61 I..... ..... ..... .... . ... ... .. ..... .... . ..... .... ..... . . 114 ev--A i2 ... . . ....... na" uow woew wxww.& Al ` zl . ... .... ..... .. .. ..... . LN In It 15 84 ... . ......... . ft' .. ... . .... . .. .... ... .... ... .... ..... SZ Y CURRENCY EQUIVALENT US$1.00 - T$1.25 (February 1991) FISCAL YEAR July 1 - June 30 ACRONYMS ADB - Asian Development Bank AIDAB - Australian International Development Assistance Bureau CA - Competent Authority, Ministry of Labour, Commerce and Industries EC - European Community EPU - Energy Planning Unit, Ministry of Lands, Survey and Natural Resources ESCAP - Economic and Social Commission for Asia and the Pacific FSED - Forum Secretariat Energy Division FSP - Foundation for the Peoples of the South Pacific MAFF - Ministry of Agriculture, Forestry and Fisheries MLCI - Ministry of Labour, Commerce and Industries MLSNR - Ministry of Lands, Survey and Natural Resources NEC - National Energy Committee PEDP - Pacific Energy Development Programme SOPAC - South Pacific Applied Geoscience Commission SPIRE - South Pacific Institute for Renewable Energy SPREP - South Pacific Regional Environment Programme STABEX - an export earnings stabilization scheme TEPB - Tonga Electric Power Board ABBREVIATIONS ADO - automotive diesel oil DWT - dead weight tonne kgoe - kilograms of oil equivalent LCT - local coastal tanker LPG - liquified petroleum gas LV - low voltage MR - medium range tanker MV - medium voltage MT - metric ton PV - photovoltaic TOE - tonnes of oil equivalent This report is based on the findings of an energy assessment mission that visited Tonga in February 1991. The mission comprised Truls Holtedahl (mission leader - consultant), David Cleland (renewables specialist - Pacific Energy Development Programme), Peter Hunt (senior project engineer - Asian Development Bank) and June Morgan (petroleum officer - Forum Secretariat). FOR OFFICIAL USE ONLY Pacific Islands Series Report No. 1 Volume 10 TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR August 31, 1992 Abstract Tonga is a small Pacific island country, with an open economy. The Government should improve its management of the energy sector by reviving the National Energy Committee and redefining the resporsibilities of the Energy Planning Unit. Given the lack of domestic resources for operation anid maintenance, the report recommends that the Government avoid schemes with high recurrent resource requirements, train nationals in energy analysis, and consider implementing only a limited number of projects. There is a need to install power genieration capacity, rehabilitate the existing capacity, and reduce distribution losses. There should be a review of the responsibilities and powers of TEPB, the power utility, and an improvement in its accounting, audit and management information systems. In the petroleum sector, the report recommends that the Government improve its monitoring of commercial arrangements and physical standards related to petroleum imports. As the share of commercial energy increases, energy conservation should be emphasized by ensuring that users generally pay the full cost of energy supply. Given the limited knowledge of the biomass resource, the high dependence on biomass for cooking, reported local deforestation and increasing prices for traded fuelwood, there is a need for a study of the demand and supply/resource situation with respect to wood and woodfuels. There should also be a study of the institutional and infrastructure requirements prior to any further extensions of the Government's program for solar photovoltaic systems on the outer islands. Industry and Energy Operations Division Country Department III East Asia & Pacific Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. '- contents may not otherwise be disclosed without World Bank authorization. TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR Table of Contents Page No. SUMHARY AND PRINCIPAL RECOMMENDATIONS . . . . . . . . I. ECONOMIC AND INSTITUTIONAL CONTEXT . . . . . . . . . . . . 1 Energy in the Economy ................. 1 Institutional Framework . . . . . . . . . . . . . . . . 5 II. ENERGY CONSUMPTION............ 7 The Structure of Energy Consumption . . . . . . . . . . 7 The Consumption of Petroleum Products . . . . . . . . . 8 The Consumption of Electricity . . . .. . . . . . . . 9 Biomass and Household Energy Consumption . . . . . . . . 10 New and . Renewable Sources of Energy . . . . . . . 12 III. ENERGY SUPPLY . . . . . . . . . . . . . . . . . . . . . . 14 Petroleum Products . . . . . . . . . . . . . . . . . . . 14 Electricity ... ........ .........16 Biomass ..............* ....19 New and Renewable Energy Technologies . . . . . . . . . 23 IV. PCLICY ISSUES AND PRIORITIES . . . . . . . . . . . . . . . 26 Pricing Issues...... .... ... . . .. . . 26 Petroleum Product Pricing . . . . . . . . . . . . . . . 26 Power Tariffs and Utility Finance . . . . . . . . . . . 28 Environmental and Regulatory Issues . . . . . . . . . . 29 V. INVESTMENT AND TECHNICAL ASSISTANCE PRIORITIES . . . . . . 31 Sectoral Planning and Coordination . . . . . . . . . . . 31 Power Subsector . . . . . . .. . . . . . . . 34 Petroleum Subsector . . . . . . . . . . . . . . . 34 Biomass and Other Renewables . . . . . . . . . . . . 35 Tables 1.1: Petroleum Products and the Commercial Balance, 1985-89 . . 3 2.1: Energy Consumption, 1989 and 2000 . . . . . . . . . . . . 8 2.2: Petroleum Product Imports, 1990 and 2000 . . . . . . . . . 9 2.3: Performance of Tongatapu System, FY 1983-90 . . . . . . . 10 2.4: TEPB Power Demand Projections, 1991-2000 . . . . . . . . . 11 2.5: Estimated Biomass Consumption, 1989 . . . . . . . . . . . 12 3.1: TEPB Power Supply and Demand Situation, 1990 . . . . . . . 17 3.2: Biomass availability estimate, 1989 . . . . . . . . . . . 21 3.3: Coconut Residue Balance ................ . 22 ENERGY CONVERSION AND MEASURFNENTS Typical Typical Gross Gross Oil Unit Densi y Density Energy Energy Equiv. kg/liter 1/ton MJ/kg MJ/liter toe/unit (net) Biocass Fuels Puelvood (52 mcwb) tonne 18.0 0.42 Coconut Residues (air dry)/a Shell (15% mcwb)b,.,,,t.d tonne 14.6 0.34 Husk (302 mcwb)b, oted tonne 12.0 0.28 Average (air dry)jb tonne 14.0 0.33 Coconut Palm Wood (air dry) tonne 11.5 0.27 Charcoal 30.0 0.70 Vegetable and Hineral Fuels Crude Oil tonne 42.6 1.00 noconut Oil tonne 0.920 1,100 38.4 0.90 LPG (propane) tonne 0.510 1,960 50.0 25.5 1.17 Ethanol tonne 27.0 0.63 Gasoline (Super) tonne 0.730 1,370 46.5 34.0 1.09 Gasoline (Unleaded) tonne 0.735 1,360 46.5 34.2 1.09 Aviation Gasoline (Avgas) tonne 0.695 1,440 47.5 33.0 1.12 Lighting Kerosene tonne 0.790 1,270 46.4 36.7 1.09 Power Kerosene (Avtur, DPK) tonne 0.795 1,260 46.4 ' 36.9 1.09 Automotive Diesel (ADO) tonne 0.840 1,190 46.0 38.6 1.08 High Sulphur Fuel Oil (IFO) tonne 0.980 1,020 42.9 42.0 1.01 Low Sulphur Fuel Oil (IFO) tonne 0.900 1,110 44.5 40.1 1.04 Zlectricity (MWh) Hydro /c MWh 0.25 Fuelwood /d MWh 0.93 Fuel Conversion Efficiency Diesel: Text uses actual where known, otherwise: Average efficiency for small (< 100 kW output) diesel engine 0.461/kWh (22%) Average efficiency of large (> 1000 kW output) modern diesel 0.284 l/kWh (36!) Average efficiency of low speed, base load diesel (Pacific region) 0.30 - 0.33 1/kWh (282 - 32! eff). Areas 1.0 km2 - 100 hectares - 0.386 mi2 1.0 acre - 0.41 hectares Mass: 1.0 long tons - 1.016 tonnes Energy: 1 kWh - 3.6 MJ - 860 kcal - 3,412 Btu - 0.86 kgoe 1 toe - 11.83 NWh - 42.6 GJ - 10 million kcal - 39.68 million Btu 1 MJ -238.8 kcal - 947.8 Btu - 0.024 kgoe - 0.28 kWh. /a Average yield of 2.93 air dry tonnes residues/tonne copra produced (Average NCV 14.0 MJ/kg) /b Proportion: kernel 33!, shell 23!, husk 442 by dry weight. c Assumes conversion efficiency of 30!. a Assumes conversion efficiency of 9% (biomass - fuelled boiler). SUMMARY AND PRINCIPAL RECOMMENDATIONS Enerav and the Economy 1. The Kingdom of Tonga is a small Pacific island country with a GNP/cap of about US$800, a land area of about 750 kM2, and a population of about 95,000 dispersed over 36 islands. It has an open econorv, and is completely dependent on oil imports for its commercial energy needs. Some of the principal energy issues are related to these characteristics. In addition, the general scarcity of technical and management skills affects the country's ability to manage the energy sector and reduces the scope for effective policy-making and follow-up. 2. The dearth of experienced and well-educated people is partly related to the emigration of Tongans which explains the fact that the population has remained stable over the last decade. The main economic sector, agriculture, is experiencing labor constraints. On the other hand, large sums of remittances from the emigrants flow into the country, together with substantial official foreign assistance. These cdmpenseate for a small and narrow export base and enable the country to meet its relatively large import bill, of which oil products account for 10-15%. The economy is estimated to have grown by some %.5Z p.a. during the 1980s and is expected to slightly improve its performance over the next decade. No major projects or other developments are foreseen over the medium term that would in any significant way affect the present trends in energy requirements. Energy Consumption and Resources 3. The pattern of energy use in Tonga is characterized by a high reliance on biomass. Fuelwood and coconut residues supply close to 60% of total energy consumed, used mainly for households and in agricultural processing (copra drying). Commercial energy in the form of petroleum products, roughly a quarter of which is converted to electricity, accounts for the balance. Final energy consumption, totalling 47,000 tons of oil equivalent (TOE) or approximately 500 kgoe per capita is low but consistent with estimates for several other island countries in the region. Electricity represents only 3% of final energy consumption despite the fact that close to 80% of the potential residential consumers are already served. The small industrial and commercial sectors account for only 8% of final energy consumed. Households and the transport sector are the major energy consumers, with some 55% and 37%, respectively, of total consumption. 4. Tonga's indigenous energy resources are limited. Unlike some other Pacific island countries, there is no hydroelectric or geothermal potential. Electricity generation is therefore entirely diesel-based. Exploration for hydrocarbons have to date given no results. Some encouraging indications warrant, however, the continuation of a limited effort by the GOT to attract private investors for further exploration. Wave energy has been investigated but is not being pursued actively as an alternative at present. Therefore, Tonga's only immediately available resources are its depleting wood stock, abundant coconut residues and solar energy. Limited knowledge and data are available as to the size of the present wood stock. The depletion of wood resources is mainly caused by the pressure on land for agricultural purposes on some of the islands. - ii - caused by the pressure on land for agricultural purposes on some of the islands. Th, country is increasingly relying on imported oil to satisfy its energy needs. It is vulnerable to axternal events that affect the price and availability of petroleum products and the export potential and foreign currency flows from remittances and aid. Constraints and General Issues 5. Despite the very narrow energy resource base, Tonga has been able to maintain a reasonably secure and uninterrupted supply of energy at prices which are in line with other island countries in the region. Factors related to the economy and society in general limit, however, development of the energy sectors - Lack of domestic resources and public underbudgeting for operation and maintenan,e exponses have as consequences that expected energy project benefits often are not realized, project life is shortened, or projects or programs may totally fail. It is, therefore, important that the GOT, through the Ministry of Lands, Survey and Natural Resources and its Energy Planning Unit, emphasizes a policy of project selection that avoids schemes and technologies with high recurrent manpower and financial resource requirements. - Shortage of managerial and technical skills reduces the capacity of the country to devise sound energy policies, plan and design projects and programs, and monitor their implementation. Two avenues that aim to deal with these shortcomings are emphasized: (a) higher priority should be given to training of nationals in energy planning and project assessments, complemented by external expertise in staff or lJne functions of the energy institutions; and (b) the number of energy options pursued by Tonga should be restricted te those that are proven tecninologically and economically for circumstances similar to those in Tonga and which can have a significant impact on the energy situation of the country. The GOT should emphasize proper management of existing alternatives and resources and avoid spreading limited institutional and technical capacity more thinly than necessary. - Small and dispersed markets for energy (a) increase the cost of power generation and distribution and the supply of petroleum products, and (b) create problems in establishing institutional arrangements to provide adequate maintenance and support services, whether for grid- supplied electricity or for photovoltaic installations, especially on outer islands. The latter factor points to the need to focus on energy alternatives and technologies that are robust and require a minimum of maintenance. 6. Other energy-related issues are: - Increasing capital intensity of the energy .sector follows from the rapid growth in consumption of commercial energy, in aggregate by more than 8% p.a. during the period 1983-89. As a result, a US$9.3 million electric power project consisting mainly of generating and distribution equipment will be implemented over the next couple of years. In the petroleum subsector, there are plans to review the - iii - adequacy of petroleum supply and distribution arrangements. This may result in the construction of additional storage facilities. The conpequences of greater capital intensity are increasing claims on foreign currency resources and on domestic capabilities to handle relatively complex projects and investments. - As commercial energy increases its share of the country's total energy requirements, energy conservation among producers and conaumera responsive to energy-saving measures takes on greater importance. Despite practical and political considerations, the GOT should firmly support and encourage initiatives in the areas of (i) energy pricing to ensure that users generally pay the full cost of supply; (ii) electricity loss reduction from the relatively high level in the systems; and (iii) measures to save energy in government buildings and vehicles, given the importance of the public sector in the economy, but also to demonstrate leadership to the general public wher. it comes to energy saving. Principal Recommendations 7. To summarize the general points raised above, it is recommended that the GOT adopt: - a critical attitude in the selection of energy alternatives and technologies to avoid projects with high recurrent financial and manpower resource requirements; - a policy that limits the energy options to robust technologies that have been proven operationally and economically in environments similar to that of Tonga; - a policy that focuses on managing fewer projects and existing resources well, rather than spreading too thinly limited technical and institutional capacity; and that the GOT: - demonstrate its firm support for energy conservation by adopting relevant pricing ptlicies and encouraging direct demand management measures; - give higher priority to training of nationals in energy planning and project assessment, and actively seek external expertise to manage key functions until domestic capabilities have been developed. Power Subsector 8. Main characteristics of this subsector are thc~ high demand growth over recent years and a lack of generation expansion leading to deficiencies in capacity. The latter has been exacerbated by the unreliability of existing plants due to lack of spare parts and regular maintenance work. The Asian Development Bank (ADB) has approved a project which will rehabilitate and expand - iv - present generating capacity and distribution systems, and provide for maintenance spares, training and further studies. 9. Supporting the capacity expansion and rehabilitation program, there should be increased emphasis on the regular training of the operation and maintenance staff of TEPB (Tonga Electric Power Board) and on further reduction of distribution losses. Furthermore, it is recommended thats - the GOT request ADB to include in the upcoming study of supply in remote areas, an outline of basic criteria for the selection of new areas to be served by electricity, possible service levels, sources of funding (including user participation), and a proposal that considers the possibility of an alternative institutional arrangement to TEPB as the agency responsibJe for rural electrification. This study is required to provide a proper framework and policy guidelines as TEPB is coming under increasing pressure to provide electricity to additional outer islands; - there be (i) a review of the TEPB Act to redefine the utility's responsibilities and powers, and (ii) a study to develop TEPB's corporate and financial objectives and improve its accounting, audit and management information systems; - the Government follow-up on the planned ADB-financed study of electricity tariffs based on the long-run marginal cost of supply taking also into account TEPB's investment and financial requirements; and - in connection with the ADB power development project, suitable disposal methods for waste oil be investigated and implemented. Petroleum Subsector 10. All the main activities in the subsector are carried out by the private sector which also owns the major investments. This arrangement is satisfactory but the GOT through its various agencies needs to improve its monitoring of commercial arrangements and physical standards. To this end and in order to be an informed partner in a dialogue with the oil companies, it is recommended that the Energy Planning Unit (EPUj devote more attention to the subsector, establish a proper petroleum data base and, together with the oil companies, prepare demand projections as a basis for reviewing storage capacities and distribution arrangements for the main islands, including the possible need for security stocks. 11. It is recommended that a request for such assistance be forwarded to a suitable agency such as the Forum Secretariat who may also be consulted on the issue of optimal supply arrangements for petroleum products to the country, given the new situation created by the establishment of the Fiji National Petroleum Company (Finapeco). In this connection, dual price monitoring is recommended, to record landed costs according to both the existing price formula and any new supply arrangements. Despite Finapeco, a local refinery or entrepot operations are not justified. -v - 12. It is recommended that the GOTt - consider introducing a Petroleum Standards Act coupled with procedures for monitoring adherence to the standards, in order to ensure that petroleum imports meet international product quality requirements; - introduce and monitor physical standards for petroleum storage and distribution to reduce the risk of accidents. The Forum Secretariat which is preparing regional petroleum storage and handling standards or some other suitable agency could be approached; - request the South Pacific Regional Environment Programme (SPREP) to assist it in updating its plans and procedures for preventing and dealing with oil spills and for disposing of waste oil, as well as training of personnel; - with respect to prices and pricing of petroleum products, * carry out a review of the price formula, the basis for landed costs, and a verification of the oil companies' cost elements (which should also be audited on a regular basis); * reassess GOT charges (taxes and duties) on petroleum products, striking a balance between energy conservation, fiscal needs, competitiveness and social concerns; and * improve fiscal controls by reviewing collection policy and procedures; and - improve fuel purchasing procedures by requesting tenders for all public fuel requirements. Renewable Energy 13. With the limited knowledge of the biomass resource situation, high household dependence on biomass for cooking need., reported local deforestation and increasing prices for traded fuelwood, it is recommended that a study of the demand and supply/resource situation with respect to wood and woodfuels be carried out. Since the perspective of such a study would be much broader than energy aspects alone, it should probably be organized by the Ministry of Agriculture, Forestry and Fisheries, in consultation with the Ministry of Lands, Survey and Natural Resources. The latter should follow up with energy-related initiatives, depending on the findings. 14. The application of renewable energy technologies should be carried out selectively and following a strategy that emphasizes the needs of the country and the users, based on alternatives that can be justified from a technical and economic point of view. The country's limited resources should r.t be expended on pilot projects and schemes utilizing unproven technologies with a limited impact on the energy situation. This would apply to wind, wave and OTEC where any efforts should be at the full cost of donors. Power generation based on wood fuels should not be pursued by the GOT or TEPB due to its lack of success elsewhere. - vi - 15. Pending the possible implementation of an ambitious GOT program of photovoltaic systems on outer islands, the mission recommends a thorough study of the institutiona1 and infrastructure requirements prior to any extensions. Manpower and funding needs must be examined, and a policy of user participation, including payment, be formulated. Organizations in the region with broad experience in the field should be approached. Sector Plannine and Coordination 16. The main institutionaI shortcomings of the energy sector are the low priority accorded overall management of the sector, and the lack of focus on important energy issues that require attention of some central authority. The principal objective of providing leadership to the aector is to contribute to a balanced approach between energy resource development and supply, on the one hand, and energy conservation, on the other. To this end, it is necessary to redefine the objectives and functions of the central energy institutions and increase the allocation of human and financial resources. 17. It is recommended that: the National Energy Committee (NEC) be revived and assume the responsibility for formulating energy policies, for reviewing major investment projects and pricing proposals, and for providing overall coordination in the sector. This is important due to weak linkages and communication between subsector institutions; and - the Energy Planning Unit (EPU) in the Ministry of Lands, Survey and Natural Resources serve as a secretariat for NEC and, furthermore, monitor the implementation of adopted policies and measures, ensure that least cost development plans are formulated and adhered to by subsector institutions, build up an energy data base, and provide guidelines, advice, information, to subsector- and other energy- related institutions. The EPU must avoid direct involvement in or responsibility for the implementation of energy projects and programs. 18. In relation to the individual subsectors, EPU should primarily rely on existing institutions and bodies (TEPB, the oil companies, etc.) for planning and implementation, but it should ensure that relevant options are considered prior to system expansions, be consulted on pricing matters, ensure adherence to technical and other standards, advise the GOT on petroleum matters and keep abreast with developments within this subsector, assess, filter and solicit donor projects in the field of renewable energy technologies, and be the primary GOT agency when it comes to taking initiatives aimed at energy conservation. 19. As some of these tasks come up with infrequent intervals, require particular expertise, and may exceed the capacity of the Unit, EPU should have the authority, in consultation with the Central Planning Department and the Ninistry of Foreign Affairs, to approach donors for funding of studies and manpower assistance, when required. 20. It is recommended that EPU be staffed as follows: - an energy planner (as present) with a technical background; - vii - - an energy officer (vacant position) with a background in economics; - two trainees. For a period of two years at least, the Unit will require the support of a senior energy expert, probably expatriate, to advise EPU on technical issues and assist in developing the local capability in energy plnnin3 and management, including the preparation and monitoring of the implementation of a training program. The GOT could consider requesti:g agencies sue.h aC ADB or UNPP (the latter posoibly for UNV (United Nations Volunteer) positions, or relevant bilateral organizations for assistance. In return, the GOT would have to commit resources to fund the local positions. I. ENERGY AND INSTITUTIONAL CONTEXT Energy and the Economv 1l1 The Kingdom of Tonga comprises four main groups of coral islands-- Tongatapu and 'Eua in the south, Ha'apai in the center, and Va'vau in the north-- and a number of small volcanic islands. Of the2approximately 170 islands in the Kingdom, with a total land area of about 750 km , only 36 islands are inhabited. Tonga's sea area is about 0.7 million km2. Nuku'alofa, the capital, is located on the largest island, Tongatapu. 1.2 The total population is estimiated at about 95,000 in 1990, more than two-thirds of whom live on Tongatapu. The average annual growth rate since 1976 has been only 0.5Z (and even lower in recent years) because of substantial emigration to Australia, New Zealand and the United States. It is estimated that between 35,000 and 45,000 Tongans are living abroad. Tonga is predominantly rural, with the majority of the population (approximately 70%) depending on agriculture for livelihood, often in combination with fishing. Rural production is mostly at a semi-subsistence level. 1.3 Besides its marine resources, Tonga's main physical asset is its generally fertile land. However, agricultural production is frequently affected by natural disasters. The estimated GNP per capita of US$800 places it in the lower middle-ircome group of countries. Selected indicators are shown in the Statistical Annex, Table 1. 1.4 Tonga's economy depends heavily on remittances from Tongans abroad and substantial inflows of official assistance. Remittances received from emigrants have amounted to more than twice the merchandise exports and about 30% of GDP in recent years. Foreign official assistance of about US$240 per capita supports a large public sector. Tonga is probably absorbing less assistanice than donors are willing to contribute, due to a lack of viable projects and planning and implementation constraints. 1.5 Agriculture and services are the most important sectors of the Tongan economy. Agriculture contributes to more than 40% of GDP 1/ and virtually all production originates on small-scale landholdings. The small manufacturing sector, which accounts for only about 10% of GDP, includes the processing of coconut products and businesses located in the industrial processing zone near the capital. The large part of GDP generated in the services sector reflects the importance of Government expenditure and official assistance. 1.6 Exports are equivalent to about 10-15% of GDP, consisting of a small range of goods because of the narrow productive base (primary commodities like coconut products, vanilla, fish, etc., comprise about three fourths of exports). Imports art equivalent to more than 50Z of GDP, reflecting the open nature of the I/ No official accounts has been produced since the early 1980s and figures are based on estimates by the World Bank and the Treasury. See: "Towards Higher Growth in Pacific Island Economies: Lessons from the 1980s". World Bank, Report No. 9059-ASIA, January 1991. -2- economy. The large negative trade balance has been more than offset by remittances and official aid, allowing a build-up in reserves in most years. 1.7 Since 1981/82, the Tongan economy has expanded by about 2.5Z p.a. in real terms,*2 partly due to prudent fiscal policies and a set of adjustment policies designed to restructure the economy towards more efficient export- oriented activities. However, the overall performance of the economy slowly weakened towards the end of the decade, and the agricultural sector generally stagnated during the 1980s. 1.8 Overall, in the 1990s, the economy is expected to grow at an annual average rate between 32 and 3.5Z in real terms. This expectation assumes good prospects for vanilla and other non-traditional export crops, successful GOT policies that will foster growth in agriculture and improve the incentive structure in the manufacturing sector, and continuation of substantial private remittances and official assistance. The manufacturing sector is expected to grow at around 62 p.a., which is close to the rate in 1980s, without any major new industrial or commercial projects expected to come on line that would significantly alter past trends in output or energy requirements. Eneray Resources and Consumption 1.9 Tonga's indigenous energy resources are limited; there is no significant hydroelectric or geothermal potential. Wind and ocean-thermal energy -ill not be sources of energy of importance in the near future. While there are indications of hydrocarbon resources, exploration results to date have given no results and only warrant the continuation of a limited effort by the GOT to attract private investors for further exploration. Therefore, Tonga's only immediately available indigenous resources are its wood stock, coconut residues, and solar energy. All commercial energy is derived from imported oil. 1.10 In terms of energy content, around 60% of Tonga's total energy constu.ption is indigenous biomass (wood and coconut husks and shells), predominantly used by households but also in agro-industries. Transportation and power generation are the main uses of petroleum products. In the absence of economic substitutes for petroleum, there is limited scope for reducing petroleum imports. By 2000, petroleum products will represent around 55% of total energy use, driven by large increases in fuel consumption for transportation and electricity generation. This dependence on imported petroleum products makes the economy and the energy sector vulnerable to supply and price fluctuations. It also points to the need to keep under observation the country's petroleum procurement and supply arrangements to ensure that the least cost alternatives for the country are pursued, and to monitor the oil companies' costs and cost components under the regulated price formula. 1.11 While the volume of oil imports grew by around 402 between 1985 and 1989, the corresponding value in current US$ increased by only 112 to approximately US$5.9 million. The value of petroleum imports as a percentage of the value of exports has declined from the extremely high values (generally greater than 1002) in the first half of the decade, but is still very large at 2/ With only 0.52 p.a. population growth, this performance is impressive. around 60-70% (Table 1.1). In 1989, petroleum products accounted for only around 112 of total imports, but the petroleum bill is still a major concern of the authorities, both in terms of its absolute size and in view of the volatility of the prices of the country's exports and of imported oil. Table 1.1: PETROLEUM PRODUCTS AND THE COMMERCIAL BALANCE, 1985-89 /a 1985 1987 1989 Imports of mineral fuels, etc. (US$ million) 5.3 4.9 5.9 As 2 of total imports 15 11 10 As 2 of total exports 74 67 66 /a Years refer to end of fiscal year ending June 30. Source: Statistical Abstract, Statistics Office; mission estimates. Energv Conservation 1.12 In principle, energy conservation has an important role, but in practice it has had a low priority, partly because conservation projects are difficult to define, implement and monitor, and their benefits are less apparent than a power project or an extension of the distribution system. Further, the most effective instrument of demand management, appropriate energy prices that reflect the economic cost of production, may rot be easy to implement for political reasons. Nevertheless, the benefits of energy conservation are important: (i) higher energy efficiency reduces oil consumption and imports, thereby reducing the country's vulnerability to forces outside its control; (ii) energy efficiency projects offer a return that makes them economically and financially attractive; (iii) improved efficiency in some cases provides the opportunity for postponing investments and reducing the need to contract new debt that requires foreign currency; and (iv) energy conservation has environmental benefits. 1.13 The two main targets for conservation initiatives are losses in the electricity supply system, and the use of electric power and petroleum products in buildings (air-conditioning and lighting loads) and motor vehicle fleet of the GOT itself. These are areas in which some central, direct intervention initiative has a greater chance of implementation than initiatives involving a large number of independent actors. Tonga's electricity system losses are high, and significant reductions are feasible. Use of the price mechanism and campaigns to heighten the general public's awareness of the benefits of conservation are probably at this stage the main avenues to counter increases in vehicle fuel consumption, but the GOT itself has a particular responsibility both as owner of a large pool of vehicles and as a "model" for the population. Identification and implementation of other areas amenable to conservation efforts should have high priority at the Government level. -4- Constraints to Energv Development 1.14 In Tonga, there are three main constraints on energy development: (i) limited domestic financial resources, (ii) shortage of managerial and technical skills, and (iii) small and dispersed energy markets. 1.15 To some extent, external financial assistance compensates for limited domestic financial resources, but donors prefer to support mainly capital projects, and are generally reluctant to provide funds for recurrent costs. Further, the GOT, for lack of domestic funds, tends to severely underbudget operating and maintenance expenses. The result is investment projects with shortened economic lives. To reduce the risk of malfunctioning or even total abandonment of energy schemes, it is recommended that the GOT, as a general policy, try to design and select energy projects and technologies that have low recurrent manpower and financial resource requirements. This should be an important task of the EPU. 1.16 A shortage of managerial and technical skills constrains Tonga's capacity to devise sound energy policies, monitor their implementation, and operate complex energy schemes. From the energy perspective, there are two main ways of dealing with this constraints3/ (i) training and transfer of skills through technical assistance as a continual and persistent effort, and (ii) a realistic evaluation of the energy options that Tonga should be developing, with or without external donor assistance. It is recommended that the GOT emphasize proper management of existing energy resources, and not spread limited institutional capacity too thinly. In particular, new options should be restricted to those that are technologically and economically proven for circumstances similar to those in Tonga, and which can have a meaningful impact on the energy supply. 1.17 The island nature of the country and the pattern of settlement in small villages and isolated clusters imply small and dispersed markets for energy. Consequently, the distribution of petroleum products, especially to the outer islands, is costly. Further, power supply is costly, due to generation and distribution with small loads, and based on expensive diesel at the outstations. There are also difficulties in establishing an infrastructure to provide adequate support services, whether for grid-supplied electricity or for photovoltaic installations on outer islands. Finally, power demand forecasting is made difficult in small systems susceptible to the timing of one or a few new major energy-using projects. This requires a high degree of flexibility in planning and places a premium on energy projects with short implementation time. At present, Tonga has to accept the adverse consequences of the small and dispersed nature of its energy markets. However, the distribution and storage of petroleum products to the outer islands are areas for which improvements may be possible. Infrastructure and maintenance problems in remote areas favor energy options that are robust and can largely be serviced by the users themselves. 3/ Outside the scope of this study but affecting energy sector management is the complex issue of institutional weaknesses in government and the public sector in general, such as availability of qualified national candidates for public sector positions, salary levels, management skills, motivation, staff turnover, and institutional memory. 1.18 Despite these qualifications with respect to energy resources, the availability and cost of energy do not appear to have been major constraints on economic development in Tonga.4/ Institutional Framework 1.19 The Ministry of Lands, Survey and Natural Resources (MLSNR) has overall responsibility for energy-related matters. An inter-ministerial body, the National Enerav Committee (NEC), was established in 1979 to report to the Cabinet on energy matters and to formulate national energy policy, but the Committee has not met for several years. Following the 1990-91 Gulf War crisis, a Crisis Committee was established (with membership partly overlapping that of NEC) to advise the GOT on how to deal with the impact of petroleum supply and price disturbances. The Committee had met twice by February 1991. MLSNR provides the secretariat for the NEC. 1.20 The Enerav Plannint Unit (EPU) was established within MLSNR in 1983. The EPU is mainly involved in the implementation of solar energy projects, public awareness campaigns on renewable energies and conservation, and some limited tasks related to the petroleum subsector. MLSNR also has a Geology Section, which coordinates petroleum exploration, and a Section for Ecology and Environment (see Annex 1.1). 1.21 Besides MLSNR, several other GOT bodies and the private sector are involved in energy and energy-related matters. The Tonea Electric Power Board (TEPB), established under the Tonga Electric Power Board Act of 1949, is a wholly GOT-owned entity vested with the sole authority to generate and distribute electricity in the country. TEPB's management is supervised by ten Board Members, of which three are Cabinet Ministers, with the Minister of Finance as Chairman. The day-to-day operations of TEPB are the responsibility of a management team comprising the General Manager, the Chief Engineer-Generation, the Chief Engineer-Electrical, the Finance Manager, the Acting Chief Accountant, the Administration Manager and the Merchandising Manager. The management team reflects TEPB's five primary operating functional areas (Annex 1.2). It is recommended that the GOT consider reducing the size of the Board and changing its composition to reflect the need for greater efficiency and autonomy on the part of TEPB. 1.22 At the end of 1990, TEPB's total staff numbered 265, of whom 108 were permanent and 157 were contractual. Tonga has a limited number of skilled technical and managerial personnel and TEPB finds it difficult to recruit and retain staff members with the required qualifications. Therefore, for the higher grade positions TEPB has had to rely on expatriates. TEPB is actively attempting to rectify its staffing problems by overseas tertiary training of its professional and managerial staff. An ADB loan provides for a study of the staffing and associated problems of the utility. It is recommended that the GOT 4/ Implicitly this is also borne out by the apparently relaxed attitude of the authorities with respect to energy matters, an attitude that may be described primarily as reactive during times of perceived crisis, and by the relatively low priority accorded energy issues. consider carefully the remedial measures recommended by this study when it is completed. 1.23 The Competent Authority (CA) of the Ministry of Labor, Commerce and Industries (MLCI) controls wholesale and retail petroleum prices, while the Ministry of Finance assesses and collects duties on petroleum products. The Forestry Division of the Ministry of Agriculture, F'orestry and Fisheries (MAFF) is responsible for forest resource development, which2 includes the improvement of fuelwood supply through the distribution, in cooperation with MLSNR, of seedlings of fuelwood opecies to landowners, and through the management of the only GOT-sponsored wood plantation on 'Eua. 1.24 The Central Plannint Department in the Prime Minister's Office coordinates the GOT's internal project cycle, including evaluation and presentation to the Cabinet of projects submitted by the line ministries. The Ministry of Foreign Affairs coordinates requests for external assistance for capital expenditure projects and technical assistance programs. 1.25 Three private companies--Shell, British Petroleum and Tonga Pacific Limited--are responsible for the import, storage, domestic distribution and retailing of petroleum fuels. The Ministry of Works handles the procurement of petroleum from the oil companies for GOT use. 1.26 This division of energy-related responsibilities among the various agencies is justified, and no further concentration of functions in the EPU seems warranted. However, it is recommended that EPU emphasize its role as an overall coordinator of energy matters, to more clearly define its areas of responsibility in practice, to set priorities for its work and to increase its capacity to perform these tasks. This has to be carried out within a framework that is realistic with respect to the country's manpower and financial resources. Proposals for institutional improvements are discussed in Chapter V. II. ENERGY CONSUMPTION The Structure of Energv Consumption 2.1 Tonga's energy balance for 1989 is presented in Annex 2.1. Since the data related to biomass are unreliable, the purpose of the energy balance is to illustrate the broad movement of energy through the economy, the orders of magnitude and the relative role of the various forms of energy. 2.2 The estimated final consumption of all sources of energy is around 47,000 tons of oil equivalent (TOE), corresponding to about 500 kilograms of oil equivalent (kgoe) per capita, which is similar to that of several other island countries in the region. Indigenous biomass, which is used predominantly by households for cooking but also for crop drying by households and by processing industry, contributes about 602 to total energy consumption; imported petroleum provides the remaining 40% of total energy consumption. Approximately 252 of the petroleum is converted to electricity, but electricity accounts for only 3% of final energy consumption. 2.3 Households account for 55% of final energy consumption, and transportation for another 372. The manufacturing and industrial subsector together with commerce accounts for only 8% of final energy consumption, which reflects the low level of industrialization in Tonga. 2.4 Projected energy consumption in Table 2.1 is based on subsectoral forecasts, as explained in the respective sections. Total energy consumption is expected to increase by around 50% over the decade to the year 2000, or by some 3.6% p.a. The main factors influencing the projections are: (a) a continued low population growth rate of around 0.52 p.a.; (b) continued availability of biomass for household cooking with coconut residue usage increasing to compensate for forest wood shortfall; (c) no significant constraints in commercial fuels supply, but no major expansion of the industrial subsector, nor any large, new energy- consuming projects or activities; and (d) real economic growth in the range of 3-3.5% p.a. in the 19909, slightly above that of the past decade. - 8 - Table 2.1: ENERGY CONSUMPTION, 1989 AND 2000 1989 Share 2000 Share Growth 1,000 TOE 2 1,000 TOE % Rate Z Biomass 26.94 58 27.00 39 0.0 Petroleum Products 18.25 39 38.60 56 7.0 Electricity 1.54 3 3.60 5 8.0 Total 46.74 100 69.20 100 3.6 Source: Mission estimates. 2.5 By 2000, petroleum products will represent around 55Z of total energy use, driven by large increases in fuel requirements for transportation and electricity generation. Tonga's economic growth will continue to rely on the availability of reasonably priced petroleum fuels because there is no alternative energy source that could economically substitute for oil. The GOT's objectives are to ensures - the availability of petroleum products at reasonable cost; - the security of supply by maintaining adequate on-shore stocks; - the quality of fuel supplied; - the maintenance of safe operating practices in the storage and distribution of fuel; and - a clean environment. 2.6 Biomass will continue to be the major household fuel, but total fuelwood and residue consumption is not expected to grow, as rising disposable incomes permit a gradual switch to more convenient fuels, thus canceling out the slight increase expected from population growth. The Consumption of Petroleum Products 2.7 Between 1985 and 1990, imports of petroleum products increased at an average annual rate of 122 by volume and 82 by CIF value (see Annex 2.2). Both ADO and gasoline use has approximately doubled in quantity during this period and jet fuel has tripled. Table 2.2 shows the composition of total consumption in 1990. ADO and gasoline dominate the picture but jet fuel is also an important item. Two thirds of petroleum consumption is for transport and around 252 for power generation. -9- Table 2.2: PETROLEUM PRODUCT IMPORTS, 1990 /a AND 2000 1990 2000 Growth Product kl Share (2) kl Share (2) (Z p.a.) Gasoline 11,024 32 15,000 25 3.1 Jet fuel 5,215 15 9,000 15 5.6 Kerosene 518 1 800 1 4.4 ADO 15,055 43. 30,000 50 7.1 Avgas 1,511 4 2,000 3 2.8 LPG 844 2 1,500 3 5.9 Others (lubes, white sp.) 1,098 3 2,000 3 6.2 Total 35..65 100 60.000 100 5.5 /a Provisional figures based on fourth quarter estimates. Source: Department of Statistics; Mission estimates. 2.8 Tonga's consumption of petroleum products is projected to increase 5-62 p.a. by volume during the 19909 and reach 60,000 kl in the year 2000, as shown in Table 2.2. The consumption of ADO is projected to grow at approximately 71 p.a., as demand for grid electricity increases on all the main islands, but at a lower rate than in the 1980s due to the relatively high percentage of households already connected. Gasoline consumption is expected to grow at a more modest pace than in the 19809, reflecting a reduced growth rate of the number of new vehicles as well the increased fuel efficiency of new vehicles. An increase in tourism and continued development of the courtry's domestic air traffic will increase the consumption of aviation fuels significantly. The shift towards LPG and kerosene as fuels for domestic cooking is expected to be reinforced for reasons of corvenience and decreasing availability of "free" wood. The Consumption of Electricity 2.9 Public power supply, provided by TEPB, is restricted to the four larger islands, Tongatapu, Vava'u, Ha'apai and 'Eua. Recent studies, sponsored by the Asian Development Bank (ADB), concluded that it would be uneconomic to extend TEPB supply to other islands, such as the more populated ones of the Niua's group. 2.10 The total undiversified peak load 51 of the four power systems in 1989/90 was 4.66 MW; the largest load was in the Tongatapu system with a peak value of 3.85 MW. Consolidated energy generation for the four systems in 1989/90 was 24.21 GWh, while sales amounted to 20.01 GWh. The corresponding figures for Tongatapu were 20.98 GWh and 17.4 GTh, respectively. The performance of the TEPB 5/ The peak loads of the four systems added, although they do not necessarily coincide in time. - 10 - systems from 1982/83 to 1989/90, both aggregated and individually, is shown in Annex 2.3, and the performance of the Tongacapu system is summarized in Table 2.3. Table 2.3: PERFORMANCE OF TONGATAPU SYSTEM, 1983-90 Fiscal Peak Energy Energy Sales Year Demand Generated Losses k Salee Growth (MW) (GWh) (2) (GWh) (2) 1982/83 2.36 10.44 14.74 8.39 4.48 1983/84 2.47 12.41 18.20 9.60 14.44 1984/85 2.41 13.00 12.82 10.83 12.76 1985/86 2.65 13.84 14.10 11.34 4.70 1986/87 3.21 15.61 13.34 12.82 13.04 1987/88 3.23 17.32 15.02 ' 14.00 9.25 1988/89 3.52 18.94 13.71 15.56 11.11 1989/90 3.85 20.98 13.20 17.36 11.60 /a Transmisson and distribution losses as Z of generation, excl. TEPB use. Source: TEPB. 2.11 For the eight years FY 1982/83 to FY 1989/90, overall electric power consumption grew at an annual average rate of 11.6% for Tonga, and 10.9% for Tongatapu; in FY 1989/90, sales grew 12.32 for Tonga, and 11.62 for Tongatapu. Growth rates in the past two or three years would have been greater, if there had been no restriction in generating capacity in the Tongatapu system, as well as frequent load shedding due to plant breakdowns. 2.12 TEPB has approximately 8,000 consumers on Tongatapu, 1,000 on Vava'u, 350 on Ha'apai and 300 on 'Eua. It has recently been estimated by ADB (1990) that TEPB is already connected to approxii stely 832 and 75% of the potential residential consumers on Tongatapu and Vava'u, respectively, so that further residential connections will depend on the expansion of the distribution network to less accessible locations. For Ha'apai and 'Eua, the respective figures are 862 and 58Z. On Tongatapu, the ten largest consumers account for approximately 18Z of TEPB's energy sales. 2.13 Load projections by ADB in cooperation with TEPB (1990) are based on an economic model explaining past electric power growth and taking into consideration expected developments such as expansion of an industrial estate on Tongatapu as well as an increase in capacity and renovation of the tourist/hotel industry. In general, it is forecast that electric power demand in the four systems will grow at an annual rate of at least 7.52 up to 1995. The lower growth rate than in the past is explained mainly by expected increases in the electricity tariff. The details of the projections are in Annex 2.3, and a summary of these load projections is given in Table 2.4. l ~~~~~~~~~~~- 11 - 2.14 The above projections incorporate the assumption of a gradually increasing load factor, both in Tongatapu and elsewhere. The current load factor in Tongatapu, of about 0.51, is low due to a pronounced evening peak which is attributed to the domestic lighting load. To improve the load factor, with its attendant economies in generation cost, it is recommended that TEPB investigate means by which the peak may be reduced, such as the encouragement of off-peak loads through the introduction of a time-of-day tariff for major users and the promotion of high efficiency light bulbs. Table 2.4s TEPB POWER DEMAND PROJECTIONS, 1991-2000 TongtataRu _ Vava'u Ha'aRai 'Eua Peak Energy Peak Energy Peak Energy Peak Energy Year Demand Sales Demand Sales Demand Sales Demand Sales (MW) (GWh) (MW) (GWh) (MW) (GWh) (MW) (GWh) 1991 4.16 18.75 0.56 2.06 0.19 0.60 0.13 0.31 1992 4.43 20.16 0.59 2.22 0.22 0.60 0.14 0.34 1993 4.71 21.67 0.63 2.38 0.23 0.65 0.15 0.36 1994 5.05 23.29 0.67 2.56 0.25 0.70 0.17 0.39 1995 5.40 25.04 0.71 2.75 0.26 0.75 0.18 0.42 2000 7.75 35.95 1.01 3.95 0.37 1.08 0.25 0.60 Source: TEPB; ADB. Biomass and Household Energv Consumption 2.15 The majority of households, particularly in rural areas, cook primarily with fuelwood and coconut re6idues. In addition, biomass is used for copra- drying by households and industry. No national survey of biomass or household energy consumption has been carried out but a study for Tongatapu in 1985 6/ provides indicative consumption figures. This report and a regional overview 7/ have been used in estimates of biomass consumption across all sectors, shown in Table 2.5. The aggregate annual consumption is approximately 73,000 NT, of which somewhat more than 501 or 39,000 NT is estimated to be in the form of biomass residues and the balance, 34,000 NT, is fuelwood. 6/ "Tongatapu Household Energy Survey". PEDP, 1985. 7/ "Energy Statistics Relevant to Household and Rural Energy Issues in the Pacific Islands". PEDP, 1990. - 12 - Table 2.5: ESTIMATED BIOMASS CONSUMPTION, 1989 Sector MT X Domestic 65,300 90 Copra Production 5,750 8 Manufacturing/Co-mercial 1,400 2 Institutions 350 - Total 72.800 100 of which Biomass Residues 38,700 53 Puelvood 34,100 47 Source: Mission estimates. 2.16 On Tongatapu, households in Nuku'alofa are estimated to use woodfuels at an average rate of 1.5 kg/person/day, and on the rest of the island at 2.0 kg/person/day. Total consumption of biomass on Tongatapu is estimated to be 42,500 MT/year, of which around 302 is in the form of residues. For the outer islands, estimates of household biomass consumption are based on energy surveys carried out in other Pacific Island countries with comparable conditions.8/ Under the assumption that all households use woodfuels for most or all of their cooking needs, at a rate of 2.0 kg/person/day, annual woodfuels consumption on the outer islands is about 23,000 MT/year, and is chiefly made up of coconut residues. 2.17 An estimated 5,750 MT/year of biomass is required for drying 2,300 MT of copra used in the production of coconut oil, under the assumption that copra is dried using low-technology driers that require approximately 2.5 MT woodfuel per MT of copra produced. An estimated 1,400 MT/year of biomass is consumed mainly for commercial bread -making, and 350 MT/year is used by institutions, primarily schools, on Tongatapu and the outer islands. 2.18 The consumption of biomass is expected to rerain at approximately the present level during the 1990s (see paragraph 2.6). Tne purchase price of fuelwood is expected to continue to rise on Tongatapu, particularly within the Nuku'alofa urban area, due to observed supply limitations. New and Renewable Sources of Energy 2.19 Solar energy is traditionally utilized for crop drying and food preservation. Photovoltaic (PV) technology has been used only to a small extent to provide electricity to rural communities, primarily on the outer islands which do not have grid supplied power. It is estimated that fewer than 100 PV systems 8/ "Energy Statistics Relevant to Household and Rural Energy Issues in the Pacific Islands." PEDP, 1990. - 13 - (of 84 peak watts) have been installed so far. On the other hand, solar thermal application for water heating is already quite well developed on Tongatapu and is expanding both in the residential sector and within the tourist industry. Local sales of solar water heating systems are estimated at 100-150 per year, excluding imported units. No other forms of renewable energy technologies are presently in use in Tonga. . - 14 - III. ENERGY SUPPLY Petroleum Proiucts SUp211. Storafe and Distribution 3.1 Petroleum is supplied to Tonga by three international oil companies: BP, Shell, and Tonga Pacific Ltd. (TPL), which is 'An affiliate of Pacific Resources International (PRI), Hawaii. Each of the companies maintains its own onshore storage and distribution facilities on Tongatapu, while the GOT owns the facilities on Vava'u (currently operated by Shell on a short-term lease basis). Shell, which is the main supplier to the outer islands, has built bulk storage and distribution facilities on Ha'apai also. All three companies are active in the Tongatapu ground product market (ADO, kerosene and gasoline) while BP and Shell service aviation fuel requirements. LPG is bulk supplied by Boral Gas, Tonga (a subsidiary of Boral Gas, Australia), and marketed and distributed on- shore by the GOT's Commodity Board. 3.2 Like other small Pacific Island countries, Tonga faces a long supply chain from the refinery source. Products are shipped from refineries in New Zealand, Australia or, occasionally, Singapore to bulk storage in Fiji via medium range (MR) tankers, based on Shell and BP's regional supply schedules, and then transshipped to Tongatapu and Vava'u in local coastal tankers (LCT). Thus, landed costs of product in Tonga have a relatively high freight component which, however, has been brought down through more careful monitoring by the GOT, with assistance by the Forum Secretariat. However, it is recommended that GOT continue to monitor the cost of the freight component. TPL and Boral Gas import mainly from Hawaii and Australia, respectively. The commencement of the Fiji National Petroleum Company (Finapeco) operations in late 1991 may affect both the routing and cost of BP's and Shell's landed .product. The new situation warrants monitoring (paragraph 4.10). 3.3 The outer islands are supplied with products transshipped through Nuku*alofa. The Niua's and 'Eua islands are normally the only areas for which main products (gasoline, ADO, and kerosene) are supplied by drum. Minor products are all supplied by drums. Drum distribution is more expensive than bulk distribution and costs are compounded by the fuel losses through evaporation, leakage and drum decanting which contribute up to 152 of total drum content. The alternative of a synthetic rubber bag (500 US gallons) in place of the traditional 200 liter steel drum has been tested by Mobil, Fiji to establish whether the use of the rubber bag can lower freight cost for fuel supply to outer islands and rural locations where demand does not warrant bulk storage facilities. It is recommended that the GOT keep this alternative under observation and implement it, if it proves its applicability in terms of handling and cost. 3.4 The port facilities at Nuku'alofa are good. TPL discharges at the main wharf and maintains the pipeline back to its tanks. BP, Shell and Boral Gas own and maintain a mooring buoy and associated.pipelines which are closer to their bulk tanks. Shell shares BP's facilities. It is recommended that TPL be encouraged to shift from the main wharf to the discharge area used by the other oil companies in order to separate all fuel discharge from the main wharf. It is, furthermore, recommended that the oil companies be encouraged to upgrade - 15 - their facilities 9/ to handle MR vessels, thus reducing shipping costs considerably (see para. 4.8). 3.5 Although storage capacity appears to have been adequate, and storage and distribution is carried out by the private sector, the GOT should monitor the development and future requirements for storage facilities in the country. It is recommended that a study be undertaken to examine the adequacy of existing facilities. Such a study should also consider the possible need for security stocks. In addition, private sector investment incentives, including necessary compensation to the oil companies through the pricing structure to ensure needed storage capacity, should be reviewed. The present Industrial Investment Incentives Act of 1978 is due to be revised in 1991, and this revision should take into account the requirements of the petr6leum subsector. 3.6 TEPB buys its ADO (constituting around 60X of the country's diesel consumption) through annual contracts, which are awarded on the basis of local tenders to either BP or Shell. Even though this practice has been effective in giving TEPB competitive fuel prices, most other government entities purchase their fuel directly from the oil companies on an as-required basis. It is highly likely that savings can be made if the GOT enters into a contract for the supply of all its fuel requirements. Therefore, it is recommended that this be pursued by the EPU in cooperation with TEPB. 3.7 The physical supply and distribution of petroleum products is being adequately m naged by the private sector, and it is unlikely that alternative systems such as a national tender, or direct purchases on the spot market, would bring about a sustainable reduction in. tot.l cost. However, Tonga has recurrently been negotiating with oil producing countries for changes in trading arrangements such as barter, direct supply, bulk storage, refinery construction and entrepot activities. Given the small, size of the national (and even the regional) market, Tonga's lack of any comparative advantage with respect to refinery or entrepot operations, and the countrr's very limited domestic human and financial resources, thlsre appears to be no economic justification for the country to pursue such alternatives on a naitionW or even on a regional basis. Therefore it is recommended that the GOT refrain from pursuing such options. Petroleum Exploration 3.8 Tae main islands of Tonga are located on the Tonga Ridge, which is a large (60,000 km2 ) and thick sedimentary basin. Oil seeps on Tongatapu provide evidence of hydrocarbons within the basin. Seismic data provide indications of several reef structures which form untested "plays" in the Tongatapu-'Eua area. Elsewhere in the basin, a regional grid of seismic lines indicates potential for additional reef structures and many fault blocks. Several large prospects are recognized, which require more detailed seismic coverage. 3.9 In spite of these encouraging indications, extensive exploration carried out from 1970-1984 by two petroleum. consortia, including the drilling of five exploratory wells, evidence of commercial hydrocarbon reserves has not been found. At present, the seismic data is being reprocessed by the MLSNR and the' 9/ At a cost of around T$20,000 (US$17,OPO) to upgrade two mooring buoys. - 16 - South Pacific Applied Geoscience Commission (SOPAC). The GOT has taken several steps to stimulate exploration. Although results to date have been inconclusive, studies continua to be made by universities, public institutions and the MLSNR, and some international o'.l companies have expressed interest in reviewing the existing information. Given the risks and high costs associated with petroleum exploration, it is recommended that the GOT continue its efforts to promote petroleum exploration by private investors through the provision of appropriate information and incentives. In this regard, as recommended by a recent SOPAC report JO/ the main areas for action should include: (a) promotion of the reef "play" in the 'Eua Channel between Tongatapu and 'Eua, and (b) additional seismic surveys and reprocessing of existing data covering the basic area south of Tongatapu. Electricity Prosent System 3.10 TEPB maintains diesel power generation and associated transmission and distribution facilities on Tongatapu, Vava'u, Ha'apai and 'Eug. The dearth of indigenous energy resources has limited the choice of power generation options to thermal based. Due to the small loads, diesel generation is the only economic and practical means of power generation. Power generation facilities were first established on Tongatapu in 1949, followed by Vava'u in 1970, Ha'apai in 1982, and 'Eua in 1983. While the four systems operate 24 hours a day, they are hampered by the poor condition and old age of many of the diesel sets, a lack of replacement parts and insufficient maintenance staff, as well as overloaded distribution lines. A summary of the existing diesel generation installations is shown in Annex 3.1. 3.11 Tongatapu's main transmission facilities operate at 11 kV and 6.6 kV. The 11 kV system supplies the central and eastern parts of the island, whereas the 6.6 kV lines are located in the western and southern areas. Due to its inadequate capacity, it is planned to replace the 6.6 kV system with 11 kV lines. The primary systems on the other three islands operate at 6.6 kV, which is adequate for their present load levels. 3.12 Low voltage reticulation operates at 415/240 V on the four systems. Tongatapu's low voltage reticulation system totals approximately 162 km of three phase (415 V) and 286 km of single phase (240 V) lines. Line lengths and related distribution facility details on the other islands are not documented although information is expected to be available in the next 12 months upon completion of an ADB-sponsored distribution system survey and rehabilitation study. I0/ Petroleum Potential of the Kingdom of Tonga, by R.W. Gatliff, MLSNR, 1990. - 17 - Exvansion of Present Systems 3.13 Given the high power demand growth rates over recent years, combined with the lack of new generation capacity, TEPB L.as an urgent need to install additional generating capacity in all four systems. The deficiencies in capacity have been exacerbated by the unreliability of existing plants due to difficulties in obtaining spare parts and in arranging complete and regular overhaul of the diesel generators. The situation in the four systems at the end of FY 1990 is given in Table 3.1. Table 3.1: TEPB POWER SUPPLY AND DEMAND SITUATION, 1990 Tongatapu Vava'u Ha'apai 'Eua Installed Capacity (MW) /a 4.98 0.51 0.16 0.16 Firm Capacity (MW) /b 3.51 0.38 0.10 0.10 Peak Demand (MW) 3.85 0.52 0.17 0.12 Energy Generation (GWh) 20.98 2.38 0.5B 0.32 Load Factor (2) 62.00 52.00 36.00 30.00 System Losses (Z) 13.20 17.00 12.00 7.50 /a Equal to 85Z of nameplate capacity of installed plant. Lb Equal to total installed capacity lessthe capacity of the largest unit. Source: TEPB. 3.14 In all systems the peak demand is greater than the available firm capacity (Table 3.1). This leads to load shedding in peak, or near peak, periods if one machine is forced out of service or decommissioned for maintenance purposes. This situation discourages the planning of major overhauls (since a machine must be out of service for a week or more) which in itself leads to more blackouts due to the increased unreliability of the plant. 3.15 A ten-year least-cost development program for the four systems, prepared under an ADB-sponsored study (1990), determined that oil-based power generation provides the only viable source of electric power in the medium term. Based on the recommendations of this study, in February 1991, ADB approved a loan that provides for a first phase financing of diesel generation facilities in the four TEPB power systems, rehabilitation of existing diesel sets, expansion and rehabilitation of distribution systems, provision of maintenance spares, vehicles, etc. This diesel expansion project was based on the deficiency in firm capacity, planned retirement of old plants, and the systems' projected requirements in the next ten years. The total project costs are estimated at US$9.3 million. The project is scheduled to be completed by mid-1993. The GOT will on-lend these funds to TEPB on commercial terms. 3.16 The ADB-assisted project includes the installation of two 2,000 kW diesel generating units in the existing Popua Power Station in Nuku'alofa (see TEPB Generation Development Program, Annex 3.2). On Vava'u, a new power station - 18 - will be constructed in Neiafu and two new 300 kW diesel units, fuel storage and other facilities provided. On 'Eua and on Pangai in the Ha'apai Group, two 150 kW diesel generating units will be installed at each location as extensions to the existing power stations. The extra generating capacities will provide sufficient reserve margins to avoid load shedding and allow proper diesel overhauls to be carried out (Annex 3.3). 3.17 Distribution losses are high in the Tongatapu and Vava'u systems (about 131 and 172 respectively). The primary causes of the losses are reported to be low power factor, unbalanced phase currents, undersized conductors and long secondary lines. It is recommended that transmission losses be reduced because loss reduction, together with the program for rehabilitation and replacement of old generating units, is one of the main elements in a strategy to reduce the country's petroleum import bill. As part of the ADB project, rehabilitation and other loss reduction measures will be implemented on the distribution networks. The ADB loan also provides for additional studies to analyze the distribution systems to improve reliability, extend the supply and reduce losses. It is recommended that the GOT consider carefully the conclusions of these studies when they are completed. Rural Electrification 3.18 In Tonga, rural electrification comprises the electrification of remote regions on the four islands that are presently served with public power supply. It also denotes any proposal to electrify, or partly electrify, areas of smaller islands that do not have a TEPB system. The ADB study completed in 1990 investigated expansion of TEPB's distribution systems to facilitate further connection of consumers. The study also looked into the economics of developing TEPB systems on some of the more populous islands which are not served by TEPB. In addition to these initiatives, the GOT is encouraging and sponsoring the development of less conventional electricity supply (EC-financed PV systems) to remote communities. 3.19 Given the urgent need to add power generating capacity to the existing systems, the ADB technical assistance study focused on TEPB's immediate needs instead of undertaking a wide-ranging enquiry which would have encompassed, and also would have extended over a much greater period of time, a full review of TEPB's distribution systems. Therefore, the ADB loan provides only a modest amount (about US$1.0 million) out of the US$7.3 million to extend and upgrade transmission and distribution systems. Of this amount a large proportion will be utilized for the upgrading of the primary system on Tongatapu from 6.6 kV to 11 kV and rehabilitation and reinforcement of the systems in the main town areas. 3.20 The ADB loan provides financing for a study that will undertake a comprehensive survey of TEPB's needs for extension and upgrading of its distribution systems, including the servicing of potential consumers in the remoter areas of the main four islands. This study will analyze the requirements of the systems, design loss reduction schemes and rehabilitation measures, and prepare designs and specifications for these arrangements as well as the expansion of the networks. It is anticipated that the GOT will utilize the resulting designs and documentation to seek additional finance to implement this project. - 19 - 3.21 TEPB is under increasing pressure to provide power to other islands. In response to this, part of the aforementioned ADB technical assistance provided for a study of the feasibility of developing TEPB power generation and distribution systems on the Niua's group of .slands. The potential loads in the larger villages of the two larger islands in the group, Niuafo'ou and Niuatoputapu, were subsequently studied. For Niuafo'ou it was seen that an investment of about US$120,000 would be needed to provide two 15 kW diesel generators and distribution facilities, whereas Niuatoputapu was assessed to require US$220,000 for three 15 kW units and other facilities. The study indicated that the costs far exceeded the benefits for both systems, and TEPB has not made a decision as to the likely timing of the implementation of the two project proposals. It is recommended that the projects be reassessed within the framework of a rural electrification policy, as indicated in the following paragraph. 3.22 Since TEPB will continue to be approached for the electrification of other outlying islands, it is recommended the GOT address this issue on a general level to provide a proper framework and policy guidelines and, possibly designate an institution other than TEPB, to coordinate, finance and maintain rural electrification. Such an alternative body, which could be the Energy Planning Unit, should possibly be responsible for rural energy planning more generally, including photovoltaics. It is recommended that the GOT approach ADB to include in the upcoming study of servicing of remote areas an outline of basic criteria for selection of new areas to be served, possible service levels, sources of funding (including user participation), tariff policy and levels, and an institutional setup. Such a proposal would form a basis for discussion and for policy formulation on the part of the GOT with respect to the electrification of outlying islands and hitherto unserviced parts of the main islands. Biomass Resources and SupRlv 3.23 No national biomass resource inventory exists for Tonga, and data on fuelwood and biomass residue supply are limited. Some rough indications of biomass resources for energy use may, however, be inferred or calculated indirectly. 3.24 In 1985, Tonga's natural forest cover was estimated at 4,000 ha, mostly on the thinly populated island of 'Eua.ll/ The only wood plantation in the country (aside from nurseries) is a 380 ha government-sponsored timber plantation on 'Eua, from which cuttings from thinning operations are used as firewood. Tongatapu has suffered substantial deforestation due to migration from the other islands and the resultant increased pressure on available land for food production and residential purposes. Further, the extensive dependence on biomass for domestic energy and crop-drying purposes has also to some extent contributed to dwindling wood resources on.the main island. The "api" system 11/ Kingdom of Tonga: Agricultural Sector Strategy Review". World Bank, 1990. - 20 - which governs land allocation in Tonga,l2/ when coupled with Tongatapu's high population density, means that there is virtually no land available for village forests or plantations. Therefore, fuelvood supply is dependent on scattered trees and shrubs on individual plots or "apis". 3.25 Nearly one half of biomass consumption in terms of weight, or 34,000 MT, is in the form of fuelwood, and the balance, approximately 39,000 MT, is made up of coconut residues (Table 2.5). While the available information does not permit an assessment of the sust^inability of fuelwood consumption, there are reports of increasing deforestation and rising fuelwood prices. 3.26 The coconut palm is used to supply food (both human and animal), drink, fuel, building materials, medicines and materials for decoration and the making of kitchen utensils. Most new land is planted to coconuts, among other crops, early in the farming cycle. The Land Act also specifically requires each "api" owner to plant 200 coconut palms and keep them in a reasonable state of cultivation. Consequently, coconut palms are the dominant land cover on most of the inhabited islands. However, the net returns to labor for copra production have in recent years declined to around one tenth of the rural wage, the lowest of any rural activity in Tonga. With increasing competition for land from other higher value commercial crops such as taro and pumpkin, an expected continuation of the decline in both copra and coconut oil export prices, and an ending of the STABEX 13/ price support scheme, the future of the export coconut product industry is highly uncertain. Over the long term, this may have a negative impact on overall resource supply, if not for households specifically since their combustible residue source is primarily their own coconut consumption. 3.27 In the absence of accurate data, an indication of the coconut residue availability has been obtained by following two approaches: (i) estimating coconut residue availability from consumption estimates (Table 3.2) (ii) estimating coconut residue resources from an assessment of land area under coconut cultivation (Table 3.3) 12/ Tonga is divided into some 40 hereditary estates. These are presided over by the royal family, noble families and the GOT, who are responsible for allocating up to 8.5 acres of land to every 16 year-old male domiciled within the respective estates. By law, these "apis" cannot be sold but may be leased. The dense population on Tongatapu has caused the emergence of a landless class. 13/ An export earnings stabilization scheme. - 21 - Table 3.2: BIOMASS AVAILABILITY ESTIMATE, 1989 Sector MT Domestic (coconut residues) 78,000 Copra production (coconut oil) 6,900 Timber mill wastes ('Eua, Tongatapu) 8,200 Total 93.100 Source: Mission estimates. 3.28 The annual human and animal consumption of coconuts is approximately 78 million coconuts. Based on a survey,14/ the average per capita human consumption slightly exceeds 0.6 nuts per day, with a total annual human consumption estimated at 21 to 22 million coconuts. Further, it is assumed that the average per capita consumption for animal feed is approximately 580 nuts per year (a figure similar to that found in Western Samoa), which amounts to approximately 56 million coconuts per annum for animal feed. With 1 kg of residue (husk and shell) per nut, approximately 78,000 tons of residues are available for domestic use, or a total of 2.2 kg/person/day. On a national scale, this coconut residue availability alone is more than the total domestic biomass fuel requirements of approximately 65,000 MT per year (Table 2.5), which consists partly of fuelwood and partly of coconut residues. 3.29 The processing of coconut into coconut oil both requires biomass energy for the copra drying process (Table 2.5) and provides biomass residue. In 1989, 1.2 million liters (1,150 MT) of coconut oil were produced from 2,300 MT of copra. Residues available are estimated at 6,900 MT (assuming 3 MT residues per MT of copra produced) which exceeds energy requirements for processing according to Table 2.5. Total energy supply and demand for the processing of coconut products for exports will to a large extent fluctuate in parallel. Therefore, in broad terms, energy demand for agro-processing can be largely met by using available coconut residues. 3.30 A coconut timber milling operation in Tongatapu, with a capacity of 12,500 logs per year, produces fence posts and timber. Residues from the mill, estimated at 6,800 MT/year, are sold for domestic fuel consumption. Another 1,400 MT of sawmill residues is available for the domestic sector on Tongatapu and 'Kua from the milling of senile coconut stems (Table 3.2). 3.31 While coconut residues alone could cover total biomass needs by households and copra producers, this broad comparison does not take into consideration the specific needs for fuelwood, nor the balance between supply and demand for biomass on each of the main islands in Tonga. General observations from Tongatapu and the comparisons in Table 3.3 seem to indicate that the 14/ "Kingdom of Tonga Agricultural Census 1985". Government of Tonga, 1985. - 22 - localized biomass situation may still be manageable, though there are unsubstantiated reports of fuelvood supply deficiencies on Vava'u and Ha'apai. 3.32 According to the 1985 Tonga Agricultural Census, the total area under coconut cultivation in 1985 was approximately 30,000 ha, supporting approximately 4 million treec. Using an average yield of 28 nuts/palm/year and deducting non- bearing trees, coconut residues available are estimated at some 105,000 MT/year (Table 3.3). There is a surplus on a national scale as well as on a local level. While the quantities derived by applying agricultural activities are lower than obtained by using the area as a basis for calculating coconut residue availability, both methods yield results that show that the biomass availability exceeds the country's biomass requirements. 3.33 However, the supply of wood (particularly important for cooking Sunday meals and special occasion feasts) is reportedly reduced, especially on Tongatapu. This is reflected in tbq market for fuelwood in Nuku'alofa where the price has risen quite markedly. However, available information doe; not permit an assessment of whether or not the present consumption of fuelwood specifically (as distinct from residues) can be sustained. Table 3.3: COCONUT RESIDUE BALANCE (MT) Island Group Availability Consumption Surplus Tongatapu 60,000 42,500 17,500 Vava'u 23,500 11,400 12,100 Ha'apai 10,500 6,400 4,100 'Eua 6,500 3,200 3,300 Niua's 4,600 1,800 2,800 Total 105.100 65.300 39.800 Source: Kingdom of Tonga Agricultural Census 1985; Mission estimates. 3.34 The present situation, in which biomass demand in Tonga on a national basis appears to be satisfied, is not expected to change significantly before the turn of the century, because both biomass consumption and the supply of coconut residues are expected to be fairly constant. With some switch from fuelwood to coconut residues, the fuelwood situation appears to be manageable. Nevertheless, these estimates demonstrate the need for proper information on biomass energy consumption and availability, and for monitoring the situation. Biomass Proxrams 3.35 A forestry replanting program began in 1975. An estimated 150,000 seedlings per year for timber, fuelwood and other species are provided free or sold to landowners. However, little follow-up or evaluation of the program has been carried out. Agro-forestry concepts have also been introduced through - 23 - extension services in an effort to expand forest resources. Recent cooperation between MAPP and NLSNR may result in modest expansion of the fuelwood replanting program. 3.36 With assistance from the Forum Secretariat and Pacific Energy Development Programme (PEDP), MLSNR initiated a woodstove project to improve the efficiency of biomass fuel utilization. However, the project was subsequently abandoned due to deficiencies in stove design and material selection. Since projects of this kind require significant financial and manpower resources and measurablc fuel savings are yet to be identified, it is recommended that GOT's future involvement in this area be limited. 3.37 The various initiatives and programs have not been well monitored and their impact on the fuelwood situation has been very limited. Moreover, given that the limited land area has many alternative uses, it is highly unlikely that wood plantations that have fuelwood supply as their main objective are economically viable. In view of the numerous issues that need to be addressed in the other energy subsectors by MLSNR, the interdependent nature of the wood resource situation, and the scarcity of public manpower and financial resources, it is recommended that the involvement of MLSNR in biomass supply expansion or conservation projects be given a low priority. These activities are more closely related to the functions of MAEF and other agencies that are more directly responsible and have the technical expertise to handle forestry and biomass matters. MLSNR should, however, be consulted where energy aspects play a part. 3.38 While there is no need for GOT to expand its involvement in biomass programs, it is recommended that a detailed study of the consumption and availability of wood and woodfuels be carried out. With its broad scope, which should also assist in determining the extent and wider consequences of deforestation in the country, the study should be organized by HAlF, which should consult with EPU to ensure that energy aspects are properly included. The GOT would have to seek external technical assistance for the study. The results of the study with respect to the energy aspects should be studied by EPU. New and Renewable Enerav Technoloiies 3.39 Tonga enjoys abundant sunshine and has traditionally used solar energy extensively for crop drying. Average daily insolation is estimated at 5.5 kWh/m2. Wind and waves are other energy sources that, in theory at least, might have a future potential. Photovoltaic Systems 3.40 Present GOT rural development policy includes the provision of electricity using photovoltaic (PV) technology for es*ential services with small electric loads (communications, medical services, etc.) and for domestic lighting on islands which do not have access to a diesel-based system. 3.41 In 1986, 70 house lighting kit were installed on the island of Taunga in the Ha'apai group, and on Mango island in Vava'u. A request has been forwarded to the French Government for funding for the provision of PV lighting systems for Niuafo'ou island. The GOT is proposing that 400 systems be installed - 24 - on 20 islands o,rer the next 5 year.; 280 units may possibly be installed under an EC bilateral aid program. 3.42 The existing institutional, financial and maintenance support services to manage the implementation of projects of this size are inadequate. The experience with this technology in the Pacific region (Kiribati, Tuvalu, Fiji, Cook Islands and Tonga) has clearly shown that the viability of PV systems is highly dependent on the availability of competent support services within the country. Therefore, it is recommended that a study be carried out to assist the GOT in defining its role and functions related to PV development in Tonga, in order to determine the institutional arrangements and the funding requirements for the implementation of such an ambitious proposal and to develop a realistic implementation program. The study should include an examination of the options for the eatablishment of the necessary infrastructure (institutional responsibilities, manpower and funding requirements, etc.) and should also clearly define the extent of user participation in future programs. The GOT should approach relevant regional institutions for assistance. Solar Thermal ' 3.43 Solar water heating has been successfully promoted, particularly on Tongatapu. The majority of GOT premises have now replaced gas and electric units with solar water heaters. The Vaiola hospital has installed solar water heaters, and the GOT has approached the Australian International Development Assistance Bureau (AIDAB) for funding of solar water heaters for one of the major hotels. A private company has been established on Tongatapu which assembles solar water heaters for the local commercial and domestic market. Production and sales are estimated at 100-150 units per year. It is recommended that the private company be encouraged to compete for contracts on commercial terms to encourage further development of a local capability that may replace the need for external assistance. 3.44 The viability of solar crop dryers has been demonstrated at MAPF's experimental farm. Solar crop dryers are also being researched for copra, ginger, coffee, vanilla and cassava. Other Renewable Enerav Technoloties 3.45 The GOT has expressed strong interest in the use of wave energy for power generation, and several potential sites on Tongatapu's coastline have been identified. Since such power is available only when there are waves, there remains a need for backup facilities and/or energy storage systems. At present, Tonga is monitoring the seawave potential in collaboration with the South Pacific Applied Geoscience Commission (SOPAC). In 1988, PEDP reviewed a Norwegian proposal and concluded that costs per kWh would be significantly higher than diesel supply and the added firm power very low. Since the technical and economic viability of the technology has not yet been demonstrated, it is recommended that Tonga not consider applying wave power until the technology has been fully proven. Only in the case where the foreign developer provides all the funding, manages the operation and undertakes the training of local personnel for an extended period of time should Tonga become involved in a new technology such as wave power. The country's limited financial and manpower resources dictate that it concentrate on existing and well-proven energy options. - 25 - 3.46 Tongatapu has a considerable stock of standing senile coconut trees. Coconut stems are potential feedstock as boiler fuel in a steam turbine power generation plant. In 1985, a project was considered for the installation of a wood fired power station with a capacity of 1.5 NW utilizing senile coconut stems but was subsequently abandoned. Although it is commendable to seek ways and means of decreasing the dependence on imported petroleum, it is recommended that the GOT should not expend its efforts on such power generation options, as there are no successes in the region. In addition to high investment costs, the operation and maintenance required by these technologies represent a particular challenge, as does a reliable supply of wood over the lifetime of the project. Apart from transportation costs, the question of dedicated energy plantation raises the issue of availability of land for such a purpose in competition with cultivation of higher value crops. 3.47 A limited application of wind technology in Tonga is reported with the use of wind-powered pumps by the Tonga Water Board to supplement diesel and electric pumps. There has been little systematic monitoring or assessment of the wind energy resource potential in Tonga, but there are serious doubts about the suitability of wind generators. No data exists for the outer islands. Apart from indications that unit costs of electricity will be high due to operating conditions and the need for support infrastructure, Tonga is subject to hurricane winds which would have to be considered in system design and costs. It is recommended that the GOT leave initiatives in this field to potential users but assist by directing them to relevant external organizations for advice. - 26 - IV. POLICY ISSUES AND PRIORITIES Pricing Iooues 4.1 Close to 60S of energy consumed, i.e., practically all biomass energy in Tonga, is not traded. The limited quantities of firewood that are traded are concentrated mainly around the capital, where bundles of 16 kg are sold for around T$5. Pricing of commercial energy 15/ is administered and carried out by different government or government-controlled agencies. Thus, the prices of petroleum products are set by the NLCI, and power tariffs are established by TEPB. The price for fuelwood has increased in real terms during the 1980a whereas the opposite is the case for petroleum products and electricity. 4.2 The GOT should be aware of and make use of energy pricing as the moat important instrument of demand management, in order to increase efficiency in use and thereby conservation. Since the public authorities can effectively influence the price of both petroleum products and electricity through taxation and direct price stipulation, it is recommended that the requirement that the users pay the full cost of energy be applied ac a general principle. This implies a price that includes adequate maintenance of the supply facilities, capital replacement or expansion as required, and the full operating costs. It is recommended that subsidies be eliminated; where subsidies are justified on social grounds, they must be made explicit and should preferably form a separate part of the GOT budget for social service. Petroleum Product Pricing .4.3 The Tongan market is small and isolated, and competition among the petroleum suppliers is limited; for LPG, Boral is sole supplier. While it is unrealistic to expect more companies to enter the Tonga petroleum market, it is important that the three existing principals remain in the market. The GOT controls the wholesale and retail prices for the four major ground products (gasoline, ADO, kerosene and LPG) through the Competent Authority (CA), a section of the Ministry of Labor, Commerce and Industries, in accordance with the Prices of Goods and Services and Wage Rate Act of 1974. The role of the CA is limited to verifying the build-up of each company's landed and distribution costs which, together with profit margins, form the basis for the approved price for each company. In practice, market prices are determined by the company with the lowest costs. 4.4 Variations in international petroleum prices are reflected in domestic market prices. Furthermore, higher distribution costs for consumers outside Tongatapu are translated into higher wholesale and retail prices for the outer islands (Aniex 4.1). However, the limited degree of competition and the restricted capacity of the CA to examine the cost basis of the oil companies imply that there may be some scope for reducing petroleum prices. Therefore, it is recommended that a full price review be carried out. The review should examine the basis for landed cost and the price formula itself, verify the oil 15/ The term commercial energy here denotes petroleum products and electricity. - 27 - companies' cost elements (which also should be audited every year), and assess the level of government charges. 4.5 Government charges constitute 301 of the retail price for gasoline, 29Z for diesel, and 171 for kerosene, and generate some 15-20Z of government revenues. For the various fuels, it is necessary to strike a balance between conservation, competitiveness of the Tongan economy, and social concerns. The conservation consideration implies higher taxation and prices, whereas the latter considerations imply lower taxation and prices. Industry and households are relatively minor users of petroleum products compared to transport and power generation, which account for the bulk of gasoline and ADO consumption. Based on conservation and fiscal considerations, there appears to be a case for relatively high taxation and prices of gasoline and ADO. It is recommended that the proposed price review consider government charges and the necessary incentives for conservation as pert of its evaluation. 4.6 Additionally, fiscal controls need to be improved, as evidenced by the fact that TPL has not paid agency commission for several years. It is recommended that the collection policy and procedures be reassessed as part of the proposed price review. 4.7 This price review is needed even if the GOT were to move from a system of price control to one of price surveillance at some time in the future. The reasoning behind a possible change in the system is that it may promote competition, reduce government workload, and improve the relationship between the GOT and the oil companies. While this move is desirable in principle, it is recommended that the GOT, with the assistance of a regional institution, carefully evaluate the experience elsewhere with such changes, in the context of the small size and the structure of Tongan petroleum market and the supply characteristics. 4.8 Currently, the price formula compensates BP and Shell for the cost of transshipment of products to LCTs at Fiji for import to Tonga. In order to encourage the oil companies to undertake the upgrading of the fuel discharge facilities (paragraph 3.4), the GOT should raise this matter with the oil companies and modify the return on investment allowance and the freight component in the pricing formula to provide the necessary incentives for change. 4.9 The GOT-owned storage facilities on Vava'u are leased on a bi-annual contract, which has been won by Shell since 1982. To improve competition in Vava'u, it is recommended that the potential of using these tanks as a joint user terminal be investigated (analogous to the joint user installation operation at all major airports). 4.10 The new situation created by the commencement of Finapeco's operations in 1991 may, as indicated above, affect Tonga's supply situation. It is recommended that dual price monitoring 16/ be conducted by the GOT to establish the effect on product prices as a result of the new supply arrangement. 16/ Dual price monitoring involves the recording of landed costs both according to the existing price formula and as they develop under a new supply arrangement. - 28 - Power Tariffs and Utility Finance 4.11 The least-cost development plan (ADB 1990) shows that additional capacity, over and above that provided through the ADB-financed project, will be needed in the second half of the 1990s, as deficits are projected from 1997 in Tongatapu and Vavalu, and from 1999 in 'Eua (Annex 3.3). It is recommended that TEPB prepare for these additions by organizing studies and securing financing. 4.12 TEPB's system expansion plans and the need for substantial loan- financed capital investment will have far-reaching consequences. The demands of servicing a large amount of overseas debt and ope tting within the constraints of loan conditions will force the TEPB to be managbd on a commercial basis and may result in strong upward pressure on tariffs. ADB loan conditions require the TEPB to moet more stringent operating and financial standards than in the past. Again, this will have institutional implications with higher demands regarding management of the Board, project planning and appraisal, technical and financial skills, and systematic training of the staff (paragraph 4.16). 4.13 While TEPB theoretically has the authority to set its own pover rates, in practice, given the composition of its board, the utility may be restrained in its ability to institute new tariffs when circumstances dictate a change. In September 1985, TEPB adopted a flat-rate and minimum monthly rate tariff structure. On its introduction, the flat rate was set at T$0.2564 per kWh, which was reduced to T$0.2385 per kWh in July 1986. Thereafter it remained unchanged until May 1990 when a fuel surcharge mechanism was introduced in response to increasing oil prices, adding T$0.0147 per kWh (increased to T$0.0252 in October 1990) to the tariff. It has now been agreed by the GOT and TEPB, on the recommenaation of the ADB, that the fuel surcharge mechanism will be formally incorporated in TEPB's tariff structure. 4.14 A flat nationwide tariff has been applied to all four power systems. With increasing pressure for TEPB to expand its system to less economic areas such as other outer islands as well as the development of a more pronounced peak in the Tongatapu demand curve, there is an increasing need for a comprehensive tariff study. ADB has made provision in its institutional study for a tariff review to be undertaken. The study will examine TEPB's investment and financial requirements in the next ten years and propose an appropriate tariff structure, taking into account the long-run marginal costs of supply as well as financial and social objectives. It is recommended that the GOT carefully consider recommendations in the study that seek to promote greater efficiency in the use of electricity and a sound fina. .al position for TEPB. 4.15 TEPB's financial performance has generally been satisfactory since FY 1985, although at the expense of adequate capital expenditures for system expansion and maintenance. TEPB's debt service level has been low, which has also been helped by the fact that previous major capital expenditures were financed by bilateral grants (as well as by internally generated funds). Rates of return on average net fixed assets (at historical cost) have been between 62 and 142. The debt service obligations as a result of TEPB's expansion and upgrading program will impose a higher degree of financial and commercial discipline on the utility than in the past. - 29 - 4.16 The TEPB Act does not provide sufficiently clear corporate objectives or financial performance targets. The proposed system expansion and increasing debt servicing obligations, urgently require a clarification of TEPB's responsibilities and an upgrading of its performance standards. The forthcoming ADB-sponsored study will review the TEPB Act, recommend amendments, develop appropriate corporate and financial objectives, and review TEPB's existing accounting-, financial-, audit- and management-information systems, as well as the organizational structure and staffing in these areas. It is recommended that the GOT carefully consider the conclusions of the study. Environmental and Regulatorv Issues 4.17 The MLSNR, through its Section for Ecology and Environment, is responsible for overall environment planning and monitoring in Tongs. An inter- departmental environment committee advises on and oversees the activities of the Section. One of the Section's main tasks is to develop and implement an Environmental Management Plan (EMP) for Tonga, which will include a framework for the assessment and monitoring of the environmental aspects of energy projects and programs to ensure conformity with established regulations. An EMP nas been formulated with assistance from the Economic and Social Commission for Asia and the Pacific (ESCAP), and ADB may assist with its implementation following its ratification by the GOT. 4.18 It is recommended that the Section be provided with the resources and authority to monitor the implementation of energy projects to ensure that the precautions proposed in the environmental impact assessment are actually carried out. At present, the Section's capabilities are limited because of very restricted manpower and financial resources. Hence, it is recommended that the Section be permitted to request external assistance from an agency such as the South Pacific Environment Programme (SPREP), when there are doubts about the validity of the environmental impact assessment or about the Section's ability to monitor or enforce compliance with the proposed precautions. Petroleum Subsector 4.19 The institutional responsibility for petroleum issues currently falls mainly under two ministries. The MLCI handles price control, through the Competent Authority, and is supposed to carry out quantity and quality control, through its Weights and Measures Section, but it lacks the staff and equipment to do so. All other energy-related petroleum issues are in principle handled by the EPU. Due to staffing constraints EPU is currently working only to a limited extent on petroleum issues. As recommended in Chapter V, EPU needs to broaden its involvement iu the petroleum subsector. Finally, it is recommended that the monitoring of compliance with physical standards be carried out by the Public Works Department. 4.20 Government regulation of the oil industry needs strengthening. Regulations or legislation are required to assure that all products imported to Tonga meet international standards. While all products are believed to meet these standards at present, there is no legal requirement that they do so, and only the oil companies control the quality of imported products. It is recommended that the GOT introduce a Petroleum Standards Act, as is now being - 30 - envisaged, and establish procedures for monitoring adherence to the standards.17/ At the same time, Tonga should avoid paying too much for its gasoline, to the extent that the quality of the product being supplied is superfluous to the country's needs. A regional review of this issue is being conducted by the Forum Secretariat. 4.21 At present, there are limited mandatory safety requirements for petroleum storage and distribution facilities. Although the installations in Tongatapu apps*r to be in reasonable condition (with some qualifications, such as the inadequate distance between bulk storage tanks, and the poor maintenance of TPL installations for handling and storage), it is recommended that the GOT introduce more complete safety standards and monitor compliance in order to reduce the risk of accidents. The GOT could request the Forum Secretariat to complete its proposed regional petroleum storage and handling standards and make the necessary preparations for the enforcement of these or similar standards. Monitoring of these physical standards (engineering, quality, quantity and safety) could be done by extension of the Public Works Department in consultation with the EPU, or by the MLCI which has responsibility for weights and measures. 4.22 At present, there is indiscriminate and hazardous disposal of waste oil, ballast, and bilge water. Petroleum contaminated effluents are discharged into public areas and bunds are too low to be effective. It is recommended that procedures be devised to ensure proper disposal of petroleum and related products. Further, procedures and facilities to prevent or handle emergencies, spills and product contamination need improvement, and training in the detection, monitoring and clean-up of environmental hazards and spills is also required. The National Marine Contingency Plan addresses some of the issues but it should be extended. It is recommended that the GOT request SPREP to assist the GOT in updating this plan and training the relevant personnel. Power Subsector 4.23 TEPB's small power stations do not present major environmental threats. However, the disposal of waste oil at the power station sites, most notably at the Popua Power Station near Nuku'alofa, is a problem. Waste oil here is collected in concrete tanks from which, however, it seeps into the ground and washes into the lagoon from which the station draws its cooling water. It is recommended that the ADB-sponsored power development project study include the development of suitable disposal methods. 17/ A relatively simple procedure would be to send samples abroad a few times per year for assessment. - 31 - V. INVESTMENT AND TECHNICAL ASSISTANCE PRIORITIES Sectoral Planning and Coordination 5.1 The principal objective of Tonga's energy policy--and therefore the main task of the central energy unit--should be to provide a balanced approach between energy resource development and supply, on the one hand, and energy conservatioin, on the other, in order to satisfy the basic energy needs of the population at the minimum cost. 5.2 At present, the GOT has given a low priority to the overall management of the energy sector and there is a lack of focus on the important energy issues requiring the attention of some central authority or possibly government intervention. The GOT's present attitude may be characterized as one of reacting to perceived crises rather than defining priorities and developing policies and plans of action aimed at dealing with the long term issues in the sector. The national body with clear authority over energy policy, the National Energy Committee (NEC), has not convened for a number of years. The EPU hat limited capabilities and resources allocated to it, and the focus of its present work is the implementation of PV projects and not sector planning. 5.3 In order for the GOT to manage the sector successfully, it is necessary to redefine the functions to be carried out by the central energy institutions, and to increase the human and financial resources devoted to this sector. The recommended changes are described below. National Energy Committee (NEC) 5.4 To provide a national perspective on energy matters and to ensure overall harmony of policies and investments, the NEC should be revived, and it should assume its responsibility for formulating policies and reviewing all price and major investment proposals before submission to the Cabinet. With public representatives of all energy subsectors as members, the NEC would be able to ensure coordination at the highest level. This is particularly important in view of the weak linkages and communication between subsector institutions. There are two pre-requisites for the proper functioning of the NEC: (i) It will need a secretariat with the necessary capacity and skills to develop sound and well- documented proposals for consideration. The MLSNR should provide the secretariat, which means that the EPU needs to be strengthened; and (ii) the NEC should consider energy matters in general and not focus on petroleum issues only as it has mainly done in the past. Energv Planning Unit (EPU) 5.5 The basic task of the EPU should be to provide a framework within which the subsector institutions operate, by (i) formulating policy proposals to the GOT on energy-related matters, (ii) overseeing the implementation of adopted policies, programs and measures, (iii) providing guidelines, advice, information and certain other services to energy-related institutions, and (iv) ensuring coordination within the sector. The EPU should not be involved in or directly responsible for the implementation of energy projects and programs. - 32 - 5.6 In relation to the electricity subsector, EPU should provide TEPB with information on possible options to thermal power generation when expansion or the potential for diesel substitution is considered. In Tonga, one of the few alternatives to diesel generation is wave power, and data collection, initial donor contacts and the organizing of feasibility studies for alternatives of this type should be the responsibility of EPU. Further, the EPU should monitor the following: (i) the development program of TEPB prior to submission to the NEC to ensure it is least cost and timely, (ii) the financial situation of the utility and its ability to carry out the development program, and (iii) TEPB's adherence to technical standards. As part of the overall coordination of energy prices, TEPB should consult with EPU prior to tariff changes. The Permanent Secretary of MLSNR should be on TEPB's Board. In many cases, EPU would have to commission consultancy studies or seek advice on these matters due to their scope and complexity. With scarce skilled local manpower resources, and the relative infrequency of larger energy projects requiring special competence, it is recommended that EPU hire short-term external expertise as needed. The GOT should consider approaching one of the locally represented donor countries for a revolving fund for such purposes. 5.7 At present, EPU is hardly involved in the petroleum subsector. However, one of ePU's main responsibilities should be to act as an adviser to the GOT on petroleum policies and their implementation. The main concerns would be petroleum pricing, the adequacy of storage and distribution facilities, security stocks, and public fuel purchases. Since it is the private sector that carries out all the main functions in the subsector, EPU should maintain a dialogue with the oil companies on issues such as the possible need for storage expansion and security stocks and should commission the study recommended in the section on petroleum supply. It is recommended that the Competent Authority which controls petroleum prices consult regularly with EPU on pricing matters and that the results of the general price review recommended earlier in the report be submitted to the NEC prior to Cabinet decision. It is finally recommended that KPU be responsible for establishing a proper petroleum data base and that its staff be given training through the Forum Secretariat to enable it to provide information and advice on petroleum matters to other government entities. One particular area indicated earlier is that of organizing fuel purchases, preparing tender invitation documents and assisting with negotiations for fuel supplies to TEPB and other public sector consumers. 5.8 The EPU has an important role to play in the assessing, filtering and soliciting donor-funded projects related to renewable energy technologies. The potential contribution of these projects to the energy needs of the country is modest in relation to their manpower and financial demands, although the relevance of PV applications in specific cases such as to isolated communities on some outer islands should be recognized. EPU should examine all donor propositions to assess the technical maturity and economic viability of renewable energy projects, screening out those which are of a speculative or experimental nature, as well as those which have high recurrent manpower and financial costs. Similarly, the EPU should assess energy 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. It is recommended that EPU be responsible for organizing the study of the institutional and funding requirements associated with the ambitious plans of the GOT for PV development in Tonga. - 33 - 5.9 It is recommended that the EPU be relieved of its involvement in the implementation of PV projects on outer islands, and these projects be transferred to some other agency. NGOs that can attract donor support are an option. 5.10 EPU should be the main organizer of energy conservation initiatives among energy producers and users. It should continue its work to raise public awareness and initiate energy audits and energy surveys, identifying measures and costs and presenting findings to the beneficiaries for subsequent implementation by the latter. 5.11 In the field of biomass and household energy EPU should rely on the study that is proposed, initiated by the NAFP on the biomass resource, supply and. demand situation, to assess what initiatives, if any, are warranted with respect to the woodfuel supply situation overall. The EPU should monitor the situation with respect to biomass fuels but limit its involvement mainly to liaising with MAFF and other agencies more directly involved in forest management and coconut cultivation. Staffinx of EPU 5.12 The present staffing of EPU, with two permanent positions, of wnich one is filled, and two temporary employees, is inadequate in relation to the described tasks. By developing its own internal capabilities, EPU will be in a better position to prepare and assess energy project proposals and thus enable the NEC to set the national energy agenda. 5.13 It is recommended that the staff of EPU consist of: - an energy planner who will be responsible for the overall and more technically oriented issues related to power, petroleum, new and renewable energy technologies, biomass fuel, and energy conservation; - an energy officer with background in economics who will be responsible for pricing matters, economic assessments and general data analyses. - two trainees, part of whose work will be building up and maintaining data bases, assisting with the implementation of energy conservation measures, and continue assisting with the installation and maintenance of PV systems until some other agency can take over the responsibility. 5.14 In addition, for a period of at least two years, the EPU will require the support of a senior energy expert with a technical background combined with a sound understanding of economic and financial issues. This person would advise EPU on all technical issues and assist in developing the local capability in energy planning and management. One of the main tasks of such a person would be to prepare and monitor the implementation of a training program for the staff of EPU. It is likely that the energy expert would have to be found (and funded) externally and it is therefore recommended that the GOT approach appropriate agencies. The GOT, in return, would have to commit resources to fund the local positions and provide suitable candidates for them. -34 - Power Subsector 5.15 The sybtem expansion investments, rehabilitation work, training, and various studies and consultancy services covered under the ADB loan will substantially cover the investment and study needs of TEPB for the next five years or so. An outstanding requirement, however, will be the full expansion and rehabilitation of TEPB's distribution systems which have been deferred for capacity reasons. 5.16 It is expected that project preparatory studies for the distribution system expansion/rehabilitation, to be provided under the ADB loan, will be completed by mid-1992. The GOT has approached ADB for a further loan to finance the implementation of the distribution project in 1993 or 1994. The project has been estimated to cost about US$5 million. 5.17 In addition, TEPB will need assistance in developing a framework and policy guidelines for the extension of electric services to remote areas and outlying islands. Such a study can be seen as a natural extension of other studies to be funded by ADB and a request to this institution should therefore be forwarded. Petroleum Subsector 5.18 The major investment requirements will be covered by the private oil companies which are the main actors in this subsector. Priority technical assistance requirements in the subsector are as follows: - long-term institutional support to the Energy Planning Unit to further develop in-house capabilities with respect to petroleum pricing, negotiations, and analyses, and with the development of a data base; the establishment of a contract for all government fuel requirements; - review of the price formula for petroleum products, a verification of the oil companies' costs, and an assessment of government charges; improvement of fiscal controls; - assessment of supply arrangements and dual price monitoring after the commencement of Finapeco; - establishment of engineering standards for storage facilities and quality standards for petroleum products; training of staff in monitoring adherence to standards; engineering audit of present storage and port facilities outside Nuku'alofa; - a study of the adequacy of existing storage facilities against forecast demand and the need for strategic reserves; - extension of the present Marine Contingency Plan for dealing with oil spills and accidents; procedures for dealing with waste oil; training of personnel in detection, monitoring and clean-up of spills. - 35 - B!imans and Other Renewable. 5.19 Technical assistance requirements are: - a study of the demand and supply situation with respect to woodfuels on the main islands, preferably as part of a broader inventory of the wood resource situation, to establish the extent of biomass energy scarcities and deforestation, and the need for further measures; - a study of the institutional requirements to be met prior to further implementation of the Government program of photovoltaic systems on outer islands, including manpower and funding requirements. '±ONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR Ministrv of Lands. Survey and Natural Resources MlNISTER Secretary |Deputy Secretaryj Energy r Geology Ecology and Environ- Surveying Land | Adans trative Plan-ing Unit Unit | | Section Registration Valuation Services Energy Planner Energy Officer 2 Assistants (trainees) aote: Organizational structural as at February 1991. The chart depicts reporting relationships. Levels on the chart do not necessarily denote equal seniority. Source: MNLSR TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR Tonga Electric Power Board Organizational Chart la 1313D 0a TEM - tothe Board Chief Enine | C| if nineer T | Pance Managr Ma|nlgeD r| | enration electrical Acting Chi.f AiUU TRATIO | Engineer Engineer Man agcoXtaF I Ier Ac- tA Store Keepoer Plant Superv c |o|a Transmission & Accountant Accountant AdIuinstrative * Inward BA S * Operaton o D Iiltribution - Zven - Ependiture * Outward s atnance Supervisors * Purchasin Officer 1. V v'u Manar = tIon Acalstant~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.DaplMaae for Read. Pe o e D|nal | Superior . bManager Bookkoeper Officer DatDta Procesin Motor Resdor ~ ~ ~ uprisr toemn q H ad Costn Cle d Cchbr l _ 1 | ~~~~~~~~~~~~~~~~Ste oro | [{i7I|I Tecbniciansl Computer Bookkeeper 4 Sr. Sccretar7 - Sbppin Clark TechDnciane Inspectors Sup-rCC OC/ Sr. Accounts Clerkc Sr. Clerks Linse-enl Accounte Clerks o l ecnica l Mechan|c| Copu;telr@ / A | ccounts Clerk | riversjr/Clerk O|eratorC r | aitatalCler re Operators prtr La As of September 30, 1990 SourceI TM TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR Enerw.v Balance for Tonga. 1989 (1,000 TOE) Coccout Ccmont Total TOtW Total fuelvood residues stemoo blouse. Electricity aseollas Jet Al er*es*e WI. lenxine MOIZDO Avesa LPG petroleum eeray Pr Su,p.p-Les 13.94 12.77 0.24 26.94 26.94 Imprts 7.39 3.90 0.53 0.15s 10.58 0.72 0.47 23.74 23.74 GROSS AhZLE13.94 12.77 0.24 26.94 0.00 7.39 3.90 0.33 0.15 10.58 0.72 0.47 23.74 SO.SS CoaverselounLosees IPublic Power Generation 5.49 (5.49) (5.49) 0.00 Tran.foratatin Lasse/Sltatlou Use (3.61) (3.61) TrzavamieslouzIDitrIbution Losese (0.33) (0.33) MrT SUPPIED 13.94 12.77 0.24 26.94 1.54 7.39 3.90 0.53 0.15 5.09 0.72 0.47 18.25 46.74 Vinelj Cousu.ptlon Dometetl 13.25 10.83 0.24 24.32 0.31 0.33 0.15 0.47 1.15 25.78 Traneort 7.39 3.90 5.09 0.72 17.10 17.10 Agro end Other Industries and Services 0.59 1.90 2.49 1.24 3.73 Otbeze 0.09 0.04 0.14 0.14 0 TOTAL 13.94 12.77 0.24 26.94 1.5S. 7.39 3.90 0.53 0.15 3.09 0.72 0.47 18.25 4674 Scurcet Mission estimates. TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR Petroleum Imports 1985 1986 1987 1988 1989 1990 la 1985-90 Product Volume Valu Volume Value Volume V Vohu Value volum Value volume valuo Volum groth (hi) (US$'000) (hi) (9S$'000) (kh) (USS'000) (kl) (US$'000) (kl) (OSS'OOO) (kl) (US$OOO) (2 p.-.) Gaeolue 5,824 1,583 7.448 1.567 6,813 1,309 8,091 1,527 9,167 1.857 11.024 2,190 13.6 Jet fuel 1,678 426 2.4S1 597 5,414 1,036 2,147 448 4,462 858 5,215 1.359 25.5 Karoaeu 1,512 368 459 107 654 115 1,619 336 614 124 516 121 -19.3 ADOIIDO 7,479 1.802 10,236 2,121 10,423 1.770 11,890 2,040 11,768 2,242 15.055 3.000 15.0 Lubes 346 256 226 201 460 273 321 312 378 281 654 380 13.6 Avgac 2,834 738 132 74 410 142 708 217 921 186 1,511 404 -11.8 LP0 410 96 449 188 210 127 767 265 800 254 844 282 15.5 Benslue white 31 15 37 19 24 IS 898 193 IS5 39 14 7 -14.7 Other lb 79 22 64 33 171 77 20 16 26 22 430 104 40.3 Total Iutorts 20.192 5.306 21.533 4.906 24,579 4.868 26,462 5355 28,322 5.864 35,265 7.846 11.8 fourth rter estimated. Ko7tly W%te spirit, turpntine and other oils. Sources Departmut of Statietics - 40 - ANNEX 2.3 Page l of 2 TONGA ISSUES AND OPTIONS IN THE INERGY SECTOR Historical and Proiected Peak Demand Electricity Generation and Electricity Sales Fiscal Peak Electricity Station and Transmiasion and Electricity Increase Year Demand Generated TEPB Use Distribution Loss sales in Saleo (MW) I a (CWh) lb (6Wh) (X) I- TMh) (O) /c (6W) (S P.&.) 1EPB (consolidated) Actual 1983 2.610 11.498 0.544 4.73 1.667 14.50 9.287 5.61 1984 2.710 13.573 0.588 4.33 2.401 17.69 10.584 13.97 1985 2.710 14.406 0.554 3.85 1.879 13.04 11.973 13.12 1986 2.980 15.362 0.598 3.89 2.186 14.23 12.578 5.05 1987 3.585 17.425 0.772 4.43 2.391 13.72 14.262 13.39 1988 3.690 19.715 0.779 3.95 3.016 15.30 15.920 11.63 1989 4.070 21.768 0.860 3.95 3.089 14.19 17.819 11.93 1990 4.664 24.209 0.938 3.88 3.261 13.47 20.011 12.30 Proiected 1991 5.038 26.149 1.014 3.88 A.522 13.47 21.612 8.00 1992 5.381 27.930 1.057 3.78 3.561 12.75 23.313 7.87 1993 5.720 29.678 1.122 3.78 3.494 11.77 25.062 7.50 1994 6.133 31.829 1.176 3.70 3.712 11.66 26.941 7.50 1995 6.551 33.999 1.257 3.70 3.780 11.12 28.962 7.50 Ton*LataDu Actual 1983 2.360 10.440 0.509 4.88 1.539 14.74 8.392 4.48 1984 2.470 12.411 0.548 4.42 2.259 18.20 9.604 14.44 1985 2.410 13.004 0.508 3.91 1.667 12.82 10.829 12.76 1986 2.650 13.835 0.546 3.95 1.951 14.10 11.338 4.70 1987 3.210 15.613 0.715 4.58 2.082 13.34 12.816 13.04 1988 3.230 17.316 0.713 4.12 2.601 15.02 14.002 9.25 1989 3.520 18.940 0.787 4.16 2.596 13.71 15.557 11.11 1990 3.850 20.978 0.860 4.10 2.769 13.20 17.361 11.60 Prolected 1991 4.161 22.672 0.930 4.10 2.993 13.20 18.750 8.00 1992 4.430 24.139 0.966 4.00 3.017 12.50 20.156 7.50 1993 4.706 25.642 1.026 4.00 2.949 11.50 21.668 7.50 1994 5.053 27.533 1.074 3.90 3.166 11.50 23.293 7.50 1995 5.400 29.424 1.148 3.90 3.237 11.00 25.040 7.50 Vava u Actual 1983 0.250 1.005 0.030 2.99 0.127 12.64 0.848 11.43 1984 0.240 1.028 0.031 3.02 0.137 13.33 0.860 1.42 1985 0.300 1.211 0.036 2.97 0.187 15.44 0.988 14.88 1986 0.330 1.316 0.042 3.19 0.205 15.58 1.069 8.20 1987 0.375 1.477 0.039 2.64 0.287 19.43 1.151 7.67 1988 0.460 1.924 0.048 2.49 0.409 21.26 1.467 27.45 1989 0.550 2.122 0.056 2.64 0.411 19.37 1.655 12.82 1990 0.520 2.383 0.060 2.50 0.405 17.00 1.909 15.35 Pro1ected 1991 0.559 2.561 0.064 2.50 0.435 17.00 2.062 8.00 1992 0.594 2.719 0.068 2.50 0.435 16.00 2.216 7.50 1993 0.630 2.888 0.072 2.50 0.433 15.00 2.383 7.50 1994 0.670 3.067 0.077 2.50 0.429 14.00 2.561 7.50 1995 0.711 3.258 0.081 2.50 0.424 13.00 2.753 7.50 - 41 - ANNEX 2.3 Page 2 of 2 Fiscal Peak Electricity Station and Tranamission and Electricity Increase Year Demand Generated TEPB Use Distribution Loss Sales in Sales (MW) /a (GWh) lb (MW) (X) Le (MW) M% /c0 (GWh) (2 p.a.) H1a'anai Actual 1983 n.a. 0.042 0.003 7.14 n.a. n.a. 0.039 n.a. 1984 n.. 0.100 0.004 4.00 0.002 2.00 0.094 141.03 1985 n.a. 0.149 0.005 3.36 0.020 13.42 0.124 31.91 1986 n.a. 0.161 0.005 3.11 0.027 16.77 0.129 4.03 1987 n.a. 0.219 0.009 4.11 0.013 5.94 0.197 52.71 1988 n.a. 0.301 0.010 3.32 0.003 1.00 0.288 46.19 1989 n.a. 0.425 0.009 2.12 0.051 12.00 0.365 26.74 1990 0.171 0.525 0.010 1.90 0.063 12.00 0.451 23.56 Prolected 1991 0.185 0.566 0.011 1.90 0.068 12.00 0.487 8.00 1992 0.215 0.697 0.013 1.90 0.080 11.50 0.604 24.00 1993 0.230 0.745 0.014 1.90 0.082 11.00 0.649 7.50 1994 0.246 0.797 0.015 1.90 0.084 10.50 0.698 7.50 1995 0.263 0.852 0.016 1.90 0.0085 10.00 0.750 7.50 'Eua Actual 1983 n.a. 0.011 0.002 n.a. 0.001 n.a. 0.008 n.s. 1984 n.a. 0.034 0.005 14.71 0.003 8.82 0.026 225.00 1985 n.a. 0.042 0.005 11.90 0.005 11.90 0.032 23.08 1986 n.a. 0.050 0.005 10.00 0.003 6.00 0.042 31.25 1987 n.a. 0.116 0.009 7.76 0.009 7.76 0.098 133.33 1988 n.a. 0.174 0.008 4.60 0.003 1.72 0.163 66.33 1989 n.a. 0.281 0.008 2.85 0.031 11.03 0.242 48.47 1990 0.123 0.323 0.009 2.70 0.024 7.50 0.290 19.83 Prolected 1991 3.133 0.350 0.009 2.70 0.026 7.50 0.313 8.00 1992 0.143 0.375 0.010 2.60 0.028 7.50 0.337 7.50 1993 0.153 0.402 0.010 2.50 0.030 7.50 0.362 7.50 1994 0.165 0.432 0.011 2.50 0.032 7.50 0.389 7.50 1995 0.177 0.465 0.012 2.50 0.035 7.50 0.418 7.50 /a PY83-89, Tongatapu and Vava'u only. Lb Tongatapu commenced operations In 1949; Vava'u, in early 19709; Ha'api, in December 1982; "Eua, In February 1983. /c As percent of energy generation. Source: TEPB's anrual reports and consultants, report. - 42 - ANNEX 3.1 TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR TEPB's Generating Plants Unit Manufacturer Engine Year in Capacity Power Proposed No. engine/generator type service Nominal Normal max. factor Speed retirement (kW) (kW) La (s/min) PoDua Power Station. TonRatanu 1 Mirrlees Blackstone/Brush KSS6 1972 1,198 1,018 0.8 428 1996 2 Mirrlees Blackstone/Brush KSS6 1972 1,198 1,018 0.8 428 1996 3 Hirrlees Blackstone/Brush KS Major 1978 1,729 1,470 0.8 500 2000 4 Mirrlees Blackstone/Brush KS Major 1981 1,729 1,470 0.8 500 2002 Neiafu Power Station. Vava'u lb I Lister Blackstone/Harland & Wolff EVS 1974 /c 150 128 0.8 600 1996 2 Lister Blackstone/Harland & Wolff EVS 1974 /c 150 128 0.8 600 1996 3 Lister Blackstone/Harland & Wolff EVS 1978 /c 150 128 0.8 600 1998 4 Lister Blackstone/Harland & Wolff EVS 1984 LS 150 128 0.8 600 1998 Pangai Power Station. Ha'apai 1 Dorman/KATO 20893 1982 56 48 0.8 1,000 1998 2 Dorman/KATO 20893 1982 56 48 0.8 1,000 1998 3 Gardner/Nevage n.a. (d n.a. 80 68 0.8 1,500 2000 'Ohonhua Power Station. 'Eua i Dorman/KATO 20893 1983 56 48 0.8 1,000 1998 2 Dorman/KATO 20893 1983 56 48 0.8 1,000 1998 3 Gardner/Newage n.a. n.a. 80 68 0.8 1,500 2000 a Normal max:ium generating unit capacity is 85 percent of nominal capacity. Rebuilt engines originally in service in Tongatapu, actual commissioning dates approximately 1958-65. Initially In service before 1960 elsewhere. 7d "N.a." indicates information not available. Sources TEPB and Final Report--Tonga Power Development Study, October 1990. TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR TEPB Generation Development Program. 1991-2000 Pf 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 TonaataDu System ----------------------------------------------------- kW ---------------------------------------------- Capacity added - 2x2,000 - - - lx2,000 - 1x2,000 Capacity retired - - - - - - 2x1,198 - - l11,729 Total capaclty 5,854 5,854 9,854 9,854 9,854 9,854 9,458 9,458 11,458 9,729 Vava'u System Capacity added - - 2X300 - - - ls300 - lx300 lx300 Capacity retired - 2x150 - 2xWM0 Total capacity 600 600 1,200 1,200 1,200 1,200 1,200 1,200 1,200 1,500 1 Ha'aDal Svstem Capacity added - lzx5O 2x150 - - - ix15O - lxl50 Capacity retired - - - - - - - - 2x56 Total capacity 192 342 642 642 642 642 792 792 830 830 Eiua System Capacity added - - 2xl50 - - lx150 - - Ixl50 Capacity retired - - - - - - - - 2X56 Total capacity 192 192 492 492 492 642 642 642 680 680 Source: "Appraisal of the Power Development Project in Tonga," ADB, November 1990. IW TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR P_roiected Generation Reserve CaPacitv Ft 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 TonRataDu Exiting (old) isatalled capacity 5.854 5.854 5.854 5.854 5.854 5.854 5.B54 3.458 3.458 3.458 3.458 1.729 Existing (old) available capacity (852) 4.976 4.976 4.976 7.976 7.976 4.976 4.976 2.939 2.939 2.939 2.939 1.470 Lesas Retirement of existing capacity 2.396 (beginning of the year) (2x1.198) 1.729 Add: New capacity 4.000 2.000 (2x2.000) (lx2.000) Total Installed capacity 9.854 9.458 Total available capacity 8.976 8.939 lrm capacity (less one largest unit) 3.506 3.506 3.506 6.976 6.976 6.976 6.976 6.939 6.939 6.939 6.939 Peak demand 3.850 4.161 4.430 4.706 5.053 5.400 5.805 6.241 6.709 7.212 7.753 Excess (deficit) (0.344) (0.655) 0.924 2.270 1.923 1.576 1.717 0.698 0.230 (0.273) (0.814) Vava ' Existing (old) installed capaelty 0.600 0.600 0.600 0.600 0.600 0.600 0.600 0.300 0.300 0.0 0.0 Existing (old) available capaclty (b52) 0.510 0.510 0.510 0.510 0.510 0.510 0.510 0.255 0.255 0.0 0.0 Loses Retirement of exsltlng capacity 0.300 0.300 (2x0.150) (2xO.150) Add: Now Capacity 0.600 (2x0.300) Total Installed capacity 1.200 0.900 0.600 Total available capacity 1.110 0.855 0.600 Firm capacity 0.383 0.383 0.383 0.810 0.810 0.810 0.810 0.555 0.555 0.300 0.300 Peak demand 0.520 0.559 0.594 0.630 0.670 0.711 0.754 0.811 0.872 0.937 1.008 to Excess (deficit) (0.137) (0.176) (0.211) 0.180 0.140 0.099 0.056 (0.256) (0.317) (0.637) (0.708) 0 F-h 0. FY 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Exieting (old) installed capacity 0.192 0.192 0.192 0.192 0.192 0.192 0.192 0.192 0.192 0.080 0.080 Existing (old) available capacity (851) 0.164 0.164 0.164 0.164 0.164 0.164 0.164 0.164 0.164 0.068 0.068 Lese: Retirement of existing capacity 0.112 0.080 (2x0.056) Add: New capacity 0.150 0.300 (2x0.150) Total installed capacity 0.342 0.642 0.530 Total available capacity 0.314 0.614 0.518 Firm capacity 0.095 0.095 0.164 0.464 0.464 0.464 0.464 0.464 0.464 0.368 0.368 Peak demand 0.171 0.185 0.215 0.230 0.246 0.263 0.275 0.296 0.313 0.342 0.367 Excess (deficit) (0.076) (0.090) (0.051) 0.234 0.218 0.201 0.189 0.168 0.146 0.026 0.001 1 'Eua Ltn Existing (old) installed capacity 0.192 0.192 0.192 0.192 0.192 0.192 0.192 0.192 0.192 0.080 0.080 Existing (old) available capacity (851) 0.164 0.164 0.164 0.164 0.164 0.164 0.164 0.164 0.164 0.068 0.068 Less: Retirement of existing capacity 0.112 0.080 (2x0.056) Add: New capacity 0.300 (2x0.150) Total inetalled capacity 0.492 0.380 Total available capacity 0.464 0.368 Firm capacity 0.095 0.095 0.095 0.314 0.314 0.314 0.314 0.314 0.314 0.218 0.218 Peak demand 0.123 0.133 0.143 0.153 0.165 0.177 0.184 0.198 0.213 0.229 0.246 Excess (deficit) (0.028) (0.038) (0.048) 0.161 0.149 0.137 0.130 0.116 0.101 (0.011) (0.028) Source: "Appraisal of the Power Development Project in Tonga," ADD, November, 1990 0. - 46 - ANNEX 4.1 TONGA ISSUES AND OPTIONS IN THE ENERGY SECTOR Petroleum Producto: Price Buildup ja Sample calculations Gasoline Diesel Kerosene USą/1 X USą/l Z USą/l Z Tonaataipu FOB 22 39 26 40 27 50 Freight 4 7 5 8 6 11 Transhipment 1 2 1 2 1 2 Distribution & ROI /b 8 14 8 12 9 17 Government charges 17 30 19 29 9 17 Wholesale price 52 91 59 91 52 96 Retail price 57 100 65 100 54 100 Ha'apai Wholesale price 55 63 57 Retail price 60 68 59 Niua's Wholesale price 68 77 74 Retail price 72 80 78 Vava'u Wholesale price 55 68 52 Retail price 58 71 54 La Lowest-cost supplier, February 1991. /b Return on investment. Source: The Competent Authority _ 47 - STATISTICAL APPENDIX Table 1 KINGDOM OF TONGA: SELECTED DEVELOPMENT INDICATORS Table 2 KINGDOM OF TONGA: SELECTED PROJECTIONS Table 3 KINGDOM OF TONGA: ENERGY BALANCE, 1989 ('000 TOE) Table 3a KINGDOM OF TONGA: ENERGY BALANCE, 1989 (ORIGINAL UNITS) Table 4 KINGDOM OF TONGA: ENERGY BALANCE, 2000 ('000 TOE) Table 4a KINGDOM OF TONGA: ENERGY BALANCE, 2000 (ORIGINAL UNITS) Table 5 KINGDOM OF TONGAt PETROLEUM MARKET, 1985-1990 Table 6 KINGDOM OF TONGA: NATIONAL PUBLIC ELECTRIFICATION SYSTEM Table 7 KINGDOM OF TONGAt ELECTRICITY TARIFF STRUCTURE Table 8 KINGDOM OF TONGA: HOUSEHOLD ENERGY PRICES/CONSUMPTION Table 9 KINGDOM OF TONGA: NON-CONVENTIONAL ENERGY RESOURCES AND USE - 48 - Table 1: KINGDOM OF TONGA: SELECTED DEVELOPMENT INDICATORS 1985 1986 1987 1988 1989 1990 GDP (current prices,/a US$ mil) 55.9 66.1 77.0 93.4 100.5 n.a. GDP per capita (current prices, US$) 699 Total Imports (c.i.f. US$ mil) 36.0 40.3 45.9 53.7 54.6 56.8 Total Exports (f.o.b. US$ mil) 7.5 5.5 7. 6.9 9.6 9.0 Inflation rate (1) 2 31 8 11 4 5.9 Exchange rate (T$/US$) 1.43 1.5 1.43 1.28 1.26 1.28 Land area (1=2) 699 Wage & salary employment (No.) 22,140 n#a. Average wage/salary (T$/hr skilled) 2.00 Economically active (No.) 24,324 Population Total 94,535 95,869 Urban & Peri-urban 63,614 65,020 Rural 30,921 30,849 Aid Annual ODA (US$ mil) 14.3 i:'f6 18.6 16.4 23.3 n.a. ODA (Z GDP) 25.6 16.0 24.2 17.6 23.2 ODA (Z Gov't current income) 58 78 I bilateral 66 67 ODA/Capita (US$) 112 240 /L Source: Tonga: Development Survey Fiscal Year 1990 (July-June). TONGA ENERGY SUPPLY * DIESEL POWER STATIONS I PETROLEUM PRODUCTS STORAGE EXISTING POWER DISTRIBUTION SYSTEM -- PROPOSED POWER DISTRIBUTION SYSTEM O NATIONAL CAPITAL B 175'10' 175' 'MOW 174° TOWu I7Nakfal% h KologaV see insetA -210100 op~ao Sttin21e10'- VA VAU TONGATAPU GR P - f Hamm 0 190 190- 'Ohonua0O TONGATAPU 'Eua GROUP Haatue o 5 10 Miles 10 20 Kilometrs 175`10' A 174e Koo Hta'ao '(Uto VYva'u Fe oa rofu. HA'A PA I ,,,.,,,Tj ) Violewe GROUP -18°40 Hunga Tuanukuod , _Ne iou Koloa 184' > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~20°- Nuopopu Station Umuna 20° Nomaka FoIuOfO'Ou This nap has bee prepared by The Wo'rldh Batk's staff exclusieely for the corneniencre of readers NOAIUK.4 and ~~~~~~~~~~~~~~~~~is exctusirely for the VAVA'U GROUP GnReOUPl we ofnTo e World Bank GROUP and the bcoundaries showmon 0 5 10 Miles . Hunga Tango 0, 25 50 Miles porart of The Worlrd Bonk Goup 0 5 10 A06les HurW T-W 01 I~~~~~~~~~~_______________________________ any judgment on the legal Hunga Ha'apai 6 40 80 Kilomeers endorsement or acceptance of 0 10 _ 2U Kilometers 174° such boundaries. 174-20- l0 1650 10 1650 Foa Foleba -15° VANUATU W. SAMOA A. Samoa. 150- Foi Folelgo U.S. ,o FUI []ONGA / -21' 210 New Caledonia, Fr. see insetB Lifuka HA'APAI . a Norfolk I., Aust. Is., N.Z. AhjoO KefniadecIs,NZ 30 Pon8ai 1 GROUP Tapt, Lord Howe I.. Power Station Miles Aust. 0 1 ~~~~~~~~~~~~~~TONGATAPU 'oh--o suo liihifo0 27 ° iGKlbrw 51s i 5 ,| | kRO UGAPU | NEW ZEALAND Kilom_ers ~~~~~419n50 ~~~~~~~~~~~~~~~~~~~~~~~1750 Kal. 150650 1800 165 The map on the cover of this report has been prepared by the World Bank's staff exclusively for the convenience of readers. The boundaries shown on the map do not imply, on the part of The World Bank Group, any judgement on the legal status of any territory or any endorsement or acceptance of such boundaries. Industry and Energy Operations Division Country Department III East Asia and I'acific Region World Bank Washington, D.C., U.S.A.