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

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2 Executive Summary This discussion document is aimed at encouraging debate about the role infrastructure plays in growth and development in Pacific countries. It identifies opportunities and obstacles to improved infrastructure performance. We began by examining infrastructure performance in Pacific and comparator countries 1 on indicators for service coverage, quality, cost and economic viability. This allowed us to establish whether sector performance is relatively good or relatively poor in each country. We reviewed performance in the following infrastructure sectors: telecommunications, electricity, water and sanitation, roads, airports and aviation, and ports and shipping. We observe that although some utilities perform well, and infrastructure access is adequate in some (mainly urban) areas, Pacific countries do not perform as well as comparator countries on most key performance indicators. In addition, levels of infrastructure access, quality and efficiency vary between countries of a similar size and income level within the Pacific region itself. 2.1 Why the Difference in Performance Pacific nations are relatively poor. While most Pacific countries enjoy relative macroeconomic stability, their fiscal situation tends to be weak, reflecting reliance on foreign aid. Clearly, poor economic performance makes it harder to achieve good infrastructure outcomes. However, the macroeconomic picture does not explain the Pacific infrastructure challenge. The real challenge is that Pacific countries demonstrate worse infrastructure performance than could be expected for their level of GDP. An obvious possible explanation is that the costs of providing infrastructure services are naturally high in the Pacific. Small scale, dispersed populations, remoteness, and Pacific countries’ susceptibility to natural disasters mean they don’t benefit from the economies of scale infrastructure naturally offers, services are often more costly to produce and maintain, and it is expensive to increase access to rural areas. However, we notice that in some Pacific countries infrastructure performance is worse than in comparator countries (such as Caribbean islands) with similar levels of income, and which share some ‘disadvantages’, such as small scale or vulnerability to natural disaster. Even within the Pacific region, some countries with greater inherent challenges demonstrate better performance in certain infrastructure sectors. This suggests that the inherent disadvantages of scale and topography alone cannot explain poor performance in infrastructure, and that some underperformance is due to poor institutional performance. Poor institutional performance is generally likely to be the result of poor policy, but Pacific countries also share some characteristics that make it more difficult to build strong institutions. These include dependence on aid, small population size and low population density, ethnic diversity, low levels of rural to urban migration, small pools of skilled labor and youthful populations. 1 The Pacific countries reviewed were Fiji, Federated States of Micronesia (FSM), Kiribati, Marshall Islands, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga and Vanuatu. Comparator countries included: Jamaica, St Lucia, St Kitts & Nevis, Grenada, Dominica, Barbados, Mauritius, New Zealand, and the Philippines 4
Pacific countries face each challenge to a different degree, as Figure 2.1 demonstrates. This means that the overall challenge differs from country to country. Because of this, it is difficult to group Pacific countries by type of challenge. Policies need to be modulated to respond to the specific needs of each country. Figure 2.1: Comparison of Defining Features Population Size Average Aid Per Capita Palau (lowest) Marshall Islands Solomon Islands Kiribati Fiji Tonga Timor-Leste Vanuatu Samoa FSM Papua New Guinea (highest) Solomon Islands Vanuatu Samoa Fiji (lowest) Tonga Kiribati Marshall Islands Micronesia Palau (highest) Population Density Average Change in % Rural Population (1990 – 2003) Solomon Islands Vanuatu Kiribati Tonga Marshall Islands Vanuatu Kiribati Papua New Palau FSM Marshall Timor-Leste Samoa Solomon Islands Guinea Islands (lowest) (lowest) Samoa Timor-Leste Fiji (highest) Papua New Guinea FSM Tonga Source: Castalia, based on World Development Indicator Data. Note: Not drawn exactly to scale Fiji (highest) However, these challenges also do not completely explain infrastructure underperformance. Some Pacific countries that face greater challenges some areas, demonstrate better infrastructure performance than countries that are naturally more ‘advantaged’. For example, Vanuatu has a relatively dispersed population, high degree of ethnic diversity, and a moderately small population size and high dependence on aid, and yet it is one of the most efficient providers of water and electricity services in the region. We conclude that better policies, institutions and management can help to improve the overall level of infrastructure performance in Pacific countries. 2.2 Barriers to Growth and Development in the Pacific There are three principle infrastructure barriers to growth and poverty reduction in the Pacific: Low levels of access to infrastructure in rural areas Inefficient service provision Inappropriate infrastructure pricing. The key institutional and policy failures which are responsible for these barriers are poor policy coordination and lack of accountability. Good coordination involves all aspects of government policy pulling in the same direction to ensure effective and efficient provision of infrastructure services. Some examples of poor coordination in Pacific countries include: Infrastructure is complex, capital intensive and lasts a long time. It is therefore important to plan for the long term, when embarking on infrastructure projects. However, in the Pacific, governments have often focused on building new infrastructure, rather than investing in operations and maintenance. This has contributed to poor performance later on 5
Page 2 and 3: The Pacific Infrastructure Challeng
Page 4 and 5: Table of Contents 1 Acronyms and Ab
Page 6 and 7: Figure 8.4: Annual Per Capita Inves
Page 8 and 9: Box 7.9: ECTEL - Regulatory Coopera
Page 10 and 11: kWh MDG MIAA MIPA MNOC MOTCA MOU MP
Page 14 and 15: Fiscal, regulatory and policy decis
Page 16 and 17: Figure 2.2: Estimated Annual Invest
Page 18 and 19: 3 What’s the Purpose of the Discu
Page 20 and 21: Box 4.2: Improving Infrastructure f
Page 22 and 23: 5 How well are Pacific Countries Pe
Page 24 and 25: Figure 5.1: Access to Electricity 1
Page 26 and 27: Water tariffs are often too low In
Page 28 and 29: Table 6.1 shows that in addition to
Page 30 and 31: These characteristics mean that Pac
Page 32 and 33: 6.2 Challenges to Institutions and
Page 34 and 35: 6.2.2 Demographic Issues in the Reg
Page 36 and 37: These high rural populations mean t
Page 38 and 39: Figure 6.3: Comparison of Defining
Page 40 and 41: Lack of legal and regulatory suppor
Page 42 and 43: 7 Challenge: How do we Lift Perform
Page 44 and 45: 7.1.2 Poor Policy Design and Coordi
Page 46 and 47: different, some efficiency may be g
Page 48 and 49: Figure 7.1: Accountability in Infra
Page 50 and 51: Box 7.3: Expert Panels can Improve
Page 52 and 53: Some of these reforms have already
Page 54 and 55: 7.2.2 Choose an Appropriate Reform
Page 56 and 57: Box 7.5: Public Sector Reforms in t
Page 58 and 59: Pacific countries, management salar
Page 60 and 61: There are three classic types of pr
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While private sector involvement ma
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Air services would also benefit fro
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7.2.5 Regional Coordination One opt
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8 What’s the Size of the Challeng
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Figure 8.3: Annual Per Capita Inves
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Figure 8.5: Mainlines Trend 0.600 N
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Figure 8.8: Annual Per Capita Inves
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Figure 8.11: Total Annual Per Capit
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9 How do we meet the Challenge This
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Box 9.3: Can private sector involve
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Box 9.6: How can the public sector
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The proportion of mainline access a
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Box A.2: Introducing Telecommunicat
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Universal Access Universal access r
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good example of this. The Kiwi Shar
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Figure A.7: Reported Faults per 100
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Table A.1: Institutional Indicators
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and there have been calls to recons
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A.2 Electricity Sector Analysis A s
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Figure A.10: Average Electricity Ta
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Figure A.11: Economies of Scale in
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interest rate relief on a US$9m loa
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As Figure A.14 shows, Vanuatu perfo
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Table A.3: Industry Structure and G
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Regional Cooperation in Electricity
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A.3 Water and Sanitation Sector Ana
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Figure A.17: Availability of Water
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Figure A.20: Staff per 1000 Connect
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including full operating expenses a
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Corporatization is often employed t
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operating costs, collections levels
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Figure A.25: Road Network Density v
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Federated States of Micronesia at b
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In Samoa: Samoa’s Public Works De
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Many Pacific countries already outs
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4. Domestic and Pacific Island serv
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Figure A.31: TEU Throughput Levels
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system reduces cargo handling effic
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Economies of Scale Port operations
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The landlord model is the most comm
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Fiji 84 Ports The Maritime and Port
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Apia Port has become one of the bes
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Kiribati 90 Ports The Kiribati Port
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In Shipping: Services are considere
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Figure A.36: Total Passenger Throug
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Airline Services Figure A.38 illust
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establishment period. For the offic
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Vanuatu 101 Airports Vanuatu Limite
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Samoa 104 The Samoa Airport Authori
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Institutional Arrangements in Aviat
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Summary of Aviation Analysis The Pa
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Fiji Kiribati Marshall Islands Micr
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Barbados Dominica Grenada Jamaica M
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Samoa Solomon Islands Timor-Leste T
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Samoa Solomon Islands Timor-Leste T
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“A-Z World Airports Online” www
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