Report No. 10441-EAP Palau Issues and Options in the Energy Sector Annex F July 31, 1992 The World Bank in Cooperation with The UNDP/ESCAP Pacific Energy Development Programme The Asian Developmnt Bank and the Forum Secretariat Energy Division FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Abbreviations ADB Asian Development Bank AIDAB Australian International Development Assistance Bureau BUN Bureau of Public Works (Palau Government) Compact Compact of Free Association (between former members of TTPI and the USA) EPA Environmental Protection Agency (of Palau) ESMAP Energy Sector Management Assistance Program (Joint World Bank, UNDP, Bilateral) FSED Forum Secretariat Energy Division IPSECO International Power Systems and Engineering Company, Ltd MRD Ministry of Resources and Development OMIP Operation and Maintenance Improvement Program (USDOI) OTIA Office of Territorial and International Affairs (United States Department of the Interior) PEDP Pacific Energy Development Programme (UNDP) PREA Pacific Regional Energy Assessment l PI Trust Territories of the Pacific Islands USDOE United States Department of Energy USDOI United States Department of the Interior Currency The official currency of the Republic of Palau is the United States dollar. This report is based on the findings of a mission which visited the Republic of Palau from February 15 through February 23, 1991 visiting five of the sixteen states (Koror, Airai, Aimeliik, Peleliu and Ngiwal) as part of the joint World Bank, PEDP, ADB, and FSED Pacific Regional Energy Assessment. The mission team consisted of Mr Peter Johnston (Team Leader, PEDP), Mr Vilhelm MO rup-Petersen (Power Engineer, World Bank consultant), Mr George Tavanavanua (Petroleum Specialist, World Bank/AIDAB consultant), Mr Christopher Cheatham (Energy Economist, PEDP) and Mr Robert Lucas (Macro Economist, FSED consultant). FOR OMCAL USE ONLY TABLE OF CONTENTS Page Abbreviations List of Tables, Figures and Annexes Energy Conversions and Measurements SUMMARY Energy Situation and Priorities i Principal Recommendations ii Power Subsector ii Petroleum Subsector iii Household and Rural Energy iv Energy and the Environment iv Institutional. Development iv I ECONOMIC AND INSTITUTIONAL CONTEXT 1 Energy and the Economy 1 Institutional Framework 3 II ENERGY CONSUMPIION 5 The Structure of Energy Consumption 5 The Consumption of Petroleum Products 5 The Consumption of Electricity 7 The Consumption of Biomass 8 Demand Projections 8 m ENERGY SUPPLY 12 Overview 12 Urban Electrification 12 Rural Electrification 20 Petroleum Procurement and Distribution 22 New and Renewable Sources of Energy 24 IV POLICY ISSUES AND PRIORMES 26 Pricing Issues 26 Petroleum Product Prices 26 Power Tariffs and Utility Finance 26 Regulatory and Other Policy Issues 28 Overview 28 Power Subsector 29 Petroleum Subsector 29 New and Renewable Sources of Energy 31 Energy Conservation 31 Environmental Issues 33 Petroleum Supply 33 Electricity Supply 34 V INVESTMENT AND TECHNICAL ASSISTANCE PRIORMIIES 35 Energy Planning and Coordination 35 Power Subsector 35 Petroleum Subsector 37 Household and Renewable Energy 38 Energy Conservation 39 ANNEXES This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. LIST OF TABLES, FIGURES, AND ANNEXES Page ist otTables: Table 2.1 Petroleum Consumption by Sector (1990) 6 Table 2.2 Electricity Generation and Consumption, 1990 (G'Wh) 8 Table 2.3 Fuel Consumption per Tuna Vessel 9 Table 3.1 Malakal Diesel Generators (1991) 16 Table 3.2 Petroleum Storage (1990) 23 Table 3.3 Summary of Biomass Resources (1979) 24 Table 4.1 Wbolesale Petroleum Prices (1991) 26 Table 4.2 Electricity Subsidies (1989 - 1990) 27 List of Flgures Figure 2.1 Petroleum Consumption in Pacific Island Countries 5 Figure 2.2 Aimeliik Power System: Firm Capacity and Peak Demand (1987 - 1997) 11 Figure 2.3 Aimeliik Daily Peak Load (January 1991) 11 Figure 3.1 Urban Power Generation (1980 - 1990) 12 Annex 1: Power Production Costs Table 1 Palau Power System, Pro Forma Operating Income and Expenditure Account (Fiscal Years 1989 & 1990) Annex 2: Estimated 1990 GDP Annex 3: Affordability of Increased Electricity Charges Annex 4: Statistical Tables Table 1 Selected Development Indicators (1985 -1990) Table 2 Selected Projections (1990 - 2000) Table 2a Petroleum Demand Projections (1990 - 2000) Table 3 Energy Balance: TOE (1990) Table 3a Lnergy Balance: Orginal Units (1990) Table 4 Energy Balance: TOE (1995) Table 4a Energy Balance: O.rginal Units (1995) Table 5 Petroleum Market (1985 - 1990) Table 6 Public Electrification (1987 - 1990) Table 7 Electrification Performance Indicators (1990) Table 8 Rural Electrification (1986) Tablfe 9 Non-conventional Energy Resources and Use (1985 - 1990) Table 10 Biomass Resources (1979) Map of the Republi of Palau Power Supply Grid ENERGY CONVERSIONS AND MEASUREMENT lpical l TypiCal Gross Gross Oil Unit Density Density Energy Energy Equiv kglitre Uonne MI/kg MI/litre toeunit _____________________________________ (net) Biomass Fuels Fuelwood (5% mcwb) tonne 18.0 0.42 Coconut Residues (air dry) I Shell (15% mcwb),1.. tonne 14.6 0.34 Husk (30% mcwb)M,,,, tonne 12.0 0.28 Average (air diyb.& d sho)2 tonne 14.0 033 Coconut Palm Wood (air dry) tonne 11.5 0.27 Charcoal 30.0 0.70 Vegetable and Mineral Fuels Crude Oil tonne 42.6 1.00 Coconut Oil tonne 0.910 1100 38.4 0.90 LPG (propane) tonne 0.510 1960 50.0 25.5 1.17 Ethanol tonne 27.0 0.63 Gasoline (Super) tonne 0.730 1370 46.5 34.0 1.09 Gasoline (Unleaded) tonne 0.735 1360 46.5 34.2 1.09 Aviation Gasoline (Avgas) tonne 0.695 1440 47.5 33.0 1.12 Lighting Kerosene tonne 0.790 1270 46.4 36.7 1.09 Power Kerosene (Avtur, DPK) tonne 0.795 1260 46A 36.9 1.09 Automotive Diesel (ADO) tonne 0.840 1190 46.0 38.6 1.08 High Sulphur Fuel Oil (IFO) tonne 0.980 1020 42.9 42.0 1.01 Low Sulphur Fuel Oil (IFO) tonne 0.900 1110 44.5 40.1 1.04 Electricity (MWh) Fuelwood 3 MWh 0.93 Fuel Conversion Efficiency Diesel: Text uses actual where known, otherwise: Average efficiency for small (< 100 kW output) diesel engine 0.46 U/kWh (22%). Average efficiency of large (> 100 kW output) modern diesel 0.284 IkWh (36%). Average efficiency of low speed, base load diesel (Pacific region) 0.30 - 0.33 UkWh (28% - 32% efl). Energy Measurement Area 1.0 km' = 100 hectares = 0386mi2 1.0 acre = 0.41 hectiues Mass: 1.0 long tons = 1.016 tonnes Energy lkWh = 3.6 MY = 860 kcal = 3412 Btu = 0.086 kgoe ltoe = 11.83 MWh = 42.6 GJ = l0milionkcal = 39.68 mollionBtu 1 hM = 238.8 kcal = 947.8 Btu = 0.024 kgoe = 0.28 kWh Notes: (1) Average yield of 2.93 air dry tonnes residues/tonne copra produced (Average NCV 14.0 MI/kg) mcwb = moisture content wet basis. NCV = net calorific value. (2) Proportion: kernel 33%, shell 23%, husk 44% by dry weight. (3) Assumes converson efficiency of 9% (biomass-fuelled boiler). Sources: Petroleum from Australian Institute of Petroleum, January 1991 Renewable Energy Assessment - An Energy Planners ManuaL (Gowan 1985) Woody & Biomass Use in Agro-Industries. (PEDP, Gilmour, 1987) Energy Data and Conversion Factors (New Zealand Energy Research & Development Committee 1984) SUMMARY OF MAIN FINDiNGS AND RECOMMENDATIONS ENERGY SITUATION AND PRIORITIES 1. OveraU. The Republic of Palau, located to the east of the Philippines, is the last remainng member of the Trust Territories of the Pacific Islands (TIPI) and thus remains under United States administration through a 1947 United Nations Trusteeship. The population of 15,000 is spread over six main islands with 68% concentrated on the capital, Koror. American grant assistance dominates the economy although there was substantial investment during the 1980s related to tourism and some fisheries development. Gross comestic product was last formally estimated in 1983 when per capita GDP was $2,300, probably reaching $3,200 by 1990 or double the corresponding figure for the rest of Micronesia. Real growth in GDP is expected to average between three and six percent per annum from 1990 through 1999. 2. Per capita energy consumption, particularly petroleum, is high by Pacific Island standards. Nearly the entire population (96% of households) is electrified. Po-wer is highly subsidized by Government: the average tariff is 40% of total costs per kWh and revenues cover barely 20% of total costs. Overall, a disproportionately large part of Palau's financial resources has been directed to the energy sector to the detriment of development in other parts of the economy. 3. Imported petroleum products account for over 90%b of primary energy use and 100% of commercial energy. The 1990 consumption of 1,460 kg of oil per capita, the highest of al Pacific Island countries, was approximately 30% by value of total imports and well over 500% of export earnings. Commercial energy use grew rapidly during the 1980s due largely to tourism and services; this trend is expected to continue. There are serious energy sector concerns, the most pressing being the need to restructure electric power supply to provide a reliable service with reduced levels of government subsidy and greatly improved management and technical skills of local staff. Palau has only limited options to reduce dependence on oil through local sources of energy or new technologies in the short term. 4. Electr:city. There are a number of serious issues within the power sector. The government is becoming aware of these and there are indications that some are being addressed: a) the contract to manage the nation's main power plant (Aimeliik) has been costly for the services actually provided and has been poorly administered by the government; b) government has failed to provide the necessary tools and spare parts to enable the contractor to carly out effective maintenance at Aimeliik; c) the number of skilled or semi-skilled Palauans working at Aimeliik is too small to take over operations in August 1991 when the management contract ends, and their training has been poor; d) revenues cover barely one-fifth of the total cost of supply due to low tariffs, almost no metering of government offices and large commercial consumers, faulty metering, and non- payment of bills; e) poor maintenance of the distribution system resulting in worsening quality of power; f) generation, maintenance, distribution and billing are administered separately resulting in no overall management of the power sector; g) the billing system is ii inadequate and monitoring of customer accounts ineffective; and finally h) there is little collection - and no analysis - of the basic data which are required by managers to make informed decLions on power investments, operation, and maintenance. 5. Petroleum. The main petroleum sector issues are: a) the lack of administrative structure or expertise to effectively m>,rage petroleum matters overall; b) the need to immediately begin preparing for negotiation of a new agreement to replace the Aimeliik fuel supply contract expiring at the end .b 199'1; c) poor maintenance and utilization of the Aieliik fuel storage facilities; d) lack of information required to monitor oil contract volumes and costs; e) lack of standards for petroleum product specifications, storage and handling; and f) excessive numbers of service stations. 6. Household and Rural Energy. In general there is very little information available on patterns of houscehold energy use. Areas with state-run diesel power systems are typically restricted to six to twelve hours of operation per day. Revenues collected from the small state-run power eh nts are a small fraction of operating costs, maintenance generally poor, and power wire" .. Although about a hundreu small stand-alone DC solar lighting systems have bt talled in remote areas, these are not maintained either and have reportedly largely fa. .J dule to lack of spare parts, including lights. The responsibility for provision of rural power anid its mqintenance is not clear; it appears to be inconsistently handled by the government. 7. Environmental Issues. The noj % important environmental issue within the energy sector is a proposed waste-to-energ, plant which could damage water quality, reefs, fishing industry, tourism and the fragile ecc-stem. Generation of electricity from domestic or imported wastes is not an attractive option as Palau has sufficient generating capacity for some years. There have reportedly been minor oil spills within Palau's waters through deliberate bilge pumping and carelessness. The government environmental agency has an oil spill plan and some booms but there are no safety standards for oil storage and handling. At least one oil storage facility, a barge, is unsafe and some others are deteriorating. Some concern was expressed by environmental officials about polychlorinated biphenyls (PCB) in old transformers but most, if not all, has been removed. 8. Institutional Issues. Within the government, there is no overall responsibility for coordinating or overseeing national energy matters or the key subsectors of electricity and petroleum. A 'a -esult there are no clear policies, planning is negligible, and the basic data required for aLormed decision-making are not collected. The operation of Aimeliik power station since August 1991 is the overriding concern: Palauans are not ready to take over and the system could rapidly deteriorate if it is not run professionally. PRINCIPAL RECOMMENDATIONS 9. Power Subsector. The following immediate measures are recommended: a) establish a government-owned, commercially-orietnted Pubic Utilities Corporation that combines the power sector responsibilities of the Bureau of Public Works and the Ministry of Administration; iii b) install meters for all govermment and three-phase customers; c) collect bills from all consumers and disconnect non-payers including govermnent offices; d) increase tariffs immediately to $0.15 per kWh with a 'lifeline tariff of at least $0.10 per kWh for the first 100 kWh per month of household consumption; e) engage a management and operation teaml for two years for the Aimeliik power station with the goals of safe operation, completion of major overhauls of engines and transition to local management and staffing; and f) establish a training prcgram including overseas studies and apprenticeships. The following short-to-medium term measures are recommended: g) determine actual costs of supply and increase tariffs from 1992 over a period of five years or less until average revenue is in line with actual costs; h) establish more detailed budget and accounting systems, systematize data collection, prepare a 'system map' of the distribution system, and analyze loads and voltages in the system; i) investigate the costs and benefits of rehabilitating the Malakal power station; and j) purchase vehicles, tools, equipment and spare parts and rehabilitate the stores and workshop of the distribution section enabling it to undertake preventive maintenance and customer service. 10. Petroleum Subsector. The following immediate measures are recommended: a) assign overall responsibility for petroleum supply matters to the Energy Office of the Bureau of Public Works; b) encourage the oil companies to evaluate the option of moving surplus tanks from Aimeliik to Malakal to allow supply to Palau with larger tankers; c) establish guidelines to ensure that wholesale and retail margins are reasonable and review prnces before and after Shell's entry into the market to ascertain whether price competition has developed; d) tender for a new consolidated fuel contract as soon as possible including National Government, State Governments and Aimeliik demands; e) after ascertaining the current pricing formulas of Mobil and Shell, establish a mechanism to verify fuel quantities and values for each cargo. The following short-to-medium term measures are recommended: f) improve maintenance of the Aimeliik storage facilities; g) establish firm guidelines for establishment of new service stations; h) consider setting a higher fuel tax; i) review the justification for the four existing grades of gasoline; and j) establish standards for petroleum and LPG handling and storage. 1 It is understood that two expatriate staff were contracted to oversee Aimeliil in late 1991 and arrangements were underway to employ two additional expatriate staff. iv 11. Household and Rural Energy. The following measures are recommended: a) for rural state-run systems, extend the grids where economic, standardize diesel generation equipment as far as possible, maintain equ.pment systematically and establish a consistent policy on electricity tariffs; b) install photovoltaic systems in those rural areas without diesel systems and establish mechanisms for systematic maintenance and regular billing; and c) carry out household energy end-use surveys to determine patterns of energy use for planning conservation measures. 12. Energy and the Enviromnent. The following measures are recommended: a) require annual surveys and marine certification of the petroleum storage barge and cease its use if unsafe; b) coordinate development plans for Malakal to assure that the site remains available for future power generation needs without harmful effects on fish processing facilities; c) obtain independent advice before proceeding further with the proposed Ngardmau waste-to-energy project; and d) improve management of oil depot drainage to ensure that only clean water is discharged into public areas. 13. Institutional Development. The following immediate measures are recommended: a) establish effective oversight of the proposed Public Utilities Corporation; b) appoint an additional staff member to the Energy Office within the Bureau of Public Works to collect and analyze energy information, assist with energy planning and better administer the energy sector overall; and c) verif the accuracy of the high level of petroleum fuel imports, determine in more detail the pattern of petroleum consumption and establish a practical plan for fuel savings. 1. ECONOMIC AND INSTITUTIONAL CONTEXT ENERGY AND THE ECONOMYt 1.1 Introduction. Palau consists of about 340 tropical islands in the western Caroline group, East of the Philippines, between seven and nine degrees North latitude and 133 - 134 degrees East longitude. The larger islands are high and volcan , the rest being raised coral limestone except for one atoll. The southernmost parts of Palau are closer to Indonesia than to the largest island, Babeldaop, whick accounts for 80% of the total land area of 500 km2 (200 mi2). The administrative center, .oror, reportedly has the second highest population density (7,100 people/kin2) of any Pacific Island, exceeded only by Ebeye in the Marshalls. 1.2 One of seven original districts of the Trust Territory of the Pacific Islau-..X-, "' lau opted in 1978 to become independent rather than be part of the Federated States of Micronesia. When the national constitution became effective in 1981 the Palau district became the Republic of Palau. On five occasions between 1983 and 1990, a majority of citizens voted in favor of a proposed "Compact of Free Association with the United States which would guarantee a high level of financial support (about $30 million per year initally) for at least fifteen years in exchange for certain American rights; the required seventy-five percent approval has not been attained, howev-.., and Palau is still administered by the U.S. in accordance with the U.N. Trusteeship. A constitutional ban on the use, testing, storage or disposal of nuclear weapons and the transit of nuclear powered vessels is the main unresolved issue. In October 1990, the United States Department of the Interior (USDOI) restricted Palau's powers of self-government by impostng veto power over proposed legislation and requiring USDOI approval of any contracts exceeding $250,000. 13 The constitution provides for a National Government and sixteen state governments for only 15,000 people. The national government is patterned on the U.S. model with executive, legislative and judicial branches. The executive branch is headed by a President and Vice-President chosen by nationwide electi, in, and the Cabinet consists of five appointed ministers. State governments have their own constitution, legislature and governor, and have the right to impose certain taxes. With attle economic development outside of Koror State and adjacent Airai, Dnst state governments depend heavily upon the national government for funding - mainly £ -m block grants and the distribution of fishing I This summary description is extrcted from the Republic of Palau section of "Macroeconomk Ovew Aepo4 Assessment of Perfomnnce and Growth r"spectu: Republic of the MarshaU Islands, Pdeted States of Microneuia, and the Republic of Pauw (Pacific Wslands Development Program, East West Center, May 1991) and portions of 4An Economic OweMw of the Repubfic of PaIau United Nations ESCAP Pacific Operations Center (EPOC), Vanuatu, November 1990, both prepared as background reports for this assessment. 2 The "Trust Territories of the Pacific slWands' were established in 1947 between the United States and the United Nations Security Council encompassing over two thousand islands of Micronesia. By late 1986, only Palau remained within the TTPI, constitutional governments having been established in the Republi. of the Marshall Idands, the Federated States of Micronesia and the Commonwealth of the Norther Mariana Islands. Trusteeship administration is through the Office of Territorial and Intemational Affairs (OTIA) of the US. Department of the Interior. -2- rights fees from foreign governments. The national legislature is termed the Olil Era Kelulau. The highest chief in Palau is the Ibedul whose prestige matches - and possibly exceeds - that oi the President. 1.4 GDP was estimated at $31.6 million at current market prices in 1983. A crude estimate3 of 1990 GDP is $50 million, with a nominal average annual growth rate during the 1980s of 6.8 percent. The economy is largely driven by govevA"ment expenditures sustained by a high level of U.S. grant assistance. However, there has been substantial private sector development during the 1980s, with some growth in foreign direct investment and construction, and an increase in foreign workers. Tourism is Palau's leading productive sector accommodating just over 30,000 visitors in 1990, with growth a rate averaging over twenty percent per annum since the early 1980s. Palau's spectacular marine environment, the natural beauty of the unique Rock Islands and tropical remoteness provide potential for i--stained growth in tourism. Fisheries output is also expected to grow. Currently, there are about 75 longline vessels based in Koror providing fresh tuna for Japan. 1.5 Internaidonal trade statistics are not formally compiled. Although the Customs Office indicates total exports of about $0.6 million and imports of about $24.6 million (FOB4) in 1989, these are probably under-estimates. Freight and insurance costs are neither included nor reported separately as part of the balance of payments. There was a deficit of about $24 million in the trade balance in 1989. The principal 1989 imports were food and beverages ($8.5 million) and petroleum products ($5.9 million). In 1990, total imports were estimated as $27.5 million (FOB) and the value of petroleum imports roughly $7 million FOB or $8 million CIF including sales for international flights. The principal export is fish. Unofficial estimates indicate 1990 fish exports of over 1200 tonnes, which are believed to be mainly fresh tuna; therefore the value of exports in 1990 was likely to have increased substantially over 1989. Palau's imports probably exceed fifty percent of GDP indicating a high import propensity and an open economy with little marketed production for either domestic consumption or export. 1.6 Extension of infrastructure to less densely populated areas, particularly Babeldaop, is needed if the Republic is to achieve sustained growth and more balanced development. This will require substantial external funding. National government revenues consist primarily of U.S. grants through the USDOI for recurrent expenses, separate USDOI grants for a Capital Improvements Program (CIP) and various federal grants of the types available to American state governents. In fiscal 1989 total U.S. funding was $36.6 million. Both federal grant funding and CIP funding declined in 1990 but unspent monies from prior years can be drawn upon. Recent U.S. assistance represented 75% (1989) and 68% (1990) of total revenues. Revenues from local sources have increased steadily in recent years reaching $9.0 million in 1989 and $10.6 million in 1990 with $11.4 million projected for 1991. Aside from technical assistance and training, nearly all foreign aid has come from Japan, averaging approxmately $3 million per annum during the 1980s. 3 See Annex 2 for details. 4 The total value mehuding cost, insurance and freight (CIF) is not available. - 3 - 1.7 In 1983 the Government of Palau contracted for the construction of a power and bulk petroleum storage complex5 in Aimeliik State at a cost of about $34 million. The Government borrowed $32.5 milion from commercial banks, defaulted in 1985 and was sued by the guarantor banks. A U.S. District Court ruled in 1988 that Palau owed over $46 milion (including interest) to the guarantors but this was overturned in early 1991 by the US Court of Appeal which decided that the U.S. Government has responsibility for Palau's liabilities under the Trusteeship. Under a 1989 Agreement (the Guam Accords) the U.S. may satisfy creditors in part with funds originally meant for fostering increased self- sufficiency in energy production. 1.8 Prospective growth in Palau is likely to be heavily influenced by government policy on foreign investment, particularly in tourism, and the government's capacity to utilize U.S. financial assistance effectively. The government favors implementation of the Compact, which would almost certainly have a favorable effect on the investment climate, but achieving this remains difficult. Much proposed investment is tourism-related, including a proposed $150 million airport which would allow direct jumbo jet flights from Japan. Continued growth of tourism and development of a substantial longline tuna fishery will require considerable upgrading and expansion of infrastructure. The government has experienced problems in maintaining and managing public utility services particularly in the power sector. The recent growth in the economy has led to the importation of increased numbers of foreign workers, many in the construction trades but also in services and other occupations. Currently, most tourism jobs are held by Palauans but, with continued rapid growth, an increasing share may be held by foreigners. 1.9 In view of the momentum in tourism-related investment and growth in visitor arrivals, moderate growth in the overall economy is likely during the 1990 - 2COO period. It is likely that government spending will remain at the same level in real terms, with or without Compact approval, either through continued U.S. grant assistance consistent with its U.N. trusteeship responsitbilities, or receipt of Compact wonies, augmented if necessary by federal program grants. Depending upon the realization of major investments and success in developing tuna transshipment activities, real growth in GDP is expected to be between three and six percent per annum on average from 1990 to 2000, provided that there is a final resolution of Palau's power plant debt without significant adverse impact on future government spending. Growth at the higher end of the range is expected to occur if there is substantial foreign investment, primarily in tourism, including construction of the proposed airport. INSTITUrIONAL FRAMEWORK 1.10 Energy is the responsibility of the Ministry of Resources and Development (MRD) which has one energy planner located within the Bureau of Public Works (BPW) who administers small project funds - totalling $17,000 in 1991 - available from the United States Department of Energy (USDOE). The Office of Planning and Statistics (OPS) S See Issue. Associated wih Palau's TransWion to Self Govemment" (U.S. General Accounting Offiep, GAO/NSIAD Report 89- 182 of July 1989) for details 4- wit-in the President's Office is responsible for national planning. The First National Development Plan for 1987 - 1991 prepared by OPS in 1986 contained a range of energy sector policies and strategies including plans to establish a public utilities corporation, meter all power consumers, raise tariffs above electricity costs, begin an energy conservation program, extend solar power systems to remote communities, etc. However, there was no mechanism for implementation and most goals have not been met. There is no overall responsibility for coordinating or overseeing national cnergy matters, electricity or petroleu.L There are no clear policies, planning is negligible, and the basic data required for informed decision-making are not systematically collected. 1.11 Petroleum. Petroleum products are imported by Mobil and recently SheUl through Guam. The BPW is responsible for operational aspects of petroleum while the Bureau of the National Treasury (Ministry of Administration) handles financial matters such as the payment of government fuel biUls. There is no verification of costs or volumes by Customs officials. There is no administration of supply contracts. 1.12 Electric Power. Seven public electric power systems based on diesel generation provide power in nine of the sixteen states. About 98% of public electricity production is provided through the grid supplying, Koror, Airai and Aimeliik from the Aimeliik power station which is controlled by the Bureau of Public Works of the Ministry of Resources and Development. The Public Utility Collection Agqncy is responsible for collecting electricity biUs, but its computerized biling system is inadequate. Until August 1991, the power station was managed by a Philippines company (Gorones) under contract to the MRD; this has been replaced by direct hiring of individual expatriate staff. The individual states are responsible for operation, expenses and revenues of small remote systems. Although BPW are technically responsible for maintenance of generators, there is no budget for the remote systems. Repairs and investments are decided by the Vice President after requests from governors. Some equipment donated by Japan has apparently been allocated directly to each state with maintenance problems left to the national Government. In general, responsibilities for power are unclear, divided between two ministries and between national and state Governments. There is no commercial management of the power sector, a high degree of subsidization, little technical experience and poor management capacity. - 5 - It. ENERGY CONSUMPTION THE STRUCTURE OF ENERGY CONSUMPTION 2.1 There has been no analysis of energy consumption patterns carried out in Palau since the early 1980s6. There is no information presently accessible on household energy use, but the 1990 Census Report, expected t . be available before the end of 1991, will contain data on numbers of electrified households by type of service and cooking fuel use, each by State. The energy balances presented in the Statistical Annex for 1990 and 1995 are based on mission estimates. Total energy supplied in 1990 was about 22,500 tonnes of oil equivalent (TOE) of whicb 22,100 TOE was accounted for by imported petroleum products. The remaining 2% of energy used consists of biomass for cooking and drying. Biomass use appears to be extremely low, partly because of the extent of urbanization and extensive use of commercial energy (electricity, kerosene and LPG) for cooking. The actual use of wood is higher but no data are available to develop informed estimates. Inland petroleum consumption is about evenly split7 between power generation (48%) and transport (47%) with small amounts for direct household, commercial and govermment use. Although tourism and tourism-related construction account for a considerable level of energy use, there are no data available for accurate estimates. THE CONSUlMPTION OF PETROLEUM PRODUCTS 2.2 As shown in Figure 2.1, petroleum consumption per person in Palau is the highest of twelve Pacific Island countries assessed during 1991. Consumption levels are more typical of large developed countries such as Australia or Japan than of island developing countries. Petroleum Consumption in Pacific Island Countries Tonnes consumed per capita in 1990 0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.8 t. 2 2.2 Klt T Idbot Tuoiu vowma 5olond Island P 17.1 36.8 Percentage 41% 13% 46% 100% Notes: 1) Technical losses were measured in November 1990 as 15% of energy sent out. Residential & commercial breakdown based on October 1990 billings only. 2) Rural (Peleliu, Ngiwa, Angaur, Ngarchelon& Ngeremlengui, etc) are mission estimates. 3 n.a. indicates data not available. Source: Mission estimates. THE CONSUMPTION OF BIOMASS 2.10 There is no reliable information available on the consumption of biomass in Palau. Some officials estimate that 10% of the population cook with wood. At 1.4 kg per capita per day10, the consumption is 772 tonnes per year, probably an underestimate since this is far lower than any other Pacific Island country. DEMAND PROJECTIONS 2.11 Palau's economic growth is expected to be in fishing and tourism. Future growth in fuel consumption depends upon investment and activities in the above areas which may in turn depend upon perceived stability, in particular, the finalization of Palau's future relationship with the United States. Early resolution of the Compact of Free Association could result in considerable capital investment in various deferred projects such as a new capital administrative center and the proposed airport development. Similarly, an early resolution should lead to increased confidence on the part of overseas investors resulting in more foreign capital injection in tourism and fishing. Fuel demand projections are therefore indicative only; they are based on an assumption of real economic growth varying between three and six percent and on numerous discussions with government officials and the private sector. 2.12 Petrolewn demand. Within the high demand scenario, petroleum fuel use is projected to grow at 6.2% per year overall during the 1990s which is slightly above real economic 10 This is typical of wood use per capita measured in energy end-use surveys in similar environmnents elsewhere m the region. See 'Ene'U Statistics Relevant to Household and Rural EneqV Issues In the Pacific Isanas' (PEDP Report REG 90-5, October 1990). growth. This projection assumes that: (i) real U.S. funding remains at least at current levels, (ii) Palau's legal status is finalized within several years, (iii) political stability improves, (iv) the 1991 court decision regarding Palauan liability for the IPSECO loan remains in force and (v) foreign investment in tourism and fisheries expands. Jet fuel use is assumed to grow at 7% per year due to tourism expansion, ADO at the electricity growth rate of 69o, gasoline and LPG at 6% and kerosene at 5%. 2.13 For the low growth scenario, both economic growth and fuel consumption are estimated as 3% per annum. US funding is assumed to continue at more-or-less current levels but investment in tourism and fisheries will not grow rapidly. Most fuel imports are expected to grow at 3% per year, slightly less for distillate. 2.14 Bunker fSeL Palau plans substantial growth in fish exports which could potentially result in a large bunker demand for distillate. Typical levels of fuel consumption1l for tuna vessels are shown in Table 2.3 based on a recent study of ships operating in Pacific Island waters. If the economy grows at 6% per year and if bunkering for purse seiners and long liners grows from almost zero in 1990 to four million gallons per vear by 1995, ADO demand overall would double in five years. An issue for Palau is whether this would require investment in on-shore storage. The Aimeliik tanks used for ADO can store sufficient fuel for about twelve months demand. Existing unused storage facilities (three MG) are more than adequate to accommodate a high level of bunkering, assuming investments which allow ships to berth at Aimeliik or shifting of excess tanks to a more convenient location in Malakal. Table 2.3 Fuel Consumption Per Tuna Vessel (Thousands of US gallons per year) Vessel size Fuel use seiners 1,100 ton 515 - 660 long liners 100 ton 180 - 210 pole & line n.a. about 130 Note: n.a indicates data not available SoW= Fuel Use in Tuna Fishing (FFA, PEDP, & PSED, 1989). 2.15 Biomass. Biomass use is expected to increase no more rapidly than the population growth rate of 2.2% per year. Electric cooking may be reduced as power tariffs and collections increase. Several companies are investigatng the bulk import of liquid petroleum gas (LPG) which is more. ikely to substitute for electric cooking than wood, given Palau's income levels. 11 from "wl use h Tun Fishn( (Forum Fsheries Agency, PEDP and FSED, 1989). - 10 - 2.16 Electricity. An estimate of the requirements for investment in electricity generating plant requires a forecast of the future maximum demand. As shown in Figure 2.2, peak demand grew from 5 MW in 1987 to 7.1 MW in 1990, an average increase of 12% per year. The weekday peak, as shown in Figure 2.3, is relatively constant from about 9:00 a.m. through 8:00 p.m. except for about two hours at meal time. As discussed in Chapter m, the firm capacity of the main power system is between 8.7 and 9.6 MW depending upon the safety of foundations at Aimeliik and the extent to which this affects maximum output. Figure 2.2 indicates projected growth in maximum demand during the 1990s of 3% and 6% per year, which are below recent growth rates. The higher rate assumes low tariffs and continued tourism growth; the lower corresponds to the estimated effect of progressive tariff increases and lower economic growth. Palau will require new capacity by 1993 if growth is high and current firm capacity is limited to 8.7 MW. This could be delayed until 1997 if growth slows to 3% per year and the Aimellik units can be run at full capacity. If some of the Malakal plant can be refurbished and considered firm, requirements for new capacity can be delayed further, as discussed in Chapter m. - 11 - Almeilik Power System Firm capacity and peak demand 12 10 ffX V°^/ffi/ 9 Finn cq70itv Mt _ 8 L l/ 11 7 , Peak n dmw 4 .- .A *L *L *L -L *L .L s 7987 1988 1989 1990 1991 1992 1993 1994 1995 199ff -IgP97 N^ote: Firm capadty (1) Is Aimeliik Unit S derated; firm capadty (2) is restored to funl ratioX Flgure 2.2 Aimellik Daily Peak L-oad: January 1991 81 7 -h Weekdays > g 5 4 . nS dSy 0987 1988 1989 196 0 8 O19 12 14 16 18 20 22 24 Time of diy Figure 2.3 Sources for ftgures 2 2 & 23 are mWon esiate s and Aimeliik staton records. - 12 - III. ENERGY SUPPLY OVERVIEW 3.1 Palau has an abundance of biomass with three-fourths of the land forested, abundant sun, some wind and waves, a small hydropower potential, and possibly an attractive ocean thermal resource. Energy resources were assessed by the US Department of Energy in 1982. The conclusions of this report are broadly the same as those of the USDOE nearly a decade ago: considering the status of the various alternative energy technologies, relative economics, the environment of Palau, and existing and planned energy infrastructure, Palau will remain dependent on petroleum imports for transport and power for the medium to long term. In remote communities on Babeldaop small scale hydropower may be favorable. Photovoltaic systems appear to be a good option for sr a electrical needs on the small islands. The USDOE also stressed energy conservation a i important energy source, a conclusion supported by this assessment. URBAN ELECTRIFICATION 3.2 The power generation capacity in the seven public power systems is about 20 MW, all of which is diesel based. The main power station at Aimeliik with a capacity of 12.8 MW is designed for residual fuel oil (RFO) but RFO use has been discontinued because its higher operating and maintenance costs could not be offset by savings in fuel costs. A resort hotel and fish processing facilities have private generators. Several other commercial consumers also have stand-by diesel generators. A 14 MW plant in Airai State has not operated for some years. 3.3 From 1980 - 1985, generation was constrained by the capacity and reliability of the Malakal facilities as shown in Figure 3.1. From late 1986 onwards, generation grew rapidly as the new Aimeliik plant became operationaL Data are not available for 1986. Urban Power Generation (1980 - 1990) (MalakaE 1980 - 1985; Aimeliik 1987 - 1990) 40 O1 . ... . . Iw tbU I 9 ld ca ln YOM Figure 3.1 Note: 180 - 195 based on 16.4 GWh conumed plus (asmed) S% losss Sowmm. Almeijik and Maakl sation no - 13- 3.4 There is some uncertainty about the extent to which capacity in the main Aimeliik power station and the old Malakal plant can be considered firm after possible foundation repairs (Aimeliik) and refurbishment (Malakal). It is recommended that this be resolved as firm capacity affects the timing and magnitude of new investments. The Power Stations Aimeliak Power Station 3.5 The Aimeliik power station, situated 25 km from Koror, generates all the electricity flowing through the main grid covering the states of Koror, Airai and Aimeliik. The station and a fuel tank farm were constructed on a $32.5 million turn-key contract with International Power Systems and Engineering Company, Ltd (IPSECO) of the U.K The station was built to a high standard and the engines have a reasonable fuel economy for the size of the engines. Since commissioning in 1986, the station and tank farm were operated by an expatriate crew of sixteen persons from Gorones International Construction Corporation of the Philippines under a management and operation contract which expired in August 1991. In late 1991, several expatriates were hired by the government on direct contracts to supervise Palauan operating crews. 3.6 The power station has a rated capacity of 12.8 MW divided among four 3.2 MW Pielstick dual-fueled engine-generators (numbers 2 - 5) with medium speed 720 rpm Crossley Engines. The foundation and a generator are available for a fifth engine (number 1) which was canceled during construction of the plant. Experience from operations using RFO and distillate showed that the lower overall fuel price was more than offset by the higher cost of transporting and handling two types of fueL electricity consumption of the preheaters and increased maintenance. The decision to switch away from RFO was sensible as RFO is better suited to larger engines, exhaust heat systems for preheating and access to RFO of reasonable price and quality. RFO available to the region during the 1990s is expected to have increased sulphur and ash content due to new Singapore refining techniques. Consequently environmental issues and maintenance costs related to RFO use can be expected to be even higher in the future. 3.7 Good preventive maintenance has kept unplanned outages of the engines to low levels. Outages caused by the plant's failure to meet demand are rare but faults on the 34.5 kV feeder to Airai and the 13.8 kV grid in Koror often result in the tripping of the plant. According to operating staft that the problem arises because 85% of the load is on the Koror feeder so the engine governors are unable to avoid tripping on overspeed. While this is possible, the cause could also be incorrect earth fault relay setting or misadjustment of the governors. All four engines were due for a major overhaul during 1991 after 24,000 hours of operation. This was not done. 3.8 The capacity of three out of four engine-generators or 9.6 MW can be considered "firm capacity" if they are all run at the rated capacity of 3.2 MW each. In 1990 the peak load recorded at the station was 7.15 MW leaving a margin of 35% which is sufficient for several - 14 - years of load growth. However the contractor will operate not any of the engines above 23 MW due to cracks observed in one foundation (and expected in the future elsewhere) and high vibration levels. With this restriction, from 1991 the Aimeliik station will not be able to meet peak demand running three of the four engines. 3.9 A consultant who is familiar with the operation of a similar power plant investigated this serious issue for the Government in early 1991. His report12 states that only two cracks are observed on engine block 5 near the end of the foundation. According to the consultant, Crossley has indicated that the vibration level observed at engine number 5 and the other engines is acceptable. A vertical crack under number 2 cylinder could lead to excessive wear on the shaft and main bearings. The horizontal crack at the far end is of minor importance. An inspection by a structural engineer should clarify the severity of the problem and the means to repair the block. 3.10 At 2.3 MW load, the temperature and pressure of the lube oil and jacket water were checked by the Government's consultant who stated that the results were not in accordance with Crossley's specifications. He concluded that the engines are being run incorrectly, probably due to insufficient maintenance of the auxiliary equipment resulting in scale buildup in the cooling systems. During operations, the consultant was unwilling to put more load on engine number 5 because of these results. 3.11 The Gorones management contract terms were very costly for the services provided. The contractor managed and operated the station with its own crew but the Government provided parts, fuel, supplies, equipment and all other consumables needed. In addition to salaries and wages, the contractor was paid a substantial fee of one cent per kWh of gross generation, amounting to $ 0.46 million in 1990. Other than the hiring of two expatriate staff in late 1991 and plans to hire several more, the plans for management and operation of the facility are not known. 3.12 A recent OMEP13 assessment carried out for the USDOI characterized the proficiency of the Gorones crew as outstanding. The crew kept the plant clean and orderly and in apparently good order despite difficulties of getting approvals from BPW to purchase tools, spare parts and materials needed for operation and maintenance. However, the contractors could have provided better maintenance with only minor purchases of parts had these been supplied by the Government as the contract specified14. Although the contractor maintained that lube oil and cooling water readings have not changed since commissioning in 1986, this seems unlikely. There is no apparent negligence although the outdoor radiators do show progressive corrosion. The workshop and the stock of spare 12 "FacilaWes Sysom Ientvoe Aimely Power Plant Palau" (by W. F. Roberts for USDOI/BPW, 22 January 1991). 13 "Repubfic of Palau Plan of Acto Operahons and Maintenance Improvement Prograum (Louis Berger International and Barrett Consulting Group for USDOI & US Army Corps of Engineers, Dec. 1990). The most recent report for Palau is the "Second Year ReWew: OMP Team's Field Repod" of June 1991. 14 The approach used in Ebeye in the Marshal Islands, where the contractor purchases parts and bills the Government at cost, has been more successful and would probably have worked well with the Gorones crew. - 15- parts, tools and materials have been kept properly but the special tools required for repairs and major overhauls are not available. Instrumentation in the control room was functioning and detailed station records were kept on a desktop computer. Key indicators on operations were written on wall boards providing an impression of good performance to visitors. The plant's total down time since 1986 was indicated to be only 3.5 hours, excluding faults in the grid, which is excellent. However, this value may not be accurate. 3.13 Station use c-.ceeding seven percent of gross generation is high (and adds to the contractor's profits) but cannot be explained without further investigation. The electricity- consuming preheaters in the tank farm were shut off. The meters on the generators and the feeders are of good quality, are apparently accurate and do not reveal any obvious sources of excessive use. 3.14 The contractor continuously reported to BPW on operating performance, events, maintenance work and repairs carried out. At frequent intervals the contractor argued persuasively for approval of purchases of tools and parts. However, the available records indicate that the response from BPW has been vague, probably due to the lack of funds within its budget for operations and maintenance. In any case, the Government was unable to manage the contractor effectively, with the responsibility divided between the Ministry of Administration and BPW. An O&M contract of the type signed with Gorones requires active involvement and technical knowledge by the employer. Maintenance goals must be set by the employer and verified through frequent inspections, meetings and discussions with the contractor. 3.15 Jhe contractual goals concerning training of local staff were been met. Fourteen to nineteen Palauans, half of them transported every week from the Malakal power station on Koror, were assigned from Monday through Thursday as trainees to the Aimeliik power station. The contractor was required to replace the expatriates with Palauans who completed training. On-the-job-training should have commenced in 1986; it did not begin until 1988 and has been ineffective: Palauans had not taken over a single position by mid 1991. As a consequence a Palauan crew was not ready to safely take over operation of the plant from August 1991 following the expiry of the Gorones contract. 3.16 The reasons for the failure of the training program may be cultural and morale related rather than technical: a) the staff chosen from Malakal have not had the technical education which could be expected if younger candidates had been chosen and they may be reluctant to move from Koror to remote Aimeliik; b) the worldng spirit at Malakal, a low-priority stand-by plant, seems to be much lower than at Aimelhik; c) the expatriates had a different language and cultural background and may have been reluctant to provide their knowledge and relinquish jobs; and d) Palauans were given routine work on the shifts rather than taidng part in day-time repair and maintenance. - 16 - The Malakal Power Station 3.17 The Malakal power station two kilometers from the center of Koror has been restricted to peak and stand-by generation since the commissioning of Aimeliik in 1986. Since the control room was damaged by a 1990 cyclone, the operable generators have reportedly only been ran at idle for one hour every Friday without being synchronized with the grid. The crew being trained Monday through Thursday at Aimeliik also work at Malakal on Fridays. The lack of supervision and technical skill is evident. The power station is in very poor condition. 3.18 Of the nine diesel generators, five with a total rated capacity of 6.65 MW are reportedly operable. Some, however, are heavily derated due to cooling problems. The engines are listed in Table 3.1. Table 3.1: Malakal Diesel Generators (1991) No. KW and Type Hours run Comments 1 750 kW White Superior, 1972 72,000 generator failed in 1988 2 750 kW White Superior, 1972 91,000 operable 3 1000 kW Caterpillar 69,000 ran out of parts in 1987 4 vacant 5 800 kW Caterpillar stator burned out 6 900 kW Caterpillar, 1976 38,00 operable 7 1250 kW ALCO, 1981 damaged turbo charger 8 1250 kW ALCO, 1981 28,659 operable 9 1250 kW ALCO, 1981 18,130 operable 10 2500 kW ALCO, 1981 operable at 2200 kW Source: Mission interviews. 3.19 The present installed capacity will exceed the expected load in the near future but the actual capacity available in an emergency situation is unknown. Without a clear decision on the future of the plant, there will be further unplanned deratings and reduced availability. The Malakal power station may be needed for peak power generation and stand-by capacity to overcome transmission limitations and breakdowns at Aimeliik. The site may be attractive for future power generation because of thermal limits on the heavily- loaded Aimeliik-Airai transmission line. The Transmission and Distribution Grid 3.20 System description. From the Aimeliik power station a 34.5 kV transmission line extends over 20 kdlometers on concrete poles to Airai north of Koror. A second five kilometer feeder on the same poles to Nekkeng substation carries only a small load of 50 kW as plans to extend transmission to northern Babeldaop have not been realized. Although development in the area is desired by the Government, load sufficient to justify transmission extension beyond Nekkeng is unlikely in the near future. - 17 - 321 From Airai substation a temporary' 13.8 kV three km feeder has been built to Koror where it is integrated into the old grid. Between Public Works in Koror and the Malakal power station, a parallel line has been built partly on poles common to the older line, new sections having relatively lightly-loaded aluminum conductors whereas the older copper conductors are heavily loaded. The coupling of the substation at Malakal with the parallel lines has not been designed for the normal direction of power flow from Airai towards Malakal. A minor improvement in voltage and losses could be obtained by changing the coupling. This is recommended. 3.22 In late 1990 total technical losses were calcu!atedl5 as 15% of energy sent out from Aimeliik. The 20 kilometer-long Feeder 2 to Airai carries about 7 MW at peak demand accounting for losses of 5.4% and the 10 MVA step-down transformer at Airai is already loaded to 80% of thermal capacity. Additional load would result in steeply rising losses. The 13.8 kV Koror feeder carries up to 6 MW, accounting for 4.5% losses including the old Koror grid. Distribution transformers seem to be generally undersized. Overall, technical losses are high mainly due to the distant siting of Aimeliik power station. The 13.8 kV Koror grid is heavily loaded, which leads to low voltage in Koror especially on the islands of Malakal and Arakabesan. 3.23 System quawt. The state of the transmission and distribution system is below an acceptable standard and should be a matter of concern. Strong wind and heavy rain cause frequent earth faults, short circuits and broken conductors often leading to total blackouts. Tripping problems reportedly occur two or three times per week. The main reasons seem to be insufficient tree cutting along the transmission and distribution lines and lack of systematic preventive maintenance of the distribution grid. There are insufficient distances between some 13.8 kV conductors which are often slack due to frequent emergency repairs and improper jointing work. Many poles are loaded too heavily, especially angle poles which carry two 13.8 kV lines. The poles shovld be guyed or reinforced. In general, outages and voltage drops are too frequent and the system is too vulnerable to heavy winds. 3.24 The pole-mounted single-phase distribution transformers are not maintained regularly. Due to high humidity and salt contamination, corrosion is progressing rapidly and flash-overs are increasingly likely to occur. The purchase of replacement transformers and the number of outages could be reduced by transformer maintenance. Low voltages and frequent voltage fluctuations cause breakdown of air-conditioners, freezers, refrigerators, electric motors and other electric appliances. The low quality of service is confirmed by the fact that several major commercial customers require stand-by diesel generators. 3.25 Distibuion management. The management and technical skdlls of the ten staff of the power distribution section are inadequate. The reliability and voltage quality of the distnrbution system could be improved substantally by implementing fairly simple and 15 -A Evadon f Tecc and Non-technica LAoes h thePowerstem sentPalausr Naodl Cpl Dusct" (PED? Report Palau - 1, Januy 1991). - 18 - inexpensive monitoring and maintenance procedures. Maps of the transmission line and 75% of the distribution system exist but diagrams and system data are lacking. Consequently adequate assessment, planning and monitoring of the system cannot be carried out and fault location and repair are complicated and time-consuming. No monitoring of load, voltage and losses in the system is carried out and skills in distribution planning are lack-ing. Upgrading of transformers is reactive only - in response to complaints from customers about voltage levels. 3.26 No facilities exist for transformer maintenance, and meter adjustment equipment received several years ago has never been used due to lack of training. Stocks are inadequate and disorganized, the workshop and stores untidy and the lack of parts, vehicles and two-way radios prevent crews from being sent out on preventive maintenance or voltage monitoring. 3.27 Investments will be needed in the transmission and distribution system to provide for growing demand, improved service quality and reduced losses. A technical analysis should be carried out on the Koror distribution feeder, drop lines and the service connections of major ommercial premises. 3.28 Part of the customer's problems with poor power quality and voltage drops originate in loose connections and overloaded wires. The Government should consider introducing customer service to help with measurements, trouble-shooting and - in the future - energy conservation. This would also improve the monitoring of the distribution system. 3.29 Grid expansion. If generation on Aimeliik increases, the following options exist: a) a second 13.8 kV feeder from Airai to the center of Koror, probably a cable. Dividing the Koror grid into two feeders will reduce losses, voltage drops, and substantial risks of black-out and may be required in the near future. This would cost about $200,000. b) extension of the 34.5 kV feeder number 1 from Nekkeng to Airai including a new step- down transformer. The feeder may have to be installed on new poles, as feeder number 2 must be kept ir service. The approximate cost would be S1 million. c) as a more expensive and complicated alternative to 1) and 2) above, Feeder number 2 could be extended to Koror, where a new step-down transformer should be installed. This could cost $1.5 - 2.0 million and possibly require an undersea cable. Metering and Collection 3.30 Few of the large Government and commercial (three phase) consumers are metered but residential consumers appear to be nearly all metered. Thus, the largest loads in Palau, which are relatively few in number, are responsible for most of the 46% of final consumption that remains unmetered. The problem is most severe within G.vernment offices which apparently pay nothing for electricity. However, some large commercial consumers receive estimated bW'ls which appear to be well below actual consumption. Collections from users who are metered appear to be very good. In 1990, approximately 19.1 GWh were billed to consumers, and about $1.8 million was collected, for an average of - 19 - about 9.4 0/kWh, very close to the average tariff of 9.5 ¢/kWh. Apparently the disconnection policy is enforced effectively. Power System Expansion 3.31 Existing generating capacity. The nameplate generation capacity in the main grid is 12.8 MW at Aimeliik and 6.6 MW in Malakal. Aimeliik output is restricted by the contractor to 9.2 MW at present and by the transmission capacity to 10 MVA. Malakal is not believed to be able to generate more than 3 - 4 MW, none reliably. The peak demand in 1990 was 7.15 MW giving a theoretical reserve margin of 170% with all plants at rated capacity. With Aimeliik restricted to 11.9 MW and Malakal unreliable, a realistic estimate of the reserve margin is 66%. 3.32 In a small utility system, the recommended reserve margin can be determined by calculating the 'firm capacity' (total capacity of reliable units minus the largest unit) allowing for the outage of one unit without power shortage at peak demand. With nine units on Palau, the firm capacity would be defined for each of the two power plants: 6.9 MW (2.3 MW x3) at Aimeliik with the present restrictions and 9.6 MW without restrictions, and between zero and four MW at Malakal depending on reliability. Without improved maintenance, the firm capacity could be as low as 8.7 MW but a firm capacity of 13.6 MW (9.6 MW at Aimeliik plus 4 MW at Malakal) could possibly be obtained by overhauling Malakal's engines and the electrical equipment. 3.33 Futue generation expansion. In order to take into account the uncertainties of the load projections and the statistical nature of the peak load, it is advisable to add new generation capacity when the peak exceeds 90% of firm capacity. The annual load growth from 1987 through 1990 has been high, about 12%. Even with more moderate forecasts of 3% to 6% per year, higher power ratings from the installed capacity are required now. This can be done primarily by properly rating Aimeliik, and possibly refurbishing the engines at Malakal, and secondarily by investing in new transmission capacity from Aimeliik. With a load growth of 3% to 6% per year and improved maintenance, it is possible that no new generation capacity may be necessary until near the end of the decade although this situation could change if several units at Malakal are phased out. 3.34 It is recommended that the government monitor more closely the load growth and the power demand by customer category and establish realistic short and medium term forecasts. Prospective development projects requiring substantial power demand should be monitored closely and new generating or transmission capacity should only be approved based on confirmed projects. 3.35 Powergeneration options. Several options exist for new generation capacity when it is required: a) Peak load engine-generators installed at Malakal. This may be the least-cost option with a short lead time and is attractive if a sudden demand growth occurs. However, - 20 - increased overall specific fuel consumption and the age of the four base-load engines seven to ten years from now should be carefully considered. b) A fifth 3.2 MW engine at Aimeliik similar to the existing engines. This may require a new transformer in Airai and a new transmission line. c) A 5-6 MW base-load low-speed engine-generator at Aimeliik running on residual fuel oil with exhaust boilers for preheaters and with low specific fuel consumption. This would require a new transmission line, reintroduction of RFO and a high technical maintenance standard. d) Power generation using fuels other than oil, but this is not possible in the short term. Extensive biomass resources are available but the technology of small scale steam based generation is complicated. Transport costs of imported coal are probably prohibitive but better options may be available in the future. 3.36 Other renewable energy sources and waste burning options have been proposed; these are discussed in paragraphs 3.50 and 4.21; they do not provide short-term solutions to power needs. RURAL ELECTRIFICATION 3.37 Small State-run diesel systems have been installed in Peleliu, Ngiwal, Melekeok and other locations, typically operating for six to twelve hours daily. For these systems, revenues are a small fraction (0 - 30%) of operating costs, maintenance is generaUy poor, and power generation is unreliable. Although nearly a hundred16 solar lighting demonstrations have been installed in remote areas, these are also not properly maintained and have reportedly largely failed due to lack of spare parts and replacement lights. The responsibility for provision of rural power and its maintenance is not clear; it appears to be inconsistently handled. Several systems are described below. The grids are only lightly loaded and transmission and distribution do not present operational problems. 3.38 Peleliu. The island of Peleliu has a diesel system serving 150 residential consumers in the neighboring villages of Koska and Klouldubed who pay a fixed rate of $10 per month. Some meters are installed and at one time $0.05 was collected per kWh. The distribution system is fairly well maintained. An ice-maldng machine at the dock was supplied from the grid but now operates from its own diesel generator. The water supply plant also has a separate diesel engine. Power is supplied from 6:00 p.m. to 6:00 am. The only operable engine-generator is a 205 kW Caterpillar dated 1969. No station records are kept but according to ammeter readings the peak load is 80 - 90 kW. Operating cost is about $4,000 per month with fuel consumption of approximately 550 liters per night. 3.39 A 100 kW Cummins diesel has been out of service for some years due to a broken generator. Three other engine-generators which have broken down in the past are in an open shed outside the power house. All genczators were supplied second-hand by the Palauan Guvernment. It is not known whether the engines had been overhauled properly before shipment to Peleliu. The State is responsible for the operation including revenue 16 The 1989 TMI Report indicates 86 federally-funded PV lighting systems mainly inual CKayangl, Sonsorol and HatohobeL - 21 - collection. Operators handle daily maintenance with repairs carried out by staff from Malakal power station upon request from the State which reimburses BPW. The Government of Palau is responsible for new investments and replacement of broken-down generators. No funds are budgeted for overhaul and preventive maintenance of the engines. Repairs or replacements are only carried out when blackouts occur or are imminent. 3.40 Ngiwal. In Ngiwal 52 houses are supplied with electricity used for lighting, radio, video, small washing machines and rice-cookers. Ten homes have refrigerators. Radio communication at the state office is solar powered. House connections were installed by BPW staff but the high voltage line has been extended by local people using very simple poles with a single phase conductor at the top. The power house has a single 100 kW Caterpillar D330 stand-by diesel generator used for base load. No station data are recorded but the load is about 30 kW (60 kW peak) judging from readings from a primitive ammeter. The system was established in 1972 and the engine, which is in very poor condition, has since been replaced once. Considerable quantities of lube oil leak onto the floor. The radiator also leaks so that one gallon of rain water has to be added every day. Corrosion and scales in the cooling system will lead to overheating and eventual breakdown of the engine. Problems now occur every second or third month requiring mechanics to be sent by boat from Koror but there is no preventive maintenance. Ngiwal state pays BPW for spare parts and the mechanics' daily expenses. About 2,000 liters per month of fuel is transported by drum from Koror. A 4,000 liter storage tank is not used as its pump has broken down. 3.41 Customers pay a fixed charge of six dollars per month which provides an annual revenue of $3,700. Some meters have been installed but they are not used for billing. Approximate annual operating costs are $17,000 as follows: diesel fuel ($9,240), fuel transportation ($3,900), maintenance ($2,628), and parts and miscellaneous expenses ($924). This excludes capital costs and wages of the operator during the service hours from 6:00 to 10:00 p.m. Total annual cost per consumer is estimated as $500 of which only 15% is recovered. 3.42 Other diesel systems. Melekeok state on Babeldaop has built a four kilometer primary distribution line and a generating facility to serve 64 customers financed by Japanese grant aid. In early 1991, its commissioning awaited a diesel-generator and transformer for which no provision had been made. A used 300 kW generator has since been provided by the national Government. Eventually, when a road is constructed, it is planned to connect the system with a thirty kilometer overhead line to the grid. The island of Angaur has a diesel system which operates six hours per day. Consumers were billed in the past but this has reportedly ceased. !a Ngarchelong state in the northernmost part of Babeldaop a 50 hertz system is in service, Palau generally being 60 Hz. Other systems operate in Ngeremlengui state and on the island of Eil Malk the latter being privately owned. -22 - PETROLEUM PROCUREMENT AND DISTRIBUTION Import Quantities 3.43 There are no reliable records of petroleum product imports. Information for 1990 volumes from Customs Department invoices, suppliers, and end-users are inconsistent indicating a range of 5.9 - 6.8 MG excluding jet fuel which adds 1.0 - 1.5 MG. From discussions with end users and suppliers, the high end of the range (6.8+1.5 = 8.3 MG) appears to be reasonable. Of the assumed 1990 total of 8.3 MG shown in the Statistical Annex, distillate accounted for 56%, gasoline 24% and jet fuel 18% with small amounts of other products. There are four grades of gasoline marketed, two 'regular" grades accounting for about 60% and "super" unleaded 91 octane and 95 octane about 20% each. 3.44 Palau receives fuel at a reasonable landed cost, considering its supply logistics and the small domestic demand. However, the CIF cost could be reduced if physical constraints limiting the size of vessel at the Malakal port can be overcome. Present supply logistics depend upon local coastal tanker"' (LCT) transshipment through Guam. If supply can be changed to larger 25,000 ton General Purpose (GP) tankers on a multi-port discharge pattern combining Palau with Guam or Saipan, prices could be reduced appreciably. Storage capacity and condition 3.45 Palau has more than enough storage capacity for the foreseeable future with four fuel depots: a) a multi-product facility at Malakal Port owned and operated by Mobil Oil Micronesia; b) the former Happy World multi-product depot at Malakal now owned and operated by Shells agent, Belau Petroleum Products; c) a small Mobil bulk aviation refueling installation at the airport; and d) the large Aimeliik facility at the power complex. Belau Petroleum Products is increasing capacity by refurbishing two 225,000 gallon tanks previously used to store coconut oil. 3.46 Products are received into the two Malakal depots directly from the LCIs which Mobil and Shell operate in Micronesia. The airport tanks are supplied via road tankers from the Malakal depots. The Aimeliik tanks store ADO for the generating plant and are filled by barge from Mobil's Malakal depot or by direct Shell import using a small LCT from Guam or Singapore. Shell's agent also uses a 200,000 gallon barge, which is normally moored at Malakal wharf. Details of available storage are shown in Table 3.2. 17 Mobil curently uses the Golden Crai a 7,000 deadweight tonn (DWT) LCr. - 23 - Table 32 Palau Petroleum Storage (thousands of US gallons) Total' Monthly2 Coverage Product Capacity Demand (months) Kerosene 855 127 6.7 Distillate 4,756 389 12.2 Gasoline 877 164 5.3 Unused 3DOO Total 9,484 694 13.7 Notes: 1) Includes Belau Petroleum, Mobil and Aimeliik. 2) Based on 1990 demand of Annex 1, Table 5; "TotaIZ includes other products. Soues: Mobil Oil, Belau Petroleum and Government of Palau. 3.47 The Aimeliik capacity exceeds current needs and is excessive, grossly under-utilized, poorly maintained, deteriorating and located at an inconvenient site distant from Koror. The installations on Malakal are well managed and maintained. Mobil is installing floating membranes on its gasoline tanks to reduce product losses and pollution through vapor discharges. Shell expects to commission the refurbished coconut oil tanks for ADO storage by the end of 1991. Continued use of the 200,000 gallon floating barge is a serious safety and enviromnental threat which should not be tolerated; the barge has reportedly not had an annual marine survey for a number of years. It is recommended that government require an annual survey and marine certification of the barge for use as safe floating storage. This would require considerable investment and thus accelerate refurbishment of the on-shore storage hastening removal of the barge. 3.48 Surplus Aimeliik fuel installation assets add to maintenance costs without contributing to income or security of supply. It is recommended that they be salvaged and sold. These include four 750,000 gallon tanks, transformers, switchgear, heaters, pumps and hoses. All other assets must be reconditioned if further deterioration is to be avoided. The remaining four tanks are due for cleaning which should be done on a regular basis. The three mooring buoys used for tanker discharge require reconditioning ashore before reuse. An additional buoy is required during reconditioning. It is recommended that the fuel facilities be equipped with fire extinguishers for use during emergencies. Government should consider converting the 10,000 gallon vertical tank inside the depot to water storage for fire fighting purposes. 3.49 Liquid petroleum gas (LPG) is not regulated. LPG is stored indoors in an unvented area with no fire sprinklers and inadequate separation from offices. The conditions are unsafe. It is recommended that LPG storage and handling standards be adopted and enforced. -24- Security of Supply 3.50 The Government is concerned with security of petroleum product supply and the means to improve it at reasonable cost. There does not, however, appear to be any threat to supplies to Palau. Government could improve security by requiring a minimum level of inventory (say three months) to be maintained by each marketer. However, the inventory and financing cost outweigh any obvious benefits and would increase prices to the consumer. NEW AND RENEWABLE SOURCES OF ENERGY 3.51 Biomass. Vegetation on the high volcanic islands is varied, ranging from coastal mangrove swamps to substantial tree coverage up to sixteen meters high, to interior grasslands with palms and pandanus and densely forested inland valleys. As shown in Table 3.3, three-fourths of Palau was forested a decade ago, the most recent known date at which vegetation was surveyed. The amount of biomass available for fuelwood or other energy use is unknown but is extensive compared with the relatively low population. Access to land for energy purposes is often difficult in the Pacific Islands due to the developers' ignorance of traditional land tenure systems. This might be less of a difficulty in Palau because the traditional ownership of land has eroded since the Japanese regime. Table 3.3: Summary of Biomass Resources of Palau (Hectares, 1979) Land Babeldaop Other high Coral and Total Class islands rock islands Forest 27,460 633 3,166 31,259 Secondary 515 79 133 727 Agroforest 924 6 179 1,109 Nonforest 7,834 451 239 8,524 Total 36,733 1,169 3,717 41,619 Note: See Annex 4, Table 10 for details. Source: Vegetation Survey of the Repubric of Palau (US Forest Service, 1987). 3.52 Wood stoves. There are no known power generation systems using biomass in Palau but the Palau Community Action Agency has provided about fifty "high efficiency" wood stoves in ten states since 1985. Earlier trials of South Pacific Commission wood-burning stoves reportedly failed due to rapid concrete deterioration. - 25 - 3.53 Hydro. Over a dozen sites suitable for micro-hydropower have been briefly surveyed on Babeldaop. These range from 10 - 70 kW with a total of at least 400 kW and 12 GWh annual output. Construction and operating costs would be high and reservoirs difficult to build. Hydro can provide neither reliable power nor enough electricity to appreciably reduce fuel imports, although a number of sites could provide power sufficient for village demands. 3.54 Wind. Winds have been measured at the Koror weather station since 1950. The 1982 USDOE report indicates a range of 4.6 m/s average summer wind and 6.2 mi/s for the winter with an annual average of 5.7 m/s (13 mph). However, wind is very site-specific and these are only broadly indicative of the resource. In addition to seasonal variations, wind power is unattractive considering the cyclone threat, present technology and economics. Maintenance is usually difficult on remote tropical islands due to corrosion and poor access to spare parts. 3.55 Solar enerVy. The solar resource is generaly attractive in Palau and could provide small amounts of electric power to remote sites at lower overall costs than small diesel systems. Although solarimeters were reportedly installed some years ago, no data are readily available. However, records of sunshine hours indicate that insolation is in the range of 4.2 - 5.3 kWh/m2 per day. About 100 small stand-alone photovoltaic systems have been installed, including 86 in individual homes and health clinics on Kayangel and the southwest Islands and a number for telecommunications purposes. There is no maintenance by the Government and only a small budget (under $20,000 per year from USDOE) for equipment and site visits. - 26 - IV. POLICY ISSUES AND PRIORITIES PRICING ISSUES Petroleum Product Prices 4.1 Table 4.1 shows wholesale petroieum prices in Koror in February 1991. Mobil offers the Government the lower price for all products whereas Shell has lower non-Government wholesale prices for unleaded gasoline and ADO. The prices of regular gasoline are the same for both companies, although the quality differs. Retail margins (the difference between retail and wholesale prices) for fuel sold in Koror ranged from 24.8 to 28.8 cents per gallon for unleaded gasoline, 22.9 to 31.9 cents for regular gasoline, 20.5 to 37.5 cents for ADO and 26.3 to 61.3 cents for kerosene. In remote areas, fuels are said to cost about double the Koror price. Retail margins in Fiji, which has a price control system, are much lower than Palau: typically 10 - 11 US cents per US gallon. Only a small portion of this difference can be explained by the larger Fiji market. There are no guidelines for prices in Palau nor any Government capability to oversee or administer prices. It is recommended that price surveillance be introduced in order to lower retail prices while maintaining fair returns to distributors. Table 4.1 Palau Wholesale Petroleum Prices: 1991 (US cents per US gallon) Product Mobil Mobil Shell Government Non-Govt Non-Govt Unleaded Gasoline 140.3 154.1 153.5 Regular Gasoline 124.4 148.0 148.0 Distillate (ADO) 133.0 145.4 140.0 Kerosene 137.6 164.6 na. Soure: Bureau of National Treasury, Government of Palau. Power Tariffs and Utility Finance 4.2 The electricity tariff in Palau was increased from 6 ¢/kWh in 1982 to 9 . /kWhl8 in late 1983 where it remains today. This tariff is only sufficient to cover fuel costs. Revenue per kWh consumed is much lower due to the large percentage of unbilled energy, unmetered consumers, and underbilled customers. Although the exact subsidy to the Koror urban power system, including capital charges, is unknown some estimates are summarized in Table 4.2. In 1990, the Government subsidy to urban power was about $63 million or nearly 80% of total costs. 18 For all consumers the rate is 90 /kWh for zero through 2,000 kWh per month and 100 /kWh for all consumption exceeding 2,000 kWh. - 27 - Table 4.2 Electricity Subsidies: 1989 - 1990 1989 1990 Cost (¢ /kWh) 17.7 22.5 Revenue (¢ /kWh) 5.0 5.0 Subsidy (¢ /kWh) 12.7 17.5 Total subsidy $4.1 m $63 m Source. Mission estmates (See Annex 1). 4.3 Reducing the deficit significantly wil require installation of meters for all customers including large commercial users and government, calibration or replacement of older meters, and billing of all consumers for actual, not estimated (in fact underestimated), consumption. However, these measures would only reduce the subsidy by about $0.8 million per year initially plus perhaps another $1 million when government departments also pay for their use (planned from Fiscal Year 1992 beginning in October 1991). This would double revenues but reduce the subsidy by only one-third. Hence, the government must increase the tariff substantially to eliminate subsidies. 4.4 A 1986 tariff study recommended a new rate structure with mminium monthly charges of $7 for residential consumers and $25 for commercial consumers, a base fuel charge of 3 /kWh increasing by 1¢/kWh for each 1¢*/USG increase in fuel costs above 40¢/USG, and a non-fuel charge of 7¢ /kWh for 1987 with scheduled increases of 1¢ /kWh each year through 1990. If implemented, this would have resulted in an average charge of 15¢ /kWh in mid 1988. The USD0119 has recommended immediate implementation of the proposed rate. Although a significant increase is required, the USDOI formula is unwieldy, provides no incentive to the utility to negotiate improved fuel prices, and does not protect the low- income consumer. 45 It is recommended instead that the tariff be inmediately increased to a flat rate of 15 ¢ /kWh with a 10 ¢ /kWh "lifeline" tariff (if necessary) for residential consumption up to 100 kWh per month. This is an interim measare only. It is further recommended that a study be carried out as soon as possible to determine more accurately the real costs of power generation and distribution followed in 1992 by annual scheduled tariff increases over a period of five years or less until full costs are covered. 4.6 Metering and full collections from Government and commercial users would double revenues even at the existing tariff, as indicated in paragraph 4.3, but the subsidy to Palau's power consumers would still amount to about $45 million. This can only be recovered by a substantial increase in the tariff. To meet the estimated full 1990 cost (including capital charges) of 22.5 cents per kWh, the average tariff would have to rise by 13 cents - more than 135% of its current level. It may seem that such an increase would hurt consumers, especially low-income households. However, Annex 3 indicates that a lifeline tariff restricted to the first 100 kWh per month of residential consumption would adequately 19 SeV aLAuditRepoiton hePowerPlwW, op. cit. - 28- protect low-income consumers while requiring a total subsidy amounting to only 6% of the current subsidy level. Most electricity consumption is by users who can afford to pay more than the current tariff. As shown in Table 2.2, residential consumers use only 41% of total consumption; the remaining 59% is by Government and large commercial users. 4.7 Higher tariffs will not adversely affect the government, since it is already paying the bulk of electricity costs in the form of subsidies. Raising the tariff to Government while reducing subsidies, and making departments financially accountable for electricity consumption is likely to reduce Government expenditure on electricity as the department heads reduce consumption to limit the impact of electricity on their budgets. REGULATORY AND OTHER POLICY ISSUES Overview 4.8 The energy chapter of the 1987 - 1991 National Development Plan identified as key sectorial issues the high cost of electricity generation, low electricity tariff rates and collection, the limited extent of the electricity grid, lack of reliable power in outlying states, problems of financing the Aimeliik power plant, wastage of electricity in urban areas, the high cost of energy for road and sea transport and limited use of renewable energy for remote communities. Two sectorial objectives during the planning period were met: provision of electricity from the Aimeliik plant and (to a limited degree) providing power through renewable energy technologies where feasible. Other objectives were not met including upgrading of the Koror grid, retiring the Malakal plant, finding funds to extend the grid throughout Babeldaop, upgrading power systems in five states, creating a public utility corp ration, increasing revenue through effective billing and collection of power fees, improving docking facilities at Aimelilk for bunkering, and implementing energy conservation measures. Planned policies and strategies included immediate power billing of all government offices, an increased commercial electricity tariff set "several cents higher than the unit cost of production", and conservation measures such as insulation of air- conditioned buildings and restrictions on use of Government vehicles and boats. 4.9 It is recommended that the government pursue the policies stated in the 1987 - 1991 plan. These policies are also consistent with the earlier USDOE proposals. The Government is to be commended for introducing a draft Public Utilities Bill which should be finalized and implemented as soon as possible. It is recommended that the Government expand the duties of the Energy Office to include analysis of power sector issues, oversight of petroleum contracts, establishment of an energy sector database, supervision of the rural photovoltaics program and supervision of short-term experts brought in to advise on petroleum, power, or other energy matters. This may require an additional person. - 29 - Power Subsector 4.10 The main power sector regulatory issue is the commercialization of the urban power sector implying financial autonomy for the utility, i. e. allocating responsibility for tariffs and investment budgets to the board of directors, allowing commercial and development bank loans and defining a long-range policy for reducing government subsidies. 4.11 Structure of the Proposed Public Utilities Corporation Draft legislation has been prepared by the Government to allow establishment of a Public Utilities Corporation (PUC). It is recommended that the Government clarify the intent and remove numerous ambiguities of the draft20 to improve the likelihood of successful commercialized operations. Several other matters need to be clarified in the legislation or elsewhere including the maximum allowable level of subsidies and a timeframe for their removal, the relationship between the PUC and the States and the respective responsibility for power supply to remote areas, a policy on a national tariff or differing tariffs by geographical area, provisions for private shares and the proposed exemption of the PUC from taxes. 4.12 Training. An overseas education and training program is needed if local staff are to take over management of the Aimeliik facility. It is recommended that permanent PUC staff include a General Manager, a Commercial Manager, a Distribution Engineer or Superintendent, and Power Station Managers for both stations. Each power station requires a superintendent assisted by an electrician and one or two mechanics. The engineers and superintendents require overseas professional training and apprenticeships. The linesmen should be trained in preventive maintenance. Also recommended is transformer maintenance and meter adjustment training. Petroleum Subsector 4.13 Supply contract adminstrion The "evergreen# Mobil supply contract is not being properly administered. There is no mechanism to assure that contract terms are being honored, correct import duties paid, volumes and qualities delivered are correct or contract terms equitable over time. It is recommended that a single govermment department be given overall responsibility for preparing tender documents, periodically calling supply tenders, evaluating bids, awarding contracts and administering the contracts. The Energy Office of the BPW is recommended for this role. 4.14 Storage and handling standards. There are no Government or oil industry regulations or standards for the storage and handling of petroleum products in Palau; to some extent this can be seen as condoning unsdfe storage and handling practices and the deterioration of some depot facilities. Two distributors import liquid petroleum gas (LPG) in bulk containers from Guam to Palau for repacking into cylinders for local sale. The facilities for handling, storage and repacking are unsafe; they require upgrading to comply with the 20 See *Preliminy Comnwi on Bill SB 3-53 to Set Up a Fublic UtiWe Corpora 500 996 na 1,932 Da 3,149 Ave WageSalary (US$/hour) na na na na $1.98 na Economically Active na 6,250 na na 6,500 na Total Population6 13,600 13,900 14,200 14,500 14,900 15,200 Urban7 (%) 68% 68% 68% 68% 68% 68% Overseas Development Assistance Annual ODAW (US$ m) $17.6 $243 $19.7 $30A S39.6 31.6 ODA (% GDP) 53% na na na na 63% ODA9 (% Current Government Expenditure) 80% 113% 89% 125% 171% na % Bilaterall0 100% 100%o 100%o 100% 100%90 100% ODA per Capita (USS) $1,295 $1,749* $1,389 $2,098 J ,658 $ZS079 Sources:1) Economic Overview of Palau (ESCAP Pacific Operations Centre, Nov 1990). 2) Republic of Palau Economy: Assessment of Performance and Growth Prospects (PIIDP, EWC, April 1991). 3) IssuesAssociatedWith Palau's Transition to Self-Government (USGAO, Juy 1989). 4) Trust Territoryof the Pacific Islands Annual Reports to the UN (1987,1988,1989,1990). 5) UNDP Development Cooperation Reports for 1987,1988. 6) South Pacific Economies Statistical Summary (South Pacific Commssion #l1 1987). 7) Preliminary astimates from Palau government. 8) 1986 Census of Population and Housing (Palau Office of Planning & Statistics, April 1987). 9) Mission estimates where sources differ (There are very large discrepencies.). Notes: 1 1983 GDP (current market prics) $3158 milion. AU GDPs since then ar estimates. 1985 & 1989 estimates from source 4; 1990 is crude mission estimate (source 2). 2 1985 & 1986 from source 6; 1990 from source . 3 FOB. 1985 & 1986 from source 6; 1989 from source 7. 4 1986 from source 8; 1988 & 1989 from source 2. 3 Private sector. Government was $459; source 2. 6 1986 "mini-censuse and 1990 census data adjusted to mid-year. 7 Koror considered urban. Perc_ntages am same for 1986 and 1990 census. If Airai included, urban is 76%. 8 Mainly US funds: Dept of Interior, federal grnts and capital improvement projects actual; 1990 estimated. 1986 - 1990 also includes timate of $3 million per year from lapan. 9 Government exnditure 1985 - 1986 source 6,1987 - 1989 source 4. 10 UN and othor multilateral assistance very small, anout $100,000 per year. na Indicates not avaabble. _ 46 - TABLE 2 SELECIED PROJECIIONS FOR THE REPUBLIC OF PALAU (1990 - 2000) 1990 1995 2000 Population': urban 10,400 11,400 12,600 rural 4,800 5,400 5,900 total 15,200 16,800 18,500 GDP ($ millions; 1990 prices)Z high growth (6% reil) 50.0 66.9 89.5 medium growth (4-5o real) 50.0 623 77.6 low growth (3% real) 50.0 58.0 672 GDP/Capita3: $3,289 $3,709 $4,197 Electricity Generation4 (GWh): high (6%) growth rate 46.2 61.8 82.7 medium (4.5%) growth rate 46.2 57.6 71.7 low (3%) growth rate 46.2 53.6 62.1 Fuel Consumption5 ('000 US gallons) Grsoline 1,969 2,459 3,086 Jet Al 1,521 1,948 2,518 Kerosene 61 74 91 ADO 4,667 5,828 7,315 IDO Lubes 71 98 132 Avgas 3 6 7 LPG 34 42 53 Others Total Inland 8,326 10,455 13,202 Bunkers none none none Total Palau trade 8,326 10,455 13,202 Annual percent change _ 4.7% 4.8% Souroes: 1) 1990 populatlon from preliminary 1990 census results. 2) Government fuel data inconsistent; mission estimates based partly on oil compaoies. Notes: d Midyear medium growth scenario. Aumes urban growth remains 5.6% per year. 2 GDP in 1988 constant dollars at market prices. Assumes 3% annual real gowth from 1988 - 1990 then lower growth as Compact funds decline. In 1990 dolbas Assumes medium GDP growth. Mission estimates for urban system of Koor/Airai "Reduced grmw" assumes tarifM increase to true cost by 1995. For medium economic growth rato of 4.5% per year. - 47 - TABLE 2& PETROLEtM DEMAND PROJECTIONS, REPUBUC OF PALAU: 1990 - 2000 L wGrowthS =S ao 0 boad UJ=sa) Product 1~ 1991 1992 1993 1994> 1996 1997 10J7 109 1, 2028 2089 2152 2216 2351 2422 2494 2569 Al 1121 1816 1871 1927 1985 K.ro V? 63 65 67 9 - 7 75 7 AID04 41 525 5573 5740 5912 089 lube. ctffl 7691 8992 199388 94 107 114 121 129k Avg 1 I 3 3 3 4 4 4 4 4 35 36 37 3 435 43 7 43 ATodtalS0 0 0 0 9 9,964 10,27 10,579 10,901 m' Ave 3a7 30 9,0 938 84 7 4 32 86 90 A_musa economloio wbt of 3% per annum raL 1) Oaaolin 396 growth JetAl39 7Swth Koerce.3% growth ADO and lubes 2.7%6 gVowth Avg.496Rowth LPG3696%rth Medium Growth Scnenrio Product ~L~90~1991 199 1993 199419 97 19 1999 1 Gasolne~ ~ ~,0 2,058 2,151 2,24 2,351 '245. 2,572 2,691 2,816 2,948 0. let Al 1,597 1,678 1,763 1,853;:'~ 2,049 2,17 2,270 2,39 Kero >4~ 63 66 69 71 r44 77 878 ADO --- .* 4,877 5,098 5,329 5,57 6,096 6,37 6,675 6,987 7. S IFO 76 81 86 9 2 ', 04 10 117 125k Avga 4 S S 6 6 7 7 LPG ~ 36 37 39 41 r~ 44 46 49 S1' BunkeE, ADO'~~Q~ 0 0 0 0 0 0 0 0 Total 9 ,71.1 9,114 9,539 9,985 10,949 11,470 12,018 12,595 Ave ~4.6% 4.6% 4.7% CM% 4.7% 4.8% 4.8% 4.8%6 Kote- Aildenianda amid pointsoo low and hIgbgrow-h. 45%6 ecoomks rowth. Higb Growth Scenaro Produc 1991 199 199 1994 1996 1997 199 1 99 Guoin <.2.087 2,212 2,345 2,486 2,793 2,961 3438 3,32= Jet Al12~~S 1,627 1,741 1,863 1,994 4 2,28 2,42 2,613 2,796- xere ~64 67 71 74 #~82 86 90 9. ADO" ~4,947 5,24 5,558 5,892 6,620 7,017 7,438 7,885 Lubas ~75 80 85 90'x~ 101 107 13 12 Avgas ~~ 6 6 7 7 ~ 6 9 9 1 Lp p36 38 40 43 ~ 48 51 54 57 ADO / 0 0 0 0 0 0 0 Total 8,843 9,38 9,969 10,585 ~%~ 11935 12,673 13,457 14,289 Av g n a I6.2% 6.2% 6.2% 6.2%9 6.2% 6.291 6.2% 6.2* Aue ml ecnmcgot f6 per annum. I0 GOH0106% got =Av =1doSii1991 (amuming-W of reguargsmolns In aircrfto..) then 6W%,r Lpompgrwth Geneal ote Frmml 16- 199Eb uelus "umegswat 8491pwryear,halmcamu matedmambalGDP. TABLE 3 ENERGY BALANCE ESTIMATES FOR THE REPUBLIC OF PALAU (1990) ('000 TOE) Fuelwood Coconut Total u Electricity Gasoline Jet Al ADO Kerosene Avgas LPG Petroleum Total Residues Biomass Energy Primaiy Supplies Production 0.26 0.05 0.31 0.31 Imports 6.02 5.03 15.92 0.20 0.01 0.08 2725 27.25 Bunkerinzexpors (0.02) (5.03) (5.05) (5.05) oGROSS AVAILABLE 0.26 0.05 0.31 0.00 6.00 0.00 15.92 0.20 0.01 0.08 22.21 22.52 Conversions Public Power Generation 10.72 (10.72) (10.72) 0.00 Transformation losses (6.81) (6.81) t Station Uso (0.31) (0.31) * Trammission/distribution Losses (1.98) (1.98) c INET SUPPUED 0.26 0.05 0.31 1.62 6.00 0.00 5.21 0.20 0.01 0.08 11.49 13.42 Fmal Consumption Households 0.26 0.0S 0.31 0.68 0.15 0.04 0.19 1.18 Transport 5.66 3.78 0.01 9.45 9.4S Governm CntJommercial 0.18 0.34 1.43 0.05 0.04 L85 2.03 IndustriaWonstruction Agroindustries Unknown 0.76 0.76 I TOTAL 0.26 0.05 0.31 1.62 6.00 0.00 5.21 0.20 0.01 0.08 11.49 13.411 Source: Mison EBstimates 1990 Notes: Popuation 1990. urban 10.400, rural 4,80 (total 2868 hb - 5.27 personsm/h). 3Assumes 10% of population use biomass for cooking at 1.4 kgs/cap/day = 772 tonnes/year Assumes biomass consumption as 80% wood, 20% coconut residues. TABLE3a ENERGY BALANCE ESMATES FOR THE REPUBUC OF PALAU (1990) (Orign Units) Fudwood Conut Total 4 Ectniciy Gasline Jet Al ADO Kerosn Avps LPG Tota Residues Bimm Ftrolem (tonnes) (tonnos) EtonD ) (OWb) (MUSgal) (kUSjil) (kUS:a) (kUSgal) (WSaI (kUSad) (kUSgd) P _ood 618 LIr 7m IMPOrt 1,%96 1,52 4,667 61 3 34 42S sbantaogN . ) (1,521) Qm I GROSS AVAIIABLE 17618 154 m 0 L962 0 4,667 61 3 34 6m727 P UbE Pam Goneradw 46.20 (3,141) (3.141) SlSt;Xi U# (170) (2338) INBTSUr D 618 154 m 19.13 1.962 0 126 61 3 34 3.6 rods cousmptic Homebddk 618 1 772 8.03 46 17 63 Tqrnsport 1.546 1.107 3 2.66 GOvssuaant _mmeesIal 2.13 416 419 15 17 s63 Unbown 8.~~~~~~~~~~~97 ITOTAL 618 154 m 19.13 L962 16 61 3 34 36 1 Npalp l 1D90 b 0400. a 4026P bb - 5.27 psrsaswhh) 'Assomes 10* ofppotlam weood i cooMag at L4kpuAa ay - m tam/fea Asomms bkm omomuptm as OM wood, 20* cotw,ss*d, TABLE 4 ENERGY BALANCE ESTIMATES FOR THE REPUBLIC OF PALAU (1995) ('000 TOE) Fuelwood Coconut Total 1 Bectidcty 3 Gasoline Jet Al ADO Kerosene Avgas WPG Peuleum Tota Residues Biomass Enern 6 PimarySupplies Production 0.29 0.06 035 035 imports 752 6.44 1988 024 0.02 0.10 34.19 34.19 Bun _inpIexports (6.44) (644) (6.44 IGROSSAVAILABLE 0.29 0.06 035 0.00 752 0.00 19.88 0.24 0.02 0.10 27.75 2&10 Conversions Pubc Power Generation 14.41 (14.41) (14.41) 0.00 Transformation loss (954) (9 Station Use (0.22) (022) Trausmissiouldistnibution Losss (2.44) (2.44 INETSUPPUED 0.29 0.06 035 2.21 7.52 5.47 0.24 ^.02 0.10 1334 1590 o FInal Casmnption' Households 029 0.06 035 n.a. 0.24 024 0.59 Transport 7.06 4.00 0.02 1108 11.08 Gover.menlnmercdal na. 0.46 1.47 0.10 203 2.03 Industial/Coitruction na. Agroiadusies Others ITOTAL 029 0.06 035 2.21 7.52 5.47 0.24 0.02 0.10 13.34 15.90 Somce: Mision Estimates 1990 Notes: IPboladtion 1995, urban 11,400, rmul 5,400, total 16,800. 2Assues 10% of population use Iomass br cooing at 1.4 kptapday = 858 onnes/ear Ausumes binmss cosumption as 80% wood, 20% coconut residuesm ' Becidcity pYojt for Anmeli station ody. 'Seto uag based on 1990 es0mates. TABLE 4a ENERGY BALANCE ETIMATES FOR THE REPUBLIC OF pALAU (1995) 4 (Original Units) Fuelwood Coomut Total Electicity' Gasoline Jet Al ADO Kerosene Avgas LPG Petrolum Residues Bioma (tonnes) (tonnes) (tonnes) (GWM) (kUSgal) (kUS (kU (kUS) (kUSaal) (kUSga) (kUSgal) Puima Sapplies Prodcton 687 172 858 Impo 2,459 1,948 S,828 74 6 42 10,3S7 Bunkeringe/orts (1.948) (18) GROSS AVAILABLE 687 172 858 Z459 0 5X8 74 6 42 k409 Couvursiona Pubic Poer Genraton S7.7 (3,19) (19) 1Tuisormation liesm Station Use (2.6) ThnsminaloeMistributin _Losses (289)' NETSUPPIED 687 172 858 26.2 Z459 1i 74 6 42 4490 Fnal Cnomtimn s Houshold 687 172 858 na. 74 74 Thaot 2,287 1,394 6 3,686 G __m1aVC-w n.a 1 72 SIS 42 730 Agroldusd TOTAL 687 172 858 26.2 Z459 1m 74 6 42 4490 Soni. m Eilmes I990 Notes: Popui 199I, urban 11,400 nOa S,400: total 16,800 2Anlnes 10% ofpopulion use bNoas for cooIng at L4 kpt*pday = 858 tonner Assmes bom s p as 80% wood, 20% cocnut resd ' Eroyichypoje for AW& alio only 'Projco at medium growth sceario Sewo us4age, based on 1990 estat TABLE 5 REPUBWC OF PALAU PETROLEUM MARKET 1985-1990 IMPORT VOLUMES (THOUSAND US GAL) 1985 1986 1987 1988 1989 1990 Product: Gasoline 1260 1344 1337 1483 1755 1969 Jet Al 630 504 466 560 860 1521 Kerosene 84 126 46 47 50 61 ADO 3360 3570 3844 4255 4512 4667 IDO IFO Lube$ 76 42 38 42 56 71 Avga 143 79 17 17 11 3 LPG ? ? 29 34 104 34 Other Totalnlnd Trade 553 S665 5777 6438 7348 8326 Bukern 0 0 0 0 0 . 0 Totl Trade 553 S66S 5777 6438 .7348 8326 PCrcP!w lncrease 5 2 2 11 14 13 Notes 1990 Volumes based on induatty sales information cross-checked with sectorlal usage information obtained from end-uwe and local sources 1988 & 1989 volumes obtained are mission estimates 1986 - 1987 values not available. Volumes provided obtained from PEDP. - 53 _ TABLE 6 REPUBLIC OF PALAU PUBLIC ELECTRIFICATION 1987 1988 1989 1990 Consumers (number) Residential na na na 2406 Commercial na na na 269 Government na na J na 80 Other na na na 0 Capacity (MW): Installed Diesel 12.8 12.8 12.8 12.81 Firm Diesel 8.64 8.641 8.64 8.64] Max Demand 5.0 5.91 6.3 7.1 Output (MWh): Generation Diesel 32,518 38,069 40,972 46,200 Station usage 2,596 3,282 2,989 3,696 Total sent out 29,922 34,787 37,984 42,504 Technical lossee 4,488 5,218 5,698 I 6,376 Non-technical losses L 14,961 15,654 15,193 17,002 Net Consump:tio - ... --..h Sources: 1) Mission estimates for Aimeliik onlr, data are extremel limited and inconsistent. Notes: 1990 is actually Februazy 1991 but believed to be an underestimate. - Measured (Nov 1990) as 15% of energy sent out. iUnmetered consumption mostly inadequate metering. Includes street lights. 'Sales of electricity. - 54 - TABLE 7 REPUBLIC OF PALAU ELECTRIFICATION PERFORMANCE INDICATORS (1990) Fixed Asset (millions USS) 15.7 Average Revenue2 (USc/kWh) 5.0 Average Cost (USc/kOW) 22.5 Capital 6.6 Fuel 8.9 Other operating 7.0 Estimated ROP (%) - 40% Fuel Consumption4 (litres/kWh) 0.266 Households Electrified5 (%) 96% KWh/year/consumer' 7,440 KWh/year/employee7 1.5 millio EmployeeslVW installed 1.8 Outages Number per week over 3 Average duration (hours) na Customers affected (%) na Voltage drop / increase 10 - 20% Electricity Tariff (S/kWh) Zero - 2,000 kWh/month $0.09 Over 2,000 kWb/month $0.10 Source: Mission estimates. Notes: 1 Koror / Aiai system. s Fixed Assets as of 30 December, 1990. ' Rate of Return on estimated fixed assets. 4 Automotive diesel oil use calculated as 14.25 kWh per US gaBon. s % of national households (1990 Census). 85% in 1986 mini census. 6 Consumption per household consumer. 7 Generation. na Data not available. - 55 - TABLE 8 RURAL ELECTRIFICATION IN THE REPUBUC OF PALAU r___ -_ 1986 1990 Households supplied by grid' 127 over 200 Isolated rural consumers2 number of states 12 number of households 276 over 300 ? Total rural households with electricity 403 over 500 ? Percentage of all rural households 58% over 60% Rural GWh generated3 na about 1 total in 1990 na per consumer na % rural consumers metered over 25% na Sources: 1) Census of Population & Housing 1986 (Palau Office of Planning & Statists, 1987). 2) Census of Population & Housing 1990 (preliminary data only) and mision estimate. Notes: Rural consumers refer to all those outside Koror and Airi staes. 2 Al those exept consumers connecd to Koror/Airai grid or Pelelu grid. 3 Mission estimates; approximate only. - 56 - TABLE 9 NON-CONVENTIONAL ENERGY USE AND RESOURCES IN THE REPUBLIC OF PALAU Systems Installed 1985 1990 Photovoltaics: number na 86 kW eak na na Microhydro: number na na kW na na Biomass: number na na kW na na Resources OTEC1 Temperature differential (CC) 22 - 24 Distance offshore (kin) na Tides Mean range (metres) na Solar Insolation (kWI/m2/day) 4.2 - 5.3 Average daily hours Hydro2 Potential (MW) 0.4 - 1.0 Output (GWh) over 1.2 Sources: 1) 1989 TPI report. 2) "Ocean Energy Guide' (ESCAP, 1990). 3) Territorial Energy Assessment (USDOE, Dec 1982). 4) Palau Micro-hydropower Assessment NRECA (1984). Notes: 1 Sea level to 1000 metre depth. 2 Thirteen sites on Babeldaob island only. na Indicates data not available. - 57 - TABLE 10 BIOMASS RESOURCES OF PALAU (Hectrs. 1979) Land elm bbeNhaup Otr high Coral Rock Total and w blands Islands lWands ha (acres) Faredt Upland 21690 201 0 0 21,891 (54,094) Swamp forost 1,617 15 47 1 1,860 (4,151) Mangrove fort 4.026 205 435 43 4,708 (11.634) Plantotlon foret 24 2 0 0 26 (64) Rock Island foret 210 0 802 1,116 (2,758) Umestoneforet 0 0 1,175 57 1,232 (3,044) Casuarlnaforest 0 0 451 0 461 (1,114) Atoll forest 0 0 97 58 155 (383) Pakn forest 0 cI 0 0 c1 (1) Total frodst 27.460 633 2,205 961 31,259 (77,243) Scondwy vegetation 515 79 131 2 727 (1,796) Agroforest Agroforest 8 0 2 6 16 (40) Agroforest (w/woonut) 173 6 100 0 279 (689) Coconut plantation 743 0 0 71 814 (2,011) Total agroforest 924 6 102 77 1,109 (2,740) Nonforest Marsh, fresh 448 <1 27 0 475 (1,174) Mamlh, cultivated 107 2 25 0 134 (331) Mamh, saline 0 0 25 c1 25 (62) Gassland 6,728 Gs 1 1 6,783 (16,761) Strand 0 0 10 1 11 (27) Cropland 140 59 4 0 203 (602) Cropland/secoludary vegetation 0 28 0 0 28 (69) Urban 141 222 33 1 397 (981) Urban/cropland 106 70 0 0 176 (435) Urban/agroforest 0 0 61 0 61 (151) Urban/secondary vegetaton 0 3 0 0 3 (7) Barren 149 5 28 0 180 (445) WaL 15 9 17 7 46 (119) Toteu. 3nfost 7.34 451 229 10 8.524 (21.063} Total a 39,73 1,169 2,667 1,050 41,619 (102,843) Soure: Vegetation Survey of the RqpubUc of Paau (US Dept of Agriwbult, Fomet Sewlo P8W-2Z June 1987) Bobe/d.,nb TRUST TERRITORY OF THE PACIFIC ISLANDS (US) (PALAU) ENERGY SUPP'Y BABE3LDAOB AND KOROR NORTH EXISTINO DIESEL PLAN -EXISTING 11 kV LINES 1 PETROLEUMA PRODUCTS STORAGETANKS TRUST TERR,:kfITORY OF 6. ¢t SEAT OF GOVERNMENT THE PACIFIC ISLANDS (US) PALAU NORTH PACIF)C OCEAN - INTERNA31ONAL BOUNDARY L - UNES Of DEMARCATION - ER-s 30DRATRD rTATES - .- j - - - - ---- -} - - - P , ,, ' - ,? _ _ _ I~~- - - AVSTM 3OA5IM M|JI ¢,1-'# \ -I t1 1 J9 ZISIWZ~~ _ __ _ - sI_IAr - t lm | \ , _ '1 ¢ _. . . _ _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1<11