75905 February 2011 PPIAF Assistance in Vanuatu Vanuatu’s geographic and demographic structure poses a significant constraint to development. Less than 200,000 people are scattered on about 80 widely distributed islands, making travel both difficult and costly. Only a fifth of the population lives in urban areas and participates in the formal sector, while 40% of the population is below 15 years of age. The provision of basic services—water, electricity, and telecommunications—is inadequate and characterized by high tariffs and cross-subsidies. The service providers, mostly private sector and operating as loosely regulated (by contract) monopolies, mainly drive these infrastructure sectors. In 2003 the government of Vanuatu requested PPIAF support to strengthen Vanuatu’s regulatory framework and assist the government in establishing a multi-sector regulator. PPIAF assistance was provided to Vanuatu to (i) review the performance of the electricity, water, and telecommunications sectors; (ii) review the current regulatory arrangements, as well as industry and market structures for the utilities against good international practice; and (iii) recommend specific regulatory and institutional changes for the government’s consideration. The analytical work built on a World Bank and PPIAF- supported study that looked at regulatory frameworks and transaction models for private participation in infrastructure in Pacific Island countries such as Fiji, Kiribati, Samoa, and Vanuatu. In October 2006 PPIAF also supported a workshop to build consensus among Ministers and key officials, which included the re-engagement with the new Cabinet on the overall intent and direction of infrastructure sector reforms. This was important given the period was one of very significant political upheaval and uncertainty in the nation. A set of draft administrative documents and guidelines on the responsibilities, structure, operation, and implementation of a multi-sector regulator was discussed during this workshop. After gaining consensus on next steps, PPIAF-funded consultants helped draft legislation and other documents detailing the responsibilities and structure of a multi-sector regulator, the Utilities Regulatory Authority (URA). Aid from the Australian Government and the World Bank was extended to further undertake consultations and technical assistance on the proposed regulatory changes, specifically on the establishment of the URA. Finally, in 2007, the Vanuatu Parliament voted to implement the “Utilities Regulatory Authority Act,� 1 establishing a new institution with oversight duties over the water and electricity sectors . On February 11, 2008 the URA—the first such institution in the history of the country—started its mandate of oversight of water and electricity services. To head the URA, a three-member Commission was recruited, consisting of two native Vanuatu commissioners and one internationally recruited commissioner selected to build local capacity. The URA has assumed responsibility for the ongoing monitoring and compliance of electricity and water concession agreements and is now working on reviewing electricity and water tariffs to ensure that citizens pay a reasonable cost for the service and at the same time allow the private company to operate as a commercial enterprise. Results of PPIAF’s Activities in Vanuatu Category Outputs Enabling environment reform  Infrastructure regulatory review for the government of Vanuatu, Analyses/assessments prepared 2005 Policies prepared or legal or  Regulatory strategy and draft Utility Regulatory Authority (URA) regulatory changes recommended of Vanuatu bill, 2007 Capacity and awareness building Workshops/seminars  Workshop on the formation of URA for Vanuatu, 2006 1 Vanuatu’s telecommunications sector was liberalized in 2007. An interim telecommunications regulator was put in place in 2008 to ensure the transition to a competitive market. 1 Category Outcomes Enabling environment reform  The URA Act was passed in 2007 and established the multi- Policies adopted, legislation sector regulator, the URA, to act as an independent advisory passed/amended, or regulations body to the government in matters relating to regulated services issued/revised and to set safety, inspection, and reliability standards, as well as set tariffs for the provision of water and electricity services Institutions created or  URA established on February 11, 2008 strengthened Capacity and awareness building  Draft documents and guidelines on the responsibilities, structure, Consensus achieved operation, and implementation of a multi-sector regulator were discussed and agreed upon 2