I verify that this assignment is primarily or solely our own work. If I have used other sources, I have used them appropriately and provided clear attribution and complete citations to the resources. I have not borrowed anyone else’s words, phrases, or ideas without giving clear credit to that person. I understand that the penalty for plagiarism includes any or all of the following: failure in the project with no opportunity to revise, failure in the course with opportunity to retake the course in a later semester, expulsion/termination from the university.
Name: Hyemin Hazel Yeo
ID: S11080203
Signed:
Date: 20/3/2015
Contents Declaration 1 1.1 Background of S.I 3 2.1 literature Review 4 3.1 Research methodology 7 3.2 Primary Source 7 3.3 Secondary Source 7 3.4 Limitation: 7 4.1 Case Study: Solomon Island Water Authority (SIWA) 8 I. Background 8 II. Pre-Reform 8 III. Changes over the year 10 5.1 Solomon Islands Electrical Authority (SIEA) 12 I. Background 12 II. Pre-reform 13 III. Post-reform 14 6.1 Recommendation 16 Bibliography 18
Appendix 1: 19
1.1 Background of S.I
Solomon Island (S.I) consists of ten large different province islands and many small ones. It is the second largest insular country of the South Pacific with relatively downturn economy and poor government management system especially during 1998~2003 tension. Although there were quiet few natural resource such as marine life, forest, gold etc. with very unfortunate facilities of development structure and poor management it was very difficult to utilize the resource into long term profit (Barnabas Anga, 2009). Also the country was vulnerable to natural disasters hence; the country faced many struggles and difficulties in terms of stable development because of its incapability to perform till later years.
S.I’s tumultuous history is a result of long suffering from economic stagnation. Before the first contact to the outer world, S.I was notorious for cannibalism. Later, during the colonial year the contact with outer world influenced to slowly develop but Britain’s footprint was light until World War I. In 1942, Japanese forces and USA forces brimmed into Guadalcanal and became major battlefield that caused major damages to its economy.
When S.I finally gained independence on 1978 the whole nation rejoiced but rather faced some disappointment for the next 30 years. Since independence, the GDP was mostly positive between 1978 and 1996 because of dominance of agriculture in the economy but soon after experienced inflation, negative growth rate etc. It was formally known for least developed country in the region with high dependency on donors yet very slow development and progress. With majority 52% of 460,000 populations out of are under age of 18 and highest growing rate in the region, only one in six young people are employed and per capita annual income of US$500 as of 2003 causing poverty issue to arise. Repeated corruption in both government and organizations flamed the conflict damage toward the infrastructure, private sectors and other public services. As result between 1998 and 2002 GDP drop drastically 24% with unfortunate export and serious problem on both domestic and foreign debt settlement. From 1998 to 2003 all the GDP growth was negative mainly because of the tension ( Holden & Holden, 2005).
Demographic shift from rural to urban areas is another major concern in Honiara. There is drastic increase in fringe settlements and it is not being well managed. There was about 15% of the total population lived in urban towns with rest 85% living in the rural areas. However, over the last two decades, there has been drastic increase in urban population mainly because of out-migration from the rural places. With the over populated community in the capital it has contributed to the period of ethnic tension between 1999 and 2003 (Barnabas Anga, 2009). This ethnic tension brought major setbacks that the government requested assistance from Australia and other PICs for Regional Assistance Mission to S.I (RAMSI) initiated in 2003 to maintain law and order stabilize governance finance and protection (Australian Development, 2013).
With the help of RAMSI there were visual changes and slow stabilization however there has been several violence outbreaks in and around especially in period of election and riot between provinces even after the arrival of RAMSI. All these factors reversed the country’s slow economy development. Nevertheless, RAMSI presence clearly has strong impact of minimization of violence and investor confidence as only time and stability can reconcile the fundamental damage done to the wellbeing of the economy.
This Project will be based on a case study of State Owned enterprise, Solomon Island Water Authority (SIWA) and Solomon Islands Electrical Authority (SIEA).
2.1 literature Review
State Owned Enterprise (SOE) simply define as legal entity made by government to commence commercial activities on behalf of state to the public (Treasury, 2010). And for S.I it is under the State Owned Enterprises Act 2007.
In earlier days, S.I barely had any constructive Act or Law in form of guidance as so was very unstable. In 1950s, some stability was restored when British colonial administration built network of official local councils and from 1960 with newly established Legislative and Executive Councils and then replaced by constitution and single governing council. It was also said that system was more of Melanesian style of government. Later on in 1960s there were many British S.I Protectorate (BSIP) industrial relation issues such as wage, strike and union that illustrate IR issues were part of the fabric of life in BSIP long before independence (Prasad, 2001). Additionally the earliest Union was facilitated by the colonial power and was part of administrative control strategy. Although trade union dispute regulation was passed on 1964, it remained inoperative at that time.
Moreover, the Public Service Commission was established in 1976 as part of the transition to independence. It succeeded an earlier agency, the public Service Advisory Board 1968 which was for process of separating control of public service from the direct influence of politics. However this commission does not have specific statutory role in establishing wage rates, conditions of employment or processing general grievances of employees. In earlier days such matters would be dealt with unilaterally by government or public service managers. With the advent of unionism, such unilateralism was thrown under challenge (Prasad, 2001).
During the late 1990s, government strongly put effort on restructuring and divesting the 21 SOE and also completed 2 privatize transaction. However, the tension in 2000 caused the progress to terminate. Debts of SOEs are high and is contingent liability for SIG since government have to continuously repay the debt by ensuring to harvest large amount of government income whilst the enterprise itself is currently struggling to meet their social obligation (Anon., 2013).
Initially S.I was considered too small to have separate administration at the end of 19th century hence resident commissioner was responsible to High commissioner for the Western Pacific conjointly with Governorship of Fiji till 1952. Now with the decolonization, Solomon faces too much challenge on cultural division, dependency etc. British Government imposed Colonial Development Welfare Scheme to develop the economy but progress remains slow and most resulted in urban areas only hence encouraged urban migration. In 1960s to 1070s most people see government as source of fund, authority without much objection. In 1960 British initiative towards a transfer of power meant the replacement of the Resident Commissioner’s Advisory Council by legislative and executive councils dominated by government officials.
The authors comments that because only few Solomon Islanders had experience in Western Political system and education, those in policy making left with unskilled with limited role for the raising local issues (Rennellekspedition, 1951).
When Solomon gained independence in 1978, the leaders continued to follow the parliamentary system practiced during colonial era. The structure of the newly formed nation had governor general who represents the British monarch, followed by an elected prime minister as the head of executive, speaker and a chief justice who has highest legal authority. Finally, the 50 parliament would be elected every four years. During the economic stagnation from the mid 1990s, civil unrest turned to violence causing economy collapse at that time. Economy is slowly recovering by the help of the RAMSI but there are still many controversy issues of why the country yet faces so many problem and corruption (Anon., 2012).
S.I made out of three level of government; national, provincial and local. However, Honiara City Council is the only local government body presents. The author compared the colonial days where there was little to lack of community participation, the government implemented system for community involvement. The engagement in local decision making is mostly through ward committees which intended to provide feedback by councilor. There has been more involvement of students and women which being granted extra space in central market. (Commonwealth Local Government Forum , 2013)
Furthermore, S.I is a small country with roughly 561,231 populations but with a public service that is large enough to service a country several times. The largesse imposes disproportionately large cost toward the country (Sodhi, 2008). Many of the staff has under qualification and overall high absenteeism. Author further argues that the size of the government must reflect the size of the country and its available resources. Hence, mismanagement result to external public debt level and contribute toward huge fiscal burden and high inflation that makes S.I incapable to support continuous development or faster improvement.
Another contributing factor stated by (Wood, 2012), is that traditional leadership culture could be the major causes of poor governance of the country. For culture such as, “big man system”, many leaders strengthen their power and popularity by manipulation of their ability and corruption to get elected again in next term with their popularity. With lack of qualification and ability of the leaders, Solomon has experience weak party system, conflicts disagreement among members and often devoid of political merit.
Minister of Finance of S.I stated main challenges is developing private sector and new ministers need to understand “reform realism” and supports 2007 Act and RAMSI and other aid donors (Solomon Island Government, 2013). The role of aid is clearly essential in S.I for example in 2000 grants was accounted for less than 10% of total revenues and drastic increase to 30% by 2004 even with the increased tax. S.I is still very dependent on Aid because of previous tension and unstable political order. Many authors such as assistance mission etc. says S.I public service needs immediate repair and effective reform. The RAMASI director stated that in order to initiate reform some basic service needs help. Telecommunication has relatively successfully being in placed other sector still need development (Anon., 2009).
Few of recent changes by state is that they implementing new Companies Act 2009, designing new resource tax framework, establishing a tourism taskforce, commencing reform to local business licenses; and reform on Investment Policy, Law and Promotion. Further reform for sustainable budget by new secured Transaction registry and fully implementing the policy of reducing exemptions on tax and duty, committing 10 per cent of revenue to debt servicing controlled borrowing policy for losses of State-owned enterprises (Anon., 2009) .
In addition, some of the major reform progress in Solomon in circulation of SOE regulations to support 2007 SOE Act are (i) Privatization of Home Finance Ltd and Sasape Marina, (ii) SOE legislation mostly based on New Zealand Model and (iii) restructuring of the boards of three large SOEs (Asian Development Bank, 2011).
In many PIC lack of Private sector could be the issue with poor investment climate for it. In S.I however, there have been increasing private sector as it seem to conceive more profit and efficiency than the SOEs hence many SOEs contract out public sector service jobs such as construction for cost minimization. SOEs in S.I often do not provide essential or sufficient quality public service at times. Also, while SOE compete with private sector, there are many unfair advantages due to their preferred access to markets and discounted capital. SOE management seems as been driven more by the political parties rather than commercial imperatives.
Moreover, SOEs also place upward pressure on tax rates; low returns on SOE investments result in lost revenue for the government and pressure to compensate through higher taxation. Finally, investing in underperforming SOEs has opportunity costs by absorbing funds that could be better spent on such high-yielding social investments as health and education.
In 1990s government went through aggressive restructuring and divestiture program for its 21 SOEs with several sales and some privatization transaction before then tensions in 1999. With the new government in 2000 the efforts to restructure SOE was isolated and program was a fail. The new SOE Act in 2007 took 3 years just to implement the regulation and once again in 2010 at helped in robusting the framework on monitoring that. But there is still need of important provisions to implement. Over the years SOE still fails to provide timely annual reports and statement and minister's focus more on political aspects and their own welfare. However, (Iffland, 2012) says that these regulations are being implemented because of the strong political support of Minister of Finance in 2007.
S.I has the poorest performance SOE in the Pacific. Average return of ROE was -13.9% for 2002 - 2008, accumulated losses of SI$184 million ($24 million) during the same period. A financial restructuring of the SOE portfolio in FY2008 cost the Ministry of Finance an estimated SI$220 million, bringing the total government contribution to at least SI$398 million ($52 million) for FY2002–FY2008. This restructuring is said to have only temporary effects on improvement because of high receivables and poor recovery practices with expensive operating cost. Continued government investment in SOEs does not improve performance unless it is accompanied by operational restructuring measures and robust governance reforms.eg} SIEA and Soltai Fishing.
3.1 Research methodology
This research was collected through multiple sources from raw data, books, survey and internet source.
3.2 Primary Source
Interview: William Paparato (former policy consultant for SIWA) , Agnes Kabui(current SIWA accountant), Anthony something (PHD student, former SINU employee).
Verbal Interview was conducted on general history and changes in (i) SIWA (ii) SINU and (iii) SIEA.
3.3 Secondary Source
Literature Review: Mainly from internet reports, journals and online eBooks particularly relating to the SOE context of this project. The main authors of the reports were:
“Implementing SOE Reform in the Pacific: Challenges, Progress and Lessons Learned” 2012, “National Treasury Updated Municipal Entities Report: June 2010” 2010, “Industrial relation in the South Pacific” 2001, “Borrowing Policy for State owned Enterprise in S.I.” 2013, “Natural history of Rennell Island, British S.I.” 1951, “S.I Annual Program Performance” 2012, “The local government system in S.I”2013, “Five Out of Ten: A Performance Report on the Regional Assistance Mission to the S.I” 2008, “Poor political governance in S.I – is culture the cause?” 2012.
3.4 Limitation:
Some of the limitation was the difficulty to gather much information on S.I Public reform records and detailed information on SIWA organization. The SOEs website in S.I needs much updating and provision of more public reports.
4.1 Case Study: Solomon Island Water Authority (SIWA) I. Background
SIWA was created under S.I Water Act 1992 to provide public water and sewerage service mostly in Honiara and 3 other provincial centres. Initially, SIWA was just a part of Ministry of Commerce and industries (water unit). Later it co-operatize as an entity itself but still under government ownership (Tuhaik, 1992). This cooperating out was to gain efficiency and improvement but it did not made much difference.
Majority of water infrastructure is managed by SIWA but the main water source is on customary land. This is one of the main issues in PIC; ownership of the resource is disputed between state and customary land owners. An agreement for use of land by SIWA was signed in 1990 bus circumstances have changed greatly over the intervening years and review of the agreement need to be done.
SIWA serves estimate population of 100,000 people and 8000 in province. With the average annual growth rate of 3.8%, SIWA is struggling to maintain regular supply to cover whole city. The organization is constructed of Board of Directors to general manager and to line managers of Operation&Tecnical, service, Admin and HR Managers. Finally, reports to Minister for Mines and of Finance. SIWA is under State Owned Enterprises Act 2007 (SOLOMON ISLANDS WATER AUTHORITY, 2012). The organization's Mission is to provide safe water; its mission to provide reliable safe water supply and sewerage services in S.I. Finally, its goal is to improve availability, ensure quality, minimize water pollution, accountable and transparent financial system, information, to operate in standard, facilitate extension of water to provincial urban areas and lastly to meet organization objectives. II. Pre-Reform
SIWA experienced differing fortunes in past years with extensive losses and managerial problems. According to the National Infrastructure Investment Plan, SIWA only serves 9% of the actual population in urban areas with 74% of population get access to clean water while organization experiencing around 50% non-revenue water. S.I being the region’s most inefficient country in ADB report 2002-2998 was no surprise the fact that inadequacies of power and water supply remained high on report of ‘impediments of doing business in Solomon 2011 (Mabbitt, 2013).
SIWA service level and performance have been inadequate for many years. Previous effort to implement reform has failed partly because of (i) lack of support from Board and member, (ii) poor governance and accountability and (iii) lack of political ownership and concern and capacity constraints of the country. Other reasons could be financial mismanagement, lack of leadership to implement reform and high dependency on Government support.
Also, when SIWA became corporatized and an entity, majority of the workers is previous workers from Ministry of Commerce and Industries. Problem being is that most of the old workers are not with proper qualification or capability. It also unfair for the new recruitment because the organization employ internally mostly or from what it’s called “Wontok System” where its culture is to help or give better incentives to their family members or relatives. This limits the specialized skills needed for hydrological assessment and monitoring as well as proper expertise needed for other department.
Instead of development progress in the organization, there was high absenteeism, long lunch hours and overall poor performance. When the state call in the expertise to analyse the problem in 2009 they advise that SIWA needs to start construct striker policy at workplace and government also need to treat it like any other entity. In 2000, there was a loss of SBD 132m but in 2004 made a net profit of 28% of total revenue but again in 2011 loss of SBD 22.9m with 55% non-revenue water, 29% physical losses, 24% unauthorized consumption (Mabbitt, 2013).
Overall, the SOE performance of S.I is the poorest in the region with Rate of Equity of an average return of -13.9% for 2002–2008 and accumulated losses of SI$184m. A financial restructuring of the SOE in 2008 cost the Ministry of Finance an estimated SI$220 million, bringing the total government contribution to at least SI$398 million ($52 million) for 2002-2008.
World Bank launched a project in 2009 to reform SIEA and SIWA in partnership with SIG. New management is in place and conducted strict rules to cut off customers who fail to pay the bill. This activity was complemented by JICA. Although the infrastructure is always slow, it seems slow changes are better than none.
A report provided by the Pacific Water and Wastewater Association (PWWA) shows that the SIWA must undertake significant work terms of its service delivery. Urban sanitation is also a major concern. There is no centralized sewerage system in Honiara and other provincial areas. Data from the 2009 Census shows that most people access water for drinking through communal standpipes (35%) and water tanks (25%). Only nine per cent of the population has access to SIWA metered water. The report also ranks the S.I amongst the lower group of Pacific Island Water Authorities in terms of its performance. Key areas needing greater attention include: data collection and reporting, billing and metering, NRW, sewerage, debt management, water quality, and sewerage connection and treatment. Table 3.20 summarizes its performance against the set Pacific Benchmarks. (Mabbitt, 2013)
III. Changes over the year
Most effort made by the government to support SOEs is mainly in 2009 onwards. SIWA have received considerable technical assistance and investment for stability. It was not so effective in terms of profitability except for year 2004 in short run but they are expected to become so in near future. Attempts to improve the performance over the past have brought mixed result. The new SOE Act passed in 2007 and again 2010 provided robust framework for the monitoring of SOE but still need much provision to implement (Darcy & Russell, 2011).RAMSI provided substantive technical assistance to support the implementation of 2007 SOE Act development. The key features of the Act were Community Service Obligation (CSO).
S.I was relatively successful to introduce innovations in public disclosure of SCI, annual accounts and appointment though codified skill basked selection of director.
There have been several NGOs that are sponsoring projects and development in many SOEs in S.I they also conjoint with government have extended their mission to raise awareness of the physical environment of the water, familiarizing and educating communities. This has significantly contributed to improvement in communication between organization and public. The public understand more on the strains and difficulty of SIWA provide unlimited supply since regular flood and people mishandling water pipes (Hoverman, et al., 2011). Although people may be more aware, carrying out the knowledge or considerate for the water facilities are poor.
Solomon Island’s Draft National Water Policy (NWP) was funded by EU under Solomon Island’s Water Governance Project. This policy addresses water resource management, supply and its sanitation. In 2005 a review of SIWA was conducted by JICA and has informed the urban water action plan for the authority until 2015. SIWA hires majority of S.I water sector but continues to lack skilled in areas of operation, maintenance and customer management. Previously they hired contract technical assistance workers in 2009 with combined effort of RWSS Rural water supply. This resulted with major positive outcome and this illustrates the significance of the role of NGOs in helping to meet demand (Futures, Institute for Sustainable, 2011). Further help from JICA is NRW programmed for 2013-2015 to address the issues of leakage and overflow from storage tanks (3.9%) leakage on service line (12.4%), unauthorized consumption (16.7%) etc. in Honiara and Auki (Mabbitt, 2013).
There is a draft national water policy and a draft water bill waiting for submission to parliament for approval and gazetting. Other relevant legislations which govern this sector include: * Environmental Act 1996 * Rivers Waters Act 1967 * Environmental Health Act 1996 * Public health ordinance 1970 * Forest Act 1998 * Draft Water Resources act
.Further attempt by government was to replace SIWA Board in 2010 and in 2011, General Manager and interim Financial and Admin Manager were appointed to support PIAC. It received financial assistance from PRIF as for short term Recovery Action Plan and from other donors. The two interim managers made Recovery strategy and Action plan as guidance for urgent reforms to SIWA. Its main targets are to improve availability of water supply, quality, control and monitoring, customer care and organization's effectiveness. In 2009 state over view the performance and issues in the organization and changed some management of it. Conjunction with JICA, ADB and World bank, government tried to improve the operation of SIWA by making some change in management such as appointing new foreign finance and general manager, downsize employment, increase salary, adopt new overseas staff regulation and policy and recruit new members with proper qualifications. SIG also made generous effort to support SIWA through CSO program and settlement of its electrical debt (SIEA). This action supposed to helped SIWA to focus on current service and plans for future (Hoverman, 2011).
Moreover, the Regional Action Plan on Sustainable Water Management (RAP) plan was endorsed by SIWA Board in May 2011 as a solution to improve water arrangement. Another AusAid grant for the cost of implementation of Solomon Water Development Plan 2013-2015 called two year plan (TYP) was received. It was also noted that within TYP there will be allocation for five-year-plan from 2015-2020.
Despite the little incline, SIWA need much continuous development. However, with the support of AusAID, SIWA management has been strengthened by the appointment of professionals of senior position. Also, political support for water charges has improved along with cabinet agreed to major tariff reform in 2012. This adjustment of 66% has improved SIWA's financial position. An automatic fuel adjustment has been granted, and a five-year tax exemption has also been awarded to the SIWA by the government. However, SIWA should not focus on continuous tariff but on alternative means to improve efficiency in service and extending its operation to new customers (Mabbitt, 2013).
With the continuous struggle SIWA face of failure to improve much performance, the government implements several strategy frameworks and got overseas help the National, regional and global development frameworks. (i) Medium Term Development Strategy (MTDS) from 2008-2012 (See Appendix 1 for the goals).
This was for MCILI specifically to give more opportunities for citizens are more involved in activities and their skill workforce through budget support for SICHE for apprenticeship training.
(ii) 8 MDGs in 2000 from world's main development challenges to be achieved by 2015. (See Appendix 1) (iii) Pacific Plan
Pacific Plan of 13 strategic objectives was also endorsed by Pacific Islands Forum meeting in 2005. (iv) UNDAF cycle 2008-2012 (v) DWCP which undertaken by UN Country Teams of Samoa and Fiji.
Several SOEs continue to incur arrears, depended on government yet provide poor services and making debt instead of generating profit. The bulk of identified contingent liabilities relate to SIEA and SIWA. The SOE authorities agreed that it should operate more on commercial basis, update accounts, introduce new bill to improve governance, increase private participation whilst emphasize their social benefits. Another strategy is that SOEs should not borrow until their finances have stabilizes and support more transparent and conditional on performance improvements. For structural reform in SIWA authorities agreed with the need to improve it but timeframe for the management contacts remains unclear.
Authorities also pointed to improvements in the business environment with the new Investment Act and streamlined work and residency permits procedures, and also noted their plans to eliminate provincial business licenses and modernize the Companies’ Act. They added that land tenure problems cut across all sectors, but reform will take time. The implementation of SIEA and SIWA management contracts has provided a convincing signal of authority's commitment. Also, powerfully pursuing SOE reform and strengthening the NPF are crucial to minimize future contingent liabilities to the budget and strengthen governance. Passage of the NPF bill is required to enhance governance which is the key to raise profitability.
5.1 Solomon Islands Electrical Authority (SIEA)
I. Background
SIEA is an autonomous SOE under the Electricity Act of 1969 which responsible for overall distribution of electrical energy in S.I. and it is 100% state-owed. It is accountable to Minister for Mines and Energy who have the authority to appoint Directors and reports to Ministers. Though the new 2007 SOE Act, SIEA also accountable to the Minister of Finance and Treasury. SIEA has recently started cooperation with some independent Power Producers which was a part of new policy to encourage public-private partnership in electrical energy. It have been preparing for 15-Megawatts(MW) peak capacity hydropower plant but it is highly likely that S.I will not have single integrated electricity grid network because of multiple small islands and its distances in-between. There is little access to modern energy sources and the nation is listed as a Least Developed Country (LDC) under the UN system (Sustainable Energy Regulation Network, 2012).
Like SIWA, SIEA has been corporatized and became an entity intention to make profit. Nevertheless, there was long history of insufficient resource, underskilled employees, poor management and underinvestment. Looses are average of 25% in 2009. Financial management of SIEA also been poor and collection efficiency was estimated in 2010 at 67% partly because of the backlog in payments from the government company.
Like any other SOEs face, free rider on power thefts is also a major problem. In addition, funds for investment in new facilities of SIEA are in short as the technical expertise to service the facilities effectively. Similar to SIWA, government gave tariff advantage to SIEA and review undertaken in 2008 where the national tariff was well structured and fuel component. But fuel component is revised not frequently and the overall tariff is inadequate to fund future capital expenditure. Prepayment meters have introduced to Honiara and over 4,000 units were installed by the end of 2009 and 15.6% of Solomon Islanders has access to electricity which is an increase from 12.7% in 2007 (Lynch, 2013).
II. Pre-reform
Before 2003, like any entity in S.I during the period of tension, the power generating capacity in the city (Honiara) gradually declined. SIEA was also one of the entities that that encounter many difficulty of lack of fund to perform at its best ability with constant debt and low performance. It had relatively very high cost of electricity mainly because of high dependency on imported fuel. There was a poor distribution of power and reliability from SIEA was bad and blackout was common throughout the whole country. Only 12% of the country’s population had access the grid where for rural areas was less than 22%. Long overdue maintenance needs on distribution caused outages up to 72 hours per week in average. Regular low-power supply and interruptions often damaged consumer's electrical equipment. SIEA's financial losses increase from SI$12m in 2005 and around SI$45m in 2007 equivalent to around 30% of total operating revenue. However, the situation has improved since the inception of foreign aid support of World Bank, AusAid project of “Solomon Islands Sustainable Energy Project-SISEP” to re-structure the utility. There has been some slow improvement in initial stage of the project and SIEA were able to improve its cash flow towards the end of 2011 having to recover from overwhelmed situation in previous years (Sustainable Energy Regulation Network, 2012).
Some of the regulatory barriers of SIEA is private sector involvement in sustainable energy is not completely institutionalized yet although there are some signs that SIEA is moving toward more public-private arrangement there is still need of structural changes in the institutions. The successful implementation of independent regulatory body for energy would create more favorable environment for sustainable energy development. (Sustainable Energy Regulation Network, 2012)
Since 2009 with new installation of prepaid meters, revenue collection has started to improve and billing and metering cost have been reduced. However, SIEA’s financial position is still risky and significant trade receivables from other government entities, notably the Solomon Islands Water Authority (SIWA), remain unpaid. A major assistance from SIG was through CSO program to settle its debt to SIEA. Afterwards, SIEA and SIWA agreed upon a mechanism for reducing SIWA’s debts to SIEA in May 2012. The payment of SIEA is improving however there is still owed SI$20m by the state and SI$18m by the SIWA. During the earlier days SIEA was unable to service its debt fully ( Holden & Holden, 2005).
SIEA came up with a project called S.I sustainable energy project to study and attempt to minimize the cost of service and tariffs. The tariffs that are related to this project are to be determined under diesel, network capacity expansion plan and mix diesel and renewable generation. And the new tariffs would provide sufficient revenue for SIEA to further improve its service at lower cost. However, it was not very successful and failed to achieve much of the projects objectives (Nicholls, 2013).
Moreover, the energy sector of S.I characterized by lack of private sector interest because of its inadequacy linked with the capacity of SIEA as a potential power purchaser and the poor regulatory environment for grid-connected renewable energy. Retail tariffs are quiet well regulated however for wholesalers of electricity there is no provision for feed-in tariffs to encourage investment by independent power producers and no special network access right for renewable energy also with any provision for net metering for household-scale system.
III. Post-reform
A National Development Strategy, 2011–2020, prepared by the Ministry of Development Planning and Aid Coordination, highlights the long-term nature of developing renewable energy resources to provide access to affordable electricity in rural areas. It identifies the need to (i) prepare a master plan to guide investments in the sector, (ii) modify power sector regulations to allow for private sector generation and sale of power to SIEA, (iii) install meters in all government and commercial premises, and (iv) provide public support to increase utilization of a range of renewable energy resources (Iffland, 2012).
In earlier days government implemented two hydro schemes in 1986 and 1996 respectively with the fund from New Zealand in the remote islands. This helped to supply power to health center, small stores and several residential houses. However it closed down due to local land dispute. Land ownership and handing over is quiet common issue encountered while doing business in S.I. Proper handover and agreement needs to be done however it can get complicated if its customary land owned with no proper document or when it’s owned by several people.
In 2005, Japanese government installed of 4.2 MW diesel generators in one of the underdeveloped compound in Honiara, Lunga. This helped in improvement in reliability of electricity service in that district. Around that same period, Japanese government also funded about 20 SIEA staff to train in project management and sustainable assets maintenance practices for development of the staff ( Holden & Holden, 2005).
From year 2002-2009 the government provided new funds for underperforming SOEs in set it minimum stability of the organizations. SIG support those SOEs through cash transfer, debt forgiveness and asset donations which all come to around $52m. For instance, the government repaid debts owed to Maruha Seafood Company and NPF. Solomon Airlines and SIEA have been forgiven loans from government.
However this also became a struggle for government since the government itself had high debt levels which overall was not inspected or monitored and eventually became unsustainable balance. Especially, after the period of tension in late 1990s, government deteriorated and unable to pay complete debt repayments till now. Adding on to the burden SOEs debt contributed to the overall untenable debt position of the Government. By 2005, SIG faced with debt overdue and unaffordable external debts and so SIG signed ‘Honiara Club Agreement’ (HCA) to try and regularize its debts and seek relief. The HCA placed a moratorium on all new borrowing and guarantees of both government and SOEs. There have been 2 exceptions and HCA has been upheld in 2007 and 2010. Nevertheless, it provided strong framework for guiding managing debt (Solomon Island Government, 2013). Also, the restructuring of the urban power allowed independent Power Producers and encourage competition in the power services.
Further support by ADB in 2009 was by development of smaller-scale renewable energy technologies in small islands. Through TA, ADB is supporting SIEA stuff members in trialing the generation of power using and carrying out screening and early stage preparatory work.
Other development partners such as World Bank have been funding aid to S.I sustainable energy project for improving operational efficiency, financial sustainability etc. also with new appointment of line managers. To help SIEA’s financial status, Pacific Infrastructure Advisory Center helped in improving SIEA’s largest customer, SIWA. It supported the operation of an overarching energy master plan begun in 2011. In addition, World Bank is supporting the 14MW Tina River Hydropower Project. (ADB, 2004)
The state reviews the electricity market structure and regulation of SIEA to establish the need for feasibility of deregulation. This was to allow entry of private generators and retail suppliers. This critically helped the entity especially in cases of projects outside the city, Honiara.
Further implementations by the state was by establishing independent regulator to monitor and uphold service standards of SIEA, undertake national assessment of renewable energy and prepared energy sub-sector plan based on the National Energy Framework 2007. This outlines the 12 strategic areas that include Energy Sector Planning, coordination management, Electricity Sector both rural and urban, Environment, Environment Conservation and Efficiency, Capacity Building and Information, Legislation and Regulations, Financing and Gender. SIEA Act 1969 sets out operational rules for the Authority and SIEA Business Plan 2012 - objectives and targets.
The results of all the investment and effort to build alternative cheaper power slowly became visible through ongoing success of SIEA financial performance. The losses of SI$70m in 2010 were reversed with World Bank assistance and enterprise showed a SI$53m profit by 2012. Further expected reduced price for energy is expected in the future from hydroelectric dam in Tina River.
While corruption in most of SOEs is a serious obstacle to advancing public service, an effort made by government on anti-corruption task need to be revitalized. RAMSI's pressure in this regard with SIG is not very effective. 'Wontok system' which has some positive result from aid programs by Australian Government.
In 2012 annual report government implement actions to improve the SOEs performance by Lineman's training courses has been commence for the first time over 10years with fully equipments, refurbished of SIEA headquarters, purchase of new Integrated Business Management System, new workshop sites, and implementation of awareness training.
Further key reform that have been implemented by government is, Foreign Investment Act, comprehensive rural development program, tax reform that decrease of 10% tariff tax, World Bank funded rural energy project to supply hydroelectric power in Honiara, secured transaction framework passed in 2008, revised on land recording and registration, a bill on SOE ensuring accountability and autonomy, review of company and trust legislations and insolvency Act, deregulation on SIWA and SIEA industry (Wickham, 2014).
6.1 Recommendation
From the case study of SIWA and SIEA there is much similar history of difficulties and problems. Both entities are reliable towards the government and also to each other's service. Incomplete Corporatization of SOEs depresses the financial performance and brings up complications later. Some of the main problem it had mention are: poor financial and overall management of the entity, dispute between state and customary land owners, lack of support from Board and members, poor governance and accountability hence still existing corruption, lack of political ownership and concern capacity constraints of the county, lack of leadership to implement reform of major SOEs and high dependency on government and foreign aid support. Within the entities, "Wontok system" still exists with concerns some of current un-qualified workers. With growing population of S.I both in rural and urban, the capacity to provide service efficiently with a low cost is a continuous struggle.
With respect to past history of debt of SIWA and SIEA, their low level of profitability and poor financial record of balance sheets would argue for cautious approach on lending and borrowing. (Solomon Island Government, 2013). Hence, state needs to adopt sticker policy on maintenance and monitoring system of the SOEs performance and have more widespread provision of financial service including aids. Reforming the financial marker is also need to take action by reform the collateral framework to increase lending capacity, eliminate interest rate ceilings on Credit Union loans and provide for microfinance via marker mechanisms.
State needs to ensure donor coordination and continued aid until the nation is able to function by its own revenue and investments. Also, government need to follow up to ensure that ADB remains engaged in SOE reform in Solomon Islands, consistent with its Country Partnership Strategy and continuous provision to CSO work, and more generally SOE reform, under Private Sector Development Initiative (PSDI).
Furthermore, issues with land ownership have long presented in both entities and been huge obstacle to development and contributed to environmental damage and exploitation of local district hence Improvement of land tenure and clear ownership agreement ACT by the government court.
Encouraging competition is another important powerful driver for improvement of SOE cost of service and performance. Hence there is an essential need of promoting private sectors and public-private partnership of similar service with consideration of government support on it by providing opportunities. However this needs to be upon the right balance between public and private sector roles with basic community service obligation framework under the SOE Act of 2007. In addition, there should be more private contract bases to reduce cost and achieve increased efficiency for both SIEA and SIWA. A successful SOE reform would explores all available restructuring mechanisms but not restricted to privatization.
Lastly but not the least, changing the mindset of the people will be serious contribution on achieving meaningful SOE reform hence department of Treasury and IPBC have stressed the increased commercialization of the SOEs as a key goal. This calls for update and more developed CSO program for the SOEs of S.I.
Bibliography
Anon., 20012. TERMS OF REFERENCE:FINANCIAL AND ADMINISTRATIVE MANAGER (FAM), Sydney: S.I WATER AUTHORITY.
Anon., 2009. Medium Term Fiscal Stratefy:2009-2014, Honiara: Solomon Island Government.
Anon., 2012. S.I Annual Program Performance, Sydney: AusAid.
Anon., 2013. Borrowing Policy for State owned Enterises in S.I., Honiara: Ministry of Finance and Threasury.
Australian Development, 2013. Overview of Australia's aid program to S.I, Barton: Australian Development.
Barnabas Anga, Michael E. Hemmer,Peter Tam ,Alfred Legua, 2009. Decent work country programme S.I, s.l.: International Labour Organization.
Commonwealth Local Government Forum , 2013. The local government system in S.I, London: s.n.
Hoverman, S. H. R. T. C. a. B. P., 2011. Social Learning through Participatory Integrated Catchment Risk Assessment in S.I, s.l.: Resilience Alliance..
Iffland, D. A., 2012. Implementing SOE Reform in the Pacific: Challenges, Progress and Lessons Learned, s.l.: Asian Development Bank.
Mabbitt, R., 2013. S.I NATIONAL INFRASTRUCTURE INVESTMENT PLAN, Honiara: Ministry of Development Planning and Aid Coordination.
Prasad, S., 2001. Industrial relation in the Souch Pacific. Suva: Department of Sociology.
Rennellekspedition, D., 1951. Natural history of Rennell Island, British S.I.. Copenhagen: Danish Science Press.
Sodhi, G., 2008. Five Out of Ten: A Performance Report on the Regional Assistance Mission to the S.I, St Leonards: Centre for Independent Studies.
Solomon Island Government, 2013. Borrowing Policy for State owned Enterises in S.I, Honiara: Ministry of Finance and Threasury .
Treasury, N., 2010. National Treasury Updated Municipal Entities Report: June 2010, s.l.: s.n.
Tuhaik, J., 1992. The S.I Water Authority ACT 1992, Honiara: Government Printer.
Wood, T., 2012. Poor political governance in S.I – is culture the cause?, Auckland: devpolicy blog .
