Federated States of Micronesia

Expression of Interest to Participate in SREP

I. COUNTRY AND GOVERNMENT AGENCY SUBMITTING EXPRESSION OF INTEREST 1. Federated States of Micronesia- Department of Resources and Development

II. DESCRIPTION OF THE COUNTRY AND ENERGY SECTOR CONTEXT 2. The Federated States of Micronesia (FSM) include 607 islands (74 of which are inhabited) and

have a population of 102,8431 inhabitants. FSM is a voluntary federation of four semi-autonomous

states (Chuuk, Kosrae, Pohnpei, and Yap), each with its own executive and legislative bodies, and

considerable autonomy to manage its domestic affairs. Each State has its own development strategy,

while the national government provides an integrated perspective and vision, which is described in the

FSM National Development Plan.

3. Economic growth is constrained by the small size of the FSM economy (GDP is US$326 million),

remoteness to markets (over 3,700 kilometers from the nearest major market of Japan), and limited

transportation links. The country is heavily reliant on external assistance, with on budget grant income

estimated to account for 43 percent of GDP. FSM has few resources, and exports are heavily

concentrated on fish. Its import dependency exposes the country to global economic shocks and price

spikes. All petroleum products and a very high proportion of food are imported. FSM is particularly

vulnerable to accelerated sea-level rise and is prone to natural hazards.

4. Like other Pacific Islands Countries (PICs) petroleum fuels are largely used for electricity

generation and transportation. Fuel in transportation is mostly used for marine services as vehicle

transportation is modest given FSM’s small land mass. At present, electricity generation in the four

states is almost completely based on fossil fuels. This contributes to the high average residential

expenditure on energy per year as percentage of household income. In 2005, it amounted to 19 percent

of household income, higher than both the average of 18.4 percent and median of 17.6 percent when

compared with 12 other PICs with available data.2 Within FSM, this figure ranged from 17 percent

(Kosrae) to 21 percent (Yap).

5. About 55 percent of all households in FSM have some form of electrification, although those

rates vary widely between states with Kosrae having a 98 percent electrification rate and Chuuk only 26

percent, as seen in the Table below. Electricity use in FSM is divided as follows: residential (39 percent),

1 2010 FSM Census, Office of Statistics, Budget & Economic Management & Compact Management (SBOC), FSM

National Government 2 Source: National Minimum Development Indicators, Secretariat of the Pacific Community (SPC)

http://www.spc.int/nmdi/MdiSummary2.aspx?minorGroup=29, and the 2005 FSM Household Income and Expenditure Survey.

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commercial and industrial (22 percent), government (17 percent), utilities (10 percent) and system

losses (12 percent). The largest amount of electricity is used for air conditioning (especially in the

government sector) and lighting.

6. Energy demand in rural areas generally reflects basic needs such as lighting (often with

kerosene, oil lamps, flashlights) and cooking (wood or other biomass − coconut-husk − and some

kerosene although its consumption has dropped due to cost increases). Problems typically associated

with a lack of electricity access are also present in FSM such as health problems caused by indoor air

pollution, and environmental problems such as deforestation and land degradation. Women and

children are often responsible for most of the household chores including cooking and fuel collection.

This disproportionate domestic work burden puts them at greater health risks due to poor ventilation as

well as increased drudgery, time loss, etc. As a consequence, women’s health and time poverty is

particularly affected by poor access to electricity and to clean, modern fuels for cooking. No specific

statistical study has been conducted on energy use habits and expenditures in rural places in the FSM.

However, based on a survey conducted in 2009, the estimated average is between US$15 to US$35 per

month and per household (in the outer islands around $15 − depending on availability − while in the

rural areas on the main islands the average is $35).3

7. Each of the four island states has a state-owned power utility, which is responsible for

generation, transmission and distribution, with its own tariff structure, and is regulated by Board at the

state level with exception of Pohnpei state. A board appointed by the Governor and confirmed by the

state legislatures governs these utilities. The utility board has the power to approve and adjust tariffs as

proposed by the utility’s management upon the presentation of a tariff review proposal. Currently,

tariffs cover basic operating and maintenance costs at different levels in each state, and some include a

fuel price pass-through. None of the utilities is able to generate enough revenue to support large-scale

infrastructure rehabilitation or new investments in conventional or renewable energy.

8. The Table below presents a summary by state of electrification rates, the electricity mix, cost,

installed capacity and number of customers:

Summary of electricity sector by State

State Population

%

Estimated Electrification

Rate %

Utility Customers

Installed capacity (kW)

Available capacity

(kW)

Peak Load (kW)

Average residential

tariff (c/kWh)

Chuuk 47 26 1,544

Diesel: 6,200

5,600 2,500 55 Renewable: 156 (91 standalone +

65 grid connected)

Yap 11 67 2,125 Diesel: 8,100

6,700 2,400 42 (Yap)

1.09 (outer islands)

Renewable: 94.8kW (of which

3Energy Policy, 2010.

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47.4kW are grid connected)

Pohnpei 35 87 6,686

Diesel 10,710

6,500 6,500 55 Renewable: 180 (grid connected)

Kosrae 7 98 1,900

Diesel: 5,400

2,060 1,100 49 Renewable 54.8

(52.3 grid connected + 2.5

standalone)

Source: State Utilities (March 2014)

9. Key sector issues affecting the FSM electricity sector are:

(a) Over-dependence of the electricity sector on imported fuels. Beyond the traditionally steep increase of the price for electricity caused by an over-dependence on fossil fuel, other aspects of socio-economic progress also become problematic, particularly in regard to the overall increase in the Consumer Price Index. All goods and services become more expensive. Therefore, even people who are not connected to the electricity grid will suffer from the price increase of fuel. This hampers development and fosters inequality as it disproportionally harms the poorer segments of the society. As a result, the development of renewable energy and energy efficiency are key elements in preventing this scenario.

(b) Outdated power infrastructure assets and lack of maintenance. Power generation assets are outdated and lack proper maintenance. Distribution systems need upgrading in most cases to prevent electrical fault. In the case of the Pohnpei Utilities Corporation (PUC), there is also insufficient generation capacity to cover peak demand and unscheduled generator shutdowns.

(c) Tariffs do not reflect full costs. Tariffs are relatively high in all states compared to international standards; however, they do not allow the state utilities to either fully recover their operating and maintenance costs, and/or to finance new investments in power infrastructure.

(d) Financing constraints for renewable energy investments. The four utilities are currently expanding renewable energy generation capacity solely through external assistance from development partners. Despite the NEP recognizing private sector participation as an important driver for financing renewable energy development, none of the four states has yet been able to attract private sector investment to develop renewable generation at a reasonable cost.

(e) Weak managerial and technical capacity. State utilities do not have professional engineers and lack

a sufficiently experienced and a trained workforce to manage utility operation and maintenance and to plan new investment requirements. Managerial capacity is also a concern in some utilities and needs to be improved. These two weaknesses combined have resulted in the “build-wear out-replace” paradigm where the generation infrastructure is inadequately maintained and has to be replaced before the end of its normal operating time.

(f) Lack of robust energy sector development plans. At present, the energy sector in the four states and

at the national level lacks a robust technical, economic, financial, environmentally sustainable and socially acceptable development plan. The utilities lack solid technical studies to provide a detailed

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overview of the states´ infrastructure needs to cope with the projected demand based on population access, suppressed demand and policy targets, analysis of investment alternatives, a criteria for prioritizing investments in the sector, etc.

III. RATIONALE FOR SELECTED SECTORS FOR SREP FINANCING 10. The World Bank is preparing a US$13.90 million Energy Sector Development Project for the FSM

that is expected to be approved by the Board on May 29, 2014. The project development objectives are

to improve the efficiency and reliability of electricity supply at the four state power utilities; and the

planning and technical capacities of the state power utilities and the national Government. One of the

components of the project will support the preparation of energy sector master plans for the four FSM

states and the development of a National Energy Sector Master Plan. These plans would follow a ‘whole-

of-sector’ approach for assessing energy needs taking into account social assessment findings and

safeguards issues. They would also confirm the power infrastructure investments needed in the first five

years and as a second phase, develop feasibility studies and environmental and social impact

assessments of the top priority projects. Feasibility and other project specific studies to be undertaken

will be selected based on criteria that will include technical, financial, social and environmental impacts,

as well as their contribution to NEP’s goal of increasing the share of renewable energy in the nation’s

overall energy supply.

11. SREP financing is sought to finance those renewable energy projects identified and prepared

under the Energy Sector Development Project. Some preliminary studies have identified potential

renewable energy sources for the four States. Those potentials include:

Solar. High solar insolation throughout the FSM creates a rich resource of solar energy although the available energy varies from place to place because of local cloud formation. This is especially the case on the islands with mountains, such as the main islands of Pohnpei and Kosrae and the Lagoon Islands of Chuuk. Yap’s proximity to the equator also gives it good potential for solar energy. Like other Pacific Island countries, solar energy provides a particularly good source of energy for outer islands that are further away from the state centers and often have low population sizes. Stand-alone systems can provide a solution for the energy needs in these places. There remain many opportunities both to expand the use of off- grid installations on the outer islands and for grid-connected systems on the main islands where electricity networks are available.

Hydro. The hydro sites on Kosrae have limited potential and are unlikely to be cost effective for development. However further study of Kosrae may indicate pico-hydro installations can in fact act as stand- alone systems and power some houses located close to the rivers. Yap and Chuuk have no hydro sites. On Pohnpei there is a hydro power installation on the Nanpil River. There have been surveys that indicate other developable sites in Pohnpei are present. Those surveys should be reviewed in light of the fact of higher current fuel prices and to verify the existence of sites for which it is economically reasonable to be seriously considered for potential hydro development.

Wind. The resource for wind energy is not very well known in the FSM. Due to the mountainous nature of some of the islands, there may be locally beneficial conditions for wind energy. The main

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recommendation that came out of earlier studies on potential renewable energy use is to carry out a feasibility study on the use of wind energy throughout the FSM. Wind analysis and monitoring systems have been installed in Yap (under a TA from ADB) and in Chuuk (under the North REP project) and are currently gathering wind data for a period of one year. After broadly defining locations where wind energy could potentially be implemented, detailed wind assessments and wind maps should be created to more precisely identify the main wind energy sites.

Biofuels. A very interesting source of biofuel is coconut oil. The outer islands have a large and underutilized resource that could be further developed. The country has the opportunity to develop coconut production on outer islands and thereby increase their income. Coconut oil could be shipped to the state centers where large diesel fuel users, especially the utility companies and certain businesses that might have back-up generators, could add coconut oil to create a fuel mix and reduce their use of diesel fuel. This would boost the coconut oil industry and prepare it for production on a larger scale when diesel prices increase further. Revenues to rural communities and reduction in costs to the private sector in the centers would certainly benefit the macroeconomic fabric of the nation.

Biomass. Biomass remains the largest source of energy for cooking. For the mountainous islands of the state centers of Pohnpei, Kosrae and Chuuk, and some of the outer islands, biomass in the form of wood is sufficiently available without danger of deforestation. Also in low- lying atolls biomass is used for cooking but in different forms, such as coconut shells, fronts and husks, mangrove wood or plants. As in other Pacific Island countries, commercial use of biomass for electricity production by means of combustion or gasification is limited to facilities that process agricultural or forest products. There are no industries in the FSM that processes such products as agricultural processing tends to be done in small scale, often family-owned, decentralized facilities. There is currently no industry that produces biomass waste. If biofuel from coconut oil would become a large-scale industry, enough biomass waste could be generated to justify commercial biomass combustion or gasification to produce heat or electricity.

Biogas. There are some animal farms in the FSM that produce enough waste to generate economically viable biogas. Some small pilot biogas installations were installed in Pohnpei, with the assistance of the Chinese government in 2008, and these are being monitored by the Pohnpei State government. There is also an independent biogas producer on the main island of Pohnpei that tries to create a closed, environmentally sustainable cycle in its household energy use. Animal waste produced by a pig serves as input for the biogas digestion tank, which provides gas for daily cooking. There has been some interest noted by the Kosrae State Government to replicate such low-scale household digester systems as well. Currently no facilities for sewer or landfill treatment are used to generate biogas.

Ocean Energy. Although the country is surrounded by ocean, there is at the moment no sufficiently mature ocean energy technology that can be used in the FSM. Available resources for tidal energy are present in the FSM. The tidal range is not very large, but through certain reef passages and some man-made causeway and bridge infrastructures, high speeds and high volumes of water flows are observed locally.

12. Constraints to Renewable Energy Development. The Government of FSM, as stated in its

National Energy Policy (NEP) adopted in 2012, aims to reach a 30 percent share of renewable energy by

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2020. However, the country faces a number of major constraints to overcome in order to achieve this

goal:

Institutional: Coordination among different agencies concerned with renewable energy development; weak planning processes; incomplete framework for public-private partnerships, in particular for utility scale IPPs.

Economic and financial: Lack of domestic financial institutions; high up-front cost of renewable energy technology; inadequate financial incentives to attract the private sector; weak canalization of finance from international sources for larger scale RE development.

Technical: Limited capacity of human resources in the sector. Limited studies and impact assessments on RE for electricity generation do not yet create adequate conditions for a robust, standardized and programmatic approach to RE.

Social: Inadequate provision of information and awareness of consumers on renewable energy opportunities and challenges. Poverty of FSM rural households leads to difficult affordability, access and use of modern RE without subsidy schemes.

13. SREP financing could address and or mitigate some of the constraints faced by the country in

developing its renewable energy potential. Removing these barriers, supported by SREP, will help the

country to enhance it´s energy security, improve access to electricity, and reduce supply cost.

Substantial economic, social, and environmental co-benefits will result from the development of

renewable energies.

IV. ENABLING POLICY AND REGULATORY ENVIRONMENT 14. At the national level, the Strategic Development Plan (SDP) for FSM provides a road map for the

social and economic development of the country over 20 years (2004-2023). Energy is an integral

component of the SDP. A National Energy Policy (NEP) was adopted in 2012 and was developed based

on four primary components: Policy and Planning, Conventional Energy (fossil fuel), Energy Efficiency &

Conservation, and Renewable Energy. The NEP aims to increase the share of renewable energy, to reach

30 percent of energy supply by 2020. Each of the four states has prepared its own action plan for

meeting the goals of NEP. As part of the “Green Micronesia Initiative”, FSM aims to increase energy

efficiency and energy conservation by 50% also by 2020.

15. A National Energy Workgroup (NEW) has been established to oversee and coordinate activities

in the energy sector, especially the implementation of NEP. NEW comprises members from key

Departments in the National Government,4 and interacts closely with the national government, the

4 Energy Division, Department of Resources & Development; OEEM; SBOC (ODA); Department of Transportation,

Communication and Infrastructure, a State Representative coming out of each State Energy Workgroup, a Representative from the Association of Micronesian Utilities (AMU), a Representative from the College of Micronesia (COM-FSM) and the Government Energy Advisor(s).

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Regional Energy Committee (REC),5 and the Association of Micronesian Utilities (AMU).6 NEW also

interacts with the four State Energy Workgroups (SEW).7 SEW are responsible for: (i) overseeing and

coordinating all state efforts in the energy sector; (ii) the implementation of State Energy Action Plans

that are in line with the NEP; (iii) advising the state government on energy issues; and (iv) assisting in

developing and designing specific and technically-sound Energy Efficiency and Renewable Energy

projects for development partner consideration, funding, and implementation.

16. Each of the four states have its own Government that creates its own legislation and regulations

including the energy sector, as follows:

Chuuk State: 17. Chuuk Public Utility Corporation (CPUC). CPUC is a public state enterprise owned by the Chuuk

State Government. It is responsible for the operation and maintenance of the water, electric and

sewerage systems of Chuuk State. The governance of CPUC is vested in the powers of a five-member

Board. Board members are appointed by the Governor with the advice and consent of the Chuuk

Senate. The Board comprises one member from each of the five senatorial districts. The term of each

member is three years. The Board selects the Chief Executive Officer (CEO) with the advice and consent

of the Senate.

18. Financial performance of CPUC. The fiscal outlook for CPUC is improving. Operating losses are

decreasing gradually due an increase in operational efficiency relating to generation and distribution

(reduction of generation losses by two percent and fuel efficiency improvement of five percent in

FY2012). Further improved fuel efficiency by 10-20 percent, reduction in transformation losses by seven

percent, and improved distribution efficiency of around four percent are due to be completed by

FY2015. These efforts are likely to involve significant capital investment and the funding mechanism

would need to be considered carefully given that CPUC already holds significant levels of outstanding

long-term debt to banks and national government institutions. CPUC is however planning for power

service expansion within the Chuuk State with the goal of connecting more customers to the grid in

FY2014. The forecast increase in revenues, coupled with anticipated efficiency gains arising from capital

investment in equipment, could potentially see CPUC reaching break-even point by 2015, even after

additional interest and depreciation charges. The uncertainty is whether this would sufficiently improve

CPUC’s overall financial position and cash-flows to allow it to service its existing and future long-term

liabilities.

19. Tariffs. The standard electricity tariff set by CPUC’s Board is a flat rate tariff (US$0.50 for

residential consumers plus a fuel surcharge adopted in January 2004 resulting in a residential tariff of 5REC is the body under the Micronesian Chief Executives Council (MCEC) consisting of energy sector

representatives from Micronesia 6Besides members from the FSM, this body includes members from the Republic of the Marshalls Islands, Palau,

Guam and the Commonwealth of the Northern Mariana Islands 7 SEWs comprise three or four people: one from the state government, one from the utility, the state energy

officer (this position only exists in Pohnpei) or an energy expert, and one from private sector or NGO.

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US$0.55). In the last tariff review in FY2011, a fuel indexation charge was put in place. The base tariff

was set based on US$3.8 /gallon of diesel, the fuel index is based on a fuel efficiency of 14 kWh/gallon

and an operating efficiency of 90%; thus, for a US$1 increase in cost of fuel the tariff increases by 7.9 US

Cents. At present diesel price, current tariffs are set at 4.88 cents above baseline tariff.

20. IPPs legislation. There is no explicit legal framework providing for IPPs.

Kosrae 21. Kosrae Utilities Authority (KUA). KUA is a semi-agency of the Kosrae State Government. Under

this authority, KUA assumes the operation and responsibility of providing electricity services to the

Island of Kosrae. The governance of KUA is vested in the powers of a five-member Board. Board

members are appointed by the Governor with the advice and consent of the Kosrae State Legislature.

The term of members is staggered two to four years. The Directors appoint the General Manager.

22. Financial performance of KUA. The fiscal outlook for KUA is mixed. While both operating

revenues and expenses have been increasing steadily, revenues are not covering costs. This has meant

that KUA has been unable to properly maintain or improve upon aging and run-down fixed assets, which

will require significant capital investment if further deterioration, greater inefficiencies and increased

maintenance costs are to be avoided. As expenses will be difficult to reduce without capital investment,

improvements in either revenues or efficiency will be critical to ensure KUA remains viable. Scope for

increased revenue is limited as 98 percent of households are already serviced, and the fixed tariff –

albeit recently adjusted – is insufficient to cover operating costs. KUA has a surplus of unrestricted

assets which, if not used to finance projects to improve efficiency, will be sufficient to absorb continued

operating losses in the short term; however, significant improvements in efficiency will be required if

KUA is to remain viable over the longer term.

23. Tariffs. A study conducted by KEMA determined that the tariff is insufficient to cover the cost of

service. The proposed solution was a one-time increase over US$0.23/kWh on top of the existing tariff.

After public consultation, the Board approved a tariff rate increase of US$0.06/kWh to residential and

commercial customers, and US$0.10/kWh for government and industrial customers. The current tariff

rate came into effect April 2, 2013. Tariff rates are valid for one year and changes every fiscal year. The

current average electrical power tariff is US$0.49/kWh and the average cost of producing each kilowatt

is computed at US$0.61, with a loss of US$0.12 for every kWh sold.

24. IPPs legislation. There is no explicit legal framework providing for IPPs.

Pohnpei 25. Pohnpei Utilities Corporation (PUC). PUC is a public corporation of the Pohnpei State

Government. Under this authority, PUC is the primary provider of electricity, water and sewage utilities.

The governance of PUC is vested in the powers of a seven-member Board. The Board members are

known as Directors who are appointed by the Governor with the advice and consent of the Pohnpei

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State Legislature. Four directors are appointed from the public sector and three from the private sector.

The Directors appoint the General Manager. The General Manager then appoints the Comptroller and

the Legal Counsel for PUC.

26. Financial performance of PUC. While operating revenues for PUC have been steadily increasing,

so have operating expenses largely because of increased fuel cost. Policy changes in the form of raising

base charges and fuel tariffs for electricity customers with the aim of aligning costs to revenues have

resulted in decreasing operating losses year-on-year, but have been insufficient to eliminate the losses.

Notably, the charge rate per kwh following these changes is still less than the cost of fuel per kwh, and

when all other operating expenses are factored in, the gap widens further. Any further tariff

adjustments are unlikely to rectify the situation as electricity customers appear sensitive to rate

changes. The option of boosting revenue via an increased customer base is limited given the high

electrification rate; however, boosting revenue though increased efficiency seems possible. While this

would undoubtedly have a positive impact, much would depend on the funding mechanism of the new

equipment as PUC’s 2012 balance sheet implies a reduced ability to service additional debt.

27. IPPs legislation. Pohnpei is the only state in FSM that explicitly incorporates IPPs into its state

law and with a foreign investment law. In 2012, the Pohnpei Legislature approved an Act to enable the

reform of power generation and distribution in Pohnpei. The Act enables PUC to: (i) outsource the

generation of power; and (ii) to enter into partnerships, joint ventures and other arrangements to

encourage and permit new capital investment in power generation. The Act also allows consumers to

lower their cash power demand through the installation of renewable energy equipment connected to

the grid.

Yap 28. Yap State Public Service Corporation (YSPSC). YSPSC is part of the Yap State Government. It is

responsible for the provision and operation of electrical, water and sewer, refuse collection and disposal

services in the State of Yap. The governance of YSPSC is vested in a seven-member Board appointed by

the Governor with the advice and consent of the Yap State Legislature. At least two of the seven

members are from the private sector, two from the Outer Islands, two from the public sector, one from

the business sector. The Board recruits the General Manager and the Comptroller. The term of each

board member is five years.

29. Financial performance of YSPSC. YSPSC faces serious financial challenges. Operating losses are

rising unsustainably caused by large increases in fuel costs coupled with a fixed fuel tariff, decreased

revenues due to electric power conservation by customers, an increase in past due accounts, and very

high expenditures for overdue routine maintenance. The electricity tariff needs revision to include a

variable fuel cost, and while enabling legislation for such a change has been passed customers appear

sensitive to changes in charge rates meaning further tariff increases could result in a reduced customer

base. Changes are being made to reduce past due accounts, which should increase long-term

sustainability and reduce cash-flow issues.

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30. Tariffs. The current tariff rate structure is differentiated by customers and consumption as well

as by area such as Yap Proper and the electrified neighboring islands. The current tariff rates were

adopted by the Board in February 2012. YSPSC charges variable tariff rates, passing fuel charges to

customers on top of the tariff base. On the main island, residential and commercial customers are

charged depending on monthly energy consumption, while the government is charged a single fixed

tariff rate. For the Outer Islands three separate fixed rates for residential, commercial and government

monthly power consumption are applied. There is a large disparity between the residential tariff for

customers in Yap proper, and customers on the outer islands. The first group pays US$42c/kWh, while

the second US$1.0959/kWh. Tariffs currently do not recover the costs of operating and maintaining the

system. A tariff study completed in February 2012 revealed that some pieces of enabling legislation in

Yap need amendment to accommodate new tariff rates. Two specific amendments were recommended:

to allow the fuel component in the tariff to adjust to the rise and fall of international fuel prices; and to

reduce the disconnection policy from 90 days to 60 days for delinquent accounts to enable YSPSC to

efficiently collect revenue from customers.

31. IPPs legislation. There is no explicit legal framework providing for IPPs.

V. INSTITUTIONAL AND TECHNICAL CAPACITY 32. The FSM has a weak project implementation capacity including safeguards, procurement,

financial management and supervision. The 2012 National Accounts indicated a number of weaknesses

in the internal controls and poor compliance to the controls.

33. On the energy side, the Energy Division at the National Department of Resources and

Development (NDRD) has, at present, very limited capacity to implement projects. However, the WB

Energy Sector Development Project will strengthen the technical and human resources capacity of the

division, as it will serve as the implementing agency for the project. The project will finance five full-time

and part-time specialists (a project implementation support officer, an energy technical specialist, a

financial officer, a procurement advisor and a safeguards advisor) to strengthen the Division’s technical

capacity.

34. The capacity at the state´s level is also limited. The WB project also includes funds to strengthen

the capacity of the state utilities.

VI. PROGRAMS OF MDBS AND DEVELOPMENT PARTNERS 35. There are a number of development partners assisting FSM’s energy sector in addition to the

World Bank Group, including EU, ADB, JICA, UNDP, EIB, Secretariat of the Pacific Community (SPC), and

Pacific Islands Forum Secretariat (PIFS). The ADB is currently providing assistance to strengthen the legal

and regulatory framework of the states to enable private sector participation, as well as various

investment projects in Chuuk, Yap, and Pohnpei. The EU is providing support to the four states for on-

grid and off-grid solar energy. Various other projects (mostly solar energy) are at various stages of

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project preparation. However, development partners are currently not targeting larger scale RE

electrification schemes with a systematic and standardized approach at the national level, that will

however be crucial to provide adequate quality and quantity of electricity to promote productive uses

and job creation for transformative RE impacts in FSM.

36. The table below provides a summary of on-going and planned activities by development

partners:

Activities of other DPs supporting the Energy Sector in FSM

DP Description

Ongoing

ADB

The Strengthening Energy Sector Regulatory Framework TA (US$0.5m) will provide support to improve regulation and investment management to foster renewable energy investments, including assistance for tariff reform and review of regulatory aspects to allow the participation of IPPs.

EU (implemented

by SPC)

Through the Pacific Environment Community (PEC) Fund, FSM will utilize its US $4,000,000 for an approved solar project titled “FSM PEC Fund Project”. The project will be implemented in Chuuk, Yap, Pohnpei and Kosrae with each State to install 150kWp grid connected solar PV systems. The project will be implemented by the Energy Division of the NDRD. Once the financing agreement is signed, implementation will commence.

Planned

WB A US$13.9 IDA grant will be presented to the Board on May 2014 to support immediate efficiency improvements in the state utilities and long-term planning capabilities.

EIB Request submitted by PUC for technical assistance to review hydroelectric potential in Pohnpei. Details of budget and TOR requested.

SIDS DOCK (implemented

by SPREP)

Support to improve energy efficiency including: i) improvement of power plant performance; and ii) preparatory work to establish an energy efficiency fund window at the FSM Development Bank (FSMDB).

ADB

Loan 2099-FSM: Omnibus Infrastructure. Includes component in Chuuk State to (i) finance new power plant, (ii) upgrade distribution, and (iii) utility reform. Co-financed with US Department of Interior. Project design ongoing.

Yap Renewable Energy Project: The Project will support Yap State plans to develop the power system in State of Yap, in order to reduce dependency on imported diesel Chuuk: (i) design, construction, and operation of a replacement power generation station for Weno Island (7 megawatts), with modularized diesel engine generator units;). This will be achieved through expansion of renewable power generation (1.4MW wind and 0.3MW solar) and improving the supply side efficiencies of power delivery (additional diesel generation). Project preparation technical assistance has been completed and ADB management has given approval to proceed to loan negotiations. ADB Board approval expected Q1 2013.Total project costs estimated at $11.2 million. Estimated to convert 22% of power generation to renewable energy.

Pohnpei Power Sector Development Project: The Project will support Pohnpei State's plans to rehabilitate the existing power system including some power generation (diesel) and distribution. The support has included Pohnpei power sector expansion

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planning, assistance with tariff reform and capacity development activities. Project preparation technical assistance is currently being finalized. The tentative project cost is estimated at $15 million and would be implemented over 4 years.