vi 0 4-j ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ E- b0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ no mm. mass - U...~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~m oa mm.mm mm.. s EWm. Oman. Imsa Eu.. 0 I I - ~~~~onltMOmno un..w -- - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ommo. On... me.II.o - U..~~~~~~~mw Noun. SOLOMON ISLANDS ISSUES AND OPTIONS IN THE ENERGY SECTOR JANUARY 19 ESMAP Strty and Programs Divison Energy Sectr Management Assice Progrmme (ESMAP) The World Bank Washington, D.C. 20433 ACRONYMS AND ABBREVIATIONS Orazations: Boral Boral Gas Solomons Limited Boral Gas Australia Ltd. as appropriate CDC Commonwealth Development Corporation EC European Commission MNR Ministry of Natural Resources Mobil Mobil Oil (Australia) Ltd. NF National Fisheries NGO Non-government Orgnization PAC Price Advisory Committee PEDP Pacific Energy Development Programme PIC Pacific Island Countries RPU Regional Petroleum Unit Shell Shell Co,. (Pacific Islands) Ltd. SIEA Solomon Islands Electricity Authority SIG Solomon Islands Government SIPL Solomon Islands Plantations Limited Fuels: ADO Automotive diesel oil Jet Al Commercial jet fuel Avgas Aviation gasoline PMS Premium motor spirit (gasoline) LPG Liquified petroleum gas MT Metric ton KL Kiloliter (= 1,0001) Energy unts: GJ Gigajoule (= 10J) Ml Megajoule (= 106J) GWh Gigawatt-hour (= 1,000,000 kWh) MW Megawatt (= 1,000 kW) kWh Kilowatt-hour Equipment: MR Medium Range Product Carrier LCT Local Coastal Tanker CURRENCY EQUIVALENT 1 Solomon Island Dollar (SI$) = US$0.40 (Nov. 1990) 2.50 SI$ = US$1.00 Note: cents or c refer to Solomon Island cents. The value of the Solomon Islands dolla& ia based on a trade-weighted basket of four international currencies FISCAL YEAR January 1 - December 31 The present report is based on the findings of an energy assessment mission which visited the Solomon Islands in October/November 1990. The mission comprised T. Holtedahl (mission leader), J. Cunningham (consultant, economist), G. Foley (consulta-rt, energy policy analyst), S. GOr (consultant, petroleum specialist), V. Hveding (consultant, power planner), H. Yamada (consultant, power engineer). Mr. S. Rivera, Energy Specialist, assisted in the preparation of the report. EI}NERGY UNITS AND CONVERSIONS Gross Oil energy equiva'ent (MJ/kg) (rOE/MI) Fudiwood (5% mcwb) 15.0 0.36 Coconut - shell 18.5 0.44 - fibre 11.5 0.28 - average 15.0 0.36 Oil palm - shell 17.5 0.42 -fibre 12.5 0.30 - average 15.0 0.36 - empty bunches 7.5 0.18 Charcoal 30.0 0.72 Crude oil 42.6 1.00 LPG (propane) 50.0 1.17 Gasoline 46.5 1.09 Kerosene 46.4 1.09 Jet Fuel 46.4 1.09 Diesel (ADO) 46.0 1.08 1 kWh = 3.6 MJ = 860 kcal = 3,412 BTU = 0.086 kgoe 1 TOE = 7.3 barrels of oil equivalent = 11.63 MWh = 420G = 10 million kcal = 39.68 million BTU Gasoline: 1360 liters per MT Kerosene: 1260 liters per MT Diesel : 1190 liters per MT Average generating efficiency Honiara = 0.284 l/kWh = 36% Average generating efficiency elsewhere = 0.460 l/kWh = 22% ABSTRACT The Solomon Islands has a fairly good but unquantified endowment of energy resources, primarily wood, hydropower, solar and geothermal energy. Small and dispersed markets for energy, high development costs, and low income, however, limit the usefulness of and the extent to which indigenous energy resources can be developed over the next decade. The reliance on petroleum products will therefore continue to grow despite the likely implementation of the first major hydropower scheme within the next few years. Although availability and cost of energy have not been major constraints with respect to economic development in the country, the energy sector presents chalenges and issues that need to be addressed. In this respect, the main recommendations of the present report are: At an Institutional Level that the areas of responsibility and priorities of the Energy Division in the Ministry of Natural Resources be more clearly defined, reflecting its coordinating, policy and advisory role with respect to the energy sector as a whole, and that the Division be strengthened accordingly through i.a. a proposed UNDP-funded technical assistance. In the Power Subsector to implement the Komarindi hydropower project as soon as possible, provided the cost estimates in the feasibility study are confirmed, giving serious consideration to instaling the full capacity of 6.6 MW from the beginning; to ensure that the funding for the Komarindi project is structured in such a way to avoid a mismatch of terms of maturity, grace period and construction times; that SIEA defer further consideration of the proposed 2.5 MW residues-fuelled generating plant at the SIPL oil palm mill until a final decision has been made with respect to the Komarindi project; II the mroleum Subsector that the planning and preparations for a relocation of oil storage facilities in Honiara proceed withfout delay, with the Government playing a role in securing financing on advantageous terms for the country but without involving itself in the ownership of the facilities; that the acquisition cost basis and the cost components in the petroleum price formula be reviewed, that the audited accounts of the oil companies be verified in relation to industry cost standards, and that an increase in the duty on gasoline be corsidered; SOLOMON ISLANDS ISSUES AND OPTIONS IN THE ENERGY SECTOR TABLE OF CONTENTS SUMMARY AND PRINCIPAL CONCLUSIONS ............... ........ i I. ENERGY AND T ECONOMY* . . . . . . . ................................ 1 Overai Economic Sitation ................................ .. 1 Energy Resources and Supply ................................ 2 Energy and the Ctmmercial Baance . ........................... 3 Energy Constraints .............................. ....... 4 Energy Balance and Projection ................................ 5 11. INSITUI7ONAL FRAMEWORK .E. . .... ....................... 8 Energy Institutions ................................ 8 The Role of the Energy Division .............................. 9 Organization .................................. . 11 Conclusions and Recommendations . .... 12 m. BIOMASS AND HOUSEHOLD ENERGY ........................ 13 General .............................. . 13 Woodfuel Supply in Honiara .................. .14 Fotential Interventions and Existing initiatives ..................... 15 Relative Costs of Different Domestic Cooking Fuels ................. 15 Rural Household Energy Subsector ............................ 16 Quantities of Fuels Used ................ .................. 17 Local Woodfuel BIance ......... ......................... 18 Recommendation with Respect to Household Energy Subsector .... ....... 19 Potential Use Of Biomass Fuels For Power Generation ......... ....... 19 Recommendations on the Use of Biomass Fuels for Power Generation .... .. 22 IV. ELECTRICrrY ............................... ............. 24 General ............................................. 24 Organization of the Electricity Subsector ......................... 24 Existing Facilities ....................................... 25 Technical Condition and Reiability ............................ 26 Resources to Meet Electricity Demand .......................... 26 Expansion of Generating Capacity, Honiara ....................... 27 Expansion of Generating Capacity, Outstations ............... .. 33 Expansion in Transmission and Distribution ........... . ........ 34 Summary of SEA Investment Program ......... ................ 34 Electricity Tariffs and Costs ................ ..................... 35 SIEA Operational Performance . ............................. 38 Rural Electrification ... .................................... 38 Conclusions and Recommendations ............................ 39 V. PETROLEUM PRODUCTS ****......................... ........... 41 Background ....................... . . . . . . . . . . . . . . . . . 41 The Petroleum Market ...................................... 41 Supply and Transportation Arrangements ...... .................. 42 Pricing of Petroleum Products ................................... 43 Existing Storage Facilities in Honiara ... ....................... 46 New Honiara Storage . . ................................. 49 OtherStorageFaciities ... ................................ 51 Investment Plans and Technical Assistance ...... ................. 52 Conservation and Substitution ......... . ...................... 54 Oil Exploration ........................................ 55 Conclusions and Recommendations ... ......................... 55 VI. NEW AND RENEWABLE ENERGY OPTIONS ..................... 58 Hydropower ...... ................................... 58 Existing instiations . ............................... 58 Potential hydro projects ......... ..................... 59 Institlitional arrangements ............................. 60 Recommendations on hydro power ............................ 60 Solar Energy and Other Renewable Energy Resources ................ 61 Solar energy . ............................. 61 Solar hot water heaters ........................ 62 Photovoltaic installations ........................ 63 Other Renewable Energy Sources ....................... 64 Recommendations on Solar Energy and Other Renewable Energy Sources .... 65 VII. ENERGY AND THE ENVIRONMENT ....... ................... 66 General .. ................................ 66 Komarindi Hydro Power Station ............. .................. 66 Relocation of Oil Storage Depot to Ranadi ........ ............... 67 Fuelwood and the Environment . ............................. 68 Recommendations ................................... 69 VIII. ENERGY MANAGEMENT AND INVESTMENTS .................. 70 Pricing ......... . . . . . . . . .. . . . . . . . . 70 Conservation ......... . . . . . . . . . . . . . . . . 71 Investments ..................... . . . . 72 TABLES: Table 1. 1: MAIN EXPOR1' PRODUCTS . ........................... . 1 Table 1.2: FINAL ENERGY CONSUMPTION, 1989 AND 2000 .............. 7 Table 3.1: HOUSEHOLD ENERGY CONSUMPTION, 1989 ......... ..... 13 Table 3.2: COSTS OF DOMESTIC FUELS, HONIARA, 1989 .............. 16 Table 4.1: PLANT INSTALLATION SCHEDULE, HONIARA SYSTEM ... ..... 29 Table 4.2: HONIARA SYSTEM COSTS 1990-2015, DISCOUNTED .... ....... 31 Table 4.3: SIEA CAPITAL EXPENDITURE, PROJECTED 1990-2000 .... ..... 35 Table S.1: PETROLEUM PRODUCTS CONSUMPTION ................. 42 Table 5.2: HONLARA: PETROLEUM STORAGE CAPACITY AND THROUGHPUT 47 Table 5.3: CAPITAL EXPENDITURE IN STORAGE FACILITIES .... ....... 53 Table 8.1: ESTIMATED CAPITAL EXPENDITURE FOR ENERGY PROJECTS IN THE SOLMON ISLANDS ................. 73 ANNEXE .............. 75-123 MAP IBRD-16896R 8UNARY AND PRINCIPAL CONCLUSXONS ^ackgrq3nd 1. The objeotives of this assessment are to evaluate the energy position of the Solomon Islands, especially its energy resources and development options, and to suggest priority policies and actions that might be taken in the sector by the Government and external donors. The present report follows an energy assessment completed in 1983 (Report No. 4404-SOL). Although the structure of the energy sector is basically the same as when the first assessment was carried out, the present evaluation is a self- contained review of the basic issues and options as seen nearly a decade later. With respect to the recommendations made in the first assessment, some have been c rried out, some have not, and some initiatives have been taken that were not foreseen or proposed at that time. The major developments in the energy sector during the decade have taken place in the form of: - an expansion of the electricity systems, - additions to storage facilities on the outer islands, and - the creation of an Energy Division in the Ministry of Natural Resources (MNR). Eneray and the Economy 2. The Solomon Islands is a small, low income country, dispersed geographically and with respect to population (1990 estimate: 320,000), with an open economy, and completely dependent on oil imports for its commercial energy needs. Its principal energy issues are related to these characteristics. The g2neral scarcity of technical and management skills affects the counitry's ability to manage the energy sector and reduces the scope for effective policy-making and implementation. Its rapidly growing population is basically rural and dependent on subsistence agriculture. Agriculture accounts for 30% of formal employment, 50% of GDP and 96% of export earnings. 3. The energy demand situation of the Solomon Islands is characterized by a high reliance on biomass, accounting for 70% of total energy consumption. Commercial energy in the form of petroleum products, one-sixth of which is converted to electricity, accounts for the balance. Final energy consumption, totalling 170,000 tons of oil equivalent (TOE) or approximately 530 kgoe per capita is low but in line with estimates for several other island countries in the region. 4. The Solomon Islands has a fairly good but unquantified endowment of energy resources, primarily wood, hydropower, solar and geothermal energy. Small and dispersed markets for energy, high - ii - development costs, and low income, however, limit the usefulness of and the extent to which indigenous energy resources can be developed over the next decade. The reliance on petroleum products will therefore continue to grow in absolute (if not in relative) terms despite the likely development of the first major hydropower scheme within the next few years. The value of imported oil products equal some 15-20% of total commodity exports. 5. Overall, households appear to be able to cover their energy requirements without any particular hardship, and availability and cost of energy have not beer major constraints on the country's economic development. Energy Demand Management 6. Improving the supply side of the energy sector is normally feasible only over the medium to long term. Therefore, measures aimed at increasing the efficiency of energy use are of particular importance in the short term. Appropriate energy pricing reflecting the economic cost of supply is the most important instrument for effective demand management, although non- price measures also have a role to play in conservation and in inducing a desired energy mix. The Government has made progress in recent years '.n moving towards realistic energy prices, power tariffs in particular, that meet economic cost and generate sufficient financial resources. Petroleum product prices vary with the price movements in the international market and should be allowed to continue to do so within the system of regulated prices. Fuelwood prices are market-determined for the small quantities that are commercialized and no intervention is warranted. Energy Pricina 7. Present power ariffs are considerably above the estimated long run marginal cost (LRMC) for the main (Guadalcanal) system. These tariffs are necessary, however, to enable the Solomon Islands Electricity Authority (SIEA) to operate on a financially sound footing, in particular with the large investments required in the years to come and the deficits from operations on the outer islands. The automatic fuel cost adjustment surcharge introduced in January 1990 is an important measure to maintain SIEA in such a position and the missions recommends - that the Government retain the automatic surcharge, and - that SIEA consider the introduction of peak/off-peak tariffs for larger consumers to encourage improved resource efficiency. The Government's national uniform tariff system implies a subsidization of the electricity consumers on the outer islands. At present, however, the distortions caused by outstation financial losses are marginal due to the dominance of the Guadalcanal system. - iii - 8. No major changes are required with respect to petroleum Droduct 2rices. They are in line with or somewhat below those of the majority of comparable island countries in the region. With domestic duty and tax added to landed cost they are above their economic level. There is a case, however, for increasing the duty on gasoline for fiscal and conservation reasons, and the mission r2commends - that the Government consider an increase in the duty on gasoline (proposal: 10 c/l) and, furthermore, - that the Government explore with the oil companies the possibility of increasing the spot element in the basis for calculating the acquisition cost from the present spot/posted price mix of 50%/50%, which should generally bring about a reduction of cost to the country, - that a proper review of the cost elements in the price formula be carried out in order to verify costs and update the formula and, finally, - that annual verifications of the cost elements of the oil companies be introduced. Non-price Measures for ImDrovina Efficiency and Promoting Substitution 9. Conservation projects and initiatives are less easy to define and monitor and often receive less attention than projects that extend capacity or reinforce supply. In the gower subsector, however, direct intervention is facilitated with only one supplier and distributor. With distribution losses of up to 18% in some of the systems and partly very old equipment, SIEA has embarked on a program of upgrading and renewal of the main and the out-island systems. The mis ion suoRorts these initiatives for their diesel saving benefits and as part of a least-cost expansion program. 10. The Komarindi hydropower project (6.6 MW at full capacity, 1.5 MW firm) appears justified and will, if executed, save fuel in the diesel system and hedge against future fuel price escalations. Assuming the ongoing engineering studies and the bidding process broadly confirm the preliminary cost estimates, the mission recommends that the project be implemented as soon as practically possible, in order to reduce the fuel import bill. 11. With abundant wood resources and large quantities of agricultural residues, the scope and incentives for investing in energy-saving stoves or launching fuelwood programs are clearly limited. No initiatives by the Energy Division are required at this stage but it is groRosed that an assessment of the situation be carried out in about five years' time to determine if any intervention is warranted at that time. 12. A number of efforts have been made over the years in the Solomon Islands to find ways of utilizing the available biomass - iv - resources to 2roduce electric ooer and thereby save diesel, including proposals to establish dendrothermal power plants and a prototype gasifier. The lack of success with initiatives taken so far underlines the need for caution in launching new schemes. The mission r that consideration of the proposed 2.5 MW residues-fuelled generating plant at the SIPL (Solomon Islands Plantations Limited) oil palm mill, despite possible merits, be deferred until a final decision has been made with respect to the Komarindi hydropower project. Should the latter project be canceled or postponed indefinitely, a study of the SIPL alternative compared to other options should be carried out. No further involvement in gasifier projects is recommended until the technology has been technically and economically proven elsewhere under conditions which demonstrate its relevance to the Solomon Islands. 13. Considering limited domestic resources and modest impacts, other near-term energy conservation efforts are realistically confined to effecting savings of electricity and petroleum products in the buildings and motor vehicle fleet of the Government itself, for direct savings and for the demonstration effect. It is regommended that, at such time as the Government's ongoing in-house conservation program seems well in hand, the service of the Energy Division be extended by offering energy audits to the private sector together with cost and savings estimates. Ogtions to Increase or Imyrove Erercgy SuEolies 14. Although availability of energy appears not to be a major constraint on the economy, rapid growth in population and continued economic development give rise to important challenges with respect to the supply of commercial energy. 15. Petroleum groducts. The present supply arrangement under which two oil companies import and distribute petroleum products based on joint shipping is basically a least cost and logistically sound solution. However, increasing demand for petroleum products and imbalances between product volumes and storage capacity are occasionally causing stockouts. This situation, together with safety, environmental and alternative land use considerations require short and long term measures to increase storage capacity in Honiara. The mission therefore recommends - that the oil companies be given permission to build temporary storage facilities for ADO at the present storage site in Honiara wh4ch, supplemented by supplies by local coastal tankers,; should reduce the risk of disruptions until a permanent solution has been implemented, v - - that the oil companies, together with the Government, without further delay, proceed with the planning and preparations for a relocation of storage facilities to Ranadi, including a review of the feasibility study from 1988 and steps to secure financing of the project, and - that the Government introduce minimum stock legislation for emergency situations and contingency plans for the use of security stocks, once the new storage facilities are in place, and that these storage facilities be designed with the need for security stocks in mind. The mission would advise against government involvement in the ownership of the Ranadi storage facilities since the oil companies by virtue of their business and expertise are the natural owners and operators of commercial storage plants. 16. Regarding outer island storage, the mission recommends - that a study be carried out to establish the future needs for bulk storage in provinces other than Guadalcanal, as a basis for Government discussions with the oil companies, and - that a management plan be finalized for the presently unutilized storage plant at Noro, including provisions for operation, use and fees related to the plant. 17. Electriit-y. At present, supply of electricity is confined to Honiara and the principal towns of the provinces. With high generating and distribution costs due to small markets and dispersed settlements, wit; low ability to pay for services particularly in rural areas, and due to the country's general resource constraints, the missions emRhasizes - the need for thorough feasibility studies prior to decisions to offer supply to other areas than those presently served. In practice, this means that increases in supply in the years ahead will be limited to the expansion of existing systems and that the opening of new areas served by SIEA is unlikely to be justified economically or socially, except as extensions to commercially based activities, and - that any small scale supply to isolated consumers, whether government institutions, industry or private, be the responsibility of the consumers in the first place. 18. A least-cost plan for expansion of the Honiara system, based on two load growth scenarios and different generating options, has been reviewed by the mission. The conclusions are as follows: - vi - - two new diesel units of 4 KW are justified and needed in the first half of the 19908 in both scenarios (the Lungga generation expansion - stage 2), but the timing especially of the second diesel set is still uncertain, depending on load development, - the Komarindi hydropower project appears justified (subject to confirmation of the cost estimates in the feasibility study) and will be needed from early 1996.a/ The mission rec2=ends that serious consideration be given to installing the full capacity of 6.6 MW from the beainning, and - planned upgrading and expansion of outstations seem reasonably justif ied by the need for improved reliability and by required capacity expansion, even though the economics of some projects are marginal. 19. New and renewable enercv technologies. At present, only one hydro site, Komarindi, is being considered seriously for near- term implementation. Given the limited prospects for implementation of additional hydropower projects during the 1990s, the existing data base from investigations of a variety of potential sites is sufficient for the present. The mission therefore recommends that no further hydro site investigations be carried out during the next five years and that the minimum level of activity required in this area be allocated elsewhere in the Energy Division rather than maintaining the hydropower section. However, it is important that the work on the creation of a hydropower data base that has been carried out over the past three years be consolidated and made accessible for future use. 20. Solar hot water heaters and photovoltaic installations have been introduced under various aid programs. With the small market, the costs involved, the maintenance problems experienced, and the very limited resources of the Energy Division, the mission recommends that government involvement be very restricted in these areas and not include direct implementation or maintenance of solar energy projects. Further expansion should basically rely on private initiative. The main function of the Energy Division should be to filter and assess donor-proposed projects. It should discourage aid programs for photovoltaic systems unless there is a coherent and practical strategy for their long-term maintenance. I/ At a late stag in the preparation of the present report, a nckel minng and smelting project has been proposed to the Government by aforeign group of investors. The project involves the development of hydropower on Guadakanal, the bnpaczs of whf*h on the Komarindi project cannot be establfshed at the present stage. - vii - Energy and the Environment 21. An Environmental Bill is presently under preparation requiring that all projects have an environmental impact assessment and an environmental management plan. It is regommended that the Environmental Division of the Ministry of Natural Resources carry out a review of all energy projects to ensure that a satisfactory environmental assessment is part of the design the project. This naturally applies to the two significant projects in the pipeline, the Komarindi hydropower project and the relocation of the oil storage to Ranadi. Where there are doubts about the quality or coverage of the environmental impact assessment, the Division should be empowered to request donor assistance to carry out further studies. The Division should also be provided with the resources and authority to monitor the implementation of energy projects to ensure that actions and precautions recommended are, in fact, carried out. Institutional Aspects and Technical Assistance Reauirements 22. The different structures of the respective energy subsectors (electricity, petroleum, biomass, new and renewable energy technologies) and their different needs in planning and management are broadly reflected in the institutional framework in the Solomon Islands. Planning, implementation and follow-up are generally carried out within each of the main subsectors, while the Ministry of Natural Resources through its Energy Division has overall responsibility for the energy sector. This division of responsibilities is generally satisfactory and justified. 23. In the view of the mission, the Energy Division should act in an advisory and service role to the Government and energy- related institutions and have responsibility for proposing energy policies and activities and monitoring their execution. This is in principle the present arrangement, except that priorities are not clear and the Division's resources are insufficient and sub- optimally allocated to enable it to perform its policy and advisory role in a satisfactory manner. The mission therefore recommends - that areas of responsibility and priorities of the Division be more clearly defined, reflecting the functions that are not or cannot properly be covered by other (sub)sector institutions plus the need for overall coordination and national perspective, - that the Division phase out its direct involvement in implementation/maintenance of energy-related programs, and - that technical assistance be provided to strengthen the present staff, as indicated below. - viii - 24. In the electricity subsector, SIEA should have full responsibility for operations as well as planning and implementation of the expansion of the supply system. The Energy Division, on the other hand, should play a role in ensuring that relevant generating options are considered, whether they be in the form of hydropower sites or biomass residue-fuelled alternatives. The Division would, furthermore, be responsible for formulating the framework within which SIEA operates, for monitoring performance and for, assessing SIEA's proposals for tariff changes and major capital investments prior to submission to the Minister. 25. In the petroleum subsector, the Energy Division would carry out market monitoring and build up a data base, and provide the Government and ministries with information and advice on pricing of petroleum products and storage issues. It would, if necessary, commission consultancy studies in these and other areas in order to be an informed partner in discussions and negotiations with the oil companies. 26. In the field of renewable energy technologies, one of the main functions of the Division should be to examine all donor projects to assess their technical maturity and economic viability, if required with assistance from one of the regional energy organizations. NGO's (non-government organizations) and user groups should be responsible for implementation and maintenance. 27. Finally, the promotion of energy conservation is a field that the Energy Division is uniquely placed to cover. It should see itself in a role of taking initiatives in relation to public and Government energy use, raising the awareness among users, formulating guidelines, undertaking energy audits and energy conservation surveys, identifying required measures and costs, and presenting the findings to potential beneficiaries. 28. The UNDP is in the process of extending its support to the country's energy sector and at the time of the mission was considering the provision of expatriate technical assistance in the form of an energy planner (12 man-months), an energy conservation expert (9 mm) and short term petroleum expertise to the Energy Division. The mission fully supports the UNDP proposal for assistance which is necessary for the Division to carry out its role and functions as envisaged. It would strongly recgmend, however, that the length of the involvement of the technical assistance be reviewed in the light of needs and developments within the energy sector, with a view to extending the support. The commitment of this assistance should be made conditional upon the Government appointing necessary counterparts. Furthermore, a certain redeployment of the staff of the Division is necessary, to reflect the adjustments in the focus of the unit. 29. In addition, the Energy Division will need technical assistance in the form of short-term petroleum expertise - ix - - to evaluate petroleum pricing and structure, - for the verification of the cost otructure of the oil companies, - ffor the study of storage and distribution of petroleum products on the outer islands, and - for a management plan of the Noro storage facilities. ,Investments 30. There are three major projects in the energy sector, partly under execution and partly in the planning stages: - the Lungga generation expansion (diesel), - the Komarindi hydropower project, and - the relocation of the Honiara petroleum storage facilities to Ranadi (see Table 8.1). The projects are, as indicated above, supported by the mission (subject to cost confirmations). These investments are likely to be concentrated in the first half of the decade. Furthermore, some investments in diesel generating and petroleum storage capacity may be needed in the latter half of the decade on the outer islands, in addition to the ongoing diesel upgrading and expansion at the outstations. Total investments over the decade are estimated at 5I$ 116 million (US$ 46 million) at 1990 price level. Of this, some SI$ 92 million are for capital expenditure in the electricity subsector and SI$ 23 million in the petroleum subsector. Funding for the power projects in the first half of the decade is reasonably firm, being a mixture of multilateral loans and bilateral grant funding. 31. High annual investments during the years 1991-95, peaking at SI$ 27 million (equal to close to 40% of estimated gross fixed capital formation in 1988), give rise to concern about the absorptive capacity of both government agencies and the economy of the Solomon Islands. Although the direct financial impacts of these investment activities will be considerably diluted by the fact that much of the equipment, building materials and skilled labor would have to be acquired externally, the Government should be aware of this issue and take it into consideration in its general investment planning. X. ENERGY AND THE ECONOMY Overall Economic Situation 1.1 The Solomon Iulands archipelago comprises more that 900 islands, most of which are very small, spanning 1500 km of the South Pacific southeast of Papua New Guinea. Territorial waters are large: 1.29 million km2. The somewhat more compact double chain of six main islands account for 81 percent of the 28,370 km2 land area: Choiseul, Santa Isabel, Malaita, San Cristobal, Guadalcanal (site of Honiara the capital) and the New Georgia group (see map). 1.2 The population has grown rapidly (3.5% p.a.) over the past decade and was in 1990 estimated at _20,000.2/ About 10% of the population lives in Honiara. Some 85% are rural, living in small and widely dispersed villages and settlements along the coast, primarily dependent on subsistence fishing and farming, supplemented by cash income from the sale of food crops and copra. Overpopulation in parts of the island of Malaita has reportedly resulted in degradation of agricultural land and forest cover. The World Bank's benchmark estimate of US$430 per capita income in 1988 classifies the Solomons as a low-income country. 1.3 Agriculture, which is the mainstay of the modern export sector, accounts for 30% of formal employment, 50% of GDP (modern and traditional production combined) and 96% of export earnings (fish and timber included). The most important export products are fish, timber, copra and palm oil (see Table 1.1), largely based on joint ventures, contributing to a quite strong primary production and export performance in recent years. Table 1.1: MAIN EXPORT PRODUCTS (SI$ million) Commodity Value of Exports 1.984 1989 % Chanae Fish 28.8 65.3 127 Timber, round & sawn 30.1 41.3 37 copra 32.2 30.0 -7 Palm oil and kernel 17.3 20.1 16 Cocoa 3.4 8.0 135 Marine shells 0.7 5.5 686 Other 6.1 1.1 -82 Total 118.6 171.3 44 Source: Statistics Division, Ministry of Finance. I/ bLatt cenu, 1986: 285,00X 2 1.4 Ups and downs in macro-economic indicators for the Solomon Islands are to a significant extent the result of the vulnerability of this very small and open economy to external shock either from market events or natural catastrophes. For example, the decade's single most severe tropical storm of 1986, referred to as "Cyclone Namu", did considerable damage to virtually every sector of the economy and was largely responsible for the 0.8% decline in GDP in 1986, followed by only 2.2% growth in 1987 measured in real terms. The ratios of imports and exports to monetary GDP are roughly 70-75% and 50-60% respectively. Export prices are subject to significant fluctuations. 1.5 The economy has, on average over the decade up to 1990, grown by some 3.2% p.a. in real terms, despite the setback due to the cyclone. In recent years, primary industry has shown the strongest growth and GDP increased by 5.3% and 5.5% p.a. in 1988 and 1989, respectively. The manufacturing and construction sector is small, accounting for only t7% of GDP and 14% of formal employment. 1.6 In the present report, the economy is assumed to grow at an average rate of 4% p.a. in real terms in the 90s. This is based partly on past performance and partly on expected development within the main export industries associated with projects or programs under completion, committed or under advanced feasibility study (see Annex 1.1). The projected growth rate of the economy reflects the normal experience of delays in project execution as well as the probability of external disturbances of one kind or another. Furthermore, increasing external account deficits, reduced external reserves and relatively high government budget deficits require measures on the part of the Government which may well reduce economic growth in the short run. On the other hand, aid assistance is expected to continue at the level of recent years when it has equalled 15-17% of GDP and financed almost the entire development budget, after a period during which the new Government (1989) prepared new aid guidelines and suspended aid negotiations. Energy Resources and Supply 1.7 The Solomon Islands has a relatively diverse indigenous energy resource base although basic data on these resources are quite sketchy. From the point of view of present utilization of the energy potential, however, the relative scarcity of data is not considered a major problem. The main source of energy is biomass. Total wood resources are not known at present but the potential from the forests of the islands is clearly large compared to present use and needs of the population. Close to 90% of the land area is estimated to be covered by tropical ;-orest but it is partly difficult to access being to a large exten_ located in the inner regions of the islands, whereas the population is concentrated along the coast. Localized fuelwood shortages have been reported around some urban concentrations due to clearance of land for 3 agricultural purposes, but even in Honiara the population has relatively easy access to fuelwood for domestic consumption. In addition to wood itself, the forests provide large amounts of biomass residues in the form of coconut shells and husks, oil palm shells and husks, as well as wastes from logging and sawmills. These are to a large extent unutilized at present. 1.8 Abundant rainfall (2,000-4,000 mm per annum, in high interior areas on some islands reaching 8,000 mm) and with a mountainous topography, the country could be expected to have a high potential for hydropower development. Complex geology and terrain that offers few possibilities for seasonal storage reduces the potential considerably and makes development expensive. Only three small (12-32 kW) hydropower schemes are in operation on two islanda, one of them belonging to the power utility. Therefore, virtually the entire power supply is at present diesel generated. Studies have been undertaken of other hydro schemes in varying degrees of detail but at present only one of any size is at an advanced stage of planning. 1.9 Geothermal energy is not expected to make any contribution during this century as the identified occurrences are too distant from the main consumption centers and costly to develop for the small market. Solar energy is used on a small scale for water heating and photovoltaic applications. Data on wind regimes are insufficient to evaluate its energy potential but variability and the need for designs to withstand typhoon conditions make wind power a relatively costly and marginal option. 1.10 No hydrocarbon deposits have been identified. Offshore seismic and magnetic surveys have been carried out and the basic requirements for trapping petroleum appear to be met in several areas. But results have not prompted further investigations. The Solomon Islands, like many other Pacific Island countries, therefore relies entirely on imports of petroleum products to cover its needs for commercial energy. Eneroy and the Commercial Balance 1.11 The value of imported fuels and related products increased from SI$ 19.1 million in 1984 to SI$ 25.1 million in 1989. The latter figure is only 10% of the total import bill, less than half the 1984 percentage (see Annex 1.2), despite a 20% volume increase. Fuel imports amounted to 15% of commodity export earnings in 1989. Although significant for the country in absolute terms, the value of petroleum imports accounts for a lower percentage of foreign trade than for many other Pacific Island countries. The present relatively low share is partly a result of lower oil prices which has benefitted all oil-importing countries but it also reflects the importance of external trade in general for the Solomon Islands. However, more recent price increases for oil products combined with declining world prices for agricultural 4 commodities, the mainstay of the country's exports, make the petroleum import bill an important concern for the Government and the country. Energy Constraints 1.12 The Solomon Islands has been able to maintain a reasonably secure and uninterrupted supply of energy at prices which are in line with other countries in the Pacific Island region. In the case of petroleum products, the underlying costs are quite high as a consequence of the small market and long supply chain but, with a relatively mild taxation, prices to the consumers are not particularly high in the capital. No major supply interruption appears to have occurred in recent years although there are occasional shortages of diesel attributable to limited storage capacity in Honiara. The immediate solution is costly replenishment of stocks by small coastal vessel supplies. The power utility's supply contract provides security in times of shortage. For small private consumers and commerce the shortages present an inconvenience although the occasional stockouts probably have had a limited impact on the economy as a whole. For the outer islands which are supplied partly directly from Papua New Guinea and partly via Honiara the main issue is high costs due to small quantities, transshipment and little competition among suppliers. 1.13 Electricity from the public utility, SIEA (Solomon Islands Electricity Authority) is available only in the capital and in the provincial centers on the outer islands, due to high development and operating costs and low ability to pay among domestic consumers. Industries located outside the public utility supply areas provide their own electric power. Many of the existing diesel units belonging to SIEA are old and their operating condition poor. This results in occasional supply interruptions which large consumers overcome by having their own generating unit as standby. It is difficult to determine to what extent lack or unreliability of electric supply is hampering economic development in the country or affecting in a n-;gative way the investment climate, but the current program to upgrade and expand generating facilities in the capital and at outstations will improve reliability. 1.14 Wood and other biomass, is hardly traded in commercial channels but collected by the users themselves. No real problem of supply appears to exist today, even in urban centers, although increasing population and clearing of land for agricultural purposes will probably in some areas make wood more scarce in the immediate vicinity and lead to a progressive commercialization of fuelwood and a switch to other fuels like kerosene and LPG for cooking. 1.15 Availability and cost of energy can, as a general conclusion, not be considered to have been a major constraint on 5 economic development in the Solomon Islands. The energy sector itself, on the other hand, is to a significant degree subject to constraints: the market for energy is small and dispersed on a number of islands and in a large number of villages, which tends to increase generation and supply costs; - domestic financial resources are extremely limited, which has serious implications for maintenance and other recurrent costs; this aspect favors energy options and technologies with low recurrent financial and manpower resource requirements; - there are severe shortages of managerial and technical skills which favor a policy of (a) restricting the number of new energy options being pursued to those that are proven technologically and economically for Solomon Islands' circumstances, and (b) emphasizing proper management of existing energy alternatives and resources; = the small size of the energy market renders demand forecasting particularly susceptible to the timing of major energy-using projects such as the possible expansion of the fishing fleet and the proposed gold mining project. This requires a high degree of flexibility in planning and places a premium on projects with a rapid implementation time; - the fact that the country almost exclusively depends on petroleum imports for power generation and other commercial energy needs makes the economy in general and the energy sector in particular vulnerable to supply and price fluctuations. To varying degrees, the country and the energy sector can overcome or have to accept these constraints. These issues are discussed in various sections of the report. Energy Balance and Proiection 1.16 An energy balance for the Solomon Islands for 1989 is given in Annex 1.3 (and summarized in Table 1.2 with projections added). The quality of the data vary significantly, biomass which is the dominant source of energy being particularly uncertain; hence the pro forma character of the balance, the purpose of which is to illustrate in broad terms the movement of energy through the economy, the orders of magnitude and the relative role of the various forms of energy. This the balance does, even allowing for margins of uncertainty. 6 1.17 The estimated final consumption of energy, all sources combined, is 170,000 tons of oil equivalent (TOE), corresponding to 530 kgoe per capita. This is in line with figu::es for several other island countries in the region, although on the low side. Seventy per cent of energy used is in the form of biomass, predominantly by households for cooking but also for crop drying (by households and processing industry). The balance, 30%, comes from commercial energy which is based on petroleum, around 15-20% of which is converted to electricity. The relatively high per capita consumption of commercial energy, particularly in the form of diesel, is to a large extent ascribable to export-related activities such as fishing and logging, and electricity generation. 1.18 By extension, the same export-oriented industries are responsible for the high import content of the energy mix, one- third of gross energy supply being imported, although copra, an important export crop, uses basically indigenous wood and residues. Import dependency will undoubtedly continue but be mitigated somewhat if the country's first mcjor hydropower scheme, the Komarindi project, is implemented as envisaged and commissioned around the mid-90s. 1.19 Projected energy consumption in Table 1.2 is based on subsectoral forecasts, as explained in the respective chapters. Total energy consumption should increase by around 35% over the decade to year 2000, or roughly in line with population growth. This follows from the continued dominance of biomass for household use and agricultural processing, based on the general abundance of such resources also in the decade ahead. No major switching is expected among the various forms of energy, except a relative decrease of petroleum products in the overall picture and an increase for electricity. The latter will nevertheless remain a very small contributor to total energy demand over the forecasting period.4/ The reason for this relative stability in the consumption pattern is the expected lack of any major structural or dimensional change in the Solomon economy or society in general before the turn of the century. / 7Thc bportum f electcy Is wderstwed somewha in thc tabks as consumers oule th pablc grid, suh a agricukralprocesslng unks md sawnll, provWde their own power 7 Table 1.2s FINAL ENERGY CONSUMPTION, 1989 AND 2000 (1,000 TOE) - - -- -~~~~~rot 1989 Share 2000 share Rate rwth Biomass 117.9 69 163.0 70 3.00 Petrolaum products 49.1 29 62.4 27 2.20 (of which diesel) (34.5) (20) (41.3) (18) 1.64 Electricity 2.7 2 5.9 3 7.30 (of which hydropower) (A/) Jj/) 3.4k 2 n.a. Total 169.7 100 231.3 100 2.86 al Negligible. 1/ Assuming the Komarindi hydropower project is implemented as envisaged. n.a. Not applicable. Sjource: Mission. lI. INSTXTUTIONAL FRAMEWORK Energy Institutions 2.1 The different structures of the respective energy subsectors and their distinct needs in planning and management are broadly reflected in the institutional energy framework in the Solomon Islands. Planning, implementation and follow-up are generally carried out within each of the main subsectors, while the involvement of the Energy Division in the Ministry of Natural Resources (MNR) in principle reflects the functions that are not or cannot properly be covered by other (sub)sector institutions, as well as the need for overall coordination and national perspective. It is important, when considering the role of the Energy Division and what it realistically can accomplish, to keep in mind the financial and manpower constraints it faces. 2.2 Besides the Energy Division and - more generally - the Ministry of Natural Resources (MNR), several other bodies of the Government and the private sector are involved in energy and energy related matters: - Solomon Islands Electricity Authority (SIEA) is a statutory body responsible for public supply of electricity to the national and provincial capitals. Its role and function are further discussed in Chapter IV. - The Ministry of Commerce and Primary Industries (MCPI) through its Price Control Section is responsible for the regulation of final consumer prices for petroleum products and administers the Government's wholesale pricing agreement with the oil companies. (See Chapter V.) - The Forestry Division of MNR has the responsibility for "promoting and developing the sustainability and the orderly utilization of the forest resources", which has implications for the supply of woodfuels (Chapter III). - The Geological Division of MNR oversees and coordinates activities related to oil exploration (so far activities have been limited to surveying). - f The Ministry of Housing and Government Services has fairly recently taken over the entire tax-collecting functions, including the collection of petroleum duty and tax. - The Project Evaluation Unit in the Prime Minister's Office has authority for overall coordination of the - 9 - Government's internal project cycle, including evaluation and presentation to the Cabinet of projects submitted by the line ministries. Furthermore it has responsibility for the coordination of projects to donors (bilateral vs. multilateral). The Ministry of Provincial Government handles negotiations with bilateral donors, while the Ministry of Finance and Economic Planning deals with multilateral aid donors. - The Ministry of Transport, Works and Utilities is responsible for the Government's vehicle pool and offices with their main energy-using equipment. - The private sector is involved in petroleum supply and distribution, viz. Shell, Mobil and Boral Gas, and NGO's are in charge of certain supply-related projects. 2.3 Although the number of institutions on the energy scene appears to be quite large, the division of responsibilities is in the main well justified. The different organizations perform functionally diverse and partly self-contained types of energy- related activities. The Energy Division should have the coordinating function. It should be responsible for formulating and proposing energy policies and activities, monitoring their execution, and providing advice and other energy-related services to the Government. The Role of the Energy Division 2.4 The Energy Division at present acts in an advisory and service role to the Government and some other energy-related institutions. The mission feels that this role is appropriate but needs to be strengthened. Furthermore, it should not, as present, be involved in the implementation of energy programs or projects, except in an overseeing capacity. An assessment of priorities, a clearer definition of the Division's responsibilities and a reallocation of functions within the unit are required. 2.5 In relation to the electricity subsector, it is clear that responsibility for operation and maintenance of the systems rests with SIEA. Similarly, planning of the expansion of the electricity supply system and implementation of projects should lie under SIEA which operates according to commercial criteria and therefore must be held accountable for long term development decisions and their implementation. The Energy Division can, however, provide SIEA with information on possible options in the form of hydropower sites when expansion of the system or the potential for diesel substitution is being considered. But to do this effectively, close liaison with SIEA will be required so that resources are expended on the examination of those sites only which have a realistic possibility of development within a reasonable time frame. - 10 - 2.6 In the same vein, the Energy Division should play a role in ensuring that other relevant options to thermal power generation are considered when the situation calls for it. Thus the Division should be the organizing body for a feasibility study of the proposed residue-fuelled generating station if the Komarindi hydropower station is canceled or indefinitely delayed (Chapters III and IV). 2.7 Since SIEA reports to the MNR, the Ministry through the Energy Divisions should be responsible for formulating policies for SIEA which would cover, inter alia, the utility's operating framework, technical and financial standards, etc. It should monitor the utility's technical efficiency and financial performance on behalf of the Government. The Division also has the important function of assessing proposals for tariff changes and for long-term investments prior to submission to the Minister. 2.8 As regards the petroleum subsector, it is recommended that the Government consider transferring the responsibility for the control of petroleum prices from the Price Control Section to the Energy Division which should be the focal Government point with respect to petroleum matters. This would facilitate a more active petroleum pricing policy. Final decisions on these matters would remain at the Ministerial level. 2.9 The Energy Division should generally act as an adviser to the Government on petroleum matters and provide statistical and technical information. It should be active in bringing to Government attention issues that need to be addressed. Specifically, it should prompt the Government to act upon the cabinet decision to relocate the storage facilities in Honiara (Chapter V). The Energy Division would have to commission consultancy studies or advice on matters of particular importance, such as pricing and storage, in order to be an informed partner in discussions and negotiations with the oil companies. Project preparation and monitoring capacity is generally weak in the line ministries in the country but with the relative infrequency of larger energy projects requiring special competence, MNR will do better to hire short-term external expertise for this type of work. 2.10 In the area of renewable energy technologies, (Chapter VI) the Energy Division has an important role to play in assessing, filtering and soliciting donor projects. In the area of small scale renewable, one of the biggest problems is providing counterpart staffing for projects. Another area of concern, which at present consumes considerable amounts of the available skilled manpower and financial resources is the maintenance of isolated renewable energy sources. The potential contribution of these projects to the energy needs of the country is extremely small in relation to their manpower and financial demands. The role of the Energy Division should be to examine all donor projects to assess the technical maturity and economic viability of renewable energy - 11 - projects, screening out those which are of a speculative or experimental nature. Similarly, the Division should screen projects to ensure that the resources for their continued maintenance and repair, and eventual replacement, are available in the country or will be provided by the donor agency concerned. 2.11 The promotion of energy conservation (Chapter VIII) is another area which the Energy Division is best placed to cover. The Division should see itself in the role of raising awareness among users, formulating guidelines, identifying measures and costs and presenting findings to the beneficiaries. Again, the Division will to some extent have to rely on external expertise but it has the important role of taking initiatives. 2.12 No active involvement by the Government in the urban and rural household energy subsector is required for the coming years (Chapter III). The Energy Division should, however, stay in touch with developments in the subsector in other Pacific Island countries by attendance at conferences and obtaining relevant studieŁ!. The position should be reviewed in about five years' time. OrQanization 2.13 The location of the Energy Division in the Ministry of Natural Resources is logical since the Ministry encompasses other energy-related government bodies such as the Forestry Division, the Geological Division which also includes a Water Resources and a Hydrogeology Section, and the Environmental Division (see Annex 2.1 for an organization chart of the MNR). 2.14 The Energy Division has a staff of four professionals under the Chief Energy Planner who are deployed in a Hydropower Section, a Petroleum Supply and Pricing Section, an Energy Technology' Section (renewable technologies), and an Energy Management Section (conservation). The mission feels that the hiring of two expatriate experts plus some short term assistance proposed under the UNDP Technical Assistance Program to the Energy Sector, will strengthen the management capacity of the Division and better enable it to carry out the tasks described above. The mission understands that UNDP may consider providing an energy planner for 12 months, an energy conservation expert for 9 months, and a petroleum expert on a short term basis with several visits. In the view of the mission, the need for extending the presence of an energy planner beyond 12 months should be seriously considered, based on the major developments in terms of large investments that are planned for the next five years. The energy planner would serve in an advisory capacity to the Government on these and other matters. The hiring of a resident engineer as the Government's representative in connection with the possible relocation of petroleum storage facilities in Honiara should also be considered. - 12 - 2.15 There will be a need to reallocate tasks within the Division. Some of the present functions, such as hydropower and renewable energies, do not require full time staff members. Where these involve expatriate staff whose contracts are coming to an end, replacements should not be sought. Solomon Island staff in such positions should be redeployed. Conclusions and Recommendations 2.16 The conclusions and recommendations with respect to the Energy Division are as follows: - The mission feels that the present institutional arrangement, in which the Energy Division acts in a service and advisory role to the Government and institutions involved in energy at this stage is basically satisfactory. It is necessary, however, for the Division to improve its sense of priorities and to define more sharply its precise areas of responsibility and the functions it will perform, as indicated above. Gradually, it should be able to expand its role in policy preparation and monitoring. Its responsibilities vis a vis SIEA need to be more carefully drawn up. It should also assume a more active role in the petroleum subsector and act in a screening capacity with respect to renewable energy technologies. - The UNDP proposal to provide expatriate technical assistance in the form of an energy planner, an energy conservation expert and short term petroleum expertise is fully supported and is necessary to enable the Division to carry out its functions. The length of involvement of the technical assistance should be reviewed in the light of the needs and developments within the energy sector. - The commitment of technical assistance should be made conditional upon the Government appointing counterparts to all positions, together with adequate support staff. - The mission considers that the level of Solomon Islands staffing of the Division at the time of the mission, is adequate to its needs. Internal redeployment and training by, inter alia, the expatriate experts will be required. - 13 - III. DIONA88 AND HOUSEHOLD ENERGY General 3.1 Although no estimate has yet been made of the total wood resources contained in the forests of the Solomon Islands, they are clearly large in relation to the population.3/ Approximately 88% of the land area is under tropical forest cover. For the most part, however, access to these resources is difficult and they are remote from areas of potential energy demand. 3.2 Substantial quantities of residues are also available as byproducts of cash crop production, agroindustries, and forestry. They include logging and sawmill wastes, coconut shells and husks, and oil palm shells, husks and empty bunches. A high proportion of these residues are, at present, unutilized. 3.3 Energy consumption patterns in the household sector are broadly typical of those in the lower-income developing countries. The vast majority of the energy consumed is in the form of fuelwood. Kerosene is used for lighting and to a limited extent for cooking. Domestic electricity ccasumption is confined to urban households. LPG is used as a cooking fuel by upper income urban families. Table 3.1 shows the estimated composition of energy consumption by households on a nationwide basis. Table 3.1: HOUSEHOLD ENERGY CONSUMPTION, 1989 ENERGY END USE Energy (in original units) Quantities Share (%) Wood (MT) 285,000 a/ Kerosene (N3) 2,393 LPG (M3) 137 Electricity (MWh) 6,800 Er'erav (TOE) Wood 100,588 97 Kerosene 1,930 2 LPG 103 b/ Electricity 576 1 TOTAL 103,197 100 ^/ Includes use of wood by households for commercial copra drying. _/ Less than 0.5% Source: Mission estimates. IV A Nadonal Forest Inventoyy Project supported by fund.from at Atratian Government u due to commence in 1991. ThL wW provde naionwide data onfiorest types together with esthlates of standing t6nber volunes - 14 - Woodfuel Su22ly in Honiara 3.4 About 13-14% of the country's population live in the urban areas of which Honiara represents some 80%.4/ The only comprehensive data on urban household energy use come from a survey of Honiara carried out in 1987.5/, the main findings of which are summarized in Annex 3.1. The survey showed that over 90% of all households in the town use fuelwood for some or all of their cooking. The total consumption of fuelwood in Honiara was estimated at some 10,000 MT in 1987. 3.5 At present, woodfuel supplies appear to be relatively easy to obtain in Honiara. Virtually all are obtained by collection without payment. The small amounts on sale in the market appear to be purchased by expatriate or rich households, or when families require supplies quickly or for special occasions. 3.6 Consumption of fuelwood is likely to increase in future. The exact quantity used will depend upon the rate of population growth and the numbers of families switching to cooking on kerosene and LPG. Because of the heavy forest cover over most of the island, the quantities of wood available within 20-30 km of the city are such that no physical scarcity is likely to occur under any plausible growth scenario over the next few decades. 3.7 The pattern of supply is, nevertheless, likely to change. Judging by experience elsewhere, expansion of the city and increased clearing of peri-urban lands for agriculture, as well as fuelwood cutting, will cause a gradual depletion of the nearby fuelwood resources. This will almost certainly lead to an increased use of motorized transport and a progressive commercialization of fuelwood. The role of the fuelwood market will consequently become more important and trading in fuelwood will become a source of employment for a growing number of people. 3.8 It is unlikely that such a process will lead to a massive switch away from fuelwood. Because of the abundance of wood resources, extraction and transport costs will be low and the price will primarily depend upon the level of competition and what the market will bear. Fuelwood is, thus, likely to be competitive with LPG and kerosene and remain the principal cooking fuel of low income families. I/ Honiara has a population of around 35,000; the next largest town, Gizo, has 2,500 inhabitants. I/ "Report on the 1987 Household Energy Survey, Honaira. ' Pacific Energy Development Programme (PEDP) Fij (1988). - 15 - Potential Interventions and Existina Initiatives 3.9 The scope for effective intervention in this process is very limited. At present, when families are able to obtain the fuelwood they need without any cash payment, there is no incentive to invest in energy-saving stoves or plant trees to increase fuelwood supplies. Experience also shows that families who cook on an open fire and collect their fuelwood without payment tend to be extremely reluctant to invest in stoves which improve the kitchen environment or save on cooking time. 3.10 Neither are there energy interventions available which are likely to have any significant effect on the rate at which forest land is cleared around the city. This is primarily driven by agricultural needs and the changing economics of peri-urban land. Even if significant economies in urban fuel use could be achieved, the process of forest clearing in the vicinity of the city would continue virtually unabated. 3.11 It is also unlikely that planting trees for fuelwood will be financially attractive to farmers or competitive with extraction from the natural forests over the next couple of decades. Promoting tree growing as a means of slowing the rate of depletion of wood resources is therefore likely to be ineffective. The only way in which the clearing of forest lands can be significantly influenced is by effective government control over land use, which is difficult to achieve given the custom land tenure systems of the Solomon Islands. 3.12 There are, however, some limited ongoing activities within the biomass area and the mission noted two initiatives: the promotion of charcoal from sawmill wastes, and a program to install improved cooking stoves in provincial secondary boarding schools. The activities are discussed in Annex 3.2. The conclusions of the mission are: (i) that no interventions to promote charcoal production are recommended, and (ii) that efforts should be made to ensure the long-term supply of spare parts of the stoves presently being installed at the schools. Relative Costs of Different Domestic Cooking Fuels 3.13 Table 3._ gives the relative costs of the different household cooking fuels presently used in Honiara._/ In the absence of any data on the energy efficiencies of the various cooking methods used, indicative figures based on experience elsewhere have been used. / Dehu cont of appaces are not included but the outlays associated with he use of commercialfuels, lcctricity in paricular, generaly strengthen the indicated cost conclusions. - 16 - Table 32as COSTS OF DOMESTIC FUELS, HONIARA, 1989 Cout in Cost per Assumed Cost per Original HJ cooking end-use MJ Fuel Units (cents) efficiency (cents) ,___ (O) Electricity 38c/kWh 10.6 70 15.1 LPG 169c/lb 8.6 60 14.3 Kerosene 88.6c/liter 2.6 25-30 8.7 - 10.4 Fuelwood* 15c/kg 1.0 10 10.0 * Purchased in Honiara market. Sourcgs The Price Control Division, SIEA, the mission. 3.14 Electricity is the most costly fuel per unit of energy supplied at the cooking pot. In so far as this acts to deter household use of electricity for cooking, it is the correct price signal from the viewpoint of SIEA and society, as the development of a high peak load due to widespread use of electricity for domestic cooking would be undesirable. 3.15 LPG is mainly used by the more affluent families. Its price, In comparison with kerosene, reflects inter alia, its greater cleanliness and convenience as a cooking fuel. The cost of kerosene is considerably higher in the outer islands. It is, however, an optional cooking fuel as woodfuel supplies appear to be available everywhere at no commercial cost. Average quantities and cost of kerosene used for lighting are relatively modest. 3.16 The figure of the cost of commercial fuelwood is highly uncertain since it depends upon the efficiency assumed for the cooking fire. This depends, upon the care with which the fire is used and varies greatly between households. It should also be noted that commercial woodfuel supplies only about 2-5% of the total quantity of fuelwood consumed. The remainder is collected and has no financial cost for the families using it. Rural Household Energv Subsector 3.17 Some 85% of the population of the Solomon Islands live at or close to subsistence primarily in around 5000 small villages. These are located mainly around the coasts of the islands but in Malaita, where the average population density of around 20 persons per sq km is the highest in the country, there are also many inland villages. 3.18 Cooking is on an open fire and fuel is gathered from people's own lands or nearby forests. The use of coconut shells and husks for cooking is limited. A traditional oven which relies - 17 - on preheated stones, is used for cooking particular dishes for special occasions. 3.19 Copra is the main smallholder cash crop and is produced by about 30% of families. Smallholder production in 1989 was about 28,000 MT, out of a national total of about 35,000 MT. The fresh copra, which has a high moisture content, must be dried to protect it from fungal and insect attack. This is done in driers using fuelwood or coconut shells and husks for fuel. Around 50% of the producer families have their own hot air copra drier; those without driers pay a fee to have their copra dried. 3.20 Motorized canoes are relatively widely used. A survey of the Morovo Lagoon area in Western Province 2/ found that 24% of families owned outboard motors. The most common use of these canoes was found to be for transport, with only 15% of owners reporting fishing as the main use. Virtually all families use kerosene lamps for lighting. ouantities of Fuels Used 3.21 There are no reliable data on the quantities of woodfuel and coconut residues used by rural families. A survey carried out in 1983 gave an average figure of 6.15 kg per head per day for the cooking fuel consumption of a number of villages in Malaita and Guadalcanal.8/ This survey, however, suffers from a number of serious methodological flaws (see Annex 3.3). 3.22 The results also appear remarkably high in comparison with other Pacific Island countries. Surveys in Kiribati, Tuvalu and Tonga found an average consumption of about 2.4 kg per head per day and a survey in Fiji found a figure of 0.5 kg per head per day. As a rough approximation, it might be assumed that the average consumption in the Solomons is 2.4 kg per head per day. This gives a total rural consumption of about 250,000 MT per year. 3.23 Data on the consumption of fuel for copra drying are also poor. One rather speculative estimate is that around 2 MT of fuel, split roughly equally between fuelwood and coconut shells and husks, are required to produce one NT of dried copra in a smallholder drier. Plantation drying is more efficient and uses about 1 NT of shells and husks per NT of dried copra. Total fuel consumption for copra drying is thus in the region of 25,000 MT of fuelwood and 35,000 MT of coconut shells and husks. Z/ "Howehold energy conswpion suv: Morovo Lagoon area, Western Plrovinc, Solomon skmnds. * PEDP, Suva, F#i (1988W. I/ `Second Fuelwood Study Solomon Jslands'. Preparedfor South Pacl Bureaufor Economic Co-operaton, Suva, F;i (1983). - 18 - 3.24 The total rural fuelwood consumption in the Solomons is thus about 275 000 MT per year. Adding the urban consumption, the total is about 285 000 MT per year. Assuming that this increases in parallel with population growth, the total in the year 2000, taking the mission's medium population projection, will be approaching 400,000 MT. 3.25 These figures are extremely small in relation to the total woodfuel resources of the country. Averaged over the whole land area the present annual consumption amounts to about 95 kg per hectare; in the year 2000 it will be 130 kg per hectare. ' The standing stock, for comparison, tends to be in the range 150-350 MT per hectare. Consumption is, of course, considerably higher in the more heavily populated areas but the calculation shows that neither at present nor over the next few decades is fuelwood consumption likely to have any significant impact on the overall wood resources of the country. Local Woodfuel Balance 3.26 References are made to local energy shortages, especially in parts of Malaita, in a variety of documents dealing with household and rural energy issues. These appear to derive principally from two energy surveys carried out in the early 1980s (Annex 3.3). 3.27 The mission feels that such accounts of local scarcities need to be treated with considerable caution. In general, they appear to be based on survey questions such as "Is fuelwood scarce in this area?" The use of a leading question such as this tends to produce responses which confirm the proposition suggested. 3.28 Moreover, since the concept of scarcity is undefined and unquantified, the answers provide no information on the degree of hardship being experienced or the actions which people would be prepared to take in order to alleviate it. In particular, survey responses obtained in this way cannot be relied upon as a justification for the variety of programs, ranging from fuelwood plantations through to the introduction of oxcart to enable people to carry home coconut shells, which have been proposed for the Solomc.is at various times. 3.29 The household energy survey in the Morovo Lagoon area found that most families obtain their firewood from their own extended family land in the course of food production, using trees or branches cut down while clearing gardens. Very few (5%) of households cut down living trees for firewood. The report remarks that "All the villages that were visited have thick forest surrounding them within a few minutes' walk. Nonetheless, 58% of households expected firewood to become scarce within the next five years and 3% found it to be scarce already, only 39% expecting it to remain common." - 19 - 3.30 As far as copra drying is concerned, the report remarks that "Firewood availability does not appear to be a serious problem for the foreseeable future.... Even in very inefficient dryers with a specific consumption of 3 MT of wood per MT of copra dried, this would correspond to only about 1 MT of mangrove wood per household per year, on average, or 20-40 MT year for a typical village." 3.31 In so far as there are fuelwood problems in the rural areas, they are almost certainly related to the disappearance of fuelwood from familiar locations as a result of the expansion of subsistence and cash crop agriculture. Experience elsewhere strongly suggests that under these circumstances rural people prefer to economize or adapt their fuel consumption patterns rather than begin growing trees for fuel or using fuel-efficient stoves. In the Solomon Islands, where biomass resources are generally abundant, such adaptations are likely to be relatively easy to make. 3.32 Few rural energy programs are under way or planned in the Solomons. The mission only identified two: a program to encourage smallholder planting of fuelwood trees managed by the Forestry Division in the MNR; and the promotion of an improved copra drier promoted by the Ministry of Agriculture. Both are at an early stage and on a small scale and their promotion should depend on the local response (see Annex 3.2) Recommendation with Respect to Household Energv Subsector 3.33 The following recommendations are made: - No active involvement by the Government in the household energy subsector is recommended (beyond the few, small- scale ongoing activities). The Energy Division should, however, keep abreast with developments in other Pacific Island countries through attendance at conferences and obtaining relevant studies. A further assessment of the situation should be carried out in about five years' time. - No immediate or near term policy initiatives are recommended. The mission supports, however, the planned national forest inventory, to be funded by the Australian Government. Although such an inventory will be of primary interest in relation to the timber industry and to general forest resource development and preservation, it will be of value also with respect to monitoring the fuelwood situation. - 20 - Potential--Use Of Biomass Fuels For Power Generation 3.34 The demand for electric power in the Solomon Islands, except for the Honiara area, is generally low. This, coupled with the high costs of biomass-fuelled generating equipment, means that the opportunities for economically justifiable uses of biomass fuels for power generation are very limited. 3.35 A number of efforts have, however, been made to find ways of utilizing the available biomass resources to produc electric power. These include a proposal to establish a dendrothermal power station near Honiara, and a prototype gasifier installation using charcoal made from sawmill wastes. 3.36 Ouantities of biomass fuels available. No data are available on the quantities of logging wastes produced and left in the forest but they are clearly substantial. At present, the total log production is about 300,000 cubic meters, about half the licensed quota. The cost of collecting and transporting the wastes from these operations, however, makes their utilization on a significant scale highly unlikely during, at least, the next decade. 3.37 Sawmill wastes are more accessible as an energy source. About 48 sawmills have been licensed but only around 20 are presently operational. Although the Government has been attempting to increase the proportion of sawn timber produced in the country, and a legal minimum of 20% of the total log harvest has been set, the quantity sawn remains at about 10% of the total log production. The amount of sawmill waste produced in 1988, the last year for which detailed figures are available from the Forestry Division, was about 16 000 cubic meters, around 10,000 MT. 3.38 The weight of coconut shells and husks is around four times that of the dried copra. Given an annual production of 35,000 MT of copra, the total production of coconut shells and husks is therefore about 140,000 MT. The indications are that about 30% of this total is already used for copra drying. Except for a number of large plantations, such as Levers on Guadalcanal, the dispersed nature of this resource my - % that its potential use for anything except at a local houw.hold level is virtually impossible. 3.39 Another substantial source of residues is the Solomon Islands Plantations Ltd (SIPL) oil palm mill at Tetere, about 40 km east of Honiara. SIPL has about 6000 ha of oil palm plantations in the area. The total annual production of shells and fibre is about 13 000 MT; in addition, there are about 60,000 MT of empty bunches which are left after the fruit has been extracted at the mill. - 21 - 3.40 Presently proposed oil palm residues Rower plant. There is, at present, a preliminary proposal to construct a power plant at the SIPL site which would feed into the SIEA grid. The antecedents of this proposal stretch back to the early 1980s. 3.41 A 1983 consultancy study recommended the construction of a dendrothermal power station at the Lever Brothers coconut plantation at Tenaru about 15 km to the east of Honiara. This was intended to have a total output of 4 MW and to be commissioned in 1987. The estimated cost was US$9 million. 3.42 This was a complex project, intended to utilize a wide variety of waste biomass products including oil palm residues, coconut shells and husks, logging wastes from forests, sawmill wastes and other biomass materials. It is more fully described in Annex 3.4. Changing circumstances led to the project being revised and effectively abandoned in 1987. 3.43 The present position is that SIPL has suggested the construction of a new steam boiler and electricity generation plant at its own oil palm mill. This plant would have an electrical output of 2.5 MW and would be fueled by the palm oil shells and husks currently used for steam and power generation at the plantation, as well as the empty bunches which are at present incinerated. Part of the attraction of the project for SIPL is that it would allow the company to dispense with a number of its own isolated generators. The proposal is that the surplus electricity generating capacity of the plant of about 2 MW would be exported to the SIEA grid. This proposal is described in more detail in Annex 3.4. 3.44 While the project is feasible at a technical level, security of supply is a major question. As the various previous proposals for biomass fuelled electricity generating plants have shown, major fluctuations can take place in the availability of the residues produced by plants depending upon export markets and financial decisions taken outside the Solomons. 3.45 No formal cost estimate of the plant has been prepared but experience elsewhere suggests a figure of US$4-5 million. There has been no discussion on how the costs might be shared between SIPL and SIEA. Neither has there been any discussion on who would have responsibility for running the plant. It might, for example, be operated by SIPL with the surplus electricity being exported to the SIEA; alternatively, it could be operated by SIEA with steam and power being sold to SIPL. 3.46 Because of the lack of firm design and cost information, it is at this stage impossible to calculate the cost of the electricity which would be produced by the proposed SIPL plant. Neither is it possible to compare the economic cost of the plant with the Komarindi hydro station. Delaying further work on the - 22 - Komarindi plant until detailed cost estimates and operating arrangements for the proposed SIPL plant were available would also cause considerable practical problems. 3.47 The Komarindi project would provide SIEA with sole control over the operation of the plant and security as far as future supplies are concerned. These are significant merits when set against the shared control and relative uncertainty of the SIPL proposal. Detailed cost estimates should be available for the Komarindi project in mid-1991. The mission feels that a decision to proceed with Komarindi therefore should be made on its own merits and independently of the SIPL proposal. The benefits of both projects would be measured in the form of saving in diesel consumption but in the 1990s there does not appear to be "room for" both of them in terms of energy requirements. 3.48 This will not preclude consideration of the proposed SIPL plant for construction and commissioning at a later date. If the bids for Komarindi are not acceptable, the SIPL plant could be considered for earlier implementation. The mission recommends that a detailed study into the plant and how it might fit into the SIEA system should be carried out at a later stage. 3.49 Gasification of sawmill wastes for Rower aeneration. Wood and charcoal gasifiers, in theory, provide a means of using sawmill wastes as a fuel source for power generation. Experience elsewhere in the Pacific and other parts of the developing world suggest, however, that this option is both costly and technically difficult. 3.50 Of a total of 17 gasifier projects budgeted and approved in 1984 under the EEC-funded Lome II Pacific Regional Energy Programme, just two were implemented, one in the Solomons and one in Vanuatu. A further 15 gasifier projects were implemented under a variety of different funding arrangements. Only the wood gasifier at Onesua in Vanuatu is now functioning. 3.51 The Solomon Islands gasifier was installed at the Batuna sawmill on Vangunu Island in Western Province. The system had a nominal electrical output of 15 kW and used charcoal as fuel. The project is described in Annex 3.4. The operating results were poor, the costs were extremely high, and the project was not a success. This experience, coupled with that elsewhere, suggests that gasifiers have no immediate prospect of being relevant in the Solomons. Recommendations on the Use of Biomass Fuels for Power Generation 3.52 The following recommendations are made: - 23 - It is recommended that consideration of the proposed residues-fuelled generating plant at the SIPL oil palm mill should be deferred until a decision has been made on the Komarindi hydropower station. If it is decided to go ahead with Komarindi, the residues plant is likely to be irrelevant until at least the late 1990s. It can then be evaluated in relation to whatever are the other generation options existing at the time. If, on the other hand, the Komarindi project is canceled or indefinitely deferred, a study of the proposed plant should be made. This will enable the proposal to be considered in relation to the other options available for increasing the country's generating capacity. Outline terms of reference for this study are given in Annex 3.5. No further involvement in gasifier projects is recommended until the technology has been technically and economically proven elsewhere under conditions which demonstrate its relevance to the Solomon Islands. -24- IV. ELECTRICITY General 4.1 Electricity is available to about 15 % of the population, from public supply in the capital Honiara and the capital towns of the provinces, and also from scattered, small private facilities elsewhere. Total installed capacity is 12.2 NW and total consumption from the public supply system in 1989 was 31.4 GWh, equivalent to 100 kWh per nead of the whole population or close to 700 kWh per head in the areas served. Virtually all electricity is generated in diesel powered thermal stations, which are located in Honiara and six outstations. (Map IBRD-16896R). Oraanization of the Electricity Subsector 4.2 Public supply of electricity in the Solomon Islands is the responsibility of the Solomon Islands Electricity Authority (SIEA), established as a Statutory Authority from 1 January 1969 under the Electricity Act. SIEA took over power facilities previously operated by the Public Works Department in the capital Honiara and the three outstations Auki, Gizo and Kirakira. Since then, SIEA has further extended its operations to Santa Cruz, Munda, Maluu, Buala and, most recently to Noro (see map). The outstations all serve provincial capital towns, except Maluu (isolated small hydro) and Noro, which serves a new fishery and fish processing base. The supply area of Honiara is sometimes referred to as the Guadalcanal system, representing 75% of the system's installed capacity. 4.3 The Electricity Act confines the responsibilities of SIEA to the supply areas mentioned above. Outside these areas, electricity may be generated by the Government or the private sector. The Public Works department of the Ministry of Transport, Works and Utilities is responsible for isolated supplies to outlying government institutions like schools and clinics. Private power supply is mainly for industrial plantations, logging operations, sawmills etc. and also some establishments in health and education. An amendment to the Electricity Act, making SIEA responsible for inspection of all electrical installation has been decided by Parliament and is ready to go into effect. The purpose is to ensure consistent policy and uniform technical standards and safety requirements. 4.4 SIEA is under the jurisdiction of the Ministry of Natural Resources and is required by the Act to obtain ministerial approval for amending tariffs, for major capital investments and for long term borrowing. While uniform tariffs for the whole county are practiced, the Act requires the government to pay to the SIEA an annual subsidy to compensate for losses incurred by taking over or managing any supply of electricity at government request. - 25 - 4.5 SIEA is governed by a Board of Directors, appointed by the Minister and consisting of a chairman and not less than 6 members. The General Manager is ex officio member of the Board. Currently the Ministries of Transport, Works and Utilities, of Finance and of Natural Resources are represented on the Board, as well as the Town Council of Honiara and the Guadalcanal Province. The Chairman is a non-government member. Existing Facilities 4.6 Existing generating facilities in the SIEA system (as of 1990) are listed station by station in Annex 4.1. The facilities consist of 8 diesel stations (of which 2 in Honiara) with altogether 34 units installed, and one small hydro station. Generating capacities can be summarized as follows: Installed kW') Dependable kW2) Honiara (2 stations) 13,280 9,250 Noro 3,600 2,400 Other diesel 1,643 556 Hydro 30 15 SIEA total 18,553 12,221 1) All units, at max. continuous output 2) Operable units, with largest unit out for maintenance 4.7 Apart from the public electricity supply, there are a considerable number of private, mainly diesel-powered generating sets in the country, supplying villages, plantations, mission stations, logging camps, fish processing plants and sawmills. Two micro hydropower stations are located at Atoifi (32 kW) on Malaita and Iriri (5 kW) on Kolombangara. There is a charcoal gasifier plant at the Batuna plant and a steam turbine plant at the CDC (Commonwealth Development Corporation) palm oil factory, and also a small number of photovoltaic installations for refrigeration etc. at health clinics and for village water pumps. 4.8 SIEA's transmission and distribution system is summarized in Annex 4.2. Voltages of 33 kV, 11 kV, 3.3 kV and 415 V are used. 33 kV is used for the interconnection of the Honiara and Lungga power stations in the Honiara (Guadalcanal) system. 11 kV is used for feeders in the Honiara system and is gradually being introduced in the outstation systems to replace 3.3 kV. Retail distribution is at 415/240 V. Total length of lines outside Honiara is less than 10 km. - 26 - Technical Condition and Reliability 4.9 Many of the existing diesel units are, as shown in Annex 4.1, old, some dating back to 1936, others to around 1960. Operating conditions of these old units are generally poor. Even some relatively newer pieces of equipment are often out of operation due to difficulties in procuring major spare parts. The diversity in size and make of the diesel units is also a problem in maintenance and operation. At the smaller outstations the poor condition of the oldest units and the need for one unit minimum reserve (maintenance outage) result in a dependable capacity of less than 1/3 of installed. These problems are all being addressed in an outstation upgrading program and an expansion program for the Honiara system (see below). 4.10 Energy losses and fuel consumption are shown in Annex 4.3. Energy losses in Honiara are reasonable at around 9 % and have been coming down over the recent years. Some of the outstations, notably Auki, show very high percentage losses considering the short distances covered. The relatively high fuel consumption at outstations must to a large measure be ascribable to frequent operation at part load, stemming from unsuitable unit sizes. Honiara is in a better position to operate various combinations of units to follow the load. 4.11 Technical management of the SIEA is good and makes a good job of operating the available facilities, considering the constraints under which they are managed, such as scarcity of skilled personnel and long distances between the capital and the various outstations. Data on overall reliability of supply are not available. Supply interruptions, local or general in Honiara, are reported to occur something like once a month, which is reasonable under the operating conditions. Resources to Meet Electricity Demand 4.12 All SIEA electricity generation at present is thermal (ADO). Rich in rainfall, and with a mountainous topography, the country might be expected to possess considerable hydropower resources. In practice however, the potential exploitation of hydropower is effectively constrained by a topography that offers few possibilities for seasonal storage so that for the most part, run-of-river operation is the only option(see also Chapter VI on New and Renewable Energy Options). Under these circumstances a comprehensive inventory of hydropower resources in the country would not be meaningful. Studies have been undertaken, though, on hydropower possibilities in the vicinity of existing power markets. 4.13 On Guadalcanal near Honiara, various sites have been identified in the Lungga and Tenaru river basins. Feasibility studies were carried out in the 1970s on the possible development in the lower Lungga river, the Lungga dam project, which turned out - 27 - excessively costly (see also Annex 6.1). A study in 1986, under UNIDO financing, identified the possibility for developing the Komarindi river in the upper reaches of the Lungga basin by diversion across a bend in the river through a 2 km tunnel, achieving a natural head of 80 m. The Komarindi project is discussed in detail below. Other sites in the same river basins, identified in an earlier study by UNDTCD,1984, were found not to be economically viable (Kohove, Tenahula, Ohe) or also inadvisable due to damage to scenery or to sacred land (Mataniko). Chapter VI discusses additional hydropower potential. 4.14 Other resources options, alternative to diesel, would be the use of biomass and geothermal potential. Biomass resources in the country are large, but of limited applicability to power generation. The most promising option would be the use of biomass residues for cogeneration in connection with steam raising in processing industries, in particular palm oil residues from the SIPL plant. This has been discussed in Chapter III where it was concluded that for reasons of resource uncertainty, degree of control, and the stage of development of the Komarindi project it is advisable to give priority to the latter project. If, however, the Komarindi project is canceled or deferred indefinitely (for cost or other reasons) a detailed study should be carried out of the SIPL alternative. 4.15 There are surface geothermal manifestations at four locations in the Solomons archipelago: the Paraiso field on Vella Lavella, on Sirmbo Island, Savo Island, and on West Guadalcanal, some 60 km from Honiara. However, no practical use of these sources for energy purposes can be envisaged in the foreseeable future. Their location, in three of the first cases on small isolated islands, immediately disqualify them from further consideration. And even in the case of the source on Guadalcanal, the distance to Honiara and the small market that the town represents compared to the investments required, rule out its application for energy production for the capital within the timeframe of this assessment. Doubts are also raised with respect to the temperatures involved. Expansion of Generatina CaDacity. Honiara 4.16 Electricity demand has been consistently growing in the 19805 although at varying annual rates (see Annex 4.4). Demand has been projected to grow at a rate of 7.5% p.a. (energy) and 6.5% p.a. (maximum demand) during the 1990s in the Guadalcanal system and at around 4.0% p.a. (energy) for the outer islands. The forecasts are based on recent consultants' studies, to which the mission has made some adjustments for the timing of new electricity consuming projects in the Guadalcanal system. A base and a high load case have been developed for the main system, but demand in year 2000 is projected to be the same in both cases. This is more fully discussed in Annex 4.5 - 28 - 4.17 Thermal power (diesel). For a system the size of Honiara, diesel is the only practical option in thermal generation. As a thermal system, the Honiara power system is capacity constrained, that is, once sufficient capacity is in place to meet the maximum load, the energy required within this load limit can always be provided by adequate provision of fuel. This is in contrast to a hydro system where the main concern in planning is to secure water for meeting energy requirements over time. The hydropower potential of the Komarindi scheme will have very little storage capacity and will essentially be a run-of-river project capable of providing only a fraction of its capacity as firm power, i.e., capacity available at all times. The bulk of the capacity to meet maximum daily and seasonal load must be provided by diesel installations, while the main function of hydropower will be to produce energy to the extent allowed by available water at any time, saving correspondingly in fuel for the diesel plant. 4.18 The most recent expansion of generating capacity took place in 1988 with the commissioning of 2 units of 2.85 MW each in the main power station Lungga. The two units, Lungga 6 and Lungga 7, have been beset by problems with oscillations and subsequent breakdown of the gears. Agreement has not yet been reached with the supplier about the method for correcting the problems, and the units can not be operated. Load in the system can still be met, at the expense however of reserve margins. Two of the older units, officially retired, have to be kept in reserve. SIEA expects a solution to be reached soon. The problem is urgent. 4.19 To establish a least cost plan for further expansion, SIEA's consultants, Merz Australia used a computer based generation planning model to test various programs to meet the load growth and reserve capacity as projected: - for the two load growth scenarios (base, and base plus gold mine), - for two sizes of diesel units (3 MW and 4 MW, respectively), - and with or without the Komarindi hydropower development. Reserve capacity requirements in the all diesel cases were stipulated at the capacity of the largest unit (out for maintenance) plus 15 % of remaining capacity (accidental outage) which is reasonable for a diesel system of this size. In the mixed hydro-diesel cases, Komarindi is assigned a capacity of 6.6 MW in the wet season and 1.5 MW in the dry season, while the same reserve criteria (as in the all diesel cases) are applied to the diesel component. 4.20 In their August 1990 feasibility report Merz conclude that: - 29 - - under the base load growth scenario one new 4 MW unit is urgently required, to be on line by the end of 1991, followed by another 4 MW unit by the end of 1992, - under the higher growth scenario (base plus gold mine) both units would be required in 1991, and - the mixed diesel-hydro alternatives (with Komarindi) show a present worth of costs to be 7-8 % lower than the corresponding all diesel alternatives, i.e. that the Komarindi is economically attractive. 4.21 These conclusions are based i.a. on the assumption of a rather steep load growth over the first few years ahead, with a number of specific industrial/commercial projects coming on line during 1990-94 as set out in Annex 4.5. According to the mission's somewhat lower demand projection, the load level that triggers the need for the second 4 MW unit would be reached somewhat later, in 1994 for the base load case or 1992 for the base plus mine case. This seems to be also in line with SIEA thinking. With this adjustment, the alternative installation schedules are summarized in Table 4.1 (see hydro installation being discussed below). Table 4.1: PLANT INSTALLATION SCHEDULE, HONIARA SYSTEM Load Proilction Komarindi 6.6 MW Diesel 4 MW Units Base case 1995 (end) 1992 94 2001 Not installed 1992 94 97 2001 Base + mine 1995 (end) 1991 92 2001 Not installed 1991 92 94 96 2001 So_urce: Merz (1990); the mission. Note: For further details see Annex 4.6 4.22 Funding for one 4 MW unit is being discussed with the Asian Development Bank which .has indicated interest. The unit could be in place by the end of 1991. This will become urgent if the gold mine project firms up and would need power by that time. For the second 4 NW unit, the SIEA is looking around for the option of an overhauled engine. If needed due to the gold mine SIEA expects to be able to commission the unit in the first half of 1992. 4.23 Hydropower (Komarindi). The Komarindi hydro power project has been designed for staged development up to a full capacity of 6.6 NW. It is a typical run-of-river project with no storage reservoir, only a low weir and a settling basin for the intake in the Komarindi river, at its junction with the tributary - 30 - Chahari. From there a 2.2 km low pressure tunnel followed by a 330 m double steel penstock will lead to the powerhouse, with 3 horizontal Francis turbines and generators. With 2 units in operation in the first stage, net head will be 76.5 m and the capacity per unit 2.75 MW. With 3 units in operation in the final stage, net head at full load will be reduced to 70.5 and the capacity per unit 2.2 MW. 4.24 The project in the first stage would include the intake weir,the headrace tunnel, one steel pipe in the penstock, and the power house with 2 turbine-generator units, plus a 26 km access road from Honiara to the intake and a 23 km 33 kV transmission line to Honiara power station. The second stage would include a second steel pipe and the third turbine-generator unit. In their feasibility report from February 1989 consultants Tonkin and Taylor estimated the cost at SI$ 38.8 million (US$ 18.5 million at the then prevailing exchange rate) for the first stage, and SI$ 4.3 million (US$ 2.05 million) for the second, at mid-1988 prices, without interest during construction. These figures were updated in the Merz August 1990 report to SI$ 52.2 million, 1990 prices, for the full 6.6 MW installed in one stage. 4.25 When the former feasibility study recommended that Komarindi be developed in stages, with 4.75 MW to begin with, it was against a projected load growth considerably lower than what is now expected. The maximum load then expected for 1995, 8.3 MW in the Honiara system, may now be reached already in 1992 by the mission's estimate, or even considerably exceeded if the gold mine project materializes. At the same time the earliest practical commissioning date for Komarindi has been deferred to late 1995, against 1994 suggested by the feasibility study. This makes a strong case for considering development to the full 6.6 MW capacity right away. The additional 40 % of capacity is obtained at an additional cost of only 11 %. Developed to 6.6 MW, Komarindi's capacity would still be only 63 % of the maximum system load in the first year of operation, which suggests that the fuel saving achieved by the top 1.85 MW would adequately justify the additional cost. The mission recommends that analysis of the merits of full capacity installation at once be made part of the plant optimization study which will be undertaken in the detailed engineering phase. 4.26 In the Merz 1990 study of alternative plant installation schedules referred to above, the contribution of Komarindi to system energy generation was modelled on the basis of representative daily load curves from the Tonkin & Taylor feasibility study. The total system costs 1990 to 2015, with and without Komarindi, discounted to present worth,under the load growth and plan installation schedule assumed by Nerz, are compared in Table 4.2. - 31 - Table 4kt2J HONIARA SYSTEM COSTS 1990-2015, DISCOUNTED Kill. 8I$, 1990, at discounting factor: la 22k 12 Base load growth, all diesel 150.2 124.6 105.3 hydro/diesel 131.8 116.0 103.5 High load growth, all diesel 166.2 139.1 118.5 hydro/diesel 144.8 127.6 114.0 sources Merz (1990) 4.27 As could be expected, the high front end cost of hydro makes it less attractive the higher the discount rate, but hydro still remains attractive at 12 % p.a. At 10 % discount rate Komarindi reduces costs by SI$ 8,6 million in the base load case, which is then the approximate addition to estimated costs of Komarindi that could be tolerated before the project would turn uneconomical. In the high load case, i.e. with the gold mine in operation, the margin in favor of Komarindi increases and amounts to SI$ 11.5 million. These figures will be only marginally reduced by the lower load projections for the early 90s advocated in Annex 4.5, which have little effect after 1996 when Komarindi will be in operation. 4.28 The comparison of hydro with diesel is also sensitive to changes in the fuel price. The above figures from the 1990 Merz study are based on a diesel fuel price of 45 c/liter, 1990, net of taxes, escalated in the projections by 4.3 % p.a. to 1995 and 3.17 % p. a. thereafter. The Tonkin & Taylor study, from a base price of 31 c/liter (1988) found Komarindi to be marginally less costly than the all diesel alternative (at 10 % discount rate). A check by Merz found consistency between the two studies when the price difference is accounted for. Since the time of the Merz study, prices have gone up in response to the Gulf crisis, to 69 c/l early October 1990. This is likely to be a price jump of limited duration, and prices may soon be back to or even below early 1990 prices. But there is always a risk of wide fluctuations around a generally rising trend in real prices. Komarindi will effectively dampen the effect of such fluctuations on the Solomon Islands economy and hedge against the upward price movement. Fuel consumption in the SIEA system would be nearly halved after introduction of Komarindi 1996. 4.29 A major uncertainty at this stage concerns the estimate for civil work contracts. This can only be cleared when bids are in. Provided the consultants' estimate is broadly confirmed, the project seems economically well justified. Financially for the SIZEA the attraction is even greater, to the extent that financing can be obtained at lower cost than implied in the economic discount rates. Financing of Komarindi at lower interest rates or by grant - 32 - elements is an external subsidy to the financial cost of electricity generation that can not be obtained in the all diesel alternative. 4.30 Financing for Komarindi is being negotiated with the Asian Development Bank and donors. Detailed design work is funded by the ADB from a grant of US$ 1.5 mill. from the Japanese Special Fund. SIEA expects the balance of civil works to be funded by the ADB, while Norway is expected to meet the cost of electrical and mechanical equipment through cofinancing. Australia is being approached for financing of the 26 km access road from Honiara which is nearly 10 % of the total project cost. Merz' projections for the overall financial performance of SIEA are based on the assumption of 70 % of total cost being financed by ADB loan, 30% by grants. 4.31 Provided the two 4 MW diesel units are installed, Komarindi's capacity contribution will not be needed until 1997 in the base load growth case. In the high growth case new capacity should be installed by 1996. But in any case, the Honiara system, will benefit from the very beginning from Komarindi's main function which is to replace fuel for the existing load. Provided the feasibility of the project is confirmed, the project should be implemented as soon as practicable. 4.32 It is expected by SIEA that tenders for Komarindi could be invited by June 1991, for bids to be in by September. Financing agreements could be prepared in advance so that the decision to go ahead could be taken by Decerber 1991, if bids confirm the project's feasibility. Assuming 3-4 years construction time, the project could then be ready in time for the wet season 1995/96. 4.33 Land acquisition for the project has been a much publicized problem due to the special land tenure system of "custom land", in collective ownership. This seems now on the way to being solved. Ownership to the land in question has been established, and trustee committees have been formed to negotiate terms with the Government. There are, however, some unresolved legal issues. Apart from the access road very little land is claimed by the project, for the intake weir and the power house. 4.34 An environmental impact assessment (EIA) was undertaken as part of the feasibility studies. The EIA confirmed that the scheme, as proposed, minimizes impacts. Mitigating measures were formulated to ameliorate the principal impacts which are attributable to the access road construction and the flow reduction in the bypassed section of the Komarindi river between the intake and the powerhouse (see also Chapter VII). 4.35 Recent information shortly before finalization of the present report indicates that a Canadian group has proposed to the Government a nickel mining project on the island of Santa Isabel - 33 - and a nickel smelter on Guadalcanal based on hydropower. Very large quantities of power would be required from several sites on the Itina river on the southern part of the island as well as from the Komarindi project which appears to be the first choice of the Canadian group. The group wishes to develop the hydropower sources itself and reportedly wants the exclusive right to hydropower development on Guadalcanal, selling available surplus energy to the grid. The proposal is at its very early stages and a number of questions remain unanswered, including important technical aspects. At this stage it is difficult to say what impact the nickel project, if it materializes, may have on development of the Komarindi project. It is strongly recommended, however, that the Government consult with ADB on the energy issues, in view of the close involvement of the latter in the power subsector in the Solomon Islands in general and in the Komarindi project in particular. Expansion of Generating Cabacity. Outstations 4.36 SIEA is currently working on a plan to upgrade and expand generating facilities at all outstations except the newly installed facilities at Noro. Table 1 in Annex 4.7 summarizes existing and planned plants. 4.37 The aim of the plan is to retire old and inefficient plants, achieve greater uniformity in size and make of plants throughout the system, improve reliability, and expand capacity to accommodate growing demand. The benefits will be reduced fuel consumption, reduced operating and maintenance cost,savings in staff, and revenue from increased sales. The consultant Coopers & Lybrand in a report May 1990 (the outstation report)has attempted to quantify benefits, with the results summarized in Table 2, Annex 4.7. The financial rate of return is generally higher than the economic rate because the price of fuel saved by more efficient plant includes duty in the financial case. Only Auki, Gizo and Munda show convincing rates of return. The Munda result reflects pent-up demand with the existing facilities plus higher growth over the forecast period. Reserve requirements weigh heavily on costs in these small systems, under present as well as planned installation, with a minimum of 3 units installed at each station. 4.38 Funding has bean obtained for Auki and Gizo from British aid. Funds received by SIG are made available to SIEA on a grant basis instead of being relent as is normal. This arrangement is made to settle SIG's obligation to reimburse SIEA for losses incurred and accumulated at the outstations under the government directive of uniform tariffs throughout the country. The Auki and Gizo projects are well under way and commissioning expected in the first half of 1991. SIEA expects to get similar funding for the remaining projects, with commissioning possible in 1992. - 34 - 4.39 Small hydropower has also been considered for Auki, Buala and Kirakira, from promising nearby sites. Studies have been made by prospective donors (Germany, Japan) but not yet with conclusive results. In any case, hydropower will be of the run-of-river type, saving fuel but not reducing the need for diesel generating capacity. Expansion in Transmission and Distribution 4.40 Some addition to transmission facilities is included in the projects for expanding generating capacity. The Lungga diesel project (2 x 4 MW) includes a 33 kV line in addition to the existing one between the Lungga and the Honiara diesel stations, with spur feeders from both lines to the Panatina substation, a new 3.5 MVA 33/11 kV transformer at Panatina, and switchgear at Lungga. The Komarindi hydro project includes a 23 km 33 kV line to Honiara, to connect at the Honiara diesel station. 4.41 At the outstations, the expansion projects for Auki and Gizo include also upgrading of tbe transmission and distribution systems, i.a. conversion of 3.3 kV lines to 11 kV. At the other outstations minor works are in progress to upgrade and extend the systems. Summary of SIEA Investment Program 4.42 The mission is satisfied that the expansion program presented by SIEA and outlined above represents the least cost expansion to cover anticipated demand growth in the Honiara system and at the outstations through the year 2000. A decision on the Komarindi hydropower development, however, remains open until cost estimates have been reasonably confirmed by bids for the main cost items. 4.43 Total capital expenditure for the 11 year period 1990- 2000, assuming Komarindi is implemented, is estimated at SIS 92.6 million (1990 prices, and not counting interest during construction), of which SI$ 69.6 million for generation, and the remainder for transmission, distribution and related general investments (stores, vehicles etc.). More than half of the total is for Komarindi, and the investments are heavily concentrated to the first half of the 1990s as can be seen from Table 4.3. - 35 - TAble 43.: SIEA CAPITAL EXPENDITURE, PROJECTED 1990-2000 (SI$ 1,000, 1990 prices) Base load case High load case Of which Komarindi 1990 3,820 3,820 1991 17,247 25,247 1,620 1992 4,350 4,350 3,240 1993 18,506 10,506 9,396 1994 19,902 18,792 1995 15,704 14,094 1996 6,668 5,058 1997 1,610 1998 1,610 1999 1,610 2000 1,610 1990-2000 92,637 92,637 52,200 Source: Merz Australia; mission. 4.44 Total expenditure for the period comes out the same in the low and high load cases, as the difference between the two is only in the timing of the second 4 MW diesel unit in Lungga. Should Komarindi not be implemented, the low load case would require one more diesel unit (1997) and the high load case two more (1994 and 1996) at approximately SI$ 8 mill. per unit. 4.45 It appears likely that funding can be secured for the projects, as already indicated. Comprehensive financial projections for SIEA through year 2000 have been undertaken by consultants Coopers and Lybrand with satisfactory results. The financial performance and projections for SIEA are summarized and commented in Annex 4.10. Electricity Tariffs and Costs 4.46 One of the most striking aspects of electricity tariffs in Solomon Islands is the level of current tariffs well above, almost double, their marginal cost levels; this, however is required to satisfy financial requirements with ADB. While the mission has had insufficient data to explain the reasons for this - 36 - distortion; in the absence of a hydroelectric based system 9/, the only explanation would appear to be the high logistical costs of supply to the outstations, and high operating costs of old units. The development of SIEA electricity tariffs since 1982 is summarized in Annex 4.8. Tariffs since the first quarter 1990 are calculated as the October 1989 tariff plus a fuel surcharge calculated retroactively for the quarter. The most recent tariffs, second quarter 1990 are thus: Table 4.4: ELECTRICITY TARIFFS (c/kWh) Current Coopers & Lybrand Energy 1987 Study Assessment Residential consumer 38 15.75 Other LV consumers 46.7 20.75 HV consumers (11 KV) of more than 1 MW 42.75 20.75 Service charge 3.50 Flat 26.2 Peak 35.7 Off-Peak 17.2 | Coopers & Lybrand. Mission estimates. 4.47 A tariff study was undertaken by Coopers & Lybrand for SIEA in 1987, under technical assistance from the Asian Development Bank. The study found appropriate marginal cost unit rates in the Honiara system to be 15.75 c,;Wh for residential and 20.50c/kWh for commercial and industrial consumers, plus a fixed service charge of SI$ 3.50/month, thus well below current tariffs. This however would be insufficient to satisfy financial requirements and, in particular, the financial loan covenants imposed by ADB in connection with the Noro financing. On the basis of financial projections the study found that to satisfy these covenants, not in every single year but at least on a 5 year average basis, tariffs would have to be 29.5 and 36.5 c/kWh for the two consumer categories, plus a SI$ 3.75 monthly service charge. This recommendation, based on financial requirements and well in excess 2/ The World Bank experiece,wparticularly in Latin Amerca and in Fii in the South Pacific in hydroelectric based power systems, shows that weak designedfunding structures have kd to a mismatch between maturity terms, grace period and constructon times, which have resulted infinancial requirements requiring power tariffs well above their marginal costs. - 37 - of marginal cost, meant only a slight change in current tariffs and was adopted as of Nay 1988. 4.48 In August 1989 the Government approved a further tariff increase, and also an automatic fuel cost adjustment surcharge, commencing 1 January 1990. The adjustment would be calculated and billed in arrear for each quarter on the basis of the average fuel price in that quarter. For each 3 c/l increase over the basis price of 41.15 c/l there would be a 1 c/kWh surcharge to all tariffs. This corresponds quite closely to the a.verage fuel consumption of slightly below 0.3 1/kWh, plus some lube oil cost. The surcharge worked out at 5.0 and 4.5 c/kWh for the first two quarters 1990 as indicated in the table. 4.49 In estimating the long run marginal cost as of today (see Annex 4.9) the mission had insufficient data on consumption patterns for distinguishing between residential consumers and others. For the average consumption pattern, the estimate indicates a LRMC of 26c/kWh, vs. the current tariff of 38 and 47 c/kWh for the two consumer categories respectively. Financial projections demonstrate, however, that the current tariff level is necessary to maintain the SIEA in a sound financial position. 4.50 SIEA will not consider peak/off-peak tariffs until hydropower becomes available in the Honiara system, as the cost characteristics of diesel power supposedly do not favor such pricing. That is a misconception. Increased consumption outside peak hours even in a diesel system requires no increased capacity. Marginal cost is limited to fuel and variable 0 & N costs. The LRMC estimate (Annex 4.9) indicates scope for a more than 30 % reduction of rates off-peak. Even though the market for off-peak power in Solomon Islands may be limited, SIEA should be open for this possibility for additional resource utilization. 4.51 The SI Government has directed SIEA to maintain uniform tariffs throughout the system. LRMC at outstations is difficult to determine because of the relatively large increments in any capacity expansion and the high proportion of capacity needed for reserve with a small number of units. Tentative estimates for Auki and Gizo indicate marginal costs of the same order as current tariffs (40 - 50 c/kWh) and average costs considerably higher. Cumulative operating losses at the outstations by 1989 are estimated to have amounted to SI$ 520,000. Until 1984 the Government had undertaken to reimburse SIEA for such losses. The effect on SIEA's general tariffs of having to absorb the outstation losses is marginal, however, given the dominant size of the main Honiara market. The most recent, larger outstation at Noro should be able to cover its cost. - 38 - SIEA Operational Performance 4.52 The Solomon Islands Electricity Authority appears to be a well managed and efficiently operated electric power utility in the context of the environment in which it operates. The small markets, long distances between the capital and outstations, and the general shortage of skilled personnel impose a heavy burden on the management of the Authority. The organization has nevertheless developed so as to operate effectively with only a small number of expatriate staff. A proposed, slightly revised organization plan identifies only the position of Chief Engineer and those of project managers for special projects, such as Noro (now completed) and Komarindi, as being in need of expatriate staffing. 4.53 The SIEA is well capable of planning for the maintenance and expansion of its generation, transmission and distribution system, with the use of consultants for major projects and maintaining contact with the Ministry of Natural Resources to which the Authority reports. A good management information system, implemented and functioning but still under improvement, supports technical and financial operations. Rural Electrification 4.54 There is little scope in the Solomon Islands at this stage for extending public electricity supply to rural areas. This is basically acknowledged by the Government and its view is confirmed by its reaction to a draft policy document on rural electrification issued by the Ministry of Natural Resources in 1990 (see Annex 4.11). To be economically viable, electrification requires a minimum concentration of consumers with some cash income, willing to pay for the service at or near cost. The rural economy in the Solomon Islands is mostly subsistence with a small cash component. The settlement pattern is correspondingly dispersed, with few rural centers and mostly small villages (10 families or less)stringed out along the coast of islands at intervals of 1 km or more. 4.55 As long as the need for electricity is limited to a single or a few consumers, the operation is better taken care of by the consumer or consumers themselves, to make the local responsibility clear. This is the way electricity supply to isolated, government-owned institutions is organized in the Solomon Islands today, by the responsible ministry agency. A distant electricity authority would not in practice be able to look after such small operations. When a local market eventually develops, justifying the connection of a wider group of consumers, a local organization in a cooperative or by the municipality should be considered. If the SIEA is to be involved in small electricity schemes of this kind it should be by a special branch of the authority, as the nature of operations will be very different from that of larger electricity supply systems. - 39 - Conclusions and Recommendations 4.56 The main conclusions and recommendations with respect to the electricity subsector are as follows: Public electricity supply is confined to Honiara and the principal towns of the provinces where there is a sufficient market to make such supply viable. Decisions to extend electricity to other areas should be preceded by thorough feasibility analysis. This means that increases in supply in the years ahead should be limited to the expansion of existing systems and that the opening of new areas to be served by SIEA is unlikely to be justified economically or socially, except as extensions to commercially based activities. The Komarindi hydropower project seems well justified, for saving fuel in the diesel system and hedging against fuel price escalations. If the ongoing engineering studies and the bidding process broadly confirm the preliminary cost estimate, the project should be implemented as soon as practically possible. Serious consideration should be given to installing the full capacity of 6.6 MW from the beginning. - The technical condition of some of the older equipment is less than satisfactory and there is a general need for upgrading and expansion, in Honiara as well as at the outstations. Plans for this are in progress or at an advanced stage, with funding likely to be forthcoming. The plans appear sound and well justified and represent in all cases the least cost practicable expansion path. Two new diesel units of 4 MW in Honiara are justified and needed in the first half of the 90s in all demand scenarios, while the timing especially of the second diesel set is still open. Expansion as planned at the outstations seems reasonably justified by improvement in operating conditions, even though the economics of some projects are marginal. - The SIEA tariffs are determined primarily by financial needs and are considerably in excess of long run marginal cost. Financial projections show that tariffs cannot at this stage be lowered without endangering the financial position of SIEA and thus its ability to expand and maintain its system. With the present tariffs, as regulated by the automatic fuel price adjustment, SIEA's profitability and ability to service its debt can be maintained at a reasonable level for the next 5-7 years. Only after Komarindi comes into service could there be room for any relaxation of tariffs but this would have to - 40 - be considered in the light of the situation and expectations at that time. The rural economy does not allow any systematic extension of electricity supply to rural areas yet. Any small scale supply to isolated consumers, whether government institutions, industry or private, should be the responsibility of the consumers in the first place. For ensuring safety standards and promoting uniformity in technical standards SIEA should be made responsible for electrical inspection throughout the country. The line of responsibility between SIEA and the Ministry of Resources is well defined. As a public but commercially operated entity, SIEA should remain responsible for its own planning and its finances but needs, as is reasonable, ministerial approval for amending tariffs, for major capital investments and for long term borrowing. - 41 - V. PETROLEUM PRODUCTS Backgrogund 5.1 With virtually the entire production of electricity being diesel based, the country is wholly dependent on imported petroleum products to cover its needs for commercial energy. These represented in 1989 close to 10% and 15% of the country's total merchandise imports and exports, respectively. With highly volatile export values due to significant price and quantity changes from one year to another for its raw materials-based export structure, the burden of petroleum imports on the country's external balance may shift rapidly and could be in the 20% range, as it has in the past. Per capita consumption of petroleum products is around 200 kgoe which is relatively high considering the general income level. Primarily responsible for this is the export product sector, in particular the fishing industry and the timber industry which are large consumers of diesel oil. To some extent, therefore, the indicated relationship (between petroleum consumption and exports) may constitute a cushion for the external balance in the sense that in periods of lower exports the imports of petroleum products (primarily diesel) will also decrease.9/ 5.2 The small size of the national market for petroleum products and the location of the country in relation to major suppliers place it at a certain disadvantage when it comes to price, freight cost and potentially also supply security. In addition, the country's geographic structure and location on many islands with small and dispersed markets, make domestic distribution and storage costly. The country's present total dependence on petroleum products for its commercial energy supply increases the importance of supply security, storage capacity and sound distribution arrangements. The Petroleum Market 5.3 Aggregate consumption of petroleum products has increased by somewhat more than 4% annually since the mid 1980's, reaching a level of 74,000 K10Q/ in 1989. Diesel alone accounts for more than 70% of this volume. Fuel oil is not imported. Given the growth prospects of the economy, the mission expects the demand for petroleum products to increase by about 4% per year during the first half of the 1990's. Estimated demand in 1995 is 91,000 KL (around 1,570 bbl/day). On the assumption that the Komarindi hydropower project is commissioned in 1996, total consumption of diesel will decline in that year. Total demand for petroleum 2>/ TLs wouUl apply when klwer export values are the result of lower voumes, not lower prkces. Lia Of Als total, lubricant made up 1,300 KL. - 42 - products is therefore estimated to increase very modestly over the remaining part of the decade and reach a level of 94,000 KL by year 2000. This implies an average annual growth rate of 2.2% for the decade. The demand development is summarized in Table 5.1 and detailed in Annex 5.1 which also discusses the major users and user categories with respect to petroleum products. Different scenarios for diesel demand based on alternative developments for the main users are also presented in the annex. Tatle 5.1: PETROLEUM PRODUCTS CONSUMPTION (KL) Product 1984 1989 Share X 2000 X p.a. change 1989-2000 Gasoline 8,776 10,915 15 16,400 3.8 ADO 43,710 53,539 73 64000 1.6 Jet Fuel 3,100 4,000 5 6,300 4.2 Kerosen 2,118 2,383 3 3,300 3.0 Avgas 890 750 1 550 -2.8 LPG 897 1,008 1 1,600 4.3 Lubricants 1 221 1,319 1 90 34 Total _.j718 73,924 100 94.050 2.2 Source: PEDP, Shell, Mobil, Mission estimates. Supply and Transportation Arrangements 5.4 The Solomon Islands is a very small market for petroleum products. Apart from population concentration in the Honiara area, the population is dispersed on a multitude of islands with small town and village settlements. Except for areas where industrial activity is located, the requirements for petroleum are consequently also dispersed and result in costly distribution of petroleum products. 5.5 There are three operators in the Solomon Islands petroleum market. Shell, with a registered local company, has a market share of around 35% and is heavily engaged in the non- contract market. Mobil has the remaining 65% of the major fuel product market. It does not have its own local company in the Solomon Islands and for non-contract sales operates through a local agent, Melanesian Traders Limited. Mobil Oil (Australia) Ltd., has presently three main customers in the Solomons: Melanesian Traders Limited, Solomon Taiyo, and SIEA. 5.6 The present arrangement between two of the petroleum operators with joint supplies of products on a medium range product tanker (MR) serving several countries in the South Pacific area is logistically sound and offers the least cost shipping alternative, given the small size of the market and limited storage capacity. The use of AFRA rates for a term chartered tanker represents a fair freight cost. In addition to the obvious logistical advantage, the AFRA freight rate system has a built-in dampening effect on spot fluctuations in the freight market. - 43 - 5.7 The size and structure of the non-contract market is such that it is not likely to be attractive to other oil suppliers in the area. The alternative of using open market tenders for oil supplies is not recommended for several reasons: - there is no indication that landed cost of supplies would be lower on a sustainable basis; - the country would be subject to lower supply security; - the advantage of combined shipments to other destinations in the South Pacific area would be lost. 5.8 The third operator is Boral Gas Solomon Ltd. a subsidiary of Boral Gas Ltd., Australia, which engages in the import of LPG from Australia and distribution and sales of bulk and bottled gas in the country. The current monopoly held by Boral Gas is unlikely to be seriously damaging to the Solomon Islands because gas as a fuel is always competing against alternative fuels. Furthermore, splitting the very small LPG market between two or more operators might easily result in higher total costs for the consumers. Pricina of Petroleum Products 5.9 The Solomon Islands petroleum market can be divided into two. One part of the market is the contract portion which buys relatively large volumes of diesel (in total 60% of ADO sales) and therefore can seek supply tenders from the oil companies. The other part is the regulated non-contract volume and includes all the types of products which are marketed in the country. 5.10 Contract prices are established on the basis of tenders from the oil companies. Although in principle these tenders are open for all suppliers, little interest has been shown by other than the oil companies operating in the country. Contract prices are below non-contract prices. This can be attributed to economies of scale from bigger parcel. A difference between the contract and non-contract prices (on an equal tax basis) is normal. However, a difference of around 10 c/l or US$6.3/bbl is more than can be explained by differences in marketing and distribution costs. It is therefore recommended that auditing of the claimed distribution costs for the two sales forms be carried out as part of a review/verification of the whole price structure (see below). 5.11 The oil companies in the Solomon Islands operate within a price regulation regime under "The Price Control Act 1982". The Price Advisory Committee (PAC) makes recommendations and final maximum prices are set by the Minister of Commerce and Primary Industries. - 44 - 5.12 The price regulation has two main elements: - the establishment of maximum allowable wholesale price; - control of distribution costs and maximum allowable margin in retail prices. The build-up of maximum prices follow a certain formula which was established following the legislation in 1982. The formula as such seems to work satisfactorily but the cost elements in the formula need to be reviewed (see below). Sample calculations are shown in Table 1 in Annex 5.2. 5.13 Prices to consumers vary according to price movements in the international market. In practice, they are adjusted on average six times per year, corresponding to the number of imports (cargo loads) by the medium range tanker (see Table 3, Annex 5.2). Based on invoices presented by the two oil companies for their respective purchases, the Price Control Division selects the lower of the pair of prices for each product as a basis for the new wholesale and retail prices (see Table 1, Annex 5.2). The new prices are applied approximately six weeks after the submission of the invoices. The arrangement of fluctuating prices based on the lower proposal is supported by the mission. 5.14 The Government is considering plans to create a fund to cushion the effect of international price movements on domestic prices. The mission questions the benefits of such a measure in itself and in particular since prices in any case do not change more often than they do under the present system. Furthermore, the problems of administering such an arrangement, including the question of how to distinguish ex-ante between short and long term price movements, are additional arguments against introducing it. 5.15 Maximum wholesale Rrices. The oil companies operating in the Solomon Islands follow standard industry practices in the South Pacific to determine the acquisition cost of petroleum products. Prior to 1986 the supplying affiliate used exclusively the posted price in Singapore as the FOB price. Each supplying affiliate sets posted prices at the supply point. These prices are used for inter-affiliate transactions and are not true commercial arm's length prices. Historically, posted prices have on average been above spot market prices. In the unstable market during the second half of 1990 the spot prices have at times been above posted prices which is a trend previously experienced in a sharply rising price market. 5.16 A change was introduced in 1986 when a mixture of posted and spot prices was adopted. This resulted in lower prices to the Solomon companies and a corresponding saving in foreign exchange. Presently the mixture is about 50/50 posted/spot prices. A further move towards a higher spot element would be in the country's - 45 - interest. However, in order to commit the oil companies to supply petroleum products at all times, it is advisable to leave a posted element in the formula. This would also serve to dampen the effect of daily price fluctuations in the spot market. It is therefore recommended that the Government explore with the oil companies the possibility of increasing the spot element. 5.17 The spot price element should preferably be an average of quotations before and after date of loading, say 5 quotations on each side of the loading date, to dampen the effect of daily fluctuations and reduce the possibility of selecting a loading date with higher than average prices for the period. The mission recommends that necessary expertise is engaged on a consulting basis to review in more depth the elements referred to above with a view to improving the present landed cost formula. 5.18 The freight element in the formula is based on AFRA. AFRA rates are published by an independent body and are readily available and can be checked. It is recommended that AFRA rates continue to be applied un the Worldscale basis rate. 5.19 The other cost elements in the price build-up are local items related to the ownership and operation of the storage facilities. The most significant elements are the distribution cost and return on investment. These items are meant to cover actual costs and allow for a reasonable return on invested capital 11/ and are adjusted annually on the basis of the oil companies' accounts. The mission considers a review of the cost elements timely and recommends a verification of the cost structure by an independent auditor well acquainted with oil company operations. Furthermore, regular (annual) verifications are recommended. An audit of this type may help to remove any suspicion of incorrect reporting by the oil companies and thereby improve the relations between the Government and the oil companies. 5.20 Maximum retail prices. Under the Price Control Act the Price Advisory Committee also recommends maximum retail prices in Honiara and the country's provincial centers (see Table 4, Annex 5.2). These regulations do not apply outside the areas mentioned. The price build-up includes freight and other costs into storage and allows a marketing margin. 5.21 At present, the freight costs element in the retail price is based on transport of drums from Honiara to the provincial centers. In some locations (Gizo and some other centers), where bulk storage exists the freight element is nevertheless based on drum transport which is much more costly. As more bulk storage is installed, it is recommended that this costing practice be changed and that the cost of bulk transportation be applied the price II/ heRO ekmext s 25 which appearshigh. T7hssm: tbe viewed in trelaton to investmntbaseands vaon. - 46 - build-up allowing for an appropriate return on investment in bulk storage. It is proposed that the domestic freight/storage element be looked into when reviewing the other cost elements.1/ 5.22 Petroleum product prices in Honiara are lower than in several other Pacific Island countries. This appears to be the result mainly of relatively low government duty and tax. For gasoline, diesel and kerosene, the two items (duty and tax) combined accounted for 29%, 22%, and 12% of the respective retail prices in the capital (October 1990). In view of the need to raise government revenues and the relatively moderate price level for petroleum products, consideration should be given to increasing the duty on gasoline (used primarily in transportation). An increase in the duty of 10 c/l, from the present 25c to 35 c/l, would imply approximately a 10% rise in the retail price, which would still maintain it in the lower price range of the countries in the region. For the Government it would mean increased revenues of approximately SI$ 1 million annually. To avoid adverse impacts on the competitiveness of the diesel consuming fishing and other export industries, which have experienced significant price reductions in the international market for their products over the last few years, no increase in duty is recommended at this stage for diesel. The same applies to kerosene, used mainly by households for lighting and to a smaller extent for cooking purposes. 5.23 It appears that prices in the provinces are not unreasonably high in view of the transport and barrelling costs. Spot checks suggest a differential of not much, more than 50% between kerosene prices in areas within a reasonable distance by road from out-islands depots and the corresponding prices in remote areas accessible only by boat. This is not felt to be excessive in view of the cost of transport and breaking down to final consumer sales in small units. Existina Storaae Facilities in Honiara 5.24 Shell and Mobil each own and operate a storage and distribution plant in Honiara. Both plants are located in the harbor area and are connected by pipeline to the tanker discharge point. Although operated separately, agreements exist for common use of tankage whereby Shell is drawing ADO from the Mobil storage and Mobil is drawing PMS and kerosene from the Shell storage. 5.25 Presently the medium range tanker has a planned 56 day cycle of deliveries to Honiara which means 6-7 calls per year. The schedule is maintained with reasonable reliability, but delays of ,a/ From a sqfety and cnvirownental point of view handling and transport ofpetrolkun products in buk rather than In dnena are preferabk. 7he throughput and location of the individal pas wiU be th main factors determnng the economically viabiliy of bulk storage and therefore decisions to construct thesc. - 47 - up to 4 days are experienced. With this cycle the existing storage capacity is insufficient to secure stocks of all products at all times. This is illustrated in the table below (see also Annex 5.3, Table 1): abl 5.2: HONIARA: PETROLEUM STORAGE CAPACITY AND THROUGHPUT (1990 est.) Product Throughput Gross tankage Equivalent _JKLL (KLI no, of dgas 1 Gasoline 9.660 1.790 51 Jetfuel/ Kerosene 6.295 880 39 ADO 36.650 5.335 38 Source: Shell; Mobil; mission. 1/ D storage capacity in terms of days of consumption (excluding 10 days' safety stock). 5.26 To avoid stockouts in the present situation the immediate and near term available options are to (a) increase the frequency of calls of medium size tankers, (b) supplement supplies with coastal tanker deliveries, and/or (c) build a temporary ADO storage at the Shell plant in Honiara. 5.27 Increase in the frequency of calls of the medium size tanker: A change in the cycle will impact on the tanker pattern of deliveries involving several countries and will likely prove difficult to achieve and at best be very costly due to the extra calls and increased overall costs as a consequence of the altered pattern. 5.28 Supplemental supplies with coastal tanker deliveries: Until additional storage is available this is the most realistic solution to bridge the supply gap between MR deliveries. However, the availability of local coastal tankers (LCT) in the area is limited. Two LCT's are regularly employed, one of about 1000 dwt. and the other of about 500 dwt. These vessels, which operate out of Papua New Guinea and on inter island services, are almost fully occupied. To bring other vessels into position to occasionally transport products from PNG to the Solomon Islands is costly. Based on estimated 1992 consumption, such an arrangement would mean 25 supplemental LCT cargoes or 2 calls per month of an average size LCT of 750 dwt. The round-trip PNG / Honiara takes 7 days. The cost of transporting this incremental volume by LCT's compared with - 48 - increased drop size from the MR L2/ is estimated at SI$ 900, 000 in 1992. 5.29 Const:uction of a temporary ADO storage at the Shell plant, Honiara: In the short term, storage problems would be alleviated by constructing 3000 - 4000 KL of temporary diesel fuel storage at the Shell depot in Honiara and converting an existing diesel tank to store jet fuel. Such a measure has been advocated by the oil companies but not been allowed by the Government. This would essentially eliminate the need for LCT deliveries. This storage is estimated to cost approximately SI$ 850,000. Compared with using LCT's, the storage would be paid for in one year. This temporary measure is the most economical solution, it will not aggravate the safety situation and it is a sensible use of resources as the new tank (s) can be moved to a new site later either in Honiara or elsewhere. Approximately one year would be required to have a temporary storage in place. 5.30 Both existing storage plants meet required safety standards inside the fence of each depot. However, the distance to a heavily populated area is of considerable concern. From a safety as well as a pollution point of view the filling, handling and storage of drums in the close vicinity of surrounding commercial buildings is the most critical aspect. In addition, the sheer quantity of drums stored in the Mobil area presents a safety hazard. In certain areas of each depot the soil is saturated with oil which may become an environmental problem. An oil spill from a discharging tanker in the middle of the harbor area with passengers and cargo traffic would represent a hazard. In relation to the harbor area, the present location of the two depots blocks the development and rational utilization of the harbor area, a situation that will only worsen in the face of increasing traffic volumes. 5.31 Securing petroleum supplies and avoiding/reducing stockouts in the short term at least cost point to a combination of: supplemental supplies by LCT's, and the construction of temporary ADO tankage and the conversion of one small ADO tank to jetfuel/kerosene service.4A/ D Increaseddrop satefrom the MR alone is not an option since it would require addiNonal storage capaclsy as the latter is the presem lImiting factor. 14/ k is eutinwaed dwt ADO storage would thereby be adequate through the 1990s, provided the Romarindi project materlalizes which wUI reduce the pressure on ADO storage at Honiara. PMS storage is inadequate now and jefekw=rosene storage wi be iadequatefrom 1992. - 49 - 5.32 The supplementary storage will, however, provide only a partial and temporary solution. The Shell depot has no room for expansion beyond the ADO tank. PMS storage is already inadequate and jetfuel/kerosene tankage will become insufficient from 1992. To summarize: - in order to accommodate the need for expansion beyond what the present depots allow, - for safety and environmental reasons, and - with alternative uses for the land occupied by the present depots, a more permanent solution to petroleum storage at another locationi near Honiara is required. An alternative site has been identified at Ranadi, at the outskirts of Honiara.15/ New Honiara Storaae 5.33 The relocation to the industrial estate at Ranadi has been on the Government's agenda for a number of years. This location has the advantage of being at an acceptable distance from the city in an industrial area planned with, inter alia, this type of activity in mind, and with less population concentration. The harbor is not as sheltered as in Honiara but is acceptable provided the sea bottom is found to be suitable for anchoring and that due consideration is taken to the wind direction in designing jetty or offshore mooring points. 5.34 The Government commissioned a study funded by the European Investment Bank (EIB) which was completed in 1988.16/ The objective of the study was to assess the state of the fuel storage in the country and to provide recommendations to assist the Government in making the required decisions for future storage and supply of fuel to the islands at minimum foreign exclhange costs. 5.35 The study identifies three specific projects and the main recommendations can be summarized as follows: - Improvement and/or relocation to Ranadi of the storage facilities at Honiara. 15/ An optJon to postponc the construction at Raadfor a coupe ofyears (to 1997) ansts and there arefiancat benefis to this option. However, the ben are partl to0et by highershpping costs incurred by LCTshipment but, more bnportn, postponemen is not advtiablekr sfty and other reasons. if/ 'Soloin londs Fuel Storage Study. ' Po*rd Duvivier Consulting EnglneersD in association with Touch* Ross Management Consuiut, UK (1988). - 50 - - New storage plant for ADO at Noro closely connected with the fishing industry and the SIEA power plant. - Installation of ADO tankage at Tulagi close to the firhing base. 5.36 The most significant events, related to fuel storage, that have taken place since the report was issued are: - Relocation of LPG storage from the Honiara harbor area to the Ranadi Industrial Estate. - Completion of ADO storage at Noro. The storage facility was constructed as grant-in-aid from Japan and has been turned over to the Ministry of Natural Resources representing the Solomon Islands Government as owners. - The EIB has been approached by the Government for financing of the storage facilities at Ranadi on soft terms. 5.37 A critical review of the feasibility study of the relocation of the Honiara depot is necessary, however, due to the time which has elapsed since the study with respect to the sizing of the storage, and also regarding the suitability of the harbor. The cost and financial aspects of the feasibility study must also be updated. The latest cost estimate for the. project is SI$ 15 million (1990). Finally, a detailed design basis memorandum is required before engineering work can commence. 5.38 Due to the required lead time for planning, design and construction (3-4 years), it is recommended that the preparation for building and relocating to the new site proceed without delay. The technically feasible postponement for a couple of years is not advisable. 5.39 Insofar as distribution and storage is concerned, the main task of the Government should be to ensure that the least cost arrangements for the country are sought by the oil companies and other distributors, by promoting competition among the latter and ensuring pricing of the products that encourage the oil companies to make long-term commitments. The Government should not become involved as owner of storage facilities (although this is already the case at Noro, as part of the Japanese grant terms). The possibility of borrowing on soft terms for the Ranadi plant should not necessarily be a reason for government ownership (partly or wholly)-. Even with the oil companies as owners, the benefits of soft financing could be reserved for the country by onlending to the private owners at market rate. 5.40 It is recommended that the new storage plant be owned and operated by the oil companies for the following reasons: - 51 - - The oil companies are by virtue of their business and expertise the natural owners and operators of a commercial storage plant. - The Solomon Islands market is too small to attract new oil companies to the market. Government control of the storage, to reserve capacity for possible new entrants, is therefore not warranted. - Government participation would increase its liability and would require additional skilled personnel with a background not found among nationals in the country today and which, in any case, would compete with the need for national professionals in other areas. The Government should consider, however, engaging a resident engineer to be its representative on the project. One of the donor countries represented in the Solomon Islands should be approached for funding of the position. 5.41 With the country's location and dependence on import of petroleum products, the Government should consider adopting a policy of security stocks in addition to the oil companies' operational stocks. At present no such policy exists but actual storage capacities and supply frequency would in any case not permit the implementation of such a policy. This situation will change with the commissioning of the new storage facilities at Ranadi. It is recommended that the design and size of the storage take this aspect into consideration and that the necessary legislation and contingency plans be prepared prior to the commissioning of the new facilities. Annex 5.3, page 2, provides indicative quantities and costs. Other Storaae Facilities 5.42 Although construction of the new storage at Noro (2 x 3000 KL ADO tanks) is completed, the facilities (owned by the Government) are not yet in use pending a decision on operating management structure (for a list of bulk storage facilities in the Solomons, see Annex 5.3, Table 2). A report prepared by South Pacific Forum Secretariat 17/ discusses various management models. The mission recommends a joint user facility by the oil companies operated by them on a commercial basis. 5.43 The companies should pay a fee for the use of the facilities and the fee should consist of a lease element portion and a modest throughput fee so as to encourage the companies to increase throughput, thereby lowering the unit cost. An added advantage of having the oil companies operate the plant is that it /I 'ntbn Repor on Managenwr wand Flaiwial Aspects of the Nor Oil Sorage Faci iky". SPFC, Suva, F#i (1990). - 52 - can later be expanded to a fully fledged bulk plant including all three products (PMS, ADO and kerosene) and a filling rack if economically justifiable. Particularly Munda and possibly other locations in the Western Province may benefit from such installations. It is recommended that external assistance to prepare an agreement for the use, operations and fees related to the Noro plant be sought by the Energy Division with an agency such as the Forum Secretariat. 5.44 Shell is in the process of installing three small storage tanks at Auki on Malaita. Construction will be completed during the first quarter of 1991. Additional storage at Tulagi recommended in the Solomon Islands fuel storage study should, however, no' be considered before: - experience from the Noro depot is available; - ownership and operation management are clarified; - national fisheries plans are confirmed; and - a feasibility study and design basis have been carried out. 5.45 In the opinion of the mission further bulk storage should be evaluated in locations if and when it is economically attractive to do so under normal commercial criteria. Since distribution and storage generally are the responsibility of the oil companies these will introduce bulk storage in new locations when the economics dictate this. The Government through the Energy Division should, however, see it as its role to be an informed partner in discussing with the oil companies the development of the country's distribution arrangements. In order to establish priorities among the various provincial locations a petroleum distribution study would be the first step. It is, therefore, recommended that a consultant with background in the areas of distribution and distribution economics be engaged for such a study. The Government could approach UNDP for assistance under the latter's support to the energy sector in the Solomon Islands. An outline of the proposed study is included as Annex 5.4. Investment Plans and Technical Assistance 5.46 The major capital expenditure projects in the petroleum subsector expected in the 1990s are summarized in Table 5.3. The figures and the timing are provisional. The projects will basically be under private sector initiative and direction, with the Government acting as a discussion partner in general and a support in securing the financing in the case of the Ranadi facilities. - 53 - Table 53.: CAPITAL EXPENDITURE IN STORAGE FACILITIES (31S 1,000) 1991 1992 1993 1994 1995 1996-2000 Total Expwason, Nanfara 100 750 850 New storage at RaNadl 950 6450 6840 760 15.000 Additional bulk storage In the provinces 100 800 6000 6,900 1990 Price level. Source: Shell, Mobfl, Ninistry of Natural Resources. 5.47 The implementation of the projects is envisaged as follows: - EX2ansion. Honiara: It is assumed that construction could start in 1991 and be completed during the first half of 1992 at a total cost of SI$ 850,000. The investment is assumed to be financed at normal commercial terms. - New storage at Ranadi: The latest cost estimate of new storage at Ranadi is SI$ 15 million. It is estimated that investment could start in 1992 with the bulk of expenditures over the years 1993 and 1994. Completion of the project is assumed in 1995. This should be a commercial project implemented by the oil companies. Financing for the project could be sought through the European Investment Bank or from commercial banks. - Tulaai storaae: Further bulk storage in provincial locations will be considered if and when it is economically attractive to do so under normal commercial criteria for the oil companies. It is possible that additional storage at Tulagi may be attractive if the National Fisheries plans are confirmed. The investment is estimated at SI$ 900,000 in 1994/95 and is assumed financed on commercial terms. - Other 2otential storage glants: Before the turn of the century it may become attractive to construct a "grass roots" bulk storage plant in one of the provinces which does not have such facilities today. Estimated cost of such facilities is in the order of SI$ 6 million (1990 price level) which is assumed financed on commercial terms. 5.48 The recently employed senior petroleum ol-ficer in the Energy Division should have market monitoring and general contact with the oil companies and with the pricing unit in the Ministry of Commerce and Primary Industry as main tasks. Work is needed to - 54 - improve data collection and analysis. These are tasks for the petroleum officer. Training with an oil company is recommended. 5.49 In addition, the mission has recommended technical assistance for specific assignments in the areas of: - petroleum pricing, - audit of the oil companies, - storage and distribution study, - management structure for Noro storage facilities, and - follow-up (Government representative) of the relocation of the Honiara storage facilities. These tasks are summarized and costed in Annex 5.5 Conservation and Substitution 5.50 Petroleum will remain the dominant source of commercial energy for the foreseeable future, and petroleum imports will continue to represent a considerable foreign exchange drain. This means that high priority must be given to measures that promote efficiency in use and, where technically feasible, economically justified substitution. The scope for applying such measures is generally limited, however, by the composition of demand, the availability of suitable indigenous energy resources, as well as accessible technologies that can be successfully applied under the circumstances. 5.51 More than 75% of the petroleum products are consumed as fuel for air-, sea-, and land transportation, including bunkers for the fishing fleet. There is no known substitution possibility for petroleum for these uses applicable in the Solomon Islands at present. The only substitution potential of any significance for the country is in power generation. Any substitution of diesel generation by hydropower or other means of generating electricity must, however, be economically justified. As mentioned in Chapter IV and VI, there are several factors that limit the economic application of the country's hydro resources for power generation and only one hydro site, Komarindi, is being considered for early implementation. The project, once implemented, will alone save 11- 12,000 KL )A/ (or some 18%) of the country's consumption of ADO. An alternative to Komarindi with respect to diesel savings is Rombdi inUfirstyear of operadon (996) would reduce SIE. fuel consawpulon by more tan 7S%for an annual saving qfaboutlOC) 0 T of ADO fueL tn subsequentyears, with increasing load on the system, d volume saved wul increase but not in propordon to the load, ince the saving Is constrained by Komarlndi 's capacity. Esdmated saving bn year 2O0) is 11,500f Ml. - 55 - biomass-fuelled power plants but, as explained in Chapter III, the potential is limited by various factors and no schemes of significance are foreseen in the near future. 5.52 The larger consumers of diesel like the fishing industry and SIEA may consider the use of less stringent quality than ADO which is a multipurpose fuel where the quality of the product is set by the most critical end user like smaller vehicles. Availability and cost of an industrial diesel grade in certain locations should be looked into. A limiting factor, however, is the need for separate shipping and storage which in smaller locations may imply that the use of the lower grade alternative is not economically justified. It is, nevertheless, recommended that the Energy Division contact the oil companies and the users mentioned and request them to look into the feasibility of such measures and the steps to be taken, if implementable. 5.53 The use of price is a prime instrument in inducing conservation of fuels. As mentioned in the section on petroleum pricing, a recommendation is made to the Government to consider increasing the duty on gasoline for government revenue purposes. The resulting price increase would also make users more conscious about fuel consumption and to some extent contribute to initiating or reinforcing the application of simple measures to improve end- use efficiency in vehicles. oil Exloration 5.54 The Solomon Islands occupies most of the Solomon Arc system. Because of the country's dispersed nature, the adjacent sea areas within the Exclusive Economic Zone cover as much as 1,290,000 square kilometers. About 25,000 km of marine survey has been traversed in Solomon territory. The basic requirements to trap petroleum in the territory appear to be met in several areas. However, additional seismic reflection surveying is required before full evaluation of their petroleum potential can be made. Detailed regulations of the 1987 Petroleum Act have been drafted. The present situation of supply uncertainty may prove to be a good time to pursue some low key, promotional efforts on the part of the Government, as it has in the past. Should economic volumes of hydrocarbons be found, it is unlikely however, that production could start before the turn of the century. Conclusions and Recommendations 5.55 The main conclusions and recommendations with respect to petroleum subsector are as follows: - The present system of petroleum prices varying with movements in the international market is supported. The mission would advise against plans to create a fund for - 56 - the purpose of cushioning domestic prices against international variations, on principle and for practical reasons. With respect to the pricing formula used for petroleum products the missions proposes that: * the scope for a change in the basis for calculating acquisition costs be explored with the oil companies with a view to increasing the spot element and correspondingly reducing the posted element; * AFRA rates continue to be applied with respect to the freight element; * the domestic freight/storage element in the formula be studied and adjusted, where necessary, to reflect actual costs of bulk vs. drum storage and transportation; X that overhead and other elements in the formula be reviewed and compared to actual oil company costs and that annual cost verifications be introduced; and - that the allocation of distribution costs as between contract vs. non-contract sales be reassessed. The Government should consider raising the duty on gasoline by 10 c/l for fiscal and conservation reasons which, incidentally, would bring the price more in line with those prevailing elsewhere in the region. To secure petroleum supplies and ovoid/reduce stockouts of petroleum products in the short and longer run: * the Government should accommodate the wish of the petroleum companies to build a temporary storage for ADO in Honiara which, together with supplemental supplies by local coastal tankers, should reduce the present risks of disruptions until the long-term solution has been implemented; * together with the oil companies, the Government should proceed with the planning and preparations for a relocation of storage facilities in Honiara to Ranadi, including a critical review of the feasibility study from 1988 and steps to secure, if possible on soft terms, the financing of the plant; - 57 - * decide and finalize a management structure for the storage plant at Noro for the operations, use and fees related to this facility; and * carry out a study of future needs for bulk storage in the other provinces, to provide the Government with a basis for discussions with the oil companies for further development in this respect. once the new storage facilities at Ranadi are commissioned, the Government should introduce minimum stock legislation for emergency situations and contingency plans for the use of security stocks. The Energy Division should, in cooperation with the oil companies and the major users of diesel, explore the possibilities of using less stringent quality fuels than ADO. The Government should not become involved in operational aspects of petroleum supply or storage and should avoid ownership positions in oil-related assets, such as storage tanks. This applies to the future Ranadi facilities where its main involvement should be to represent the country's interests in the planning and implementation stage and to attempt to secure financing on favorable terms for the benefit of the country. - 58 - VI. NEW AND RENEWABLE ENERGY OPTIONS 6.1 Apart from biomass, hydropower and solar energy are the most promising renewable energy sources in the Solomons. But there are severe practical and financial obstacles to their extensive deployment. Other renewable technologies such as biogas, wind, or geothermal energy have little or no practical application under present conditions. Hydropower 6.2 At first sight, the Solomon Islands would appear ideal for the widespread use of hydropower. Rainfall is abundant and the terrain is generally steep and mountainous with many rivers. Construction of hydropower installations is, however, difficult and expensive. The geology is complex and variable with a mixture of young volcanic and sedimentary rocks which are often unstable and deeply fissured. 6.3 The adverse geological conditions make the construction of dams and the impoundment of water in storage reservoirs technically difficult and expensive. This means that the only practical option in many sites is a run-of-the-river scheme. As the firm capacity of such installations is determined by the minimum dry-season river flow, their main use is as a means of saving diesel fuel rather than in providing firm generating capacity. 6.4 Another serious obstacle to the development of hydro power is the fact that most of the land is held by individuals or local communities under customary or traditional tenure arrangements. Obtaining access to land for river gauging and surveying, let alone construction works, may severely delay or even block the construction of a scheme. Existing installations 6.5 Development of hydro resources has been on a very limited scale to date. There are only three hydro installations in operation at present. The Atoifa project on Malaita has been run successfully by a Seventh Day Adventist mission since it was commissioned in 1976. It has an output of 32 kW and supplies power to the mission and the local hospital. 6.6 Another scheme on Malaita is the 30 kW installation at Maluu on the north of the island. This was built with New Zealand - 59 - aid and is run by the SIEA. It was opened in 1986 and the maximum load is about 15 kW. 6.7 A 12 kW scheme has been in operation since 1983 at Iriri on the island of Kolombangara in the Western Province. It was funded by UNIDO and Australia and was apparently built without consultation with the SIEAl9/. The intention, when the Iriri system was installed, was to bring about a significant increase in development activity in the area with a revitalization of the sawmill, increased furniture and crafts production, and refrigeration. None of these has happened. The scheme was designed for low cost and maximum use of local materials. Outages are frequent and the operation is not sufficiently reliable to supply workshops or other such productive uses. It is not felt to be a suitable model for further small hydro developments. Potential hydro projects ________________________ 6.8 In addition to the Komarindi hydropower scheme, a number of projects with potential for implementation in the near to medium term future have been considered in varying degrees of detail (see also Annex 6.1). One of these is a 100 kW run-of-the- river scheme on the Kwaibala river which flows through Auki on Malaita. This has been included in the SIEA's planning list. The forthcoming replacement of the existing very old diesel generators in the Auki power station will, however, provide sufficient generating capacity for at least the next five years. No action is at present being taken on this project. 6.9 The SIEA has also expressed interest in a 100 kW scheme on the Poporo river in Buala, Santa Isabel, and a 100 kW scheme on the Huro river to supply Kirakira on Makira. In both cases, the existing or planned diesel capacity seems likely to provide sufficient generating capacity for at least the next four or five years. Although included on the SIEA's planning list, neither plant is at present under active consideration. A study in 1986 (see Chapter IV) also evaluated proposed sites for mini-hydro plants near existing power markets on other out-islands. No sites were found near Gizo, Munda or Lata. 6.10 At present, therefore, only the Komarindi project is being considered seriously for immediate implementation. Some other sites on Guadalcanal might come into consideration for commissioning around the turn of the century. If the tender price shows Komarindi to be financially unattractive, it is unlikely that 121 h dacrdpon is based pon 'R*viw of Solmon islns Mwrohydro Projects: dt Inri Insalown and Manawal ProposaL * PEDP, Suva, Fji (987). - 60 - the outlook for any of the other sites on Guadalcanal will be any better. Institutional arrangements __________________________ 6.11 UNDP funding was provided for a full time expatriate Hydropower Advisor in the Hydropower Section of the Energy Division for the period 1987-1990. A full time counterpart Senior Energy Officer has been provided by the Energy Division over the same period. 6.12 Among the activities of the Hydropower Section during this time has been the compilation of a data base on the hydro potential of the Solomon Islands. This includes limited technical data on about 100 sites which have been reviewed, either positively or negatively, by various agencies to date. 6.13 The Hydropower Section is responsible only for the identification and preliminary assessment of hydropower sites. Once they move into the implementation phase, as in the case of Komarindi, the responsibility passes to the SIEA. Detailed design is by external consultants. 6.14 Given the limited prospects for the implementation of hydro projects during the 1990s, the existing data base is clearly sufficient for the present. There is little point in incurring the expense ol accumulating further information which is unlikely to be used over the next decade. During the present decade the major constraint on hydropower development is likely to be the low level of electricity demand rather than a lack of technically suitable sites. 6.15 The present UNDP funding finished at the end of 1990. As there is no immediate need for further data collection or assessment of potential sites, the UNDP has decided not to renew the funding for the expatriate post. Recommendations on hydro Rower 6.16 The following recommendations with respect to hydropower development are made: - There is no need for further investigations of potential hydro sites for the next five years. There is, consequently, little further function for the Hydropower Section and the minimum level of activity required should be assigned to other personnel in the Energy Division. - 61 - - Before this is done, it is important that the work on the creation of a hydropower data base carried out over the past three years is consolidated and made accessible for future use. A summary of the available information on these sites, together with a printout of the data base, should be prepared and kept available as a resource for the SIEA and donors wishing to promote hydropower developments. The Hydropower Section should also work together with the SIEA to prepare a tentative ranking of the first 5-10 sites in order of their likely priority and timing for implementation.20/ - The Energy Division should continue to collaborate with the Hydrology Division of the MNR to ensure that stream gauging continues to be carried out at the most promising hydropower sites and other representative rivers in the different climatic and topographic areas of the country. The data obtained will be very valuable when the time comes for a detailed assessment of these sites with a view to their development. - When, in the judgment of the SIEA, development of any of the sites on the priority list appears necessary and economically justifiable, it should be the subject of a feasibility study carried out by an external consultant. The Energy Division should be the agency responsible for organising and coordinating any such requests to donors for consultancies, whereas SIEA should act as the primary contact for any such consultancy teams. Solar Energv and Other Renewable Energy Resources 6.17 The Energy Division at present has a position of Appropriate Technology Engineer responsible for all renewable energy sources apart from hydro. The position is filled by a US Peace Corps volunteer. There is no national counterpart. The main area of significant activity in renewables, apart from biomass and hydro, has been in solar energy. Solar energy 6.18 Insolation in the Solomon Islands is relatively high. Records over the period 1987-89 give an average annual total insolation of 6600 NJ per square meter of horizontal surface for the Henderson Airfield site on Guadalcanal. This is equivalent to 2/I & the ide Memnoie presented to the Governmenm a the end of the nssion, it was pointed out ia it was hi8ght derabk diat tis& workshould be caried out before die end of dhe HydropowerAdvisor's contract atthe end of 1990. - 62 - a daily average of 5 kWh per square meter of horizontal surface. 6.19 Comparable insolation data are not available for any of the other islands. The fact that rainfall in most places is considerably higher than in Honiara means, however, tl ' the insolation will tend to be less. The average number of rainy days in Auki and Munda, for example, over the decade of the 1980s, was about 240 per year; this compares with a figure of 160 days per year for fioniara. Solar hot water heaters 6.20 Solar hot water heaters have been successfully introduced to the Solomons. At present, their use is confined to hotels, institutions and upper income households, mainly in Honiara. EC funding was provided under Lome II for a program to install hot water heaters at a number of provincial hospitals. The program was under discussion for several years and in 1987, a private local consultant was appointed to coordinate its implementation. Installation of the heaters is now under way but problems are reported to have been encountered as a result of insufficient water pressure. 6.21 The high humidity and temperature of the Solomon Islands, allied with the salt content of the sea air, create an extremely hostile environment for flat plate collectors. As a result, there have been considerably problems with the durability of some of the panel makes which were installed in Honiara in the past. The total number of installations is in the range 50-100 but it is not known how many are in working order. 6.22 The energy saving obtained from the use of a solar hot water heater depends upon a variety of factors, but a rough approximation to the maximum potential savings can, however, be obtained by assuming that all the heat absorbed during the day displaces an equivalent amount of electricity. Taking an average insolation of 5 kWh per square meter per day, and an operating efficiency of 50%, the total annual saving using a 2 square meter unit is 1825 kWh, and 3650 kWh for a 4 square meter unit.21/ At a tariff of 45 c per kWh, this gives an annual saving of SI$ 820 for the smaller unit anC SI$ 1,600 for the larger unit. These figures indicate a payback period of 3-4 years for the panels which makes them reasonably attractive investments provided their durability is ensured. L/ lhc wius rctaUfor SI$3,500 and SI4,850, respeciiveJ, phu inw n of SI$100-150. - 63 - 6.23 The number of households able to benefit from such savings is relatively small. The 1987 household energy survey of Honiara found that hot water, other than for cooking, was used by under half the households surveyed. Less than 10% used more than two buckets (18 liters) per day. The potential for further deployment of solar hot water heaters is therefore limited. Photovoltaic installations __________________________ 6.24 The main photovoltaic program in the Solomons to date has been carried out with funding provided by the EC under Lom6 II. It involves the installation of five refrigerator systems at provincial health clinics. Four of these have actually been installed. 6.25 There have been a variety of problems in the installation and maintenance of these units. The main reason for these is the lack of funding and trained personnel. Work has had to be physically carried out by Energy Division staff in order to have the units installed and deal with routine maintenance. Although the maintenance requirements of photovoltaic equipment are considerably less than, for example, diesel generators, experience in the Solomons and elsewhere is clearly showing that unless the necessary maintenance tasks are carried out regularly the photovoltaic equipment will break down. 6.26 The present arrangement as far as maintenance is concerned is not sustainable. The limited staff of the Energy Division have neither the capacity nor the funding to provide a photovoltaic maintenance service over the whole country; nor should this be their function. The likelihood is therefore that the installations will fall into disuse. 6.27 A number of strategies for the widespread introduction of photovoltaic systems are at present under development in the Pacific Islands. One of the most successful appears to be that in Tuvalu.22/ There, a cooperative called the Tuvalu Solar Electric Cooperative Society (TSECS) has been established and is now run as a completely independent commercial enterprise which maintains, repairs and upgrades existing photovoltaic systems as well as expanding the number of users. Units have now been installed in a total of 340 households who pay a fee for the services of the cooperative. 6.28 The opportunities for a similar organization in the Solomons are limited by the lack of household demand for y "S7olr power hi Tuvak Jneamw Conwy and Staney Manao, preseraed at dh Pacfic Household and Rural Energ Sanear, Vanwa, November 1990. - 64 - electricity outside Honiara and the provincial centers. The Tuvalu experience nevertheless highlights the need for an effective backup organization to sustain photovoltaic initiatives. If further photovoltaic programs are being considered for health clinics or other government facilities in the Solomoris, the Energy Division should ensure that installations are made only where. there is a locally-based maintenance capacity and funding available to pay for its services. Creating such a capacity may, for example, be linked with the UNIDO program to promote small workshops. Other Renewable Energy Sources …_____________________________ 6.29 The Solomon Islands is potentially well positioned as far as geothermal energy is concerned. There are indications of possibly exploitable resources in a number of locations, including a hot spring occurrence in the west of Guadalcanal. The high costs of qeothermal power plants, coupled with generally low power demands mean, however, that exploitation of such resources is unlikely to be feasible for some considerable time into the future. 6.30 Biogas production was mentioned as a potential source of energy in the World Bank's 1983 Energy Assessment. This no longer looks feasible. It has been accepted by the Solomon Islands Government that the promotion of smallholder cattle production was not a success. The program of Cattle Farmer Grants was suspended in 1986 and the emphasis was placed instead upon free ranging cattle under coconut trees in large plantations. The number of herds has also been in decline with a total of 527 in 1987 compared with a peak of 747 in the early 1980s. 6.31 The collection of dung for biogas plants is generally impracticable without stall feeding of cattle. Given also the cost and complexity of biogas technology, there is no realistic possibility of it finding application in the Solomons in the near or medium term future. 6.32 There are no data available which would allow an assessment of the harnessable wind energy potential of the Solomons. The previous World Bank mission noted that surface wind speed studies were intended to be carried out under the UNDP Pacific Energy Program but this has not occurred because it was dropped by the Government as low priority. It is nonetheless evident that the variable wind regime of the Solomons, together with the need to design equipment for typhoon conditions, will make wind energy a relatively costly option. Given the low level of demand for electric power or water pumping outside Honiara and the provincial centers, there is unlikely to be a significant role for wind energy in the near or medium term future. - 65 - Recommendations on Solar Energy and Other Renewable Energy Sources 6.33 The following recommendations are made in these areas: The Energy Division should not become involved in the direct implementation or maintenance of solar energy projects. Its main function in this area should be to filter and assess donor-proposed projects. The promotion of solar hot water heaters for commercial and private residential uses should remain a private sector concern. - When commissioning design for new institutional and public buildings, the Government should encourage the incorporation of solar water heaters whenever this is technically and economically justifiable. Installation should be by local suppliers anc' should be accompanied by effective warranties and after sales service agreements. - The Energy Division should discourage future aid programs for isolated installations of photovoltaic systems unless there is a coherent and practical strategy for their long term maintenance. - Because of the limited potential for involvement in renewable energy sources under present conditions in the Solomons, the post of Appropriate Technology Engineer should not be renewed after the contract with the present holder expires at the end of 1991. The duties presently carried out should be allocated elsewhere in the Division and, where necessary, assistance should be sought from an experienced external body such as the PEDP. - 66 - VII. BNERGY AND THE ENVIRONMBNT General 7.1 The Solomon Islands does not yet have an environment policy or a body of environmental legislation to support it. An Environmental Bill is, however, presently under preparation. It is understood that this will require that all projects should have an environmental impact assessment and an environmental management plan. 7.2 Environmental planning and monitoring is the responsibility of the Environmental Division of the Ministry of Natural Resources. The present staffing of this Division consists of two people. Its capacity for action is thus extremely restricted. Bearing in mind the limitations in funding and manpower under which the Solomon Islands Government is operating, it is necessary to be realistic about what, in practice, can be achieved by the Environmental Division. 7.3 At present, environmental assessment of energy projects is based upon a set of guidelines provided in a publication sponsored by the ADB.23/ These are general in nature, and are principally concerned with describing the ways in which a wide variety of energy projects could have an adverse environmental impact. To date there has been little formal involvement of the Environmental Division in energy matters. Given the small number of significant energy projects this is to be expected. 7.4 At present, there are two energy projects with a significant environmental impact, Komarindi and the new oil storage depot at Ranadi. Concern has also been expressed about the possible environmental effects of fuelwood cutting. Komarindi Hydro Power Station 7.5 A comprehensive environmental assessment study of the proposed plant has been carried out as an integral part of the feasibility studies. This involved consultations with recognized specialists in the land use, fauna, archeology and culture of the Solomon Islands as well as contacts with people in the area potentially affected by the project. 7.6 Measures to mitigate a number of the adverse effects of the project have been proposed as a result of the environmental assessment. It was also recommended that a number of additional subsidiary studies should be carried out to clarify a number of MI 'ow to asess EnvWronna bnpacts on Tropkcal Islands and Coastal Areas. Evirownent and Poliy Instktue, Est-Went Cenmer, Honolala - 67 - remaining points such as aquatic fauna. terrestrial flora and fauna, water quality and archaeology. The assessment highlighted the question of land tenure as the most critical issue to be decided, in particular as it relates to the proposed access road. Construction of this road will open up this so far inaccessible area to potential exploitation, particularly from shifting agriculture and commercial cropping and logging operations. The technical and environmental success of the project will largely depend on a satisfactory agreement being reached which will prevent encroachment onto areas of precious ecology or archaeological sites, and which will at the same time satisfy the customary land owners and others who have legitimate claims to the affected areas. Priority must be given to completing the necessary land acquisition procedures, where due consideration is given to the concerns and interests indicated above. 7.7 It is impossible, however, to construct a scheme such as Komarindi without a significant impact on the local environment. The question is whether the environmental costs are acceptable bearing in mind the benefits that will accrue in terms of increased electricity production and reduced petroleum imports. The environmental impact assessment suggests that, provided the proposed mitigating measures are adopted, the scheme is acceptable. These measures consist, inter alia, of: - releasing additional water during periods when power demand is low to counterbalance the effect of reduced flow during periods of high demand; - designing weir to encourage fish passage; - designing and implementing sediment containment provisions; - careful choice of alignment of access road to minimize the disturbance of sensitive areas; and - modifying scheme components where practical to avoid disruption of important archaeological and sacred sites. The mission recommends that the mitigating measures be taken into consideration in the course of the design and operation of the project. Relocation of Oil Storage Depot to Ranadi 7.8 Both of the present oil storage plants in Honiara meet, as mentioned in Chapter V the safety standards required within the storage areas. However, the proximity to commercial buildings and busy harbor activities represents a safety and pollution hazard, both real and as perceived by the population. Furthermore, the present location of the depots blocks development of the harbor - 68 - area and it can accommodate only a limited and temporary expansion of the storage. Further impetus to a relocation is given by the alternative uses of land. 7.9 A report from 1987 by PEDP2A/ assessed a number of sites in the Honiara area and identified a preferred site on the Ranadi Industrial Estate. This plot has been reserved by the Ministry of Agriculture and Lands. The Postford Duvivier report concurs in that the Ranadi site is the best available location but points to the following considerations that need to be observed in the development of the'depot: - The surrounding coast line is low lying and therefore structures must be kept low to avoid undue visual intrusion. - The surrounding development is industrial and does not include any large concentrations of people. The activities on the neighboring plots must, however, be carefully controlled to avoid ignition risks. - The Ranadi coastline is exposed to the northwest and the seabed is coral with only thin localized overlays of sand. This makes the holding ground for vessels at anchor very unreliable. - There appears to be a considerable westward movement of sand along the coast at Ranadi. This longshore drift must not be obstructed. The mission agrees with these observations and recommends that they be taken into consideration in the design and development of the site and the surrounding area. Fuelwood and the Environment 7.10 The main cause of deforestation in the Solomons is the expansion of farming. This is causing considerable destruction of the native forest in areas where the population density is high. The impact of fuelwood cutting is, however, generally small in relation to clearing for agriculture. 7.11 Because of the continued growth in population, expansion of the area of land used ior farming would continue even if there were a complete switch away from the use of fuelwood for cooking. The connection between fuelwood and the environment is thus, at most, tenuous and deforestation cannot be prevented by energy 2A/ ?rahnbmwy Study of OU Ternmnal Land Requiremenusfor the Solomon Mslanda ot Noro and Honlara. * PEDP, FVI 0X1. - 69 - interventions. This issue has been further discussed in the chapter on Biomass and Household Energy. RecoEmmndations 7.12 The following general recommendations are made: - The Environmental Division should review all energy projects to ensure that a satisfactory environmental assessment has been carried out as part of the design of the project. This obviously applies to the two significant projects in the pipeline, the Komarindi hydropower scheme and the relocation of oil storage to Ranadi. Where there are doubts about the quality or coverage of the environmental impact assessment, the Division should be empowered to request donor assistance for the carrying out of further studies. The Division should be provided with the resources and authority to monitor the implementation of energy projects to ensure that whatever actions and precautions are recommended in the environmental assessment are, in fact, carried out. Where these tasks are beyond the capacity of the Division, donors should be approached to provide the necessary support to ensure that projects are properly monitored and implemented in an environmentally satisfactory manner. - 70 - VIIX. ENERGY MANAGEMENT AND IXNVESTENTS Pricing 8.1 Efficient energy demand management through appropriate pricing and non-pricing measures are of primary importance in the short- to medium term for making the energy sector more viable. The Government has made progress in recent years in moving towards energy prices, power tariffs in particular, that meet economic costs and generate sufficient financial resources for the power utility. Petroleum product prices are allowed to vary with movements in the international market. 8.2 Present power tariffs are considerably above estimated marginal costs for the Guadalcanal system, as indicated in Chapter IV. This is necessary to enable SIEA to operate on a financially sound footing, especially with the large investments planned in the years to come. The automatic fuel cost adjustment surcharge introduced quite recently is an important measure to maintain SIEA in such a position. As proposed in the electricity chapter, however, SIEA should consider introducing peak/off-peak tariffs for larger consumers to encourage improved resource utilization. The national uniform tariff system implies a subsidization of the electricity consumers on the outer islands (by the consumers belonging to the Guadalcanal system and also by the Government to the extent that the latter would pass on possible grant elements in the future Xomarindi project as a compensation for outer islands losses incurred by the power utility). At present, however, the distortions caused by outstation financial losses are quite marginal in view of the small consumption on the outer islands compared to the Guadalcanal system. 8.3 As is the case with power tariffs, no major changes are required with respect to petroleum product prices. They are in line with or somewhat lower than in the majority of comparable island countries in the region. With the duty and tax added to landed cost, the prices are above their economic level but, as indicated in Chapter V, there is a case for increasing the duty on gasoline for fiscal and conservation reasons. In this case it may be useful to bear in mind the modest increase in the price of gasoline (as well as other fuels, and electricity for that matter) compared to the significantly higher increase in the consumer price index over the last decade.25/ As explained earlier, there are reasons for reviewing and considering adjustments to the basis for the FOB prices for petroleum products, as well as the price structures for the different products. 5/ 199M onlara CPI: 292; gasoline: 195; kerosene: 281; ekc&tr: 235. Base year: 1980=1tO. - 71 - 8.4 Woodfuel prices are market-determined for the small quantities that are commercialized compared to total consumption (less than 5% in Honiara). No intervention is warranted. As shown in Chapter III, the relative prices of the main fuels for household use give correct price signals, electricity with- its low efficiency in terms of generation being the most costly source of energy. Conservation 8.5 Energy conservation, although in principle acknowledged to be important, has tended in practice to have a low priority in technical assistance programs and in terms of government initiatives. This statement needs to be qualified with respect to energy prices which, in the case of the Solomon Islands, in broad terms give the consumers the correct signals and incentives not to waste energy. Prices are in general considered the most important policy instrument for energy demand management and for reasons of conservation the Government should pursue their policy as reflected in present prices. 8.6 The lack of energy conservation programs and initiatives may be ascribable to the fact that conservation projects are difficult to define and monitor; moreover, their output is less visible than a power project or extension to the transmission system. Nevertheless, they offer a return that is normally higher than projects aiming at simply increasing supply, in addition to the opportunity of postponing investments and reducing the need to service debt requiring foreign currency. 8.7 In the power subsector, which probably most easily lends itself to direct intervention with one main supplier and distributor, SIEA has embarked on a program to expand and upgrade the present systems in Honiara and at the outstations. This,will result in reduced specific consumption of diesel due to new generating units and also to a reduction in distribution losses which are quite significant on some of the outer islands. In addition, SIEA's consumer inspectors should be trained and authorized to examine proposed wiring layouts for new services, from the standpoint of energy efficiency as well as safety. 8.8 In view of both the resources available and the magnitude of potential savings, other near-term energy conservation objectives are realistically confined to effecting and encouraging savings of electric power and petroleum products in the buildings and motor vehicle fleet of the Government itself. The Government's present energy conservation program is based on practical energy audits of its own buildings, carried out by the Energy Division. This is a low cost effort which is potentially of value not only for its direct impact on energy conservation but also in terms of demonstrating to the public the Government's own consciousness of energy economy. Realistically, this may for some time be the main - 72 - avenue (in addition to pricing) open for government influence on the private sector's energy conservation efforts. 8.9 An apparently logical extension of the Government's building program would be to carry out special energy efficiency tests and tune-ups of government vehicles at the time of their regular periodic maintenance, but discussions suggest that this may already be fairly well taken care of by the Ministry of Public Works. The use of trip logs for government vehicles would also help cut down on the number of unnecessary or wasteful journeys. 8.10 At such time as the Government's in-house conservation program seems well in hand, an extension of this would be for the Energy Division to offer energy audits of buildings as a service to the private sector together with cost and savings estimates, as indicated in Chapter II. The importance of external assistance in the form of an energy conservation expert through the UNDP Technical Assistance Program is in this respect again emphasized. Investments 8.11 There are three major energy projects, partly under execution and partly at an advanced stage of planning: the Lungga diesel project, the Komarindi hydropower project and the relocation of the Honiara petroleum storage facilities to Ranadi (see Table 8.1). The projects are supported by the mission (subject to cost confirmations). These investments are likely to be concentrated to the first half of the decade. Furthermore, some investments in diesel generating and petroleum storage capacity may be needed in the latter half of the decade on the outer islands, in addition to the ongoing diesel upgrading and expansion at the outstations. Total investments according to the table are estimated at SI$115 million (US$46 million) at 1990 price level, of which some SI$92 million in the electricity subsector, including the Komarindi project, and around SI$23 million in the petroleum subsector. investments in power expansion have been expressed in a high and a base case, depending on whether or not the gold mining venture materializes. Total investments over the decade for the power subsector is the same in the two cases, only the investment profile varies. Funding for the power projects in the first half of the decade is reasonably firm while further clarification is needed with respect to the storage facilities at Ranadi. 8.12 High annual investments during the years 1991-95, peaking at SI$27 million, give rise to concern about the absorptive capacity of both government agencies and the economy of the Solomon Islands. Compared to estimates of gross fixed capital formation for 1988, the above peak represents almost 40% (excluding the purchases of two purse-seiners built "offshore" that year). Added to this are the potential investments in the gold-mining project itself. Table 8.1: ESTIMATED CAPITAL EXPENDITURE FOR ENERGY PROJECTS IN THE SOLOMON ISLANDS (SI$ 1,000, 1990 prices) 1990- 1_0_ 19911 _ _21 _ _ _ 19941 I_1 M_ I 1_71 _ __ _9_ 1_ 2_ _1 2100 Electric Power 1/ Base: Komarindi 1620 3240 9396 18792 14094 5058 52200 Lunigga 4+4 NW (early 13065 8000 21065 92. early 94) _ High: Koarindi 1620 3240 9396 189 14092 5058 52200 Lungas 4+4 NW (Late 91, 21065 21065 early 92) Outstations, etc. 3820 2562 1110 1110 1110 1610 1610 1610 1610 1610 1610 19372 S.EA totals Base case: 3820 17247 4350 18506 19902 15704 6s66 1610 1610 1610 1610 92637- 4 High toad: 3820 25247 4350 10506 19902 15704 6668 160 1610 1610 1610 92637 w Oil Installations Expansion Honiara 100 750 - - - 1 1 1118I0so New storage at Ranadi 950 6450 6840 760 - T I I T t5000 Out-island storage - 1 100 800 12002/ 1200 1200 1200 1200 6900 Oil sector total 100 17001 64501 69401 15601 12001 12001 12001 12001 1200 2275G Totat Solomon IsLanid Energy Invetment _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -I 11 With high elec. load -T oj 2 53471 6050s 16956 26842 17264k 78681 2810F 28101 2810 2810| 115387 |With base elec. load l 38201 173471 6050so 24956T 268421 172641 78 61 28101 281 0 2 115387 1/ Includes Investments in transmission and distribution in the respective areas of generation expansion (replacement). y Tentative evaluation of needs and amounts for a total of SIS6.0 million (SIS 1.2 million x 5). Source: Nission. - 74 - 8.13 Although the direct financial impact of these investment activities on the domestic economy would be considerably diluted by the fact that much of the equipment, building materials and skilled labor would have to be acquired externally2&/, care would have to be exercised in phasing and in otherwise managing the implementation of these large projects to avoid serious disruptions of the traditional economies of the villages where the great majority of the Solomon Islanders still live. Matters of particular concern are overloading of infrastructure leading to installation of new facilities with a limited useful lifespan, and above all the recruitment of relatively large numbers of traditional smallhold farmers and fishermen into wage paid unskilled labor which would have no future beyond the construction phase. In addition, the social and economic pressure occasioned by the presence of a large outside labor force would also be considerable. If/ A rough idmxe is dot tAh domnsc conrm on average may be 15%. 75 Annex 1.1 PROJECTED DEVELOPMENT FOR MAIN EXPORT INDUSTRIES Output 1989 1995 Product Units Actual Potentia Notes 1 Copra MT 34,000 50,000 Existing plantings Cocoa MT 3,300 5,000 " of Palm oil/kernals MT 25,000 27,500 Some outgrowers Fish MT 37,000 60,000 At Noro and Tulagi Logs: natural M3 300,000 400,000 Existing level forest of licenses Logs: plantations 'X3 Nil 250,000 Existing plantations Gold Ounces 1,500 50,000 Gold Ridge Tourism holiday 5,000 15,000 Additional and visitors expanded hotels and island resorts, and more frequent air services. Source: Central Bank of Solomon Islands: Annual Report 1989. 76 Annex 1. 2 PETROLEUM PRODUCTS AND THE COMMERCIAL BALANCE 1984-89 1984 1985 1986 1987 1988 1989 Imports (SI$ million) Mineral fuels etc. 19.1 20.8 19.5 20.0 23.1 25.1 Food products, etc. 17.7 21.4 22.1 25.3 42.4 45.4 Al1 products 83.8 102.7 104.5 134.9 203.3 262.4 Import shares Mineral fuels, etc (%) 23 20 19 15 11 10 Exports (SI$ million) 118.6 103.8 114.9 128.3 170.6 171.3 Mineral fuels, etc. 16 20 17 16 14 15 as % of exports Source: Central Bank of the Solomon Islands. Annex 1.3 SOLONON ISLADoS ENERGY BALANCE 1989 Hydra. Thermt Total Jet Kero- Gaso- Total Fuel- Agri. Total Total te. Ec uel sene Die line Avmas LPG Petrol. Rwoio Bion Erem GROSS SUPPLY -_ Primry 0.01 100.59 17.29 117.88 117.89 Pro&cktion - _ lcorts 3.19 1.93 44.62 8.19 0.56 0.6 59.25 _59.25 Total aulr 0.01 3.19 1.93 44.62 8.19 0.56 0.76 59.25 100.59 17.29 117.88 177.14 WNiaERSbh -- Electricity 10.10 (10.10) (10.10) aeneratimn Conrversion lesses M. 718. (7.18) _ Tram. _ Distrf. _ (0.25) (0.25) losse - ---- - NET DONESTIC 0.01 2.67 2.68 3.19J 1.93 34.52 8.19 0.56 0.76 49.15 100.59 17.29 117.88 169.71 100.0 a r atin: 3.19 0.56 3.75 3.75 2.2 bysem 5.46 0.83 6.29 6.29 3.7 2 bvland 2JJ.46 3.18 S." S"4 Fisher- 16.42 0.76 0.22 17.40 - 17-.40 1.2 Agricultura l_129 17.29 1 industrvBcceersre 1.24 6.90 1.47 _8.37 _9.61 5. Sove,nnmient/ _ ^ 0.71 1.64 0.65 0.38 2. 3.88 Households 0.58 1.93 0.10 2.03 100.59 100.59 103.20 60.8 Other ~~~~~~~~0.15 I.64 1.30 0.06 3.00. = MS1 . - ~~- - - - _ _ Xte -f .......L& _...J _ _ ... ~ L L ~ 2 of nstie 1.6 1.6 1.8 1.1 20.3 4.8 0.3 0.4 28.9 59.3 10.2 69.5 100.0 Qtmt i L less than TOE. Strictly seakfing a significant share, used for international flights, could be classified as exports. Less tan 1 Biomass figures are approximations based on average per capita/per unit consumption figures from a household energy survey in 1987 applied to population/produc-tion data. Comercial fuel figures are converted from power and petroleim statistics. Fuelwood figures include energy use for crop drying by households. Sbn:e SIEA; PEDP; mission. trymt 2.1 NINISTRY OF NATURAL RESOURCES Orgpnization Structure as at Januwry 1990 | H-Administ 7ation |A|ccounts Divison | Forestry Division Fisheries Division Geological Division Energy Division 7 Conservation no & Extension and Unit _ Adbinistrative Licersing & Foreion Geological Napping Seismology Chief Energy Officer Logging and Uti- Irwestsnt Ev. Unt lization Unit Professional 4 Research & Resources Laboratory Water Resources Timber HanJ_ent Unit | Senior Petrol. Officer Inspectorate Sr. Energy Techrologist C Unit Hydro Project Nbme Provincial Develop- Technical Records Hydrogeology Energy Officer ent aid Extension Unit Tech, * Clerical 2 Economics. Geology and Nines Energ1 Technician T ia9ci n Stource: Nissfon an the basis of SIG IM9 Appxroved Recurrent Establi _ t. 79 Ann-x 3.1 Page 1 of 2 URBAN 8OUSZ8OLD ZNEROY CONSUMPTION PATTEUN 1. About 13-14% of the population of the Solomon Islands live in the urban areas. The largest town, by far, is Honiara with a population of about 35 000; the next largest is Gizo with 2500 people; Auki and Kirakira are next with around 1000 people each. A high proportion of urban dwellers cultivate their own gardens Ln which they grow their own food and may also produce a surplus for sale. The 1986 census listed almost 50% of Honiara dwellers an owning a food garden. 2. The only comprehensive data on urban household energy use come from a survey of Honiara carried out in 1987.1/ This covered 190 electrified and 95 non-electrified households. The average household size was 7.1 people in electrified households and 7.5 in non-electrified households. 3I Over 90% of all households use fuelwood for some or all of their cooking. The average consumption was found to be 1.1 kg per head per day in households cocking exclusively with wood and 0.7 kg per head per day in households using fuelwood together with other cooking fuels. 4. The total consumption of fuelwood in Honiara was thus about 10 000 UT in 1987. Virtually all this wood is obtained from town council and people's own land, nearby woodlands, and as driftwood from the beaches. Collection times for fuelwood averaged 2.4 hours per week for electrified households and 6.1 hours per week for non-electrified households. A small amount of wood is also sold in the Honiara market; the survey estimated that the total quantity sold in 1987 was in the range 200-500 MT, some 2-5% of the total amount consumed in the city. 5. There were a total of 3316 domestic electric consumers in Honiara in 1987; thus about two-thirds of families had electricity supply. The average household consumption was about 100 kWh per month. All the electrified households used electricity for lighting. The most common appliances were refrigerators which were used by 55% of families; radios and radio cassettes, used by 55% of families; irons, used by 49% of families; and fans, used by 41% of families. Only 3% of families had electric stoves. 6. Kerosene was the sole source of lighting in non-electrified households; the average consumption was 1.9 liters per household per week. Around 25% of households, both electrified and non-electrified, used kerosene for some of their cooking; the average consumption was 2.4 liters per week in electrified households and 2.9 liters per household per week in non-electrified households. 7. LPG was used for cooking in 64% of electrified households and 7% of non-electrified households but very few used it as their sole cooking fuel. Weekly consumption was estimated to be approximately 3 kg per family. 8. Batteries for torches, radios and radio cassetteo were found to be a signlflcant item of family expenditure. Non- electrified households purchased an average of 3.5 per week and electrified households an average of 2.9 per week. Family expenditure, depending on the type and number of batteries purchased, was around SI$ 80 per year. I/ "VRpon on dh 1987 Houehold Ene Survey: Honia Pacvfc Energy Deveopmn Womw (PEDP) Fyi (198). 80 Annex 3.1 Page 2 of 2 A. The 1987 survey also endeavored to assess attitudes to woodfuel supplies by asking respondents if they already found woodfuels to be scarce or believed supplies were likely to become scarce in the next five years. Some 40-50% of thoue questLoned answered yes to both questLons. Most families said they would switch to kerosene or LOG if woodfuelu became scarce. It was not establlshed whether the present use of kerosene or LPG was driven by such perceptions of scarcity or was simply a desire to use cleaner and more convenient fuels. 81 Annex 3.2 Page 1 of 2 EXISTING DIOMASS ENERGY INITIATIVES Urban Area 1. There are some limited ongoing activities to improve the woodfuel situation and the mission noted two initiatives: the promotion of charcoal making from sawmill wastes, and a program to install improved cooking stoves in provincial secondary boarding schools. The activities, which are of limited scope, are discussed in Annex 3.2. The conclusions of the mission are that (i) no interventions to promote charcoal production are recommended, and (ii) efforts should be made to ensure the long-term supply of replacement parts of the stoves by a suitable agency such as the Ministry of Works. 2. Charcoal making. Sawmill waste in the form of hardwood offcuts is a suitable raw material for charcoal making. Small am_nts of charcoal are already being made at the Pacific Timbers sawmill. Some of this is exported to New Zealand and some is sold locally for barbecues. The total annual production is less than 50 MT. 3. At the request of the Government, EC funding has been provided for a program to promote the use of charcoal as a cooking fuel. This project began in 1987 and was carried out by the Foundation for the South Pacific (FSP). Under the program, training was provided in the manufacture of charcoal and efforts were made to disseminate charcoal stoves. As in the case of the Pacific Timbers initiative, there have been some exports and local sales for barbecue uses. 4. The potential for financially viable charcoal making in Honiara appears to be limited. Charcoal as a domestic cooking fuel is unable to compete with non-commercial fuelwood for reasons of cost. Neither is there any indication that families using gas or kerosene are willing to switch to its use. Achieving the consistent quality required for export use has proved difficult and transport has been costly. 5. Discussions are being held with the Forum Secretariat and the Solomon Islands Government on carrying out an evaluation of the project. The FSP is meanwhile attempting to transfer the project to the private sector by helping one of the trained charcoal makers to set up his own charcoal making business. 6. Imoroved institutional cookina stoves. An EC funded program for the installation of wood-fired cooking stoves in provincial secondary boarding schools was approved in June 1989. The stoves are manufactured in the Netherlands. They are of cast iron and stainless steel construction and cost approximately USD 4000 each delivered to Honiara. A total of 28 installations are planned. 7. Installation is proceeding under the supervision of the Energy Division. The stoves are apparently very satisfactory to use and economical in fuel. They are acknowledged to be a major improvement on the open fires previously used. Repair and maintenance of the stoves is likely to be the major weakness of the program. Import of replacement parts from the Netherlands is prohibitively expensive and the schools have no funds for this purpose. The outlook is therefore for a gradual deterioration of the stoves with time. 82 Annelx 3. 2 Page 2 of 2 8. The inutallation of expensLve foreign made stoves of the type being installed under the ZC project is therefore clearly not a long term solution to the cooking problems of the country's rural secondary schools. It may.. however, be possible to find an organization which has the expertise and access to funding necesary support to promote the installation of cheaper locally-made institutional stoves. The feasibility of this could be investigated by approaching an experienced external agency. Rural Enerov Proorams 9. Few rural energy programs are under way or planned in the Solomons. The mission only identified two: a program to encourage smallholder planting of fuelwood trees; and the promotion of an improved copra drier. Both are at an early stage and on a small scale. 10. Encouraaement of smallholder fuelwood ilantina. The Extension Section of the Forestry Division in the MNR has begun a five year project to promote the reforestation of customary land. It is supported by the Government of New Zealand. 11. The intention is to concentrate efforts on lands whlch have been subjected to logging. At this early stage, the four provinces most affected, Makira, Malaita, Guadalcanal and Western, are being asked to consider the most suitable type of reforestation projects and where these should be located. Once priorlties have been established the Forestry Dlvislon wlll be able to consider establishLng nurserLes and deploylng extenslon staff. 12. A wide varlety of tree growlng and land management optlons are belng offered to local communltles. Among these is that of growing trees for fuelwood. There is no intention of promotLng this unless there are clear indications that it is regarded as a prlority by local people. The process of dlscusslon li still under way and declslons on how to proceed are not llkely to be made until 1991. 13. Imoroved copra drvina. The traditional copra drier used by smallholders is designed to prevent contamination of the copra by smoke. It consists of a wire mesh platform supported at a height of about 1.5 meters a!'ove the ground. The space below is enclosed by walls of brick, wood or concrete. A firebox, formed of a number of 200 liter oil drums connected together, runs across this space at ground level; it is open at one end and has a chimney at the other. 14. The improved copra drler project is promoted by the Smallholder Development Programme of the Mlnlitry of Agrlculture and Landsl so far the project is on a very small scale. It is based upon the use of a copra drler which L constructed using a prefabricated frame. The chamber beneath the drylng platform is enclosed by hanging sacking which has been soaked in cement grout around it. The heat is supplied directly by one or more charcoal burners placed directly beneath the drying platform. 15. The aim is to produce a cheaper form of drier by eliminating the need to purchase the oil drums. The drier li also said to be more energy efficient and to produce a higher quality of copra because of the lack of smoke from the charcoal burner. 16. A number of technical questions remain to be resolved. Control of the charcoal burner is essential to prevent the emisslon of smoke and ensure that the optimum heat output for drying the copra is maintained. It is also important that the quality of the charcoal is adequate and consistent if reliable operation of the drler is to be assured. It therefore remains to be seen whether the drler can prove itself ln practical use and become acceptable to smallholders. 83 Annex 3.3 Page 1 of 2 FUCiWOOD SURVEYs 1. A fuelwood survey carried out in 1982 appears to be one of the first documents to report on fu-lwood scarcities in the Solomons./ The study focused on two villages in the north of Malaita and was carried out by a consultant durlng a misoLon to the Solomons which lasted five working days. The consultant was unable to find any quantitative data on fuelwood shortages but nevertheless confirmed that they existed in the two villages and by implication elsewhere in the solomons. This was despite the observation that 70% of coconut husk and 50% of shell were left behind when copra was extracted. The reason these potential cooking fuels were not used was said to be becauso it was too difficult for people to carry them back to their homes. 2. The study recommended a further survey to quantify the fuelwood shortages in areas where fuelwood was said to be short so that "the problem could be rationally solved". It suggested that the measures to be taken to alleviate the shortages might include village or smallholder woodlots, the provision of improved access and transport so that people could collect coconut shells, centralised village copra drying units to economise on the fuel used for copra drying, and the introduction of more efficient cooking stoves. The consultant also drew up the questionnaire to be used in the second survey. 3. The second surveyJ/ was carried out by staff of the Ministry of Lands, Energy and Natural Resources using this questionnaire. The consultant was not present during the survey but later spent about two weeks in the Solomons analysing and discussing the resulte.The survey covered a total of 68 houses from eight villages in Malalta and 34 households from six villages in Guadalcanal. The answers to the questions were based upon memory recall, in which people were asked to make a pile of the amounts and kinds of fuel used for particular meals or for the whole day. The use of memory recall in this fashion is a notoriously unreliable approach. The consultant also remarked that the questionnaires were somewhat ambitious given the short working experience and brief acquaintance with household and village lifestyles on which they were basad. It was also noted that the surveyors were inexperienced and that there had been no opportunity to train them or even run through a pilot exercise to test the questionnaire. 4. The so.rvey found an average consumption of fuelwood for cooking of 6 kg per head per day on Malaita and 6.5 kg per head per day on Guadalcanal. Most of the fuel used was wood. These figures are much higher than those found elsewhere in the Pacific islands. Rural fuel consumption surveys in Kiribati, Tuvalu and Tonga, for example, have found an average consumption of about 2.4 kg per head per day and a survey in Fiji found a consumption of 0.5 kg per head per day. / FhwWood Shudy Solowsm Istkndw. Formbry Twchcal Srr,c* Pty Ls, Canberra, Jbr Souwh Pac* Bureau of Econom Cooperaton, Suva, FtJL January 1983. J/ 7ewcondFivood Study Solomon klnds. * Forestry Technacl Servies Ply Ltd, Canbefa,forbSouth Pacfc Bureau of Econmic Cooperadon, Suva, FL September 1983 84 ADnex 33 Page 2 of 2 5. No reliable data wore obtained on the use of fuel for copra drying. A figure of 4.4 MT of wood and 1.2 MT of husk was nevertheless estimated when "the consultant interviewed 6 householders from the village without copra dryers and obtained estimates of wood and husk and shell used in copra drying" (pl1). 6. A partlcular flaw in the methodology of the survey was its reliance upon leading questions. The first three questions in the quentionnaLre weres "Is your village short of firewood?" "If not short, wlll fuelwood become short iD future?" "How many years of wood are left?" Such questions tend to evoke responses which confirm the proposition suggested. Moreover, they provide no lnformation on how the respondents rank the problems in the overall scale of their concerns. 7. In the case of this survey, the conclusion that fuelwood scarclties exlited seems, in fact, to have been predetermlned irrespective of whatever answers were obtained. The study report states (p9) that the "QuestLonnaires lndlcated only 3 villages stating a fuelwood shortage. Even in Maanakwai, where there is an acknowledged shortage, only 35% of households were recorded as having a shortage. The consultant has concluded that the real nature and extent of fuel shortages have not been adequately communicated by the villagers and recorded by surveyors." 8. The survey confirmed the earlier finding that around 70% of coconut shells and husks were left in plantatlons. It also found that wood was abundant in people's gardens as a result of clearing for cultivation and was often burned there or left to rot. The report of the survey, nevertheless, recommended seeking funding for a national fuelwood planting programme, provision of improved stoves for villages and Honiara, constructlon of tracks and the provioion of ox-carts for carrying coconut shells and husk from plantations to vlllages, the promotlon of fuel-efficient copra driers, and the introduction of charcoal stoves to Honiara. 85 Annex 3.4 Page 1 of 3 CONIERCIAL USE8 OF BIOMASS RFSIDUES Proposed Dendrgthermal Plant On Guadalganal 1. Proposals to use agro-industrial wast-e for power generation on Guadalcanal have been under discussion since the early 1980s. A 1983 consultancy study recommended the construction of a 4 MW dendrothermal power station at the Lever Brothers coconut plantation at Tenaru about 15 km to the east of Honiara. This was intended to be c˘ommiesioned in 1987 and had an estimated cost of US$9.0 million. 2. The fuel supply arrangements were particularly complex. Fuel for the plant was to be provideA by a mixture of sawmill residues, oil palm bunches, rice husks, coconut shells and husks from the Lever factory and other sourcee, logging wastes from the forests, cocoa shelle, and coconut and date palm trees which are being replaced at the end of their useful life. Forest residues were to be transported some 55 km by road from the Hyundai concession to the east of Guadalcanal at a total cost of SI$ 34 per MT. It was estimated that the supply of boiler fuel was sufficient to a provide a significant surplus for the plant through the year 2000. 3. For the longer term, the intention was that the plant would be supplied by wood from trees, possibly leucaena, grown in fuelwood plantations. The early establishment of trial plantations was recommended. The Asian Development Bank included a loan for the plant in its 1984 lending program but this had to be deferred because funding was being sought at the time for the Lungga hydro plant. 4. A subsequent study for the ADB 1/ reported that, in late 1985, the Solomon Islands Government had received a proposal from Foxwood Timber (Solomon Islands) Ltd to construct and operate the plant and sell the output to SIEA. The proposed selling price for the electricity was, however, greater than the diesel generating cost to SIEA. After a thorough review of-the Foxwood proposal, the Government decided to revert to the original proposal, with SIEA implementing and running the plant and entering into long term fuel supply contracts with Foxwood and Levers. In April 1986, the Government requested the restoration of the dendrothermal plant to the ADB's lending program. 5. A fact-finding mission in June 1986, found a changed situation with respect to the biomass supply. Foxwood Timber had run into financial difficulties. Levers were looking into alternative markets for their coconut shells, such as activated charcoal and tentatively quoted a prohibitive price for the supply of shells to SIEA. It was therefore decided to defer the dendrothermal plant by about a year, until mid-1987, to review Foxwood's financial position and Lever's price. Foxwood Timber subsequently went out of business and the project was effectively abandoned. LI Appraisal of she Power Expansion Project in Solomon lsknds, SoL Ap49 November 1986 86 Annex 3.4 Page 2 of 3 PUrUgntly. roocsed plant at SIPL oil palm mill 6. The present proposal is to construct a new combined heat and power plant at the existing SIPL oil palm mill. This would provide process steam and electric pewer to the mill and also supply electricity to other SIPL uses in the area. The total electrical output of the plant would be about 2. 5 MW and the surplus available for export would be about 2 MW. The new plant- would provide significant benefits to SIPL by allowing the replacoment of some of the electricity presently supplied by isolated diesml generators. 7. The SIPL mill operates throughout the year, with a high period from January to May when work is carried out 24 hours per day, five days per week; and a low period when processing is for 14 hours per day, five days per week. It processes about 100,000 MT per year of fresh fruit bunches (FFB9) to produce a total palm oil output of 20,000 MT. 8. The FFBo are first treated in an autoclave to loosen the fruit. They are then passed to a machine which shakes the fruit loose. The empty bunches, which have a high moisture content, and a certain amount of oil, are sent to an incineratorl the ash which is left after they are burned contains potash and is used as a fertiliser for the plantation. 9. The oil palm fruits consist of a kernel, surrounded by a shelL, which is in turn surrounded by a layer of fibrous materi&l which contains the palm oil. During processing, the oil is squeezed from the fruit and the mixed residue of kernels and fibre is passed to an air separator. After separation, the kernels go to a deshelling machine. The shells remain as waste and the kernels are shipped abroad intact for pressing. 10. The total production of shells and fibre is around 13,000 MT per year and that of empty bunches is about 58,000 MT. The total energy available in the form of shells and fibre is about 200,000 GJ and from the empty bunches is about 430,000 GJ. This is roughly sufficient to provide fuel for a 4 MW plant operating for 4000 hours per year at a generating efficiency of 10% At present, it is envisaged that the plant would have an electrical output of 2.5 MW. 11. The proposed technology is well proven and used in oil palm mills elsewhere. There is therefore no question about the technical feasibility of the plant. No estimate of the cost of the plant has, however, yet been made. Neither have there been any discussions on how the costs might be shared between the SIEA and SIPL or who would assume responsibility for the operation and maintenance of the plant. Prototvce charcoal aasifier at Batuna sawmill 12. A prototype charcoal gasifier was installed in 1987 at the Batuna sawmill on Vangunu Island in Western Province. It was supplied under the EC's funding for the Pacific Regional Energy Programme. The sawmill is operated by a Seventh Day Adventist mission. 13. The gasifier was coupled to an adapted diesel generator. The nominal electric power output of the system was 15 kW which was intended to be used to supply a fish refrigerator and an ice-making machine. The other electricity needs of the sawmill were met by two diesel generators with a combined output of 170 kW Charcoal for the gasifier was made using steel kilns. 14. The small size of the gasifier in relation to the other generating plant meant it was of little relevance to the running of the sawmill and 87 Annex 3.4 Page 3 of 3 according to a report on the project 2/ "there was little incentive for the operators to complete the gasifier and charcoal storage buildings, or to persevere with the plant and overcome its shortcomings." 15. Operation of the gasifLor was intermittent and its average output war 3.7 kW durlng its fLrat year of operation. There were considerable problems with the gas filterLng system and the refractory materlal in the combustion zone broke down after 800 hours of operation. The company in the Netherlands which manufactured the gasifier went out of business in 1988, adding to the difficulties of repair and maintenance of the plant. 16. The costs of the gasifier system, including the charcoal making equipment, were about 30 tlmes those of an equivalent diesel system and the running costs were about 60% those of the diesel system. The report states that "With the combination of high capital costs and high labour costs for both fuel preparation and operational maintenance, the plant will never achieve a positive payback time against the cost of diesel generation at Batuna." 17. Because of the poor design of the project, the Batuna gasifier is probably not a fair test of gasifier technology as such. The 25 kW wood gasifier at Onesua in Vanuatu, for example, shows that satisfactory operation is possible over number of years. The Vanuatu project, however, also reveals the high technical demands of technology, especially in a relatively Lsolated area. A full-time expatrlate gasifier technician was employed for the first two years of the project. "15 kW Charool GaUr, Batuna SawmfU, Solomon Iskua. * Energy Studle Unk. University of die South Pacifc a(1). 88 Annex 3,5 OUTLINE TURKS OF REFERENCE FOR FEASIBILITY STUDY OF POWER STATION USING OIL PALS REBIDUESI/ 1. The consultant shall carry out an outline technical, financial and economic feasibility study of the Solomon Islands Plantations Ltd (SIPL) proposal for a palm oil residue-fuelled power station to supply the SIEA grid. 2. Th- work will include the followings k * Investigate the availability of residues from the SIPL oil palm mill and other potential source. such as the Pacific Timbers sawmill and assess the likely future regularity of supply. * Appra-ae the technical options available for the plant paying particular attention to the operating regime required to ensure that there is full compatibility between meeting the SIPL steam and electric power requirements and supplying the SIEA system. * Discus. with SIPL and SIEA the optimum size of power plant, bearing in mind the likely demands upon the SIEA system and the likely availability of residues. - Estimate the capital and running costs of the plant and the price at which electricity would be sold to the SIEA. Assess the viability of the project in financial and economic terms, from the point of view of the participating parties as well as the country. * Discuss with the SIEA, SIPL and the Solomon Islands Government possible options for ownership, funding and operation of the plant as well as the guarantees required by all parties concerned. * Make recommendations. 3. Total consultancy time: approximately 2-1/2 person-months. V ThL, study shoudonldy be carrid out ithe Komar"ndi hydropower station is cancelled or bdedtely dgeerred SOLOMN ISLANDS: UXISTIUO POWER GhhRM?NG FACILITIES IN TIE SM ST2T System No. Type I ax. continuous Manufactured I anst Ipezatfnu I dable Max. Oui 0uut out ut Year Year ni on t Dd 12 Die8 160 71965 130 1 2 160 130 1936 1965 B 167 _________ 3 _ _ _ 19 190 1975 1980 C_ _ _ _ _ _ _ _ _ _ _ _ Bualz 1 Diesel 280 250 1959 1983 8 230 2 . 280 250 1959 1983 B 30 3 . 260 230 1976 19817 B Buala 1 Diesel 28 20 1980 1985 A 20 2 . 28 20 1980 1985 C 30 3 _ 28 20 1975 1975 C Munda 1 Diesel SO s8 1989 1989 A 30 2 21 1 5s 1980 1985 C 38 3 . 42 30 1980 1985 B Lata 1 Diesel 32 28 1975 1975 C 40 2 . 43 40 1980 1987 A 44 _______ _ 3. a 43 40. 1980 1987 A______ Rirakira 1 Diesel 64 64 1986 1986 A 106 2 a64 64 1986 1986 Ae8 3 . 42 42 1984 1984 A _ Noro 1 Diesel 1,200 1,200 1987 1989 A 2,400 1 . 2 . 1,200 * 1,200 1987 1989 A 1,140 3 - 1.200 1,200 1987 1989 A Maluu 1 HYdro 30 30 1982 1986 A is is Honiara Hl Diesel 428 300 1965 1965 C H2 U440 300 1968 1974 C H3 U 440 300 1968 1974 C H4 U 332 280 1958 1958 C H5 902 900 1984 1985 A H6 . 902 900 1984 1985 A Ll Diesel 776 600 1973 1981 B 9,2S0 L2 D 776 600 1973 1981 B W a ~~776 600 1973 1981 a B0 L4 U 1,526 1,400 1970 1971 B 6,000 LS a 1,526 1,400 1970 1971 B L7 2,85 2,850 1986 1987 A Mission evaluation As good Bs acceptable C: inferior V Largest unit out for maintenance. Source: SIBA System Guide (Brief description of SIEA power system) (1990). 90 Annex 4.2 SOLOMON ISLAND8S tSTx WNO 8zIa TRaNMUMZI8ON AND DZGTRZDUTION SYSTEm Foed Volt. Length of No. of No. of 8uppply System 1 (V) line (m) Feeders substatior' voltage (V) Aukl 3,300 10 1 5 415/240 GLZo 3,300 7 3 5 415/240 Buala 415 3 2 0 4151240 Munda 11,000 3 2 2 415/240 415 3 _ _ _ _ _ __ _ _ _ _ _ Lata 415 3 2 0 415/240 KirakLra 415 3 2 0 415/240 Noro 11,000 5 3 3 415/240 _ _ _ _ _ _ _ _ _ _ _ 4 1 5 5 _ _ _ _ _ _ _ _ _ _ _ _ _ Maluu 11,000 3 1 1 415/240 Honiara 11,000f 100 6(HonLara) 85 415/240 33,000 10 (HonLara- 2 (Lungga) __________ =___________ Lunqga) - Souree: SIZA System Guide (1990). 91 Annex 4.3 81RA BYST5Es UNUROY LOBSBS AND FUEL CONSUMPTION System Year Annual r Energy losses Fuel r Fuel production (kWh) (lb) consumption consumption (kWh) (1) (l1kWh Aukl 1988 861,800 166,800 19.4 319.552 0.371 1989 900,000 153,500 17.1 327.200 0.364 Subtotal/ 1,761,800 320,300 a8.2 646,752 0.367 averag- OiLo 1988 1,142,000 189,500 16.6 416,100 0.364 1989 1,122,000 82,000 7.3 419,000 0.373 Subtotal/ 2,264,000 271,500 12.0 835,100 0.369 _ average Suala 1988 86,900 7,900 9.1 31,360 0.361 1989 117,600 5,100 4.3 48,400 0.412 Subtotal/ 204,500 13,000 6.4 79,760 0.390 average _ 11 Nunda 1988 134,100 18,400 13.7 61,000 0.436 1989 167,000 13,000 7.8 67,000 0.401 Subtotal/ 301,400 31,400 10.4 128,000 0.425 ________ average Lata 1988 125,000 12,600 10.1 55,750 0.446 1989 165,000 3,700 2.2 69,700 0.422 Subtotal/ 290,000 16,300 5.6 125,450 0.433 average Kiraklra 1988 240,000 27,100 11.3 81,300 0.339 1989 197,000 7,100 3.6 77,700 0.394 Subtotal/ 437,000 34,200 7.8 159,000 0.364 Noro___ _ 10average _ _ _ _ ________ _____________ Noro 1989 4,270,000 381,600 8.9 1,615,000 0.378 Subtotal/ 4,270,000 381,600 8.9 1,615,000 0.378 average Maluu 1988 36,000 4,700 13.1 __ __ 1989 36,000 4,200 11.7 __ __ Subtotal/ 72,000 4,900 12.4 __ -- average Honiara 1988 24,562,000 2,612,000 10.6 6,975,250 0.284 1989 27,400,000 2,375,000 8.7 7,791,000 0.284 Subtotal/ 51,962,000 4.989,000 9.6 14,766,250 0.284 average auide __ _____ flIau BIER System Guide (1990). 92 Anngg 4.4 SIZA - DEMUND OROW= 1980 - 1990 l_____________ Honiara (Guadal anal) Noro Other Gross gen. Peak Load l_____________ MWh NW Factor MWh MWh 1980 15,700 3.24 .55 1981 16,941 3.35 .58 1,624 1982 17,018 3.41 .57 1983 18,881 3.74 .58 1984 19,609 4.05 .55 1985 22,267 4.54 .56 2,347 1986 23,923 5.00 .55 1987 24,169 5.30 .52 1988 24,562 5.40 .52 1989 27,400 5.90 .53 4,270 l/ 2,723 1990 8 mths 19,860 3,909 1,932 Source: SIEA. .J/ Six months' operation. 1. Cora vnts to the table are given in Annex 4.5 in relation to future demand growth. 93 Annex 4.S Page 1 of 3 DEMAND GROWTH 1. As shown in Annex 4.4 demand has been consistently growing in recent years, at varying annual rates,though, as could be expected for a system of this size. In the Honiara system, 1985 saw a jump of 13,5% in gross generation over the previous year, followed by 7% in 1986 and two years of near standstill. Then again growth has picked up, to 11.5% 1988-89 and about 9% (annual basis) for the first 8 months 1990. Demand growth at outstations apart from Noro was 3.6% average for the four years 1985-89. Noro has been operating only since mid-1989, to supply the new fisheries base and canning factory. 2. Demand projections will be particularly uncertain in a small system like Honiara and even more so at the outstations. For Honiara, the SIEA consultants Nerz Australia have prepared a projection through year 2000, based on an underlying general or "historical" demand growth of 4 % p.a, to which is added the expected demand from a number of specific industrial and commercial projects which are either committed, decided or at an advanced stage of study. This approach results in a relatively steep rise in demand over the few years when these projects are expected to come on line (some 12 % p.a. 1990-95 in the base case projection) flattening to less than 4 % p.a. thereafter. In the base case, the single largest of the specific projects, the Gold Ridge mining project has not been included. A high load case is then established by adding the demand from the gold mine project from 1991 on, to be phased out again in 1998,2/ so that total demand in year 2000 is the same in both cases. Average growth 1990-2000 then works out, in the base as in the high load case,at 6.5 % p.a. for maximum demand and 7.5 % p.a. for energy (due to improving load factor). 3. A growth rate of 7.5 % p.a. for the decade, while probably on the high side considering the general outlook for the economy, may not be unreasonable for planning purposes. But of more immediate importance is the outlook for the next 4-6 years. The prospect that the whole list of potential projects should materialize and be implemented according to original schedule does not seems very likely. The mission's base case projection in Table 1 of this annex is based on the assumption of a 2/3 implementation of the group of projects to 1994, resulting in a 10 % annual growth for this period, followed then by a somewhat slower growth to reach the same as Nerz overall consumption in year 2000. The capacity demand in mid-period according to this projection is about 1 MW lower than in the consultants' base case. In a high growth case, the 8.4 GWh/year demand from the gold mine will be added, for 8 years starting 1992. A more rapid increase over shorter periods can certainly not be ruled out but, on the other hand, short lead times for the type of capacity expansion envisaged for Honiara (diesel) and some temporary flexibility in reserve margins will allow timing of new capacity to be adjusted. 4. The most recent demand projection for outstations was made by Coopers & Lybrand (May 1990) as a basis for their analysis of upgrading outstations' performance. The recently established Noro outstation was not part of the study. Likely growth rates through 2005 were estimated on the basis of local circumstances at the individual outstations, with the general underlying assumption that population in the provincial centers served will continue to grow at the rates recorded in recent years as a result of natural increases and migration. The estimated demand growth rates, and resulting demand growth 2/ *7mn th conrckdly explokabe gold resources are apected to be auwted. 94 Annex 4.5 Page 2 of 3 1989-2000, are net out ln Table 2 of thlo annex. For three of the statLons demand La held back at present by capaclty constraLnto and pent-up demand la expected to come out after plant expanslon. Whlle any projection of thlo klnd wlll be lnherently uncertaLn, the reoultlng growth rate for all statLons taken together of 4.1 % p.a. doos not seem excessLve. S. Assumlng approxlmately the same growth rate at Noro, the fisheries base and fLih procesolng center, Merz in thelr August 1989 report arrived at a total outstation demand, year 2000 of 14.9 GWh whloh li used in the mlsslon's projectLons in Table 1. Sabl- 1: 8IEA - ELECTRICITY DEMAND PROJECTIONS |_________ Honlara Outstations |________ NW GWh GWh Rocorded 19891 5.9 27.4 J 7.0 Projcted 1990 6.5 29.7 J 10.3 1991 7.3 33.5 12.0 1992 8.3 39.0 13.2 1993 8.9 42.5 14.0 1994 9.5 46.0 14.0 1995 10.0 48.0 14.1 1996 - 10.5 SO.3 14.2 1-?97 10.9 52.2 14.3 1998 11.4 54.6 14.5 1999 11.9 57.5 14.6 2000 12.4 60.3 14.9 fouroet LIZA: 1989 Merz (Aug. 1990) and mission estimate: 1990-2000 95 Annex 4 5 Page 3 of 3 able 2t SIEA - ASSUMED LOAD GROWTH, OUTSTATIONS I/ Auki Gizo Munda Buala Lata Kirakira Total growth t a-a. 1989-1990 S 3 0 0 0 2 1990-1991 5 3 11 I/ 34 / 8a 2 2 1991-2005 5 3 S 5 2 2 1989-2000 4.1 Dmand MWh 1989 871 1208 149 123 171 201 2723 2000 1573 1634 296 264 227 265 4259 1/ xcl. Noroa, in operation since mid-89 and, unlike the other outstations not in need of upgrading or expansion. 2/ Following lifting of present capacity constraints Sourcms Coopers & Lybrand (May 1989) 96 Annex 4.6 PLANTING DETAILS, BASE CASK LOAD GROWTH, HONIARA SYSTEM Cpcity MW -apac$ty MW Reserve Firn cap. Max.load Existing Cum. addition W MW MW _________ Diesel Diesel Hydro 1 2 _ 1990 10.7 2.5 1.2 7.0 6.5 1991 7.3 1992 4.0 4.0 1.6 9.1 8.3 1993 * 8.9 1994 __ 8.0 _ _ 4.0 2.2 12.5 9.5 1995 10.0 1996 8.9 1.5 2.5 2.2 13.7 10.5 1997 9__ _ 10. 1998 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 11.4 1999 ___ ____ _ _ 11.9 2000 12.4 Source: Merz (1990); the mission. Notes:- Existing capacity is the consultant's estimate of continuous capacity; Lungga units 1-2-3 retired after commissioning Komarindi. - Komarindi 1996, firm (dry season) capacity 1.5 MW . - Reserve 1 - largest unit, reserve 2 - 15% of other diesel. Beginning 1996 (Komarindi in) maintenance of 2 largest diesel units can be done during wet season, only 2.5 MW units out during dry season. 97 Annex 4.7 Table Is GENERATING FACILITIES UPGRADING, OUTSTATIONS Unites rumber and ratina Existing Planned Cost (SIS 1,000) Status Auki 2 x 160 3 x 250 1,200 Funded 1 x 190 Gizo 2 x 280 3 x 250 1,200 Funded 1 x 260 Buala 3 x 28 3 x 40 391 Unfunded Kirakira 2 x 64 1 x 80 364 Unfunded I x 42 2 x 40 Lata 1 x 32 1 x 80 428 Unfunded 1 x 43 2 x 40 Munda 1 x 40 1 x 80 279 Unfunded i x 21 2 x 40 1 x 42 Ilurces Coopers & Lybrand (1989). Table 2: RATES OF RETURN, OUTSTATIONS UPGRADING PROGRAM Auki 15.1 16.4 Gizo 11.8 13.9 Buala 9.3 9.6 Kirakira 7.5 7.9 Lata 7.4 8.0 Munda 13.8 14.5 Source: Coopers & Lybrand (1989). 98 Annex 4.8 MINA ELECTRICITY TARIFFS, HISTORICAL Resid. other Min.ch. Off peak HV Fuel e/kWh c/kWh c/month e/kWh Noro e/1 Feb. 1982 21 24 300 15.5 33 Oct. 1982 22 25 300 17 Sept. 1984 23.5 26.5 200JL - 2L Jan. 1986 25.5 28.5 200 June 1987 29.5 32.5 250 48 May 1988 29.5 36.5 3753/ May 1989 32.85 Oct. 1989 33.5 42 400 _ Dec. 1989 38.25 Apr. 1990 4/ +5.5 +5.0 55.81 Jul. 1990 if +4.5 +4.5 , 51.57 1/ Also for consumption less than 23 kWh/month 2/ Tariff suspended 3/ Service charge and also minimum charge 4/ Oil price surcharge applied to Oct. 1989 tariff, retroactive for the previous quarter. Source: SIEA. 99 hnnex 4.9 USTINA!TD LONO RUN MAROINAL COST (LRNC), HONIARA SYSTEM, 1990 1. Basis for calculating LRNC: Expansion in steps of 4 MW diesel. Komarindi is not the marginal unit, since 1) lt is an energy project justified by fuel savlng wlthln the diesel system, and 2) the project la commltted and not responslve to future demand. 2. Cost of expanslon ln terms of capaclty lnstalled (dependable capacity ln contlnuous operatlon): Goneratlng unlt 1,700 8I$/kW lnstalled Clvll works 100 " U 1,800 SX$/kW Installed Annual capltal cost at 8 %, 20 yzs. 190 Flxed 0 & N cost _2 210 SI$/kW lnstalled 3. Cost of expanslon in terms of flrm power: System reserve requliement equal to largest unit (out for malntenance) plus 15% of remainlng capacity (accidental outage) means 15 % of new capaclty to reserve when unlt slze is equal to the prevlously largest unlt or, lf the new unit ls larger, 15 % of the former plus the dlfference between the two. As an average, assume lncremental reserve requlrement equal to 20 % of the new unlt. Annual cost thus 210 SI$ t 0.8 - 263 SI$/kW flrm 4. Marginal cost of transamslson and dlstrlbutlon ls always dlfflcult to determlne. Updating by 45 % (SI inflatlon) a 1987 Coopers & Lybrand estimate of SI$75 results ln 110 SI$/kW (possibly lower by close to one half, l.e. to 60 SI$/kW for peak/off-peak consumers which are generally larger consumers). Annual cost incl.trsm. & distr. costs - 373 SI$/kW firm (323 peak/off-peak) 5. For attributlon of capaclty cost to kWh sold, energy sent out ls assumed to be 4,400 kWh/kW of newly lnstalled firm capacity, average over lifetime (climbLng from 0 at commissionlng to 5,000 kWh after 5 years and remainlng at that level over the remalnlng llfetime). 6. Flnally we assume half the energy consumption to be at peak hours (from SIHA dally load curve) wlth system losses 15 %. Offpeak system lose 9 %, average 12 % (Lncl. statlon losses 3 %). 7 SUMMARY: Flat Peak Off-peak Capacity cost SI$/kW 373 323 c/kWh 8.5 14.7 - Variable 0 M 2.2 2.2 2.2 Fuel 45 c/l J/, 0.284 l/kWh, S % lube 13 AAA i43 Total c/kWh sent out 23.1 30.3 15.6 to dlvide by 0.88 0.85 0.91 Total LRMC c/kWh 26.2 35.7 17.2 ]J Fuel price second quarter 1990 - before Gulf crlies - 54.92 c/l less 10 c duty. 100 Annex u. Page . of 2 FINANCIAL PROJECTbON$ FOR SZ3A 1. The financial performance of SIZA was generally satisfactory up to 1983. In 1984 the Government decided to cease reimbursing SIEA for losses at the outstations. Increasing costs in operating and maintaining old generating equipment and a depreciating local currency further depressed earnings. After a modest profit in 1985, and in spite of tariff increases in 1986-87 and-88, SIEA made losses through 1989. In August 1989 tariffs were further raised and an automatic fuel price adjustment introduced effective 1 January 1990. 2. As part of the Lungga expansion feasibility study consultants Coopers & Lybrand undertook a projection of SIEA's financial performance through year 2000 for two scenarios, one based on low demand growth and 2 x 3 MW diesel installed prior to Komarindi, the other based on the high growth forecast and 2 x 4 MW diesel prior to Komarindi. Komarindi is assumed operating from 1995 in both scenarios. The projections are based i.a. on domestic inflation 10 % in 1990, 7 % 1991, and 6 % thereafter, international inflation 4.9 % to 1994 and 3.7 % thereafter. Future tariffs (for projection of revenue) were based on fuel price increasing 3% p.a. real plus inflation at the international rate. 3. The financial projection for the base load growth case is summarized in the table of this Annex. The mission's assumptions on load growth and investment planning as set out above differ from those underlying this financial projection. Lower initial load growth will mean also lower revenue growth, but on the other hand this is counterbalanced by the second diesel unit being postponed by 2 years and Komarindi by 1 year, so that the net effect is sufficiently moderate to make the projection indicative of SIEA's financial outlook for the decade. The favorable development is explained primarily by the substantial margin between the prevailing SIEA tariff and the cost of generation from the new diesel sets (capital plus operating cost 16.5 c/kWh in the first year). Beginning 1990 the projection shows for every year a net return (on revalued fixed assets in operation) of 8 or more. During the period in which Komarindi is supposed to be financed, 1990-94 in the projection or 1991-95 in the mission's estimate, the self financing ratio not unexpectedly falls short of the 30 % stipulated in the ADB loan covenants but Komarindi is in any case supposed to be fully financed by loans (70 %) and grants (30 %). The debt service ratio stays consistently above 1.3 as stipulated by the ADB covenant, and the cash position becomes very comfortable once Komarindi starts generating income (or more precisely, saving fuel in the diesel system). The financial projection for the high load growth scenario (gold mine operatiig from 1992 and taking power at HV, 2 diesel units installed right away, and Xomarindi built to full capacity 1995/96) as could be expected, shows considerable improvements in all indicators already from 1992/93 and onwards. 101 Annex 4.10 Page 2 of 2 SIEA - FINANCIAL PROJXCTIONS IGenerated Gross Net DSRj/ 8FRJ/ DBR4/ TCCBS GWh rev. returnh/ times % Si% $81 SI$ 1,000 % _ 1,000 Audited 1987 26.3 7,070 (a) l.SI -21 421 1,170 1988 29.2 8,799 21 1.9 33 61 1,077 1989 36.11 11,743 (0)1 0.91 -5s 67 833 [Projected :: 1990 40.1 15,549 10 1.3 13 57 1,694 1991 45.3 18,314 12 1.9 19 66 389 1992 56.1 22,451 10 1.9 26 63 2,438 1993 60.4 24,772 9 1.7 20 63 4,359 1994 65.1 27,426 10 1.4 21 62 8,138 1995 66.7 28,300 11 1.8 174 60 13,350 1996 68.3 29,748 8 1.7 355 57 17,849 1997 69.9 31,286 8 1.8 365 55 22,802 1998 71.6 32,988 8 1.4 236 50 25,180 1999 73.4 34,868 8 1.5 262 44 28,246 2000 75.2 36,892 8 1.7 371 38 32,409 Sourcg: Nerz (Aug. 1990) AssumiptiQnes Nerz projected load growth, base growth case 2 x 4 NW diesel installed 1991 Romarindi commissioned 1994/95 1/ Net return on revalued assets 2/ DSR - debt service ratio 3/ SFR - self financing ratio 4 DER - debt equity ratio (long term debt to long debt plus equity) g/ CCB - cash closing balance. 102 Annex 4L11 RURAL LEC!RIVICATXION A memorandum on rural electrifleatlon was submitted by the MNR to the Cabinet in March 1990. This noted that there is at present relatively little pressure from government minLstrLes, communities and businesses to accelerate the progress of rural electrification. It suggested that if the Government wished to increase lts assistance to rural electrification this might be done by setting up a Rural Electrification Project based in the MNR. The Rural Electrification Project would provide technical advice on proposals for rural *lectrification and would arrange training for local operators of rural electrification schemes. It would not be responsible for the detailed design, construction, operation and maintenance of individual projects. The memorandum also suggested that the Government might wish to provide financial assLitance towards the capital costs of small private rural electrifleation schemes, but emphasised the need not to become involved in subsidising the operating and maintenance costs of private sector schemes. These proposals were rejected by the Cabinet. An explanatory memorandum pointed out that the necessary expertise for rural electrification already existed in the SIEA and that it had a presence throughout the provinces. Moreover, the SIE% had access to a source of funds for rural electrification through cross-subsidies from Honiara. It argued that the proposed Rural Electrification Project rather than increasing the pace of rural electrification would lead to greater bureaucracy and inter- organisational problems. It stated that, for the present, responsibility for rural electrification should rest with SIEA and that the way forward for rural electrification was through the provision of additional funds for the SIEA rather than setting up a new organisation. The mission basically agrees with this assessment but would add a further caution. Areas to be electrified should be carefully selected on the basis of their likely initial level of demand; the consumers must be able and willing to cover at least the running and maintenance costs of the installation. projects should not be implemented on the grounds that they will cause rural development to occur in a particular area. Experience shows that rural electrification projects carried out for this reason rarely succeed in stimulating the expected development. 103 Annex 5.1 Page 1 vf 6 PETROLEUM PRODUCTBS QUANTITZES Zable is SOLOMON ISLANDSt PETROLEUM CONSUMPTION 1984-89 (EL) Product | 1984 1985 1986 1987 1988 1989 - 1 ~ - ~ -~ Gasoline (PIE) 8776 9410 10348 9336 10556 10915 Jet Al 3106 5202 2795 4142 4812 4000 Kerosene 2118 2207 2332 2157 2325 2383 ADO 43710 44148 49212 48005 50879 53539 Avgas 890 902 909 852 741 750 Subtotal 58600 61867 65596 64492 69313 71599 LPG 897 857 1008 1008 1008 1008 Lubricants 1221 1352 1464 1000 1652 1319 Total 60718 64076 68068 66500 71973 73924 Bourget PEDP, Suva MAJOR USERS OF PETROLEUM PRODUCTS 1. Exoort sector. By far the largest single industrial consumer of petroleum products is the fishing industry (37% of the diesel consumption). Both Solomon Taiyo and National Fisheries have firm plans to increase the number of purse-seine fishing units, Solomon Taiyo by one additional unit to a total of three and National Fisheries by two additional units also to a total of three. Altogether 6 purse-seine fishing vessels are assumed to be in operation by the mid 1990.. Each of these vessels consume 2,400 - 3,000 XL of ADO per year. If none of the new projects materialize, tne demand for diesel could be reduced by some 8000 KL per year (some 13% of total ADO in the mid 90w). The number of other catchers are assumed to be fairly constant with regular replacement of the oldest units for technical and / or economic reasons. The effect on petroleum demand of such a program is lower consumption per unit resulting from more efficient diesel engines. 2. The timber industry is also a considerable consumer of diesel. The activity is now picking up following some years of turbulence and uncertainty. A number of smaller companies have started operations but no significant changes Ln total logging operators' use of diesel are expected due to lower level of activity among the larger companies. No particular allowance for increased fuel use is included in demand estimates although some growth is reflected in the increase in general ADO consumption. Page 2 of 6 3. At present there are a number of sites at whlch gold is extracted from alluvlal beds Ln the Solomon Islands. These actlvltles are labor intensive and have little lmpact on the natLonal fuel demand. Cyprus Minerals Solomon Ltd. which have a lLcense to open a major gold mine at Gold Ridge are, on the other hand, a dlfferent case. If development goes ahead, it is estimated that this operation will consume 600 KL ADO in the pre-operational year 1991 and 2100 KL per year in the comparatlvely short llfe of the project (1992-98). The mine would also use 60 KL of LPG per year. 4. Electricity 2roduction accounts for almost a quarter of the total quantity of ADO used in the country. SIZA is projectLng a steady growth in diesel consumption for slectrlcity generation up to and including 1995. Provided the Komarlndl hydropower project materializes, SIEA's demand for diesel will drop signifLcantly in 1996 and thereafter show a slow growth for the balance of the decade. 5. Transhortation. Registration of new vehicles reached a peak in 1985 but has since fallen back to a level of below 400 per year. Due to the lack of a roads network only a moderate increase in distance covered annually per vehicle on the lslands an a whole ls expected. However, as the largest populatlon growth ls expected on Guadalcanal, and partlcularly in and around Honiara, road traffic here wlll increase as the city's circumference expands. 6. There is essentially no sale of international bunkers (diesel) in the islands. Domestic consumption of bunkers shows a moderate growth for government and privately owned vessels used for transportation of passengers and cargo between the islands. No major lncrease in sea transportation services is anticlpated. 7. Air trafflc to and from Honlara is expected to increase as a result, lnter alla, of a modest growth in tourism and the implementation of some fairly large projects w-thin the energy sector, such as electricity generation and new petroleum storage facillties. Domestic air traffic will be related to the economlc actlvlty on the lelands. The demand for avgas will most likely decline over the firat half of this decade as a result of conversion to planes using Jet Al as fuel. Annex S.1 Page 3 of 6 Table 2: SOLOMON ISLANDSs PROJECTED PETROLEUM DEMAND (KL) Fj~~ ~ ~~~~~~~~~ . . .1. T Product | 1989 1990 | 1991 1992 1993 19941 1995 1996 1997 1998 | 1999 j 2000 Act. Est. Fcst. | Gasoline 10915 10810 11500 11900 12500 13100 13700 14200 14700 15200 15800 16400 Jet fuel 4000 4000 4000 4700 4900 5100 5300 5500 5700 5900 6100 6300 Kerosene 2393 2295 2300 23',0 2500 2600 2700 2800 2900 3000 3000 3300 ADO 53539 54350 56100 60600 63200 64000 65600 58300 59600 60900 62400 64000 Avgas 750 600 590 570 550 550 550 550 550 550 550 550 Subtotal 71597 72055 74490 80160 83650 85350 87850 81350 83450 85550 87850 90550 LPG 1008 1394 1420 1450 1480 1500 1530 1560 1580 1600 1600 1600 Lubricants 1319 1595 1610 1670 1730 1790 1850 T 1880 1900 1900 1900 1900 Total 73924 75044 77520 30C 1686 88640 91230 | 84790 86930 89050 91350 94050 Source: Shell; Mobil; mission estimates. 106 Annex 5.1 Page 4 of 6 Table 3. PETROLEUM PRODUCTS BY USER CATEGORIES, 1990 (KL) PHS ADO Jet |Other 1 /Xertor I Electricity generation 12300 Transportation by air - _ 4000 600 by sea 1100 6650 by land 4130 3000 Fisheries 1000 20000 400 Industry 1900 8400 , Government 860 2000 700 Households - - 2295 190 Other users/uses 1720 2000 1699 10810 54350 6295 3589 1/ Avgaa, LPG, lubricants Source: Shell; mission estimates. 107 Annex 5.l Page 5 of 6 Tabl* it DIESEL DEMAND* ALTERNATIVE SCENARIOS (KL) 19 1993 1994 1995 1996 1997 18 1999 2000 1. an* ea" s600 63200 64000 65600 58 00 S9600 60900 62400 64000 2. 61900 68000 68800 70400 60700 62000 63300 64800 66400 3. 57100 63200 64400 63200 53500 54800 56100 57600 59200 4. 58400 68000 68800 70400 72100 74000 75900 78100 80400 1. Incl. Komazrindi, fishing fleet expansions, excl. gold mine 2. Incl. Komarindi, fishing fleet expansion and gold mine 3. Inal. Komarindi and gold mine, excl. fishing fleet expansion 4. Incl. fishing fleet expansion and gold mine, excl. Komarindi Sources Mission. 108 Annex 5.1 Page 6 of 6 DEMAND FORECAST ASSUMPTIONS Fishing Proisectss Three new purse-seine fishing vessels will likely become operative in the 1992 - 1994 period, one by Solomon Taiyo and two by National Fisheries, giving a total of 6 purse-seine fishing vessels by 1994. This will have a considerable impact on the ADO demand as each of these units consume 2,400-3,000 KL per year in full operation. Minina oroiects: Plans are well advanced for development of gold mine operations at Gold Ridge. If the plans materialize, it is assumed that this operation will use 600 KL ADO in the pre-operational period and 2,100 KL ADO and 60 KL LPG during the life of the project. These volumes are not included in the base case volumes but are shown as a variation to the base case. ADO for electricity aenerations ADO for electricity generation shows an average growth of 6% per year through 1995. On the assumption that the Komarindi hydropower project materializes, ADO consumption will drop in 1996 and thereafter only show a moderate growth for the balance of the decade. General diesel usace: Diesel consumption by other users is assumed to grow at a rate of about 4% per year. Gasoline: The historical growth rate of about 4-5% per year is assumed to continue to the mid 1990. before slowing down to an average of close to 4% per year for the decade. Jet Fuel: Jet fuel is assumed to grow at an average rate of 4.2% per year as a result of a modest increase in tourism and high project activities in the medium term. Kerosene: Kerosene consumption is expected to grow in line with population increase. The demand for kerosene is sensitive to the development of rural electrification but the present and expected policy of and means for expansion of electricity in rural areas imply that this should not affect kerosene consumption to any significant extent during the projection period. Avaas: Avgas consumption is assumed to decline as a result of conversion to engines burning jet fuel. 109 Annex 5.2 Page 1 of 4 PETROLEUM PRODUCTB i PRICZS ZaiL_les OFFICIAL PRICING FORMULA AND SAMPLE CALCULATIONS (C/1) Samole calculations Mobil 1/ Shell 1/ PMS ADO PMS ADO FOB 40.9331 35.1656 39.7155 35.3899 Freight to main port 2.5941 2.9436 2.9894 3.4428 Marine insurance 0.0326 0.0286 0.0235 0.0214 Ocean loss 0.0500 0.0500 0.0500 0.0500 Wharfage 0.1780 0.1780 0.1780 0.1780 Landed cost 43.7787 38.3658 42.9564 39.0821 Duty 25.0000 18.0000 25.0000 18.0000 Levy Tax 1.3068 1.1441 1.2819 1.1656 Demurrage, onshore losses 0.2000 0.2000 0.2000 0.2000 Distribution cost 12.5134 12.5134 12.5134 12.5134 Selling cost 82.8080 70.2233 81.9517 70.9611 ROI (25%, before taxes) 5.5273 5.1814 5.5273 5.1814 Catch-up claim 1/10-31/10/902/ -7.8484 0 -7.8484 2.2129 Max wholesale price 80.4869 75.44047 79.6306 7554 Max wholesale price at 01/09/90 79.19 76.09 7 9 7.09 Recommended change 1.30 -0.69 0.00 2.27 New max wholesale price at 01/10/90 80.49 75.40 79.19 78.36 New max retail price at 01/10/90 91.50 86.40 90.20 89.40 PRICE CONTROL DIVISION 18. Sept. 1990 18. Sept. 1990 1/ Proposals of oil companies based on FOB invoice prices for shipments loaded 30/07/90 (for further assumptions, see next page) 2/ For delays in price adjustments compared to previous period. Sourcet Price Control Division 110 Page 2 of 4 Table 2is PRICING FORMULA Mobil Shell Pro22sal FrX&e-a Loading date 30/07/90 30/07/90 Exchange rate (SI$ to US$) 2.5471 2.5471 FOB Price PMS (UScents/USGal) 60.8333 59.0238 ADO (UScenta/USGal) 52.2619 52.5952 Worldscale (US$/MT) 13.81 16.22 Insurance (% of C&F) 0.075 0.055 Levy tax (% of CIF) 0.03 0.03 Conversion factor liters/USGal 3.78541 3.78541 Conversion factor liters/NT PMS 1356 1382 Conversion factor litres/MT ADO 1195 1200 Igoggat Price Control Division. Annex S.2 Page 3 of 4 Table 3: PBTROLEUM PRODUCT PRiCEs MAX. WHOLESALE PRICES (C/1) _ _ _ __ _ _ _ _ _ _ _ _ ... . . .. . ...1990 tJuy [ Sept.1 Oct.1 Nov. (Est. (s.d.d t.m P_S ADO PUS ADO PIIS ADO PUS ADO P9S ADO Honiara 87.30 76.09 79.19 76.09 79.19 75.40 118.40 103.30 85.90 80.30 Mo: SIEA contract price Nonlara 51.59 68.78 79.11 n.a. 61.50 Average Grent crude price (USS/bt) 18.001/ | 24.00 Source: Price Control Division, mission. Average first half 1990. 21 The mission believes that in the medium term oil prices will return to the early 1990 level in real terms. A price of US$24 (1990 basis) per barrel for Brent reference crude oil has therefore been assumed in the mission evaluations. The level is subject to a sensitivity of plus or minus 20%. It is assumed therefore that petroleum prices will not significantly contribute to the dampening of demand for petroleum products in the medium term. It is further assumed that the present supply arrangements will continue and that wholesale and retail prices in the non-contract domestic market will be regulated and controlled also in the future. Source: Price Control Division 112 Annex 5.2 Page 4 of 4 Tgble 4: PETROLEUM PRODUCT PRICES MAX. RETAIL PRICES (c/1) Provinces 1 1990 Oct.1 1990 l ____________ PMS ADO PMS ADO Guadalcanal 98.30 87.10 90.02 86.40 Central 121.34 107.00 110.96 106.11 Western 130.23 116.21 120.09 115.35 Isabel 125.53 111.53 115.40 110.66 Malaita 127.40 113.05 117.02 112.17 San 127.88 113.86 117.74 113.00 Christobal Choiseul 137.25 123.24 127.11 122.38 Source: Price Control Division 113 Annex 5.3 Page 1 of 2 PETROLEM PRODUCTS : STORAGE Table1ls HONIARA STORAGE CAPACITY Product T Throughput Existing Gross No. of days " Throughput No. of days 13 1990 Tankage of storage 1995 of storage (KL) J (KL) 1990 (KL) 1995 PMS 9.650 1.7°O 51 12.450 39 Jet/Kerosene 6,395 880 39 8.000 29 ADO 36.650 5.335 38 43.040 32 Avgas 600 220 110 550 T 120 1) Including 10 days safety stock: calculated net of unutilized capacity. Source: Shell; Mobil; mission. SECURITY STOCKS 1. Present operational stocks average around 40 days' consumption, all products taken together. The size of reasonable security stocks will be the result of an assessment of the type and likelihood of supply disturbances, such as supply problems in the international market, transport delays and unavailability of foreign exchange to pay for imports. Any such assessment will be qualitative. Against this, the cost of holding idle stock and obtaining emergency supplies will tend to reduce what a developing country with limited resources should spend to avoid stockouts. It is difficult to envisage a scenario for the Solomon Islands that would justify security stocks of more than 15-20 days' consumption, on top of the operational stocks. 2. Based on the projected 1995 throughput, the minimum etock volumes in Honiara to meet 20 days' requirement would be: RL PMS 680 Jetfuel/kerosene 470 ADO 2300 The estimate. cost of acquiring the products is SI$ 2.9 million (October 1990 price level) and the yearly interest cost would be around SIS 300,000. Minimum quantities versus costs would be reviewed prior to final decision. It is recommended that the necessary legislation behind a policy of security stocks be adopted, that preparations are made for its implementation, including contingency plans for the use of stocks, and that the costs be borne by the consumers in the form of price increases for the products. 114 Angex5 3 Page 2 of 2 Zabl- 2s BULK STORAM3 FACILITIF8 IN THE SOLOMON XBLANDS Location User Products Stored Ranadi Boral Gas LPG Honiara Mobil ADO Honiara Shell Kerosene PM84 Av as ADO Gizo Mobil ADO, PMS,Kerosene Shell PMS Tulagi National Fisheries ADO Noro 1/ Solomon Taiyo /SIEA ADO Yandina Levers Plantations ADO, PM8, Kerosene Viru Levers Plantations ADO, PMS,Kerosene Auki Shell ADO, PM8 21 In addltion, new ADO storage owned by BIG completed. 23 To be completed in first quarter 1991. Source: Shell; Mobil; the Ministry of Natural Resources. 115 Annex 5.4 @uTLZN3 Or 2TRKS or irn.uzuCt FOR PXUROLXU11 PRODUCTS DISTRZSUTZON STUDY 1. The consultant *hall carry out a study of petroleum products distribution in the Solomon Islands wlth the object of* (a) determinLng distribution costs based on present distribution pattern to each of the major centers in the provincesl (b) evaluating and suggesting improvements to present distribution system with emphasis on packaged goods handling (without major investment)l (c) determlnlng investments required in storage and shipping in order to reduce dLstribution costs and improve safety of petroleum products handling; and (d) developing an optimum distribution plan for bulk and packaged petroleum products, for each province and recommending a priority of lmplementation of such plan. 2. The duration of the study is estimated at 1.5 mm at a total cost of US$31,000. 116 Annex 5.5 EZT3MALTY FIKUNCED !NCINZCAL A83IBTANC3 R3SQUXZRNN Assistance required Duratfon M1niatry/ Activity (uS$ equivalot) Instftution Nature of involved Assitance Audit of oil cots 11.000 Yearly NNR Independbnt Auditor Evaluation of 22.000 1.0 mm Commerce Consultant petroltem pricing Training In 4.000 0.5 mm KNR Training with Oil international Co. oil tmarket Storage and 31.000 1.5 mm MNR Conaulttnt distributfon study Management structure 8.000 0.5 mn NNR Consultent for Noro storage _ Resident engineer Depending on To be NNR Consultant representing Govern- duration established ment re the relocation of depots ___ _ _ Sources Mission 117 Annex 6.1 iUumARY OF HYDRO INSTALLATIONS CONSIDURBD FOR UWPLENEN!ATION 1. A wide variety of potential hydro installations have been discussed or analysed to varying degr-ee of depth over the past few decades. Apart from those mentioned in the main text of this report, the more important of these proposals and suggestions are briefly outlined below. 2. A proposal to build a 21 KW hydropower plant on the Lungga river, which *nters the sea towards the eastern end of Honiara, was first proposed in 1966. This would have relied upon a 50 metros high rockfill dam and a storage reservoir. The site was, huwever, extremely poor. The dam would have been built on an alluvium bed which extends some 65 metres below the river bed. There were also doubts about whether the rock formations behind the dam would be capable of retaining the impounded water. 3. The project nevertheless reached tender stage in 1981 when it was found to be very much more expensive than estimated by the consultants. This project is now agreed to be technically risrk and economically non-viable under any likely conditions in the future and is no longer under consideration. 4. The Matiniko project envisaged a hydro plant on the Matiniko river which enters the sea In the centre of Honiara. There is a waterfall at the site which is a holy place for many people and is also a scenic attraction for tourists. This option is no longer being considered. 5. The Choroa scheme envisages the diversion of the Choroa river into the Komarindi scheme as a means of increasing its firm output. This would only be considered after the commissioning and early years of operation of the Komarindi scheme. 6. A 3 MW plant has been suggested for the Itina river on the south side of Guadalcanal, roughly opposite Komarindi. This would only be considered after the commissioning of Komarindi and, possibly, Choroa. 7. Other installations which have been considered include the 360 kW Fiu river project about 10 km east of Auki on Malaita; the 25 kW Manawi scheme on the Rarinikera river in east Malaita; the 200 kW Puepue scheme on San Cristobal. None is presently being actively considered for implementation. 118 ENERGY SECTOR MANAGEMENT ASSTANCE PROGRAMME COMPLETD ACTIVITIES Coewny Acedvilt Date Number SUBDSAARAN AFRICA (AIR) Africa Regiondl Anglophone Africa Houehold Energy Wodkshop 07/88 085/88 Regional Power Seminar on Reducing Electric Power System Loam in Africa 08/88 087/88 Insttutional Evaluation of EGL 02/89 098/89 Bioma Mapping Regional Worbhops 05/89 - Francophone Houshold Enery Workshop 08/89 103/89 Intorafrican Electrical Engineering Coleogo: Proposals for Short- and Long-Term Development 03/90 112/90 Biomass Assessment and Mapping 03/90 - Angola Energy Assessment 05/89 4708-ANG Power Rohabilitation and Technical Assistance 10/91 142/91 Boin Energy Assessment 06/8S 5222-BEN Botswana Energy Assessment 09/84 4998-BT Pump Electrification Prefeasibility Study 01/86 047/86 Review of Electricity Service Connaectio Policy 07/87 071/87 Tuli Block Farms Electrificetion Study 07/87 07V87 Household Enegy Iu Study 02/88 - Urban Household Energy Statey Study 0S/91 132/91 Burkin Fuo Energy Assessment 01/86 5730-BUR Technical Assistance Program 03/86 052/86 Urban Household Energy Strategy Study 06/91 134/91 Bunmdi Energy Assessment 06/82 3778-BU Petroleum Supply Managment 01/84 012/84 Status Report 02/84 011/84 Presentation of Energy Projects for the Fourth Five-Year Plan (1983-1987) 0S/8S 036/85 Improved Chaol Cookstove Strategy 09/85 042/8S Peat Utilization Project 1/85 046185 Enery Assssment 01/92 9215-BU Cap Verde Energy Assessment 08/84 5073-CV Household Energy Stategy Study 02/90 110/90 Comoros Energy Assessment 01/88 7104-COM Congo Enegy Assment 01/88 6420-COB Power Development Plan 03/90 106/90 Cob d'Ivoiro Energy Assesnt 04/85 5250-IVC Improved Biomss Utilizaton 04/87 069/87 Power System Efficiency Study 1V87 - -Power Sector Efficiency Study (French) 02/92 141/91 Etdiopia Enrgy Asssment 07/84 4741-ET Power System Efficiency Study 10/8S 04S/85 Agricultual Residue Briquetng Pilot Project 12/86 062/?6 Bagas Study 12/86 063/86 Cooldng Efficiency Project 12/87 - 119 County Actl Doe Number Gabon Enr Assessment 07/88 6915-GA Th Gambia ergy Assessment 11/83 4743-GM Solar Wator Hoeting Retrofit Projct 02/85 030/85 Solar Photovoltic Applicadons 03/85 032/85 Petoleum Supply Management Asisance 04/85 035/8S Gha .Energy A _sem t 11/86 6234-OH Energy Rationalizstion in the Industrial Sector 06/88 084/88 SawuilH Residues Utilization Study 11/88 074/87 Guinea Eney Aement 11/86 6137-GUI Guines-Biu Energy Assesmnt 08/84 S083-GUB Recomamded Tochnical Assistance Projects 04/85 033/85 Management Options for the Blecttic Power and Water Supply Subsectors 02/90 100/90 Power and Wer nstitutionl Reetnacturing (French) 04/91 118/91 KMeya Energy Assessment 05/82 3800-KE Power System Efficient , Study 03/84 014/84 Sttus Report 05/84 016/84 Coal Conversion Action Plan 02/87 - Solar Watr Heating Study 02/87 066/87 Pon-Utbn Woodfuel Development 10/87 076/87 Power Msster Plan 11/87 - Lsotho Eneg -Q84 A-s6.SO - Li'beSa EneryAsanent 12/84 5279-LBR Recommended Technical Assistance Projects 06/85 038/85 Power Systm Efficiency Study 12/87 081/87 Madagcarw Energy Assessmont 01/87 5700-MAG Power System Efficioncy Study 12/87 075/87 Malawi Energy Asument 08/82 3903-MAL Tchnical Assistance to Improve the Efficiency of Fuelwood Use in tho Tobacco Industry 11/83 009/83 Status Report 01/84 013/84 Mali Energy Assesment (French) 11/91 8423-MLI Ismic Republic of Muritania Energy Assessment 04/85 5224-MAU Household Enegy Strategy Study 07/90 123/90 Mauuitius Energy Assessment 12/81 3510-MAS Stas Report 10/83 008/83 Power System Efficiency Audit 05/87 070/87 Bags Power Potentid 10/87 077/87 Moambique Enery Assessment 0187 6128-MOZ Household lecticity Utii2ntion Study 03/90 113/90. Niger Energy As ment 05/84 4642-NIR Stts Report 02/86 051/86 Improved Stoves Project 12/87 080/87 Household Energy Conservaon and Substitution 01/88 082/88 Nigea Energy Assssment 08/83 4440-UNI Rwand. Eney Asessment 06/82 3779-RW Energy Asses nt (English and French) 07/91 8017-RW Sttus Report 05/84 017/84 lmproved Charcod Cookstove Stry 08/86 059/86 Improved Charcoal Production Techniques 02/87 065/87 120 Couwuy Ac&*y Date Number Rwands Commiliion of Improved Charcoal Stoves and Carbonization Techniques Mid-Torm Progress Report 12t91 141/91 SADCC SADCC Regional Sector. Regional Capacity-Building Progam for Enrgy Surveys nd Policy Analysis 11/91 - SAo Tome and P}incipe Energy Assessment 10/85 5803-STP Sagl Energy Asesment 07/83 4182-SE Stats Report 10/84 025/84 Industial Energy Conservation Study 05/85 037/8S Propartry Assistance for Donor Meeting 04/86 056/86 Urban Household Energy Strate 02/89 096/89 Seychlols EnrAgy sment 01/84 4693-SEY Electric Power System Efficiency Study 08/84 021/84 Sira Leone Energy Assssment 10/87 6597-SL Somalia Energy Assessment 12/85 5796-S0 Sudan Management Assstance to the Ministry of Energy and Mining OS/83 003/83 Energy Assessment 07/83 4511-SU Power System Efficiency Study 06/84 018/84 Status Report 11/84 026/84 Wood Energy/Forestry Feasibility 07/87 073/87 Swailand Energy Assessment 02/87 6262-SW Tanania Energy Assssment 11/84 4969-TA Peni-Urban Woodfuels Feasibility Study 08/88 086/88 Tobacco Curing Efficiency Study OS/89 102/89 Remote Sonsing and Mapping of Woodlands 06/90 - Industial Energy Effic-.ccy Technical Assistance 08/90 122/90 Togo Enegy s nt 06/85 S221-TO Wood Rocovery in the Nangbeto Lake 04/86 OSS/86 Power Efficiency Improvement 12/87 078/87 Uganda Energy Assesment 07/83 44S3-UG Statw Report 08/84 020/84 Istitutinal Review of the Energy Sector 01/85 029/85 Enery Efficiency in Tobacco Curing Industry 02/86 049/86 Fuelwood/Forostry Feasibility Study 03/86 053/86 Power System Efficiency Study 12/88 092/88 Eney Efficiency Improvement in the Brick and Tile Industry 02/89 097/89 Tobacco Curing Pilot Project 03/89 UNDP Terminal Repprt Zaire Energy Assessment 05/86 5837-ZR Zamb Enery Assessment 01/83 4110-ZA Status Report 08/8S 039/8S Energy Sector hntitutional Review 11/86 060/86 Power Subsector Efficiency Study 02/89 093/88 Energy Stategy Study 02/89 094/88 Urban Household Energy Stategy Study 08/90 121/90 Zimbabwe Energy 0t /82 376S-ZIM Power Systm Efficiency Study 06/83 OOS/83 Status Report 08/84 019/84 Power Sector Mangement Anco Project 04/8S 034/8S Perleum Management Assistanco 12/89 109/89 121 CoWUr Actlvliy Dw Number Zimbabwo Power Sector Mangement Institution Building 09/89 - Charol Utilization Prfeusibility Study 06/90 119/90 Integrotd Energy Strategy Evaluation 01/92 8768-ZIM EAST ASIA AND PACMIC (EAP) Asia Regional Pacific Household and Rural Energy Smuinar 11/90 - China County-Level Rural Energy Asiessments OS/89 101/89 Fuelwood Forestry Pmeinvestment Study 12/89 10S/89 Fji Enery Assessment 06/83 4462-FU indonesia Enrgy Assessment 11/81 3543-lND Status Report 09/84 022/84 Power Generation Efficiency Study 02/86 050/86 Energy Efficiency in the Brick, Tile and Lime Industries 04/87 067/87 Diesel Generating Plant Efficiency Study 12/88 09S/88 Urban Household Energy Strategy Study 02/90 107/90 Biomass Gasifier Preinvestment Study Vols. I & II 12/90 124/90 Malysa Sabah Power System Efficiency Study 03/87 068/87 Gas Utilization Study 09/91 9645-MA Myamar Energy Assessment 06/85 5416-BA Papua Now Guina Energ Assessment 06/82 3882-PNG Stauis Report 07/83 006/83 Energy Strateogy Paper Institutional Review in the Energy Sector 10/84 023/84 Power Tariff Study 10/84 024/84 Solomon Iands Energy Assessment 06/83 4404-SOL South Pacific Petroleum Transport in the South Pacific 05/86 - Thailand EoorU Assessment 09/85 5793-TH Rural Energy Issues and Opuons 09/85 044/85 Acceleated Dissemination of Improved Stoves and Charcoal Kilns 09/87 079/87 Northeast Region ViDlago Forestry and Woodfuols Proinvestmont Study 02/88 083/88 Imwat of Lower Oil Prices 08/88 - Coal Development and Utilization Study 10/89 - Tongs Enor As t 06/85 5498-TON Vanuatu Enegy Assemet 06/85 5577-VA Western Suno Etorgy Assossmont 06185 5497-WSO SOUTH ASA (SAS) Bangladeh Energy Assssment 10/82 3873-BD Priority Investment Progm 05/83 002/83 Sta Report 04/84 015/84 Power Sydem Efficiency Study 02/85 031/85 Small Scale Uses of Gas Prefeasibility Study 12/88 - 122 COuuuY AcI1i: D1 Number Inlia Opporuitis for Commecialiuton of Nonconventonal Energy Syms 11/88 091/88 Maashta Bagasso Energy Efficiany Proect 05/91 120/91 Mini-Hydro Developmeot on rition Dams and Cal Dmps Voh I, II and m 07/91 139/91 NepaI Ene Assessment 08/83 4474-NEP StUs Report 01/8S 028/84 Pakistan Howehld Energ Asesmet 05/88 - Asement of Photovoltaic Programs, Applications, and Muakts 10/89 103/89 Sdt LAka Energy Assessment 05/82 3792-CE Power System Iss Reduction Study 07/83 007/83 Staus Report 01/84 010/84 Industial Eney Consrnrvion Stady 03/86 054/86 EUROPE AND CENTRAL ASIA (ECA) Portugd Energy Asessmen 04/84 4824-PO Turfty Enfergy Asssmnt 03/83 3877-TU MIDDLE EAST AND NORTH AURICA (MNA) Moroo Energy Assessment 03/84 4157-MOR Staus Report 01/86 048/86 Syria EnerWy AkEassxrl 05186 S822-SYR Electic Power Efficiency Study 09/88 089/88 Energy Efficiency Impovemnt n the Cemoen Sector *04/89 099/89 Energy Efficiency Improvemnt in the Fortiliz Sector 06/90 11S/90 Tunisia Fuel Substitution 03/90 Yemen Energy A m t 12/84 4892-YAR Energy Inveament Priorities 02/87 6376-YAR Household Energy Stategy Study Phase I 03/91 126/91 LATIN AMERICA AND THE CARIEIDEAN (LAC) LAC Reginal Regional Sommer on Electric Power System Loss Reduction in die Canbe 07/89 - Bolivia Enery Asesment 04/83 4213-BO National Energy Plan 12/87 - National Enegy Plan (Spanish) 08/91 131/91 La Paz Private Power Technical Assistance 11/90 111/90 Naural as Distributon: Economics sad Reguklon 01/92 125/92 Prefeaoibility Evaluation Rual EBlectification ad Demd Asment 04/91 129/91 Chile Enery Sector Review 08/88 7129-CH Colombia Energy Sty Per 12/86 - Codtc Rica Eny Asment 01/84 46SS-CR Recommndd Technicel Assistance Projects 11/84 027/84 Foiat Residues Utilizion Study 02/90 108/90 123 County AcdW& Date Number Dominican Energy Assessment 05/91 8234-DO Republic Ecuador Energy Assessment 12/85 5865-EC Energy Strategy Phase I 07/88 - Energy Strategy 04/91 - Haiti Energy Assessment 06/82 3672-HA Status Report 08/85 041/85 Honduras Energy Assessment 08/87 6476-HO Petroleum Supply Management 03/91 128/91 Jamaica Energy Assessment 04/85 5466-JM Petroleum Procurement, Refining, and Distribution Study 11/86 061/86 Energy Efficiency Building Code Phase I 03/88 - Energy Efficiency Standards and Labels Phase I 03/88 - Management Information System Phase I 03/88 - Charcoal Production Project 09/88 090/88 FIDCO Sawmill Residues Utilization Study 09/88 088/88 Mexico Improved Charcoal Production Within Forest Management for the State of Veracruz 08/91 138/91 Panama Power System Efficiency Study 06/83 004/83 Paraguay Energy Assessment 10/84 5145-PA Recommended Technical Assistance Projects 09/85 - Status Report 09/85 043/85 Peru Energy Assessment 01/84 4677-PE Status Report 08/85 040/85 Proposal for a Stove Dissemination Program in the Sierra 02/87 064/87 Ener2x Strategy 12/90 - Saint Lucia Energy Asessment 09/84 5111-SLU St. Vincent and the Grenadines Energy Assessment 09/84 5103-STV Trinidad and Tobago Energy Assment 12/85 5930-TR GLOBAL Energy End Use Efficiency: Research and Strategy 11/89 - Guidelines for Utility Customer Management and Metering (English and Spanish) 07/91 - Women and Energy-A Resource Guide The International Network: Policies and Experience 04/90 - Assessment of Personal Computer Models for Energy Planniig in Developing Countties 10/91 - 156 - - 159 145' ISO' 155' 160' 16$' (SKy 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~IKL NEW .5. f~~~~~~~~~~ReLAND PAPUA NEW GUNA E OUGAINVILtE..ah,I NEW GUINEA ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~BRTI CHOISEUL7 NEW GUINEA ~~~~~~~~~~~Chirovango PAPUA NEW GUINE A _ BOUGAINVILLE 0SNAIAE it' E'~~~~~~~~~~~~~~~~~~~OEOAOIA -- MALAITA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~qEV EOO Nvkiki I. ,Kp,.ki ~ ~ I CIHOISEUL AhADItc.AN4L~ El1 FAURO I A RSOALA1 Lioi ' - SHORTLAND. Q.PoEQQoo MO Aeoo _j Ilnd Sasornvng a SANTA CRUZ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ml ~ ~IIv, ATACu ".,bNila ISLANC)S REN. L II- L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~RNNL -.. _ _ j~J ALU L~E I Ilmse A'I'R KILOMETERS 0 200 400 600 Soo MONO AVSTRALIA TREASU,RY IMILES 0 100 200 300 400 Soo ISLANDS ISAGIENA 150' 155' 160' _____________________________________ 160' 65' 160' 161' 162' PAIIASO FIELD fWMWJ~~~~ I 0Kio 0Svovonao ~~~"'~" Isob'~"Ki SOLOMON ISLANDS ENERGY RESOURCES SANTA ISABEL I~ P1ROPOSEDS RESIDUES FIRED POWER KWAN SITE MbrIcim KOOBNAAPROPOSED KOMARINDI HYDRO POWER PLANT PRC RANONOGA ~Liopori Menokosep0 UOI RPSD ERLU TRG 0' ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 'km"'.~~~~~~~~~~~~~~~~ * smsol"GEOTIIEaMAL OCCURRENCaS ~~NEW GEORGIA~~~~~ E3OSTING BULK PETROLEUM STORAGE A.10 KO"INGO9NEWGEOGIAAL EOSTING SIEA DESEL POWERSTAA1ONS simso ~~~~~~~~~~~~~~~~~~~~~~~~~iiOs\ wiio~UEXISING MNI HYDRO POWER SITES NEW GEORGIA MfAunkqj Totambo au OD ISLANC)S RENDOVA, SAN JORGE REEFSbc Hopo0goa Sulofolon HfOHLANDS (OVER 1,000 FEET 0 ~~~~~~~S;Ohe D*l Western SELEukD TOWNSiANALAITAGES NOGAOKA R.f. M LAIA POVINa BOUNDARIES RUSSELL ISLANDS P~~~~~~LORIDA ISLANDS- - INTERNAONAL. BOUNDARIES PAVUVU NGGELA SULE Oobt This map has bean prpepare by The Worl 8anAs stgaffekuiatly for Mel converwiece of 0 oigHlaNGLJPIE AMAWJM l't Mie readers and is exckisivey for the0 uiemal use of Tha Woild aw* and ame kheiwm&oeil* Itw OEAPL Fiswne CorporboAl The damtw*atons used &VI the b wdnose stiomw mi ,' iS, ,) ntMANA *SAV ffPilY. On ltha Part of T'he WoddSw*an and fte Iltepmalonl Financ Cofporalion any Jugment eliM on tMe tegal slahus of any temrtlofy or all medorsenlnt or eccepta,ce of suc Nourd '= vis, Ideuliulb 165' 1;66. 167' 1j 5 Hnioa I Tter 591 o,nr Centrol Islands AEISND RONr ______ f edIeo~~~~~~~~~~~~~~~~~Tngrae) -.,,~~ELLONA Inset A II' Eastern ISLANDS Inset B 10' WESTGLIA0ALCANA~~~~~~~~~~~~~Tongororeo -~~~ *Q~~c1A liv Mbolo Rokero~Q"OA Ap0Leche ,~~ RENNELL SANTA CRLJZ 11' j Centraln IlanIslRode Kanggoe'~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Tawerallo ~~~~~~~~~~~~~~~~~~~~~~~~~~~ _~) fri Inset INnseo tUA 8 IN $.j .1 VANIKOLO SAN CRISTOBAL~~~~~~~~~~~~~~~~GADLCNA rr I MILBSO 6Guaalana0 M 160' 166' 167' 11' 159' 160' 161' 162'a Mmowtu Na Makira Ulawo~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~MAC