EAP - The Pacific Infrastructure Challenge - World Bank (2006).pdf

interest rate relief on a US$9m loan. There is no overt tariff subsidy to FEA from
the government: indeed, the requirement for FEA to meet the government’s
policy of rural and social obligation electrification costs the company about
US$20m a year. This cost is not yet met by the government as required by the
Public Enterprise Act, but there is an agreement between the board and the
government that no dividend is paid which acts to offset the financial cost of
these cross-subsidies.
The lessons learned from FEA reform are relevant to Pacific countries ...
A significant part of the success of the FEA reforms has been a government
willingness to let the new board operate as a strictly commercial entity, with a
profit objective to provide for growth. The relationship between the government
and the FEA is open for all to see. This transparency is key to involving private
sector operators who require a credit worthy government owned organization
with which to agree long term concession, and for the financial institutions
which will be funding the US$285m in electricity investment projects forecast as
necessary to meet demand growth over the next few years.
where clear commercial objectives and transparency of government policy are
essential ingredients of successful reform
Looking ahead, there are questions about the ability of a vertically integrated,
state owned, monopoly electricity institution like the FEA to maintain the
continuous pressure to achieve better performance and deliver better service. The
success of the FEA reforms owes a great deal to the drive and independence of
the present chair of the board and the senior management. Their successors may
not always have the same attributes. Nor is there any external influence from a
competitive market or an independent regulator. These may well become issues
for future policy consideration.
Nevertheless, the FEA is an excellent case study of reform in an electricity
sector. The focus the board and management has applied on reducing systems
losses (including an active campaign on eliminating pilferage), involving private
sector partners in the operation of generation assets, removing inefficiencies,
increasing customer service standards, fully recovering costs in tariffs, and
planning for future growth in demand is a model for needed reforms in other
Pacific countries.
Fiji provides an example of how the electricity sector can become a reliable and
viable contributor to economic growth and social cohesiveness, rather than a
drag on government budgets and society at large.
Source: Castalia Interviews with FEA, September 2004
96