Independent utilities regulation: The case of Vanuatu Economy of Vanuatu Commonwealth Governance Handbook 2014/15 69 Vanuatu is a small island country in the south-west Pacific Ocean. It consists of 82 islands of which 65 are inhabited, with a total population of about 270,000. The country spans a large geographical area, with the distance north to south being more than 1,300 km. Only four islands have a power grid of which Efate is the largest and includes the capital, Port Vila. The islands are not connected electrically. The total electric system peak load in Port Vila is approximately 11 MW with about 2 MW in the remaining islands – a small system by any measure. Vanuatu is unique in the Pacific region, in that private companies have operated and provided electricity for more than six decades under some form of management contract or concession. Service is generally reliable and there are few blackouts or brownouts save during extreme weather conditions. However connectivity to the grid is very low – only around 70 per cent of the population has grid connections in urban Port Vila, and overall less than 30 per cent of households have access to electricity. The government’s goal is to achieve 100 per cent connectivity by 2030. This is a challenging task as the cost of extensions to remote and rural areas is prohibitively high, especially in relation to levels of use (average monthly household use is 70 kWh in Port Vila and 40 kWh in rural areas). The bulk of electricity generation relies on imported diesel, supplemented by copra oil, 1.2 MW in hydro projects in the north and a 3 MW wind farm on Efate. Overall costs are high, but there is significant cross-subsidy from large customers, resulting in the smallest households paying below-cost prices. The discussion in this article is confined to power sector regulation, although it could apply to the water sector as well. Regulatory framework, mandate and powers In 2007 the parliament enacted the Utilities Regulatory Authorities Act (URA Act) which established the Utilities Regulatory Authority (URA) as an independent statutory body to regulate water and power utilities. The URA is tasked with regulating utilities in Vanuatu to ‘ensure provision of safe, reliable and affordable services and maximize access to utility services’. The charge of the authority is to exercise functions and powers of the URA Act; set maximum utility prices and advise the government on utility matters. In 2010 the legislature amended the URA Act to include ‘promoting the long term interests of consumers’ as an additional objective of the act and a 2013 amendment added ‘least cost generation’ as a tariff setting criteria. The URA has a three-member commission which includes the chairman and two part-time executive commissioners, one of whom is also appointed as full time CEO to manage strategic and day-to-day regulatory issues, administration and staff development. At least two commissioners must be citizens of Vanuatu (the current CEO is an expatriate). Commissioners are selected in an open, transparent process by an independent panel ‘guided by merit’, cannot be removed without cause and cannot be personally sued in performance of their duties. The appointment process has worked reasonably well during the URA’s six-year existence; however, commission replacement can take a long time. All major decisions are put before the public for consultation and comment prior to a final decision. All final decisions and orders are approved pursuant to a majority vote. Certain decisions must be ‘gazetted’ (officially published) to take effect. The URA Act clearly defines and elaborates the URA‘s powers in establishment and enforcement of safety and reliability standards. It is less prescriptive on establishing the prices, but broadly defines that long-term consumer interests should be protected; prices should reflect lowest cost generation; due regard be given to comparison with regional prices; and interests of consumers, businesses and government policy should be taken into account. The URA Act contains all the protections of due process, grievance procedures and judicial review that are afforded to utilities and interested persons All this makes Vanuatu stand out as having one of the few advanced utility regulatory statutes in the region. Constraint on regulation It should be said that a regulatory body is truly independent only if it can take decisions and actions without referring to another authority, and that it can perform its functions and exercise powers without interference or undue influence from the government or vested interests. At careful reading, the URA has broad powers to establish principles and methodology in setting tariffs including lowest cost generation, cost-based tariffs, benchmarking, balancing utility, and consumer interests and governmental policies. Hasso Bhatia Vanuatu has a relatively high income per capita among Pacific islands, stable low inflation and a robust central bank – the Reserve Bank of Vanuatu. The country’s adequate reserves, generated primarily from tourism, allow capital to flow back and forth freely in hard currency. Personal or corporate income is not taxed, but VAT is charged at 12.5 per cent. However, consumer interest rates are generally high at 15–20 per cent.
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