Tracking Economic Changes in the South Pacific
Posted on December 12 2003 |
Exploring the impact of Trans National Companies and International Economic policies
Vanuatu
Henry Vira
Port Vila, Republic of Vanuatu
OVERVIEW
This research focuses mainly on the operations of UNION ELECTRIQUE DU VANUATU LTD (UNELCO) as a Trans National Corporation that exists not only in Vanuatu but also in other parts of the Pacific, such as Tahiti, Wallis and Futuna, and New Caledonia. This research begins by looking at the establishment of UNELCO in Vanuatu and the manner with which it has been able to affect national development, and its effect on the lives of the people of Vanuatu. Particularly, the report looks at how UNELCO has impacted on the Economic, Social, Environmental, and Social aspects of Vanuatu’s development. A brief look at relevant Government policies will follow. As this research focuses mainly on Trans National Corporations (TNC), it is important also to identify and assess the impact of similar global processes that the nation is currently subjected to – this will involve a brief look at Vanuatu’s courtship with the idea of joining the World Trade Organization (WTO), involvement in the European Union – sponsored COTONOU arrangements, and, the interest of the World Bank. The sections that follow concentrates on local initiatives that utilize mainly local ideas, personnel, and local resources – indications are that the Government needs to support more of these initiatives as they benefit locals directly and have potentials of reaching and benefiting more locals than what is currently offered through Government. The concluding part of this report looks at recommendations that the Government may need to address urgently to steer Vanuatu’s development in the right direction.
LOCAL CONTEXT
It is important to present an overview of the current context within which UNELCO operates so that it gives greater appreciation of the issues involved. Although absolute poverty in terms of starvation and destitution is not a problem in Vanuatu, many people have incomes below the international poverty line of US$1 per day. Recent estimates suggest that 40% of all Ni-Vanuatu and 51% of those living in rural areas have incomes below this level. Population has increased at an average rate of 2.7% from 142,400 in 1989 to 186,678 at the 1999 census. Nearly 80% of the population is rural with the remaining 20% living in the urban areas of Port Vila or Luganville. The 2002 UNDP HDR ranks Vanuatu 131 out of 173; 12% of people not expected to survive to age 40; 66% illiteracy; underweight children under 5 (23%); without access to safe water 13%; without access to health services (20%). Life expectancy at birth is 68 years. Infant mortality is 26 per 1000 births. Population with access to safe water (piped) is 44%. (DESD and ADB, 2002)
In 1999, the inflation rate was an increase of 4.1%. The impacting change over the year were attributed t0o increase in transport and communications (6.8%), housing and utilities (7.2%) and drinks and tobacco (8.7%). Relative increases in the overall CPI (Consumer Price Index) in Housing and Utilities were attributed to increases in electricity (5.7%) and housing rents (0.7%). (Reserve Bank of Vanuatu 2000 Annual Report)
METHODOLOGY
Most of the information in this research is gathered through interviews with personnel from within Government departments, members of the public, and secondary sources including information from the “Anderson’s Report” which is outcomes of a review of UNELCO operations in Vanuatu. The sensitivity surrounding this issue requires further research which may involve “investigative journalism”.
Where there is no direct references made, the views and opinions expressed are mainly my own interpretation of discussions carried out, and therefore, not necessarily opinions of those I had discussions with.
UNION ELECTRIQUE DU VANUATU LTD (UNELCO)
UNELCO was established in Vanuatu (former New Hebrides) in the 1930s. The French-based company has been around the Pacific region since the early 1900s, and currently operates in Tahiti, Wallis and Futuna, New Caledonia and Vanuatu. UNELCO currently has a 30 year contract as sole producer and distributor of electricity in Vanuatu, particularly in “Concession Areas” such as Port Vila and Luganville, Vanuatu’s two main urban centers. This monopoly was initially signed in 1939 and renewed in 1986.
UNELCO also has been contracted to provide water in the Port Vila municipality. Vanuatu’s water systems, particularly in Port Vila and Santo were put in place and administered by the Condominium Governments of Britain and France since the 1960s. Following Independence in 1980, the Government of the Republic of Vanuatu took over jurisdiction of providing water throughout Vanuatu. UNELCO was handed responsibility over water services in Port Vila on the 23rd of December, 1993. A contract which was signed by former Minister of Public Utilities and UNELCO is rumored to give the France-based company 40 years to operate the water services in Port Vila, Vanuatu.
The 1990s saw an emerging trend which has seen a number of Government departments and assets, Corporatized and in some cases, Privatized. The main rationale behind this was to cut costs while at the same time, increase product quality and service delivery and efficiency. The following additional reasons were given for privatizing water services:
• Pipes were becoming old and experiencing a lot of leakages: pipes were put in place in the 1960s and need constant repairs and changes. The Government of Vanuatu could not afford to continually spend in excess of US$10 thousand dollars per month on leakages
• Water tests were very expensive as most tests were sent to either Australia or New Zealand
• Government could not meet maintenance costs and could not sustain labour costs
• Collection of rentals and fees was very poor – there was more money spent on maintenance than that collected
It was reported in Islands Business in the February Issue of 1999 that, “Port Vila has the most expensive water supply at an average of US$22 per month. This is in comparison to around $US11 per month for Fiji, $US12 for Honiara and $US14 for Nuku’alofa. According to a 1997 ADB study, UNELCO supplies 98% of Port Vila’s population. The amount of water which is unaccounted for has dropped from 42% to 26% between 1990 and 1996; connections have increased by 45% and most people in the city drink tap water”.
UNELCO has also expressed interest in taking over management of water services in Luganville (on Santo), Lakatoro (On Malekula), and Isangel (on Tanna).
Water supply on the northern town of Luganville on the island of Espiritu Santo, is still under the control of Government. With greater commitment, the Government has seen an increase in efficiency in service delivery and an increase in water revenue collection. Over US$400,000.00 is now collected annually – an annual profit of around US$150,000.
UNELCO continues to run very successful public relations/image campaigns, particularly through sponsoring major social and sporting events.
IMPLICATIONS OF UNELCO PRACTICES ON THE ECONOMY
Under the agreement with Government, UNELCO has enjoyed 100% exemption from fuel import taxes. The electricity costs, however, that are passed on to consumers have and continue to be one of the highest in the region. High electricity costs has had a significant impact on creating an environment where living costs remain extremely high.
On the local processing and manufacturing sectors, a very small quantity of final products have become too expensive to be competitive against an ever-increasing quantity of imported substitutes.
The hospitality industry also suffers as tourists continue to find other destinations where they can get more value for their dollar. Locals spent most of earnings on electricity, water, transport, etc., and hardly any left for savings – the future thus remains bleak for many Ni-Vanuatu families. These conditions have also discouraged potential local and foreign investors from commitment resources to the nation’s development – this adds up to significant lost employment opportunities for locals.
With its monopoly over water services, particularly in Port Vila, UNELCO is solely responsible for setting rates as it sees fit. Many families cannot afford these extremely high rates and are even questioning the rationale behind the Government’s decision to hand over its water assets to a foreign company which many perceive as not having the best interests of consumers and potential consumers at-heart.
UNELCO currently operates in Tahiti, Wallis and Futuna, New Caledonia, and Vanuatu. Coincidentally, these 4 countries and territories are among the countries with the highest cost of living in the Pacific.
EFFECTS OF UNELCO OPERATIONS ON THE ENVIRONMENT
The 2003 South Pacific Regional Environment Programme (SPREP) Persistent Organic Pollutants report revealed that a composite sample of soil taken from the vacant area over the road from the UNELCO depot at Port Vila showed that it was contaminated. A total of 17 transformers at this location were confirmed as containing polychlorinated biphenyls (PCBs) contaminated oil, including one containing pure askarel (47.6% PCBs). Some of soil at the UNELCO Port Vila transformer stockpile storage yard will need to be removed. A total of 19 transformers have positively identified as containing PCB contaminated oil, and 17 of these transformers are located with the large pile of obsolete transformers stored on vacant ground along the road opposite the UNELCO depot at Port Vila.
About 70 used Transformers have been discarded by UNELCO at Nambatri, a suburb of Port Vila. The area is not properly marked to indicate the existence of toxic substance coming out of the transformers. There is no storage facilities to store these dangerous equipment. Over 1,000 people live within the vicinity – gardening by locals is also carried out around the dump site. There has been no public information concerning these very toxic material.
Despite the apparent danger, UNELCO has not taken measures to inform the public about these hazardous wastes. According to the SPREP report, UNELCO should:
• Fence off al the stockpiled transformers and erect warning signs instructing the public to keep out. People living near the stockpiled transformers should be fully briefed about the need not to enter the potentially contaminated area.
• Warn people not to make gardens near the transformers
• Contaminated transformers identified in Santo should also be clearly marked
• Find ways to safely store these used transformers.
POLITICAL SAFETY NET
In 1993, UNELCO offered Government 14.39% shares in the company. This share was paid directly to UNELCO by Caisse Centrale, the French Government Bank. As a shareholder, a Government representative sat on the UNELCO Board. The Government has since 2000 withdrawn its shares with the company but still retains membership on the Board of Directors.
Reliable sources within Government have indicated that there is no transparency as to how UNELCO board decisions are taken. However, from the fact that electricity and water rates continue to remain extremely high, one cannot be too far wrong to assume that Government representatives on the Board remain ineffective. Certain community leaders have also expressed concern that Government representation on the UNELCO Board has prevented it (Government) from publicly speaking out on behalf of the people against what is perceived as “Daylight Robbery” on a traditionally submissive population.
Another event that brings question to certain national leaders’ credibility is the handing over to UNELCO, management over the Japanese Government – funded Hydro Electric Power station in Luganville on the island of Santo. This initiative was a Bilateral arrangement between the Japanese and Vanuatu Government – the aim has been to provide cheaper and renewable energy. UNELCO-managed electricity costs in Luganville, however, continue to remain extremely high.
Another issue that is a cause for concern is the absolute lack of consultation prior to the extension of the original contract for UNELCO to continue for another 30 years as Vanuatu’s main electricity provider. Reliable sources revealed that while Government leaders have been aware of certain anomalies in the original contract, there has been no genuine attempts to rectify this situation. One can therefore make a strong case here that certain government leaders are condoning the very high rates set by UNELCO, and therefore not acting in the best interest of country.
The Ombudsman’s office in Vanuatu has produced countless spectacular reports of leaders failing to honor the national leadership code. After an initial decade of stable government, Vanuatu since 1991 has earned itself a reputation for political instability and a farcical level of high level corruption. According to the findings of a series of reports by the country’s former Ombudsman Marie-Noelle Ferrieux Patterson, who did such a devastating job that she go a death threat, many of the country’s senior politicians, including Prime Ministers and senior public servants, were so rotten that they should never be allowed to hold office again (Pacific Islands Business, June 2001).
Savenaca Siwatibau (former head of ESCAP) made the following comments at a conference on governance organized by Transparency International Australia and TI Fiji: Corruption encompasses “… hyperinflation of the economy caused by mismanagement; money to be made from power to control tariffs, award business licenses, concessions and tax concessions, impose price controls, fix foreign exchange rates, grant government subsidies, tax and customs concessions; issue government guarantees; sell government property, including shares; from the procurement of government stores; from privatization with sales made to a favored few without proper procedures; from giving access to government services; access to natural resources like forest concessions and minerals; and by working international financial scams such as letter of guarantee for cheap loans with up-front fees for middlemen.
At the end of a time of corruption, it was always the tax payers and the poorest who pay”. (Keith – Reid, Pacific Islands Business, April 2000)
EFFECTS ON GOVERNMENT POLICIES
The initial contract between UNELCO and the Government of Vanuatu was signed in 1986. An Electricity Commission was set up by Government to ensure that the contents of the contract were favorable to both parties. Certain government leaders went ahead and signed the contract without any consultation with the newly-established Electricity Commission. The contract made no provisions for Government to have access to UNELCO’s books – if allowed it would have given Government a more realistic monitoring role.
In 1997, a new Electricity Commission was formed to reconsider the terms and conditions of the contract with UNELCO. History repeated itself again when the in-coming Government ignored the electricity commission and extended UNELCO’s contract as main electricity provider in Vanuatu for another 30 years – this extension is to run until 2031.
Another disturbing trend is the lack of support by Government for locally-produced alternative energy sources. One of such initiatives is the development of Biofuel by VAST (Vanuatu Sea Transport Limited. The biofuel is a 50/50 mixture of diesel which is the facilitator and coconut oil after, FFA’s (Free Fatty Acids), water and glycerides have been extracted.
VAST has invested nearly a million Australian dollars for its factory headquarters in Port Vila, and planned to purchase up to AUD$350,000 worth of coconuts. According to VAST (Trading Post, Feb 8, 2003), the benefits to Vanuatu are increased income to coconut farmers and oil producers giving a boost to the coconut industry. For government, there would be Value Added Tax collected on value added bio-fuel. For consumers and government departments there would be lower fuel bills. The use of a renewable energy source is also known to be kinder to the environment. Lastly, for every liter of coconut oil blended, is a litter of not imported, so the money remains in Vanuatu.
Government legislation has imposed a 5 vatu per litre on blended fuel produced. By lumping the fuel with other imported fuels, the government stands accused of not applying basic economics to calculate the gain from utilizing this product. VAST has laid-off ,more than 21 Ni-Vanuatu employees to date.
Another initiative that is currently utilizing coconut oil is managed by Tony Deamer of Vila Motor Traders. Mr. Deamer has experimented on the use of bio-fuel since he arrived in Vanuatu in 1980. Mr. Deamer is currently campaigning to convince Vanuatu motorists to top their fuel tanks with a mix of diesel and coconut oil, by running tests with Volvo, Isuzu, Nissan, Toyota and Range Rover vehicles. (Islands Business, March, 2002)
Another similar initiative by Coconut Oil Production Vanuatu Ltd. (COLP) opened in 2000 a $A6 million copra mill at Luganville, Santo. Its two expellers extract 1,200 tonnes of oil monthly from 2,000 tonnes of copra. COLP wishes to add to this investment in buying two more extra expellers (worth over $A8 million). The mill employs a hundred people (Pacific Island Business, June 2000)
WORLD BANK
The world bank was invited by Government to help draw up legislation which will assist in cutting costs, particularly those administered through UNELCO. After much deliberation, the Bank made the decision that it would not be in its best interest to help with drafting these legislations as the supply of electricity and water is already in a private company.
REGIONAL AND INTERNATIONAL TRADE AND ECONOMIC AGENCIES
The Deputy Prime Minister and Minister for Foreign Affairs and External Trade, Mr. Serge Vohor, recently confirmed his intention for Vanuatu to reopen dialogue with the World Trade Organization (WTO) Secretariat, particularly to discuss Vanuatu’s intention to formally become a member of WTO. These comments transpired as a result of the recent parliament’s approval of selected intellectual Property Bills, including Copyrights and Trade Marks, and the passage of the Pacific Island countries Trade Agreement(PICTA) between the 14 members of the Forum Island Countries (FIC) and the Pacific Area Closer Economic Relations (PACER) which is a treaty between the 14 FICs and Australia and New Zealand (Port Vila Presse, June 28, 2003).
Robert Agius, Chairman of the Financial Centre Association of Vanuatu, and a staunch supported of WTO, was reported on the Vanuatu Daily Post (July 17, 2003) as saying, “…the simple economic fact that can be proven to any one is that in a perfect world free trade can benefit all of mankind as it allows humanity to produce the most goods for consumption purposes at the most efficient price. Not having free trade means that barriers to this efficiency are put in place by a country to serve their own economic ends. … the free trade argument implies that there are always market forces working which allows the most efficient price for production to be set where demand at a price equals what someone is willing to supply at a price. A distortion of market forces always means increased costs for the consumer. For this free trade to be a reality there must be unfettered markets internationally and in the local economy for goods and services and freely traded…”.
Vanuatu in October, 2002, had to shelve its completed accession package, particularly due to internal pressure from various government quarters, private sector, and members of Civil Society. Vanuatu has already spent over US$150,000 on Ministerial travels, bilateral meetings and numerous negotiations.
However, despite the Deputy Prime Minister’s intention and support from various sectors to join WTO, internal Government practices are far from compatible with this idea. It appears that the Government is not totally convinced that joining WTO would be the answer to Vanuatu’s worries. The following are very important issues that the Government would have to consider very carefully before fully committing to the WTO agenda:
• Vanuatu exports almost nothing and conceding to WTO requirements would only mean opening up the floodgates for cheaper commodities, which would in turn, kill off any chances of a vibrant local export industry.
• Vanuatu’s revenue are based almost entirely on import tariffs and VAT on imported goods and it would be lunacy to do away with these mechanisms. This is unless of course Vanuatu introduces income tax and reconsiders its ‘tax haven’ policy.
• WTO agenda discourages any Government influence but favors those mostly in the private sector, particularly the business and financial institutions. Most of the business in Vanuatu are run by either naturalised citizens (people who have gained citizenship through being in Vanuatu for a certain period of time) or expatriates. The public sector is where most Ni-Vanuatu professionals are found. Vanuatu’s sovereignty is at stake.
• Lowering of Import duties would result in damage to the fragile locally-based industrial sector through loss of import protection. In the last few years, even with some import duties, local industries have not been doing so well. Plantations (coffee, cocoa, kava, ginger, etc.) cattle ranches, are more or less abandoned. Canning factories closed down, copra mills are talking of importing copra from the Solomon Islands. To survive, ice cream factories and chicken farms have recently succeeded in persuading the Government to substantially increase import duties, and even to ban import of certain products.
Since January 1st, 2003, tariffs have been re-imposed on the following imported commodities (by 40%): Canned conned beef; fruit juices; ice cream; wood and timber products; toilet paper; furniture products. The action was taken following complaints from Solomon Islands and Vanuatu businesses about cheaper goods from Fiji and Papua New Guinea flooding their local markets and thus undermining local business operations (Trading Post, December 10, 2002).
Vincent Boulekone, former Minister within the Government of the Republic of Vanuatu during the 1980s and early 1990s made the following comments on Vanuatu’s intention to join WTO: “…If Vanuatu is still considering joining the WTO after eight years of not being convinced it is good for our country, then it is urgent (even if it means less polished presentations) that we start writing our own policy and administration papers rather than leaving them to expats and WTO visiting salesmen. We clearly don’t see the benefit. Tell me when the Government will start to listen to the Chamber of Commerce and local businessmen? When will unqualified Minister and Civil Servants consult their advisors before attending useless and costly overseas trips? What are we going to export when we have no trained managers (but plenty of solicitors) and limited natural resources? WTO tells us we will get duty free access to foreign markets for our products. What products? While at the same time the arrival of foreign products on our shores will undercut our local businesses and they will close and our people will lose their jobs. What will be the future of the jobless people: joining the increasing population of thieves in urban slums?…” (Vanuatu Daily Post, July 11, 2003)
OTHER ALTERNATIVE INITIATIVES
The Energy Unit, a part of the Government structure, is currently looking at alternative sources of energy source for Vanuatu. Recent focus has been on Geo-thermal, Solar, and hydro power. Other government agencies such as the Environment Unit, NGOs, and other members of civil society are working closely with the Energy Unit to come up with viable alternatives. The Japanese Government is already involved in providing solar power to rural communities around Vanuatu.
The Vanuatu Government is currently working on setting up an Energy Corporation, a body which will be responsible for managing Vanuatu’s power generation and distribution. A bill is currently being prepared to be presented and debated in parliament. This initiative will, however, face legal complications should the current contract between the Government and UNELCO remains unchanged.
On the issue of Protection and Promotion of local industries, the banning of chicken imports has given hope and encouragement to many Ni-Vanuatu. TOA farm which specializes on breeding local chicken for the domestic market employs more than 50 Ni-Vanuatu. In 2002, TOA spent over half-a-million USD for local goods and services, and employs over 50 Ni-Vanuatu. Another positive aspect of local chicken production is the manure produced and used to enrich the soils of Vanuatu. TOA gives away approximately 1,400 tons of manure every year. Market gardeners and landscapers use all this manure thus decreasing their costs for fertilizers.
There are currently 19 Ni-Vanuatu are trying to start chicken growing businesses, helped by TOA farm and the Chamber of Commerce.
On the issue of local products, certain business chains in Vanuatu deal only with imported commodities and would not touch anything local. An example of this is the absence of local chicken in certain supermarkets.
RECOMMENDATIONS
An overseas consulting firm, Andersen Consulting was contracted by UNELCO in 2000 to carry out a review of UNELCO’s operations in Vanuatu. Some of the findings and recommendations are worth careful consideration, and they include:
1. Competitive pressure introduced through:
• Competitive bidding for new contracts and contract renewal
• Contract terms which ensure quality of supply and efficiency of operations
• Concession system of ownership – assets remain state owned, while the supplier operates assets and receives revenues for a specified term. The supplier must re-tender at the end of the contract term.
2. Allowing other companies to invest in independent power production will encourage the introduction of new technologies, particularly renewable energy
3. In markets with a single operator, an independent regulator will ensure transparency of the market and supplier operations. To do this, a regulatory body should:
• Be independent of decision making power within market players
• Have clear responsibilities, and sufficient power to enforce market and contract rules
• Have the technical and financial skills required to interpret information provided by the industry
The Andersen review went on to confirm that:
• No separate body is currently set up with all the skills or resources required to carry out all regulatory functions. This means that there is limited time to review reports and tariff calculations in any dept
• There is a lack of clarity on who receives what reports, and the amount of monitoring allowed under the current contract
• Responsibility for overseeing the electricity sector is divided across several bodies, with little clarity of exact roles
• Independent observation of concession tenders is currently voluntary, and not a requirement
• All monitoring is done by the government, which holds shares in UNELCO. Therefore monitoring is not completely independent of supplier interests.
The recommendations considering the current state of affairs therefore would include:
• Setting up and resource a regulatory body which has: clearly define responsibilities and level of monitoring allowed; provide skilled staff able to thoroughly understand and analyse market information; provide powers for enforcing regulation
• Formalizing rules for independent reviewing of tender processes
• Debating and deciding on dividends to Government.
CONCLUDING REMARKS
The Vanuatu Government must pay more attention to meeting the needs of its people. As indicated, this will include genuine efforts at lowering utility costs, reclaiming and make more efficient, state-owned assets, and last but not least, protecting and promoting local interests and initiatives.
Having stated the above, it should be noted that current arrangements through the contract signed between UNELCO and the Vanuatu Government does not give much room for local authorities to manoeuvre. Because of the fact that there is so much at stake, the Vanuatu Government may look at amending the national constitution so that it (Vanuatu Government) has genuine influence within the UNELCO decision-making process, and that the people of Vanuatu reap maximum benefit out of this or any other arrangement(s).
PEOPLE CONTACTED
NAME POSITION CONTACT
Bani, Ernest Principal Officer Environment Unit, Vanuatu Government
Russel Nari Senior Environment Officer Environment Unit, Vanuatu Government
Trinison Tari Environment Officer Environment Unit, Vanuatu Government
Stephen Tahi Director General Ministry of Lands and Natural Resources
Peter Tari Deputy Governor Reserve Bank of Vanuatu
Leo Moli Director Energy Unit, Vanuatu Government
Kal Wajein Acting Director Public Works Department, Vanuatu Government
Jean Marie Leye Lenalkau Port Vila Town Council of Chiefs Chairman and former President of the Republic of Vanuatu Independence Park, Port Vila, Vanuatu
Anne Phillips Teacher Port Vila, Vanuatu
Michael Bakeo Director Department of Lands Survey, Vanuatu Government
Moses Titongoa Director Fisheries Department, Vanuatu Government
REFERENCES
Reserve Bank of Vanuatu, Annual Report and Statement of Account for 2000, RBV, Port Vila, Vanuatu
DESD and ADB (2002), Assessment of Poverty and Hardship and Strategies for Equitable Growth and Hardship Alleviation, Port Vila, Vanuatu
Pacific Island Business, March 2002, Suva, Fiji
Pacific Islands Business, February, 1999, Suva, Fiji
Pacific Islands Business, May, 1999, Suva, Fiji
Pacific Islands Business, April, 2000, Suva, Fiji
Pacific Islands Business, June 2000, Suva, Fiji
Pacific Islands Business, June 2001, Suva, Fiji
Keith – Reid, R., “Corruption: It’s out there – But can the rot be stopped?”, Islands Business, April, 2000, Suva, Fiji
Andersen Consulting, Review of UNELCO in Vanuatu, 2002
South Pacific Regional Environment Programme (SPREP) Persistent Organic Pollutants (POPs) report, 2003, Apia, Samoa
Port Vila Presse, June 28, 2003, Port Vila, Vanuatu
Vanuatu Daily Post, July 17, 2003, Port Vila, Vanuatu
Vanuatu Daily Post, July 11, 2003, Port Vila, Vanuatu
Vanuatu Trading Post, December 10, 2002, Port Vila, Vanuatu
|
|
|
about us 
