficit rose
to 7 percent o f GDP in 2001/02, and remains at approximately 4.0
percent o f GDP. Public debt has risen even more rapidly.
Outstanding government debt i s forecasted to expand at an average
growth rate o f 8 percent, from 50 percent o f GDP in 2004 to an
estimated 55 percent in 2008. As o f 2005, 93 percent o f this debt
i s domestically held; the government has concentrated i t s
borrowings locally due to ample liquidity in the banking system.
The government has set medium-term targets for reducing the budget
deficit to 3 percent o f GDP, and public debt to 50 percent o f
GDP, within five years; however, the rising trends o f these
indicators are a matter o f concern which should be monitored
closely.
3. While the tourism and construction sectors can be expected to
continue to make a strong contribution to the economy, growth in
exports are expected to hold the key to sustained economic
expansion. Total investment accounted for 17 percent o f GDP in
2004, significantly less than the government target o f 25 percent.
Prospects for more rapid economic growth depend, to a large extent,
on government efforts at fiscal control and structural reforms
designed to stimulate investment from the private sector.
Electricity Sector
4. The Fiji Electricity Authority (FEA) was established,
incorporated and constituted under the provisions o f the
Electricity Ac t o f 1966, and i s responsible for generating,
transmitting and retailing electricity in Fiji. I t is a wholly
Government-owned authority operating on a commercial basis, and
reporting to a board o f directors appointed by the Minister o f
Works and Energy. FEA has installed capacity o f 193 MW and it
generated 685 GWh o f electricity in 2005. I t has a staff o f 545
and served 133,972 consumers throughout Fiji in 2005 (a 7 percent
increase over 2004). FEA
16
-
currently has approximately 135,000 customers. In 2005,
commercial users (including the Government) accounted for 44
percent o f total sales, followed by domestic (29 percent) and
industrial (26 percent) users. About 60 percent o f the population
has direct access to FEA power. The FEA i s currently also
entrusted with enforcing the Electricity Act and regulations,
setting standards, examining and registering electricians, and i s
empowered to approve and license suppliers to serve certain areas.
In order to perform this task, FEA has established a power sector
regulatory hnct ion in-house, which reports to the Chief Executive.
Electricity tariffs, however, are currently determined and approved
by the Commerce Commission. The establishment o f a more
independent and stable regulatory framework and strengthened
capacity i s now being addressed. In September 2006, ADB made
US$700,000 available for a feasibility study for a multi-sector
regulator.
The Fiji Electricity System
5. Fiji consists o f over 330 islands, although relatively few
have permanent habitation. The largest island, often referred to as
Fiji, i s officially called Viti Levu and the FEA has the exclusive
mandate to supply commercial electricity on the island. The FEA
also provides service to two separate areas on the second largest
island, Vanua Levu, which i s about 80 km north o f Viti Levu, and
to the island o f Ovalau o f f the east cost o f Viti Levu. Figure
1 shows the main features o f the systems on each o f the
islands.
Figure 1: The Fiji Electricity Authority Systems (VLIS)
VKlLEW tElTERCaNNECTE0 POWER NETWOW
17
-
6. The FEA system on Viti Levu i s in two parts: the Central
Region, serving the capital region o f Suva and loads part way
along the south coast to beyond Deuba and loads east and north o f
Suva, and the Western Region radiating north and south o f Vuda
where the I 3 2 k V line from Wailoa feeds into the western grid.
The two regions are interconnected via the 132kV l ine across the
centre o f the island and the system i s known as the Viti Levu
Interconnected System (VLIS). All major electric loads are close to
the coast.
7. as listed in Table 1 below.
The existing generating system serving the VLIS i s a m ix o f
hydroelectric and diesel plants
Sub Total Diesell Source: FEA
8. There i s a single circuit 132 kV line which brings the
output from the major hydroelectric plant, Wailoa, located near the
centre o f Viti Levu, to each region. This plant was financed*by
the Bank, with co-financing from the EIB. I t was commissioned in
1984 and i s a high-head plant wi th four Pelton turbines having a
nominal capacity o f 20.8 MW each; however, i t can only deliver a
total o f 72.6 MW at maximum reservoir level due to high head
losses along the tunnel carrying the water from the Monasavu
reservoir to the power plant (due to a narrowing o f the tunnel at
the penstock). As recently as 1997, this plant supplied over 93
percent o f the total electric demand on the main island.
18
-
9. Wainikasou, a two-unit, 6.6 MW run-of-river hydroelectric
plant near the Wailoa Plant, began operation in 2005. I t i s
expected to deliver an average o f 18 GWh annually. The Vaturu
mini- hydroelectric plant has a single 2.8 MW unit and was
completed in late 2005, but did not begin operating until early in
2006. This plant makes use o f the water that i s released from a
water supply reservoir in the Western Region, and the plant i s
expected to deliver 19 GWh annually.
10. The majority o f the thermal energy i s supplied from two
diesel power stations: Kinoya near Suva and Vuda between Laukota
and Nadi in the Western Region. The FEA has several smaller diesel
plants strategically located to support the network. Some o f these
are operated regularly for voltage control. All diesel power
stations in Fiji currently use diesel fbel, although the FEA i s
considering converting two 10 MW Wartsila units at the Kinoya plant
to burn either HFO or vegetable oil.
11. Both the Fiji Sugar Corporation (FSC) and the Tropik Wood
Industries Limited (Tropik) operate cogeneration plants that
provide surplus energy at times to the VLIS under a power purchase
agreement with FEA. Tropik supplies about 2.7 GWh annually and FSC
supplies about 20 GWh. Neither plant provides predictable power and
energy to FEA. FSC also supplies energy to the Labasa system at
Vanua Levu during the cane crushing season.
Figure 2: The Fiji Electricity Authority System at Vanua Levu
VANUA LEYU POWER SYSTEM
The Vanua Levu and Ovalau Systems
12. The FEA systems on Vanua L e v u serve Savusavu on the south
coast and Labasa in the north. As noted, FSC has a cogeneration
plant near Labasa that presently supplies a part o f the Labasa
system energy requirements for about hal f o f the year. The
Savusavu and Labasa systems
19
-
are not interconnected. On the island o f Ovalau, a system
serves the Pacific Fish Company and the associated town. Table 2
summarizes the generation installed in each system as o f July
2006.
Source: FEA
Production Costs and Tariffs
13. With fue l price increases over the last few years, the
variable generation cost from diesels has increased to over US$O.lS
cents per kWh, in comparison with the average tari f f o f less
than US$O. 12. While the nearly debt free hydropower component o f
the generation m ix enabled FEA to maintain financial viability
(see Financial Performance in Annex 9), i t became clear that with
continued load growth FEA would need to increase tariffs and
substitute diesel generation wi th lower cost new generation.
Building a generation portfolio that i s largely concentrated
around cheaper renewable energy sources has been a key FEA strategy
to mitigate the adverse financial impact o f high diesel fue l
prices.
14. Tariffincrease. FEA investigated various options to enable i
t to fund the capital investment required to build new power
capacity. Ultimately, i t made a submission to the Commerce
Commission seeking an increase in electricity tari f f rates. On 26
November 2004, the Commerce Commission approved increases in
electricity tari f f rates o f 3.3 percent in 2005, 3.2 per cent in
2006 and 3.1 per cent in 2007-amounting to a cumulative 9.9 percent
increase over the three years for domestic customers (excluding
life-line tar i f f which was not increased). The Commission also
approved increases in electricity tari f f rates o f 6.9 per cent
in 2005, 6.45 per cent in 2006 and 5.7 per cent in 2007-amounting
to a cumulative 20 percent increase over the three years for
commercial and industrial customers and maximum demand tari f f
customers4. These tari f f increases have been effective since 1
January 2005. The Commission very recently approved a temporary fue
l surcharge o f F6.51 cents/kWh to be levied on al l FEA customers,
with the exception o f domestic lifeline customers and institutions
(schools, churches, etc.), effective October 5, 2006. The fuel
surcharge raises tariff levels for FEA’s non-lifeline and
non-institution customers by roughly thirty
Consumers using more than 250kWh per month.
20
-
percent and, on aggregate, i t increases the weighted average
2006 tari f f o f F21.87 centslkwh by 24 percent to F27.10
cents/kWh. Table 3 below provides the tari f f schedule for
2006.
Tariff (Fiji Tariff (US Categories Domestic lifeline Domestic
other Commercial I Commercial I1 Industrial
FEA Efficiency and Expansion Program
Consumption Range CentdkWh) Cents)* 250Kwh/month 21.95 12.91
Up to 14,999 kWh 23.57 13.86 >14,999 K W h 22.76 13.39
>14,999 K W h 20.53 12.08
15. In October 2001, FEA-under the direction o f a new Board and
Management-began an ambitious Efficiency and Expansion program
aiming to transform it into one o f the most efficient and
commercially sound power utilities in the Pacific. Despite the
difficulties faced by FEA in the face o f extraordinary increases
in he1 prices, it has made some major achievements (see Table 4)
over the three-year period, such as those in the following
areas:
Country
Fiii (2004’1
16. Customer Focus. FEA has established: a 24/7 customer call
center; customer care centers or care comers in department stores
in the three major population centers and eight regional centers;
and bill paying centers in 22 Morris Hedstrom department stores
throughout Fiji. An independent survey done by Tebbutt Research for
FEA’s services found that FEA’s overall customer survey rating
improved to 83 percent in 2004, a significant improvement from the
73 percent i t achieved in 2003.
Employees per 1000 System Losses connections YO
4.6 8.6
17. Human Resources. Since the new Board and management took
over in 2001, overall staff numbers have dropped from 1050 in 2001
to 545 by mid-2006 through outsourcing o f non-core activities,
natural attrition, terminations and resignations. At the same time,
the employee ski l ls m i x has improved through employment o f
local private sector staff. Also, several expatriate managers were
recruited to fill key positions on a short-term basis.
Concurrently, local staf f were identified and are being trained to
take over expatriate staff roles. A localization plan and pol icy
was approved by the Board that w i l l result in the replacement o
f the expatriates with local managers at the end o f their term o f
contract.
Mauritius (2004)
Vietnam (2003) Thailand (2003)
Samoa (2004) 5 10.6 17 22.1 7 13.0
4.8 7.0
21
-
1 8, Power System Reliability. FEA measures system reliability
by three internationally accepted performance indicators: System
Average Interruption Duration Index (SAIDI); System Average
Interruption Frequency index (SAIFI); Average Interruption Duration
Index (CAIDI). These indicators deteriorated in the late 1990s due
to increased demand and reduced hydropower availability such that
reserve capacity was virtually reduced to zero. As a result, when
the new management took over in 2001, al l three performance
measures were wel l below accepted international standards. In
response, FEA’s current management has taken steps to improve i ts
power system reliability to meet international standards.
Consequently, while the average number o f service interruptions
(SAIFI), decreased from 35 in 2004 to 26 in 2005, the average
service interruption duration (CAIDI) decreased from 62 minutes in
2004 to 53 minutes in 2005. This compares wel l with for example
New Zealand, were the mean C A I D I coefficient was 79 minutes in
2005, or even with the average o f five utilities operating in New
York State USA, which operate within a range o f 60 to 108
minutes.
Collection of Electricity Accounts
19. FEA maintains very strong control over collection o f
electricity accounts. Unpaid bills at the end o f 2005 amounted to
only F$13.8 million. This was equivalent to about 37 days’ sales.
Only F$1,117,000 (or about 8.5 percent) was overdue more than 30
days. This low level o f overdue accounts performance puts FEA
close to industry best practice.
22
-
Annex 2: Ma jor Related Projects Financed by the Bank and/or
Other Agencies FIJI: FEA Renewable Power Development (RPD)
Project
1. This Annex summarizes the major projects, related to the FEA
Renewable Power Development RPD project, which has been developed
by the World Bank and other development agencies.
1. Renewable Energy Projects
2. The main Bank experience in renewable energy projects i s in
the Asian region. One o f the best projects was the Sr i Lanka
Energy Service Delivery project (ESD). Lessons learned from this
and other less successfhl projects are: (i) the need for rigorous
qualification criteria for contractors and suppliers, (ii) the need
for strong technical design capabilities to ensure that designs are
cost effective but safe, and that geological uncertainties are
adequately reflected in designs, cost estimates and schedules;
(iii) the need for strong project management capability preferably
exercised by the supervising engineer rather than owner (small
hydro projects in China); and (iv) the need to focus on the key
environmental impacts (all projects) and to carry out adequate
baseline studies (Indian Renewable Energy Development Authority
(IREDA), Energy Service Delivery Project (ESD in Sr i Lanka) and
Renewable Energy for Rural Development Project (RERED in Sr i
Lanka). The Bank’s involvement in biomass has been limited. The
Bank/GEF financed a project in Mauritius in the 1990s to improve
the collection, transport, and use o f bagasse. Several carbon
finance projects with biomass use, including with sugarcane bagasse
(Brazil - Alta Mogiana) and wood residues (Bulgaria - Svilosa),
have provided insight into the need for well developed biomass
supply plans. Lessons learned are documented in the Bank’s RE
Toolkit (www.worldbank.org/retoolkit) and have been incorporated in
the project design.
2. Energy-related Programs in the Pacific Relevant to the RPD
project:
World Bank
3. In the last fifteen years, the Bank has undertaken only one
energy sector project in the Pacific Islands region. The Teachers
Solar Lighting Project (Project P088940), which became effective in
September 2005, was undertaken in PNG and not Fiji. This project
aims to improve the lives o f teachers and health workers by making
available affordable, environmentally sound, basic electricity
services from renewable energy. This wil l help improve their
retention by reducing isolation (through access to radio and other
communications), and providing safer and better living conditions
(through access to lower-cost, better quality lighting). The main
global environmental objective i s to create early markets for
solar P V household electrification and build the capacity on the
part o f al l market participants (e.g., providers, purchasers,
lenders, and regulators) needed to rapidly scale up renewable
energy applications. While the project was programmed only for
3,000 teachers over a period of five years, once the full package o
f materials and finance was offered to teachers, over 7,000
applications were received in the first six months o f the
project.
23
-
3. Non-Energy Projects Developed by Other Agencies but Relevant
to the RPD project
Asian Development Bank
4. The ADB has three active lending operations with commitments
totaling US$103.8 million, (Suva-Nausori Water Supply and Sewerage
project, Fourth Road Upgrading, and Fiji Ports Development) in
Fiji. Four new lending operations are scheduled: Airports
Rehabilitation and Upgrading, Road Upgrading, Urban Sector
Development, and Rural and Outer Islands Development. ADB i s also
preparing an Economic Restructuring Program (ERP). The ERP would
provide resources for effective implementation o f Government’s
development policy, specifically promoting increased levels o f
public and private investment with the support o f concurrent
technical assistance for capacity building. The ERP aims to foster
change in the role o f the public and the private sectors;
developing the business environment in favor o f private sector
investment, enhancing governance practices in management o f public
resources, and enhancing competitiveness o f the economy. ERP
includes a three year resource plan, starting in 2007, and wil l be
disbursed in two annual tranches to improve balance o f payments
conditions and augment fiscal resources.
5 . Suva-Nausori Water Supply and Sewerage project. The
objective o f the project was to assist human and economic
development in Fiji through the development o f water supply and
sewerage services in the Suva and Nausori urban areas. New water
sources wil l be developed, water treatment plants wi l l be
extended and rehabilitated, and pipelines and distribution systems
wil l be developed; sewerage pluming stations and trunk services
wil l be rehabilitated, and sewerage networks wi l l be extended.
The project wi l l provide water and sewerage services o f a
standard that i s suitable for commercialized operations, and w i l
l complement institutional developments that are also being
assisted by the ADB.
6. The fourth road up grading. The project wi l l finance a
six-year time-slice o f the Government’s 20-year road upgrading,
rehabilitation, and safety improvement program; and establish an
effective road asset management system with sustainable funding to
secure the benefits o f past and planned investments to road users
and affected communities. The Project will: (i) upgrade about 100
kms and rehabilitate about 100 kms o f national roads; (ii) improve
road safety through physical works and institutional strengthening;
and (iii) strengthen asset management organization, optimizing
private sector participation and upgrading sector performance.
7. Fiji Ports Development. The Project aims to improve regional
competitiveness o f the port system by: (i) extending the l i fe o
f King’s Wharf by an additional 15 years; (ii) ensuring that the
wharf complies with the required seismic standards; (iii) improving
the wharf deck and container yard to efficiently handle the
increasing cargo loads; and (iv) extending Lautoka Port facilities
to facilitate trade opportunities with reduced time and cost impact
o f port and cargo handling operations. The Project wi l l : (i)
arrest the deterioration o f the ports in Suva and Lautoka; (ii)
strengthen critical sections o f King’s Wharf, enabling it to
comply with internationally recognized seismic standards assessed
for Fiji and the site; (iii) improve King’s Wharf deck and
container yard capacity to efficiently handle the increasing cargo
loads; (iv) increase berthage space by a total o f 300 meters at
the Lautoka port; and (v) increase container storage area at the
Lautoka port by six hectares.
24
-
Annex 3: Results Framework and Monitoring FIJI: FEA Renewable
Power Development (RPD) Project
Results Framework -
PDO The objective o f the Project i s to assist the Borrower to
continue to meet the growing demand for electricity in the Republic
o f Fiji at lower cost by further developing a reliable diversified
sustainable energy portfolio.
To contribute to mitigating climate change through the reduction
o f greenhouse gas emissions in line with the United Nations
Framework Convention on Climate Change.
Intermediate Results One Der ComDonent
Component One: Improved output and efficiency o f the Wailoa
Power station
Component Two:
Expanded capacity to develop, finance, construct and operate
biomass power generation project, and increased renewable energy
installed capacity in V i t i Levu Component Three:
Expanded capacity to develop, finance, construct and operate
biomass power generation projects, and increased renewable energy
installed capacity in Savusavu, Vanua Levu
Outcome Indicators Increased renewable electricity over baseline
(GWh) and increased renewable capacity over baseline (GW)
Cost reductions compared to baseline diesel generation costs
Maintain or increase the number o f hours that the Wailoa Power
station and Deuba and Savusavu Power Stations are available.
Reduced emissions o f carbon
Results Indicators for Each ComDonent
Increased capacity o f the Wailoa Power station wi th 8 Mw and
20 GWh. As a result o f the duplication o f the existing penstock.
Additional peaking capacity due to the expansion o f the existing
Power House and the installation o f a fifth generating unit wi th
a 21 MW capacity to be commissioned before December 3 1,20 10
3 MW wood-fired biomass power generation plant in Deuba, V i t i
Levu selling 22 GWWyear into the FEA grid by 2009
Up to 3 M W wood-fired biomass power generation plants in Vanua
Levu selling > 14 GWhiyear into the FEA grid by 2009
Use of Outcome-information Gauge progress towards reaching
project objective.
Use o f Results Monitoring
Six monthly progress reports for supervision
Six monthly progress reports for supervision
Six monthly progress reports for supervision
25
-
U 4 & E
d d d e! Y Y Y Y
U 4 L w Lr
-
Annex 4: Detailed Project Description FIJI: FEA Renewable Power
Development (RPD) Project
1. This project i s part o f a larger FEA investment program for
a total o f F$350 mi l l ion (US$206 million). Most o f o f the
project components wil l be financed through domestic borrowing.
However, ADB wil l be financing the required expansion in
transmission and distribution facilities for a total o f US$20
million, while EIB wil l finance FEA’s equity contribution o f
US$30 mi l l ion in a joint venture with Pacific Hydro, which wil l
develop a run-of- the-river hydro facility wi th a capacity o f 38
MW. The World Bank wil l finance the development by FEA o f the
duplication o f the existing penstock between the Monasavu
reservoir and the Wailoa Power house, an expansion o f the Power
house and installation o f a fifth 21 MW generating unit and two
small power plants utilizing biomass.
1. Wailoa expansion
2. The Wailoa Power Station, commissioned in 1984, i s the main
generation element of the Monasavu Hydro-electric development. The
power station comprises four 20.8 MW generators driven by Pelton
turbines with a nominal static head o f around 618 m. The four
generator transformers (1 1/132 kV) are located in a transformer
yard adjacent to the power station and connect to the 132 kV sub
station at the Wailoa switchyard via two transmission lines that
are approximately 400 m long. From the switchyard, 132 kV
transmission lines extend to Vuda (in the west, 90km) and
Cunningham Road (in Suva, 63km). The proposed expansion comprises
duplication o f the Penstock, which would provide an additional 8
MW and 20 GWh. I t also involves the installation o f a fifth unit.
Due to improved technologies, this unit can be 21 MW. Total cost o
f duplication o f the penstock and expansion o f the power house i
s estimated at US$29 million. The foreign exchange component to be
financed by IBRD i s US$20 mil l ion.
Duplication of the penstock.
Figure 1: Existing route of Tunnel and Penstock from Monasavu to
Wailoa
3. Water from the Monasavu Reservoir i s piped underground to
the Wailoa Power Station on the Wailoa River, first through a 3
meter (m) diameter concrete tunnel, then through a 1.8m diameter
steel tunnel, the penstock.
Currently, the maximum output fkom the power station i s closer
to 72 MW than the 83 MW installed capacity, due to energy losses in
th