Project Appraisal Document



Document ofThe World BankFOR OFFICIAL USE ONLYReport No: 69657-TOPROJECT PAPERFORSMALL RECIPIENT EXECUTED TRUST FUND GRANTUS$2.90 MILLION EQUIVALENTTO THEKINGDOM OF TONGAFOR AN ENERGY ROADMAP INSTITUTIONAL AND REGULATORY FRAMEWORK STRENGTHENING PROJECTJune 8, 2012This document is being made publicly available prior to approval. This does not imply a presumed outcome. This document may be updated following management consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information.CURRENCY EQUIVALENTS(Exchange Rate Effective May 2012)Currency Unit=TOPTOP 1.80=US$1US$=SDR 1FISCAL YEARJanuary 1–December 31ABBREVIATIONS AND ACRONYMSADBAsian Development BankADOAutomotive Diesel OilASTAEAsia Sustainable and Alternative Energy ProgramBMZMinistry for Economic Cooperation and DevelopmentBPBank GuidelinesCAConnection AgreementsCBDCentral Business DistrictCCCPIRCoping with Climate Change in the Pacific Island RegionCEO Chief Executive OfficerCO2 Carbon DioxideCPIConsumer Price IndexCQSConsultant Quality SelectionCSCompetitve SelectionCSOCommunity Service ObligationsDADesignated AccountDPDevelopment PartnersDPODevelopment Policy OperationECCElectricity Concession ContractEIAEnvironmental Impact AssessmentEIRREconomic Internal Rate of ReturnEMPEnvironmental Management PlanESMFEnvironmental and Safeguard Management FrameworkFAESPFramework for Action on Energy SecurityFMFinancial ManagementFYFinancial YearGDPGross Domestic ProductGHGGreen House GasGIZDie Deutsche Gesellschaft für Internationale ZusammenarbeitGoNZGovernment of New ZealandGOTGovernment of TongaGWHGigawatt HourHVHigh VoltageIBRDInternational Bank of Reconstruction and DevelopmentICBInternation Competitive BiddingIDAInternational Development AssociationIFRInterim Unaudited Financial ReportIPESPImplementation Plan on Energy SecurityIUImplementation UnitIUCNInternational Unit for the Conservation of NatureJICAJapan International Cooperation AgencykVAKilo Volt AmperekWhKilo Watt HourLARAPLand Acquisition and Resettlement Action PlansLCSLeast Cost SelectionLCT Local Coast TankersLEDLight-Emitting DiodeLPGLiquefied Petroleum GasLVLow voltageMoFMinistry of FinanceMPEMinistry of Public EnterpriseMRMedium RangeMWMegawattNCSNon-competitive SelectionNOxNitrogen OxidesNPVNet Present ValueO&MOperation and MaitenanceOPOperational GuidelinesOPROperational Procurement ReviewPDOProject Development ObjectivePECPacific Environment CommunityPIACPacific Infrastructure Advisory CenterPIC Pacific Island CountriesPPA Power Purchase AgreementsPRIFPacific Region Infrastructure FacilityPVPhotovoltaicQCBSQuality- and Cost-Based SelectionRAVRegulated Asset ValueRERenewable EnergyREEEPRegional Energy and Energy Efficiency PartnershipRETFRecipient Executed Trust FundSAIDISystem Average Interruption Duration IndexSCADASupervisory Control and Data AcquisitionSISensitivity IndicatorSOEState Owned EnterpriseSPCSecretariat of the Pacific CommunitySVSwitching ValueTATechnical AssistanceTERMTonga Energy Road MapTERM-ATonga Energy Road Map AgencyTERM-CTonga Energy Road Map CommitteeTERM-IUTonga Energy Road Map Implementation UnitTGIFTonga Green Investment FundTOPTongan Pa'angaTPLUS$Tonga Power LimitedUnited States DollarsWAWithdrawal ApplicationWBWorld BankRegional Vice President:Pamela CoxCountry Director:Ferid BelhajSector Director:John RoomeSector Manager:Charles FeinsteinTask Team Leader:Roberto G. AielloKINGDOM OF TONGATonga Energy Roadmap Institutional and Regulatory Framework Strengthening ProjectTABLE OF CONTENTS TOC \o "1-3" \h \z \u 1. STRATEGIC CONTEXT PAGEREF _Toc326314513 \h 1a.Country Context PAGEREF _Toc326314514 \h 1b.Sectoral and institutional context PAGEREF _Toc326314515 \h 3c.Higher Level Objectives to which the Project Contributes PAGEREF _Toc326314517 \h 14II.PROJECT DEVELOPMENT OBJECTIVES PAGEREF _Toc326314518 \h 15a.PDO PAGEREF _Toc326314519 \h 15b.Project Beneficiaries PAGEREF _Toc326314520 \h 15c.PDO Level Results Indicators PAGEREF _Toc326314521 \h 15III.PROJECT DESCRIPTION PAGEREF _Toc326314522 \h 16a.Project components PAGEREF _Toc326314523 \h 16b.Project Financing PAGEREF _Toc326314524 \h 16c.Lessons Learned and Reflected in the Project Design PAGEREF _Toc326314525 \h 17IV.IMPLEMENTATION PAGEREF _Toc326314526 \h 17a.Institutional and Implementation Arrangements PAGEREF _Toc326314527 \h 17b.Results Monitoring and Evaluation PAGEREF _Toc326314528 \h 20c.Sustainability PAGEREF _Toc326314529 \h 20V.KEY RISKS AND MITIGATION MEASURES PAGEREF _Toc326314530 \h 20VI.APPRAISAL SUMMARY PAGEREF _Toc326314531 \h 23a.Economic and Fiscal Impacts PAGEREF _Toc326314532 \h 23b.Poverty and Social Impacts PAGEREF _Toc326314533 \h 30c.Financial Management PAGEREF _Toc326314534 \h 31d.Procurement PAGEREF _Toc326314535 \h 32e.Social (including Safeguards) PAGEREF _Toc326314536 \h 32f.Environment (including Safeguards) PAGEREF _Toc326314537 \h 32Annex 1: Results Framework and Monitoring PAGEREF _Toc326314538 \h 34Annex 2: Detailed Project Description PAGEREF _Toc326314540 \h 37Annex 3: Implementation Arrangements PAGEREF _Toc326314562 \h 41Annex 4: Role of Partners PAGEREF _Toc326314563 \h 54Annex 5: Map of the Kingdom of Tonga PAGEREF _Toc326314564 \h 59KINGDOM OF TONGAENERGY ROADMAP INSTITUTIONAL AND REGULATORY FRAMEWORK STRENGTHENING PROJECTSMALL RECIPIENT EXECUTED TRUST FUND GRANT PROJECT PAPEREAST ASIA AND THE PACIFICEASNSDate: June 8, 2012Country Director: Ferid BelhajSector Director: John RoomeSector Manager: Charles M. Feinstein Team Leader: Roberto G. Aiello Project ID: P131250Instrument: SILSector(s): EnergyTheme(s): General energy sector (100%)EA Category: CRecipient: Kingdom of TongaImplementing Agency Component 1: Tonga Energy Roadmap Implementation Unit (TERM-IU)Contact Person: ‘Akau’ola (TERM-IU Director)Telephone No.: +676 24794Fax No.: +676 22700Email: akauola@Implementing Agency Component 2: Tonga Power Limited (TPL)Contact Person: John von Brink (Chief Executive)Telephone No.: +676 27390 Fax No.: +676 23047Email: jvanbrink@roject Implementation Period:Start Date:July 1, 2012End Date:June 30, 2015Expected Effectiveness Date:July 1, 2012Expected Closing Date:December 31, 2015.Project Financing Data(US$M)[ ]Loan[X]Grant[X]Other[ ]Credit[ ]GuaranteeFor Loans/Credits/OthersTotal Project Cost (US$M): 4.00Total Bank Financing (US$M): 2.90.Financing SourceAmount(US$M)BORROWER/RECIPIENT1.10AusAID/PRIF Grant2.50ASTAEOthersTotal0.400.004.00.Expected Disbursements (in US$ Million)Fiscal Year201320142015Annual0.701.201.00Cumulative0.701.902.90.Project Development Objective(s)The Project Development Objective is to support the strengthening of the institutional and regulatory framework of the Tonga Energy Roadmap..ComponentsComponent NameCost (US$ Millions)Component 1: Strengthening the Energy Sector Framework and Structure (Implementing Agency: TERM-IU). This component will support the Government of Tonga to strengthen the functioning of the TERM-IU including through technical assistance in the areas of: (i) energy sector policy; (ii) environmental and social safeguard frameworks; (iii) petroleum price risk management strategy; (iv) feasibility studies for power generation from renewable sources; (v) detailed surveys for electricity use; and (vi) development of a communication plan (including awareness and dissemination material in local language) for the Energy Roadmap in order to rally key stakeholders around long-term goals and activities being implemented, thus mitigating risks of ponent 2: Preparing TPL for Renewable Energy Supply (Implementing Agency: TPL). This component will support TPL to strengthen its capacity to: (i) carry out power system modeling to determine the most cost effective way to diversify energy generation, with a focus on achieving a high long-term renewable and distributed energy penetration; (ii) design and specify upgrades to monitor, control, and protect systems to ensure a reliable and secure supply of energy through the electricity system with high levels of renewable energy generation; (iii) develop standards and procedures for connection to the power system by independent power producers; and (iv) develop (in conjunction with TERM-IU and to be approved by TERM-C) a power system plan for a period of five years focusing on specific renewable energy technology projects such as solar, wind, biomass and biofuels, but also covering energy storage options and demand side management.2.10 1.pliance PolicyDoes the project depart from the CAS in content or in other significant respects?Yes[ ]No[ x ]Does the project require any waivers of Bank policies?Yes[ ]No[ x ]Have these been approved by Bank management?Yes[ ]No[ x ]Is approval for any policy waiver sought from the Board?Yes[ ]No[ x ]Does the project meet the Regional criteria for readiness for implementation?Yes[ x ]No[ ].Safeguard Policies Triggered by the ProjectYesNoEnvironmental Assessment OP/BP 4.01XNatural Habitats OP/BP 4.04XForests OP/BP 4.36XPest Management OP 4.09XPhysical Cultural Resources OP/BP 4.11XIndigenous Peoples OP/BP 4.10XInvoluntary Resettlement OP/BP 4.12XSafety of Dams OP/BP 4.37XProjects on International Waterways OP/BP 7.50XProjects in Disputed Areas OP/BP 7.60X.Legal CovenantsNameRecurrentDue DateFrequencyMaintain TERM-A, TERM-C and TERM-IUYesAlwaysHire key staff for TERM-IU3 months after effectivenessAdopt Operational Manual1 month after effectivenessMaintain TPL implementing unitYesAlwaysIFR reportingYesQuarterProgress reportsYesSemesterSigning of legal documents and legal opinionsAt effectiveness.Team CompositionBank StaffNameTitleUnitRoberto G. AielloSenior Energy Specialist, Task Team LeadEASNSTendai GreganEnergy Specialist, co-Task Team LeadEASNSWendy HughesLead Energy EconomistSEGESNatsuko TobaSenior EconomistEASINAshok SarkarSenior Energy SpecialistSEGENIsabella Micali DrossosSenior CouncelLEGESAleta MoriartyCommunications OfficerEACNFStephen Paul HartungFinancial Management SpecialistEAPFMHaiyan WangFinance OfficerCTRLNCristiano Costa e Silva NunesSenior Procurement SpecialistEAPPRNicole ForresterProgram AssistantEACNFPaul FultonEnergy ConsultantEASNSMartin SwalesEnergy ConsultantEASNSPenelope Ruth FergusonEnvironmental ConsultantEASISAnn McLeanSocial ConsultantEASNSNicolas DrossosConsultant EASNSSiosaia Tupou FaletauADB/ WB Liaison Officer EACNFNon Bank StaffNameTitleOffice PhoneCityLocationsCountryFirst Administrative DivisionLocationPlannedActualCommentsstrategic cONTEXTCountry ContextTonga is a small, remote country that is highly vulnerable to external economic shocks and natural disasters. Tonga’s population of 104,000 is dispersed across 36 of the 176 islands that make up the archipelago. Located in the South Pacific, Tonga is one of the most remote countries in the world, when measured by indicators of proximity to major markets. Small size and remoteness combine to push up the cost of economic activity in Tonga, limiting the scope for Tonga’s exports of goods and services to be competitive in world markets. These same factors also push up the cost of providing public services in Tonga, due to Tonga’s limited potential to exploit economies of scale in public and private sector activities. In addition, the openness of Tonga’s economy and the lack of diversification of its sources of foreign exchange make Tonga highly vulnerable to external economic shocks, while its geographical characteristics make it highly vulnerable to natural disasters.Like other small, remote economies, Tonga depends on a very limited number of sources for its foreign exchange earnings. About one-third of Tongans live abroad, primarily in the US, New Zealand, and Australia and the remittances they send home are Tonga’s largest source of foreign exchange. Over the last decade, remittances have averaged just fewer than 32 percent of GDP. Tourism is Tonga’s next largest source of foreign exchange earnings, with tourism receipts having averaged about 6 percent of GDP over the last decade. Over this period, tourism receipts have been on an increasing trend. In contrast, Tonga’s merchandise export receipts which have averaged about 5 percent of GDP over the last decade have been on a declining trend. Tonga also receives significant development assistance, with cash grants averaging 3 percent of GDP over the last decade but 5.1 percent of GDP over the last five years, reflecting an increasing trend. Tonga also receives significant in-kind grants, which amounted to some 3 -6 percent of GDP in each of the last two years.Also like other small, remote economies, Tonga has a relatively undiversified economic base. Agriculture, forestry and fishing contribute approximately 20 percent of Tonga’s GDP, and have been gradually declining over the course the last decade. Semi-subsistence agriculture is, however, critical to the livelihoods of the majority of households in Tonga, particularly in rural areas and the outer islands. Secondary industries, particularly construction activities, also contribute approximately 20 percent of Tonga’s GDP. Service industries dominate the economy, among which government services at about 15.5 percent of GDP are the largest component, closely followed by commerce, restaurants and hotels at about 14.5 percent of GDP. This category is dominated by wholesale and retail trading activities, which largely distribute imported goods.Energy in the EconomyEnergy is a fundamental building block for Tonga in its social and economic development and in enhancing the livelihoods of all Tongans. It affects all businesses and every household. Accessible, affordable and sustainable electricity that is environmentally responsible and commercially viable is a high priority. Tonga is highly dependent on imported fuels to meet its overall energy requirements. In 2000, when the last energy balance for Tonga was compiled, imported petroleum products accounted for about 75% of Tonga's total energy needs. Currently, all grid-supplied electricity, which accounts for over 98% of electricity used in Tonga, is generated using imported diesel fuel. Over 95% of Tongans are connected to grid-based supply of electricity.Tonga's total fuel imports account for about 25% of all imports and about 10% of GDP. Hence changes in the price and amount of petroleum imports have a significant impact on Tonga’s balance of payments situation and inflation. In particular, sudden price shocks can be difficult to absorb. Automotive diesel oil, (ADO) (i.e. diesel) accounts for about two thirds of petroleum imports; the rest is petrol and aviation fuel, with minimal liquefied petroleum gas (LPG). About one third of total fuel imported is used for electricity generation.Oil prices over the last ten years illustrate the volatility to which the Tongan economy and electricity consumers are exposed. Between 2001 and 2004, the average price of crude oil increased from around US$25 per barrel to around US$40 per barrel - a 60% increase. This was followed by a dramatic and continuous rise in crude oil prices between 2004 and 2008, where the average annual price of crude rose from US$40 per barrel to a peak of around US$140 per barrel. In late 2008 through 2009 crude oil prices fell to 2006 levels, with the average price in 2009 being around US$62 per barrel. Diesel prices tracked the price of crude oil. Since the beginning of 2012 the Tapis benchmark crude oil price (Singapore) has been over US$100 per barrel. The oil price spike of 2008 led to the highest electricity tariffs Tonga has ever seen, with electricity prices peaking at over TOP1.00 per kWh (approximately 55USc/kWh). This had a significant negative impact on economic activity and on the quality of life for all Tongans. The experience highlighted the risk to Tongan electricity consumers and the economy as a whole of the combination of 100% dependency on imported diesel fuel for grid-based electricity generation together with essentially spot market pricing of all imported fuel. The tariff as of June 2011 was TOP0.98 (almost US$0.54 per kWh at an exchange rate of TOP 1.80 per US$). This has since reduced to TOP0.93 as at May 2012. The fuel component is TOP0.51 (US$0.28).Scenarios for future petroleum price trends indicate that on average, the price is expected to increase. The history of international oil prices demonstrates the high price volatility that characterizes this commodity. Acknowledging the prospect of increasing and volatile petroleum prices, the Government recognized that the energy sector as currently structured and operated represents a major risk to the economy overall, and to the standard of living of individual Tongans. The Government determined that it must, as a matter of priority, take measures to mitigate these risks. Reducing this vulnerability is an important factor in securing stable economic growth in the short, medium and long terms.Sectoral and Institutional ContextPetroleum SupplyPetroleum is supplied to Tonga by two international oil companies, TOTAL and Pacific Energy. Uata Shipping, ‘Otumotuanga’ofa and other small ferry locally owned companies are still used for fuel distribution in the Ha’apai group of islands. Both TOTAL and Pacific Energy have onshore storage and distribution facilities on Tongatapu, while Pacific Energy also owns the storage facilities on Vava'u. TOTAL and Pacific Energy are active in the Tongatapu ground product market (ADO, kerosene and gasoline), and Pacific Energy is the sole supplier of aviation fuels across Tonga.LPG is bulk supplied by Tonga Gas (a subsidiary of Fiji Gas, 51% owned by Origin Energy, Australia) and marketed and distributed onshore by the Government of Tonga’s (GOT) Homegas Company.Like other small Pacific Island countries, Tonga faces a long supply chain from the refinery source. Products are shipped from refineries in Singapore (or sometimes Australia) to bulk storage in Fiji via medium range (MR) tankers, based on TOTAL and Pacific Energy's regional supply schedules, and then trans-shipped to Tongatapu and Vava'u in local coastal tankers (LCT). Thus, landed costs of product in Tonga have a relatively high freight component.The outer islands are supplied with products trans-shipped through Nuku’alofa. The Niua's and 'Eua islands are normally the only areas for which main products (gasoline, ADO, and kerosene) are supplied by drum. Drum distribution is more expensive than bulk distribution and costs are compounded by the fuel losses through evaporation, leakage and drum decanting which contribute up to 15% of total drum content.Petroleum price regulationThe Competent Authority is empowered to regulate petroleum prices under Section 5 of the Price and Wage Control Act 1988. The Tonga Competent Authority regulates the retail price of petroleum products, using a pricing template originally developed by the Pacific Islands Forum Secretariat. The pricing template builds up the retail prices by taking the Singapore price for fuel, then adding on shipping and storage fees and wholesale and retail markups. In effect, the average price for the next month is determined by fuel prices, shipping rates and margins two months prior.The pricing philosophy seeks to build petroleum prices for Tonga that reflect the actual costs of buying fuels on the international market and the various costs of delivering that fuel to Tonga and then distributing it across the country. This petroleum pricing approach is the same as the “import parity pricing’, which is used in Australia and New Zealand, and is common across the petroleum industry.The pricing methodology is subject to annual, triennial and ad-hoc reviews. Every year the pricing template is supposed to be reviewed (but until recently has not been the case), using a consultation process with the oil companies and other interested parties. Triennial reviews assess regional freight rate differentials, and the overall incentives for continued investment in petroleum supply, storage and distribution. Ad-hoc reviews of the pricing templates may be required to deal with issues such as changes in duties, taxes, or wharfage costs.Petroleum Safety regulationBoth TOTAL and Pacific Energy state that they operate under international standards for petroleum handling and storage and that their insurance companies require annual independent safety audits of their facilities and safety processes. Both companies claim that international standards are more stringent and specific than the very general safety requirements set out in Tonga’s Petroleum Act. The model for ensuring compliance with safety standards appears to be one of self-enforcement by the oil companies, under the oversight of internationally accredited and independent auditors.Key petroleum sector issuesTonga’s high dependency on imported petroleum products to meet its energy demands makes Tonga highly vulnerable to two types of risks: 1) oil price shocks; and 2) interruptions in the delivery of fuel. These risks pose threats to Tonga’s energy security, i.e. Tonga's access to adequate, affordable and reliable supplies of energy.An improved understanding of these risks is required by government, together with greater policy direction on how to mitigate risks arising from supply interruptions (e.g. increasing the level of storage in Tonga or storing fuel offshore), oil price spikes (e.g. financial hedging); or catastrophic events (e.g. enforcing stringent safety standards and developing contingency plans for major fuel leaks or fires).Electricity supplyThe Tonga electric system was operated by the Government prior to 1998. In 1998, it was bought by Shoreline Electric, an investor-owned company. The Government of Tonga bought the assets back from Shoreline in July 2008. The current company, Tonga Power Limited (TPL) is a vertically-integrated state-owned enterprise, wholly owned by the Government of Tonga and operated at arm’s-length. TPL serves four island group grid systems in Tonga. The main island of Tongatapu in the southern island cluster is the largest with some 73% of the Tonga population living there. Other systems are on ‘Eua, also in the southern cluster, Ha’apai in the central cluster and Vava‘u in the northern cluster. Each of these centres has a diesel power station and a medium/low voltage distribution system. Tongatapu has a small 11kV network. The four island group grids have a generation capacity of just over 13MW that supplies around 20,000 customers. Tongatapu has the largest share with generation capacity of 11MW and around 15,000 customers.Table 1 below summarizes the generating capacity, recent peak and energy demands on each grid.Table 1: A Summary of the TPL Grid Systems 2011 (source TPL)SystemInstalled Capacity kWPeak DemandkWAnnual Energy Supplied kWhAnnual Load FactorTongatapu11,2808,15047,035,95067.5%Ha’apai7722961,373,69860%Vava’u1,2728924,823,91061-63%‘Eua3732851,056,58850-55%Total13,6979,623Electricity price regulationThe Electricity Act 2007 provides the governance framework for the grid-connected electricity sector in Tonga. In accordance with the Act, the Electricity Commission was established in 2008 as the regulatory agency for grid-based electricity supply. The Act defines the role of the Electricity Commission in regulating the generation and selling of electricity, and establishes the role of a concessionaire in producing, delivering, and retailing electricity.The Electricity Concession Contract (ECC) entered into between the Kingdom of Tonga and TPL under section 20 of the Electricity Act 2007 (extended under the Electricity Amendment Act 2010) gives TPL exclusivity for the supply of electricity to the island groups. The ECC sets out the conditions for the utility’s operations, including specific details as to how and the frequency at which the tariffs are to be calculated, outlines operational efficiency benchmarks, consumer service standards and penalties for non-compliance, and regulatory reset provisions at the end of each regulatory period. The current ECC regulatory period runs until June 30, 2015 at which point the ECC schedules and conditions are renegotiated for a further seven years.The ECC distinguishes fuel and non-fuel components of the tariff. Changes in fuel prices are fully passed through into power prices, via a clearly defined pass-through mechanism set out in the Concession Agreement. Although the ECC allows TPL to treat the four island grids individually, in May 2009 TPL chose to standardize tariffs across all grids and consumer classes. Tariffs are allowed to be adjusted every three months, the latest being a 6.6% decrease effective April 2012. The non-fuel tariff component follows the Consumer Price Index (CPI), while the fuel tariff component is adjusted so that the Concessionaire recovers only the permitted fuel costs. The ECC requires that TPL earn a rate of return (currently set at 12.9 %) of its Regulated Asset Value (RAV). TPL is required to submit capital expenditure plans to the Commission for approval and the Commission can deny approval of a capital expenditure that is not in line with a least-cost supply strategy. The overall tariff structure is designed to ensure that TPL operates using full commercial standards. A fuel component increase was made on June 1, 2011 to bring the tariff to TOP0.98 but TPL Board deferred the 6.7% annual adjustment to the non-fuel component, which reduced the tariff impact by some TOP2.7 per kWh. Subsequently, in April 2012, TPL applied the above increase in non-fuel component, in addition to the allowable CPI movement for the year ending December 2012. The increase in non-fuel component was 8.3%. The total (combined fuel and non-fuel) tariff currently sits at TOP0.93/kWh.The role and effectiveness of the electricity commission is currently under a broader regulatory review by the Asian development bank, as part of a multi-region assessment of regulation in small island states.Tonga Power Ltd. PerformanceTPL inherited its database and data management systems from its predecessor. A significant amount of data was lost during the 2006 civil disturbance. The Supervisory Control and Data Acquisition (SCADA) system at the power station on Tongatapu that automated data collection on the generating units had failed. The electricity billing database system was over 15 years old, it had certain limitations and TPL only has consumption data by customer back to when it acquired the business in 2008. Electricity sector data are quite limited at present. Overall technical and non-technical losses have been high in recent years. On the Tongatapu grid, where approximately 85% of all of the grid-supplied energy is consumed, total losses represented just over 17.5% of the energy generated at the engine-generators in 2009 while on the three smaller grids, recent total losses have been between 12.5% and over 20.0% of generated energy. Based on the total losses and TPL’s estimate that technical losses are in the order of 12% on Tongatapu, non-technical losses are running around 3%, with station service around 2-3%. However, over the past year TPL has taken a number of steps to improve data gathering and reduce losses; at March 2012 the twelve month rolling average total loss has reduced to under 15%, the effect of recent revenue protection projects will bring total losses down to the target of 12% by the end of 2012.TPL commissioned two new 600kW diesel electric generators on Vava’u and the implementation of the data collection functions for the SCADA system supplied with the new generators.TPL has completed the installation and commissioning of a new, computerized customer accounts system. Current day’s receivable stands 12 days.TPL has installed more than 18,500 new meters as of mid March 2012 and all of these units can be read with a portable electronic reader. All meter readers will be using a handheld reader by 3rd quarter of 2012.TPL has installed Light-Emitting Diode (LED) street lights along the whole of the waterfront in Nukualofa and along the road from the airport to the central business district (CBD). The trials were considered successful and the plan is now to extend the LEDs to all street lights. It is now a requirement that any new street lights be LED.TPL replaced all of the low voltage (LV) connections around the Popua village, as a trial to determine loss reduction. Measures show a loss reduction from 8.23% to 7.1%. TPL is continuing to change connectors on the LV networks serving Nuku’alofa and reports that, as at May 2012, the majority had been changed. TPL has completed a similar program to change the LV connectors on all of ‘Eua and has found that losses may have been reduced by more than 5%.TPL conducted a trial in two villages on Tongatapu by replacing meters to see if non-technical losses can be reduced. TPL staff found a loss rate of over 50% in one and over 20% in a second village. After all meters were replaced, the losses were measured at about 7.5% and 9.5%. TPL has installed new electronic metering on all fuel tanks and upgraded the station service metering so that a more consistent estimate of parasitic load at each station can be maintained. A monthly stock take of fuel and reconciliation of fuel used provides assurances as to loss of fuel from leakage or theft.TPL has repaired the SCADA data collection system serving the older Caterpillar generation units and linked the data collection component of the MAK SCADA to the plant control room at the Popua power station.Other work has included upgrading insulators on many of the high voltage (HV) lines, the clearing of vegetation that is encroaching on the HV lines and seeking to standardize as many of the LV lines as possible.Overall loss reductions achieved over the past 18 months as of April 2012 on Tongatapu: 3.2%, on Vava’u: 4%, on Ha’apai: 2.7%, and on ‘Eua: 1%. A 1 MW solar power plant is under construction near the Popua diesel generating station and is scheduled to be commissioned before the end of August 2012.Key electricity sector issuesAll grid-connected electricity generation in Tonga is from imported diesel oil. The Tongan economy and electricity consumers have been exposed to high and volatile electricity prices over the last ten years due to inter alia fluctuations in the price of oil internationally. The cost of automotive diesel oil (ADO or “diesel”), the fuel used in all of TPL’s diesel generator sets, has varied widely during recent years. In Table 2 and Figure 1, the total energy generated, the fuel used and the total cost of that fuel are shown for calendar years 2005 through 2011. Although annual electric demand grew by just 2% in the six years, the annual fuel cost in TOP increased by almost 175% in the same period. From 2010 to 2011, although the demand was declined, the fuel use increased. This means the energy intensity could be showing some sign of increase and thus needs to monitor carefully this symptom. Table 2: Recent Fuel Use and Cost for Electricity GenerationYearkWhADO, litreFuel cost, TOPFuel cost, UST200551,557,57313,132,59613,015,6936,671,978200655,281,15713,921,61717,006,5258,198,466200756,434,34614,115,38819,527,0739,411,998200856,777,70114,186,24828,527,23613,750,053200952,631,36613,188,83128,033,96013,805,090201052,623,21213,086,28830,541,97915,997,379201152,579,01613,111,46335,751,81320,654,418Source: TPL generation table, prices from Ministry of Labor, Commerce and Industry and National Reserve Bank.Figure 1: Recent Fuel Use and Cost for Electricity GenerationSource: TPL generation table, prices from Ministry of Labor, Commerce and Industry and National Reserve BankFigure 2 illustrates how the cost per unit of electricity on Tongatapu has varied since March 2002. The cost of diesel fuel drove the tariffs to record highs during 2007 and 2008. The tariff for Tongatapu reached 102.67 seniti (US$0.565) and 104.67 on Vava’u (US$0.576). Since mid-2008, international oil prices have fallen significantly and the correspondingly lower diesel fuel costs have been passed on to customers through the tariff changes in February and May 2009, and more recently in April 2012. Average prices though now are high and sustained at those levels. In addition, the tariff structure changed in May 2009 to equalise the tariff across all grids. By late 2009, tariffs once again had to be increased due to increasing fuel oil costs. As discussed above on electricity price regulation, a fuel component was increased in June 2011 to bring the tariff to TOP0.98 but TPL Board deferred the 6.7% annual adjustment to the non-fuel component, reducing the tariff impact by some TOP2.7 per kWh. As discussed above, fuel and non-fuel components of tariff were adjusted in April 2012, with overall net effect that the tariff as at May 2012 sits at TOP0.932/kWhFigure 2: Electric Rates History in TongaSource: National Reserve Bank of TongaTable 3 shows the medium term demand forecast for Tongatapu, taking into account both increases in efficiency of supply and end use, as per the TERM. Figure 3 shows the combined high, median and low forecasts for the four grids combined. Improvements in efficiency could reduce demand growth by about 17% overall compared to a “do nothing” approach. Even at the modest rate of demand growth projected taking into account improved supply and end use efficiency, demand is expected to increase by nearly 30% over 2010 - 2020. Subsequent reviews by TPL have shown that demand continues to be flat, with total generation growing at 0.25% per annum to 2020. Energy generated across all grids for the year ending June 2013 is budgeted at approximately 53GWh.Reducing the vulnerability of the country to future oil price shocks is a key issue which requires actions to improve the petroleum supply chain and price risk management, increase efficiency of generation, distribution and use of electricity, and diversify away from diesel-only electric generation. It is important that a programme-planned approach is adopted that will ensure risk mitigation on the management, distribution and storage of petroleum is undertaken involving the use of credible external expertise before major changes are implemented. Without taking action, the Tongan economy and energy consumers will be increasingly exposed to risks associated with the growing dependency on imported petroleum for electricity generation and transport.Table 3: Median Forecast, Loss Reduction plus DSM Implemented on Tongatapuend ofend ofend ofend ofend ofend ofend ofend of20092010201120122013201420152020Median Growth Scenario, kW.h~ActualAnnual Growth Rate, Billed Energy-7.82%1.00%2.00%3.00%4.00%4.00%5.00%5.00%Billed Energy7,012,00537,382,12538,129,76839,273,66140,844,60742,478,39144,602,31156,925,107DSM effect ,% of Billed1.667%5.00%8.33%10.00%10.00%10.00%10.00%Impact of DSM on Billed, kW.h0623,1601,906,4883,272,6744,084,4614,247,8394,460,2315,692,511Net Billed Energy37,012,00536,758,96536,223,27936,000,98636,760,14638,230,55240,142,08051,232,596Technical Losses (est.)5,284,2974,701,7284,139,8033,650,8043,273,0243,170,0293,086,1573,323,195Loss as % Sent Out12.00%11.00%10.00%9.00%8.00%7.50%7.00%6.00%Non-Technical Losses (est.)1,739,5101,282,2891,034,951912,701879,625866,475859,715830,799Loss as % Sent Out3.95%3.00%2.50%2.25%2.15%2.05%1.95%1.50%Total Network Losses7,023,8075,984,0185,174,7544,563,5054,152,6494,036,5043,945,8724,153,994Energy Sent Out15.95%14.00%12.50%11.25%10.15%9.55%8.95%7.50%Energy Sent Out from Popua44,035,81242,742,98341,398,03340,564,49240,912,79542,267,05644,087,95155,386,591Add Station Service898,690872,306844,858827,847834,955862,593899,7541,130,339Station Service Rate, % Generated2.00%2.00%2.00%2.00%2.00%2.00%2.00%2.00%Total, Energy Generated44,934,50243,615,28842,242,89141,392,33941,747,75043,129,64944,987,70656,516,929Annual Peak Demand, kW8,1427,9037,6547,5007,5657,8158,15210,241Figure 3: Energy Forecasts, Sum of All GridsSource: Report on The Tonga Electric Supply System: A Load Forecast, prepared by Martin Swales for the World Bank / ASTAE, January 2010Government Strategy in the Energy Sector: The Tonga Energy Roadmap (“TERM”)In April 2009, the Government and Development Partners with the coordination of the World Bank (WB), embarked on a process to undertake a sector-wide review and develop an approach to improving the performance of the energy sector and to mitigating the risks. The resulting document entitled the “Tonga Energy Road Map 2010-2020: Ten Year Road Map to Reduce Tonga’s Vulnerability to Oil Price shocks and Achieve an Increase in Quality Access to Modern Energy Services in an Environmentally Sustainable Manner”, or “Tonga Energy Road Map (TERM)” addresses improvements in petroleum supply chain and consideration of price hedging instruments, increased efficiency both in electricity supply and use, development of grid-connected renewable energy resources, improved access to quality electricity services in remote areas, reduced environmental impacts both locally and globally, enhanced energy security, and overall sector financial viability. The scope includes policy, legal, regulatory and institutional aspects of the sector as well as investment. It covers a ten year time period. As technologies, costs, demand for electricity and sources of financing change over time, it is envisioned that the TERM will be periodically updated to take these factors into account. The next TERM review is expected to be completed before the end of 2012.The TERM focuses on reducing cost and volatility in the price of petroleum imports and de-linking electricity production from petroleum in accordance with government policy with respect to energy security and renewable energy goals. A further set of actions could focus around use of petroleum for transport applications. This was beyond the scope of the TERM exercise, but work is already underway in this area and would complement the TERM.Development of the TERM involved unprecedented information-sharing by Government Ministries and Tonga Power Limited (TPL), and set a new standard in the Pacific for Government leadership and coordinated development partner support. The process has benefited from the active participation of more than fifteen development partners, including multi- and bi-lateral agencies and regional organizations responsible for energy in the Pacific, over the course of one year. The TERM is important not only for the expected impact on the energy sector in Tonga. It is already being cited as an example in other Pacific Island Country (PIC) energy sector discussions and is expected to serve as a model for Government leadership and development partner coordination of sector-wide planning applicable to infrastructure more broadly.The TERM sets out priority actions in the areas of policy, legal, regulatory and institutional arrangements, and sets out an investment program based on a least cost approach for reducing reliance on diesel for power generation, with explicit consideration given to managing risk through development of a portfolio of options to meet the demand for electricity. The TERM also recommends a detailed program of actions with indicative funding sources and costs for each element. The TERM will serve as the guiding document for Government and development partner support. GOT formally adopted the TERM in August 2010 and by doing so, committed to key principles for the energy sector and an indicative implementation plan. The Bank will provide on-going support to the GOT in implementation of the TERM in the form of this project. Other development partners are also working with GOT preparing support for specific aspects of TERM implementation (see Annex 4).Objective of TERMThe objective of TERM is to lay out a least cost approach and implementation plan to reduce Tonga’s vulnerability to oil price shocks and achieve an increase in quality access to modern energy services in a financially and environmentally sustainable manner. The TERM will serve as the guiding document for Government actions and development partner support. It covers a ten year time period. It is envisioned that the TERM will be periodically updated. The TERM considers the full range of options to meet the objective, including:Improvements in petroleum supply chain to reduce the price, and consideration of price hedging instruments to reduce price volatility of imported petroleum products;Increased efficiency of conversion of petroleum to electricity supplied to consumers (i.e. increases in efficiency and reduced losses);Increased efficiency of conversion of electricity into consumer electricity services (i.e. end-use efficiency measures);Replacing a portion of current or future grid-based generation with renewable energy.In addition, in order to meet the objective of increasing access to good-quality electricity supply, the TERM includes recommendations for a new approach to meeting the needs of consumers too remote to be connected to a grid-based supply. Principles underpinning the TERMFlexibility to update and adjust the implementation plan is needed to ensure the TERM remains relevant and responds to evolving circumstances. Recognizing the need for on-going adjustments, the TERM sets out the key principles that will be adhered to, as the specifics of the implementation plan are updated.The key principles of the TERM are set out below:Least Cost Approach to Meet the Objective of reducing Tonga’s vulnerability to oil price increases and shocks. To identify the least cost approach, the full range of options must be considered and evaluated relative to one another rather than being considered in isolation. These include improvements in the petroleum supply chain efficiency; supply and demand side efficiency improvements; and options for non-diesel power generation for both grid and off-grid electricity supply. The selection of each new investment will be based on the principle of the lowest lifecycle cost among the technically feasible alternatives.Managing Risk. The introduction and implementation of new technical and institutional approaches will be designed and managed to avoid inadvertently increasing interruption risks in the effort to address price risk issues. The sequencing and timing of adjustments will allow sufficient time to undertake the detailed work and get in place the required specialist expertise. An important element of managing risk is to develop a portfolio of options to meet the demand for electricity. The value of establishing a portfolio of supply sources will be considered when evaluating alternatives with comparable cost characteristics. Financial Sustainability. In this context “financial sustainability” means that the cost of operating the energy sector, including regulatory, operations, maintenance, fuel and financing costs are recovered through the tariff. While the provision of a subsidy for a particular investment is not incompatible with the concept of financial viability, it should be applied in cases where there are specific objectives outside the normal commercial operation. For example, to address specific social or equity objectives related to providing electricity services in remote areas, to address specific negative externalities including funds aimed at supporting a transition to renewable energy to reduce green house gas (GHG) emissions, or to support gaining experience with technologies that may be expected to become more cost effective over time. The essential feature is that the source of any subsidy required to keep the sector financially viable must be secure. Continued dependence on significant injection of subsidy to meet the cost of normal operations and expansion would not be considered a financially sustainable situation. Investment options must be evaluated considering the cost implications over the investment lifetime, to avoid substituting short term price relief for continuing high prices in the medium to long term.Social and Environmental Sustainability. Environmental and social sustainability encompasses both minimizing local negative social and physical environmental impacts of the energy sector, as well as aligning with global goals with respect to minimizing impact on climate change where possible. New energy investments under the TERM would be subject to Environmental and Social Impact Assessments and Mitigation Plans as necessary, as per international practice. Special consideration will be given to those groups with specific needs including youth, women, religious groups and those with special needs. Investments that have major negative environmental or social impacts or constraints that cannot be mitigated or solved will be avoided. As one of the group of countries which has contributed least to global climate change, yet stands to be severely impacted, Tonga is committed to setting an example for larger countries with respect to responsibly and sustainably reducing GHG emissions. Social sustainability also incorporates an element of equity. Hence the scope of the TERM includes the provision of sustainable, affordable electricity supply that meets the needs of people living in remote areas.Clear, appropriate and effective definition of roles for Government, TPL, and the Private Sector. GOT is responsible for strategic direction in the energy sector (policy and legal framework), sector oversight (regulation), creating an enabling environment and monitoring of progress to achieve the strategic goals, and facilitating where possible the direction of financial assistance to the sector in accordance with the principles listed above. This implies a strong role in supervising the implementation of the TERM and actions to revise policy, legal and regulatory arrangements. For projects and investments that have as a major goal the testing and gaining experience with technologies new to Tonga, to the extent that public sector funding is available ownership should remain with Government, possibly but not necessarily through TPL.TPL will be an important implementing agency for the early TERM activities, including in improved network and efficiency, and implementation of the off-grid program. TPL will also have responsibility of maintaining supply of electricity to customers on the four grids. TPL is a key source of technical expertise in the energy sector and this role will be strengthened through training as part of the implementation of the TERM. Phases of TERMThe TERM has three phases of implementation: Phase 0, Phase 1 and Phase 2. Phase 0 required the GOT to undertake major institutional governance reform of the energy sector. In addition, it requires that the utility, Tonga Power Limited (TPL), be provided with support to enable it to manage the current infrastructure in a safe and operationally sound manner. The TERM recommended (and Cabinet approved) the conduct of an independent Electricity Tariff Review under Phase 0 of the TERM to address the key weaknesses of the existing tariff, by providing recommendations for a new tariff regime that is consistent with a financially sustainable and efficient electricity sector, taking into account the planned shift to renewable energy sources and energy efficiency, while providing protection for the poorest consumers. This review will be shortly commenced under support from the Pacific Infrastructure Advisory Center (PIAC). Phase 1 includes works designed to implement the first set of proof-of-concept renewable energy projects, including on-grid Solar PV supply and substitution of a portion of the fuel used in existing diesel engines with coconut oil; and the scaling up of the end-use efficiency activities and review of initial experience with petroleum financial risk management. By the completion of Phases 0 and 1, a private sector investment framework within the energy sector will be in place. In addition, Phase 2 will involve further efficiency and renewable energy investments and will be initiated when data and experience from the phase 0 and phase 1 activities have been evaluated.Higher Level Objectives to which the Project ContributesThe Tonga Energy Road Map (TERM) represents the result of a year of intensive dialog with the Government, and consultation and coordination with energy sector development partners. The TERM has now been operational for two years. The World Bank played a major role in development of the TERM, from the initial conception of the scope and approach, through support for and supervision of the key analytic work, managing the coordination of long-term energy sector development partners as well as helping to bring on board new players, and synthesis of the inputs into the final TERM document. The proposed project forms an integral part of the Bank’s overall energy sector engagement in Tonga: beginning with the intensive technical assistance (TA) and dialog around development of the TERM, an Energy Sector Development Policy Operation (DPO) that was completed in FY11, and the first in the programmatic series of two DPOs which include a focus on key actions in the energy sector that was completed in FY12, with the second proposed for FY13.The approach set out in the TERM is fully in line with the institutional agenda on Climate Change. Driven by energy security, the TERM integrates energy efficiency and renewable energy generation into the mainstream sector planning and policy framework, through the focus on reducing vulnerability to oil price rise and shocks as a key factor in enhancing national energy security. The GOT also recognizes the importance of seeking for climate finance associated to clean energy investments given the important contribution to support their sustainability.PROJECT DEVELOPMENT OBJECTIVESPDOThe Project Development Objective (PDO) is to support the strengthening of the institutional and regulatory framework of the Tonga Energy Roadmap.The TERM sets out a ten year road map to reduce Tonga’s vulnerability to oil price shocks and achieve an increase in quality access to modern energy services in an environmentally sustainable manner. The proposed project will provide assistance to strengthen the core institutions and regulatory framework relating to TERM and it is a key precursor for the ongoing and planned operations under the Energy Roadmap (see Annex 4). Project BeneficiariesDirect beneficiaries of this project are TERM-IU and TPL, and indirectly energy consumers (households and businesses). The project’s support to TERM implementation is expected to lead to more efficient use and targeting of available resources which will in turn lead to lower, more stable electricity tariffs, improved quality of electricity service and improved access to affordable electricity. The project’s assistance to a sector structure and institutional arrangements to coordinate strategic planning and targeting of resources will set in motion actions to improve the efficiency, cost-effectiveness and transparency of the sector institutions, investments and operations. Support for the development of robust process and financing mechanisms and investment in renewable energy will improve the effectiveness and rate of diversification from diesel-based power generation. Improved petroleum price risk management will contribute to electricity price stability, including all petroleum end users and facilitate planning and management of Tonga’s balance of payments situation.Reducing the vulnerability of the economy to oil price rises and shocks will improve the macroeconomic stability which will have positive implications for the general public. Benefits with respect to the energy sector aspects also extend beyond Tonga. The process of developing and now implementing the TERM is widely seen in the region as a concrete example of a new paradigm for Government leadership and development partner coordination to undertake sensible planning followed by coordinated implementation. PDO Level Results IndicatorsProgress will be measured against the following results indicators:Sector structure and institutional arrangements operate to coordinate strategic planning and targeting of resources to implement TERM.TPL system is more robust with respect to accepting energy supply from intermittent sources and delivers quality electric power. Internationally-recognized network reliability criteria such as the System Average Interruption Duration Index (SAIDI) is currently monitored by TPL management. TPL will seek to track SAIDI minutes saved as a measure of the success of the project.PROJECT DESCRIPTIONProject ComponentsThe Project will consist of two components:Component 1: Strengthening the Energy Sector Framework and Structure (AusAID/PRIF US$0.70 million; ASTAE US$0.40 million; GOT US$ 1.00 million. Implementing Agency: TERM-IU). This component will support the GOT to strengthen the functioning of the TERM-IU including through technical assistance in the areas of: (i) energy sector policy; (ii) environmental and social safeguard frameworks; (iii) petroleum price risk management strategy; (iv) feasibility studies for power generation from renewable sources; (v) detailed surveys for electricity use; and (vi) development of a communication plan (including awareness and dissemination material in local language) for the Energy Roadmap in order to rally key stakeholders around long-term goals and activities being implemented, thus mitigating risks of ponent 2: Preparing TPL for Renewable Energy Supply (AusAID/PRIF US$1.80 million; TPL US$0.10 million. Implementing Agency: TPL). This component will support TPL to strengthen its capacity to: (i) carry out power system modeling to determine the most cost effective way to diversify energy generation, with a focus on achieving a high long-term renewable and distributed energy penetration; (ii) design and specify upgrades to monitor, control, and protect systems to ensure a reliable and secure supply of energy through the electricity system with high levels of renewable energy generation; (iii) develop standards and procedures for connection to the power system by independent power producers; and (iv) develop (in conjunction with TERM-IU and to be approved by TERM-C) a power system plan for a period of five years focusing on specific renewable energy technology projects such as solar, wind, biomass and biofuels, but also covering energy storage options and demand side management.Project FinancingInstrumentFinancing will be provided by AusAID through the Pacific Region Infrastructure Facility (PRIF), the Asia Sustainable and Alternative Energy Program (ASTAE), GOT, and TPL. Retroactive financing of up to 20% of the grant funding is included. Project Cost and FinancingTable 4. Project cost per source of financeProject ComponentsProject costAusAID/PRIF ASTAE Financing% FinancingComponent 1: Strengthening the Energy Sector Framework and StructureComponent 2: Preparing TPL for Renewable Energy SupplyTotal Project Costs2.101.904.001.101.802.9052%95%72%Lessons Learned and Reflected in the Project DesignLessons learned during the development of TERM-A are reflected in the design of this operation. The TERM has strong government ownership and is the best example of development partner harmonization in any sector in Tonga. Every aspect of the TERM program is customized for Tonga. A key lesson learned is the importance of a “whole-of-sector” approach as opposed to isolated and disconnected interventions. Both technical assistance and investment support are more effective when there are real plans and opportunities to put it into practice. Another important lesson is information sharing and coordination with other development partners from an early stage, as well as the proper identification of the stakeholder groups and their representatives. Moving forward with a “whole-of-sector” approach requires a strong development rationale and perceived domestic benefits for which a communicating adequately with the different stakeholders and constituencies becomes essential. IMPLEMENTATIONInstitutional and Implementation ArrangementsTERM Governance StructureTERM. In April 2010, the main report of the Tonga Energy Road Map 2010-2020 (TERM) was completed and published. In June 2010, the Tonga Petroleum supply report was submitted to the GOT. This petroleum report and recommendations are a critical component of the TERM. The TERM was then approved under Cabinet Decision 739 of 20thAugust 2010. TERM-Agency (TERM-A). On April 20 2012, Cabinet approved the TERM-Agency (TERM-A) as an inherent body responsible for energy matters under TERM. As a Government Agency, TERM-A will act on behalf of Cabinet, and shall be accountable directly to Cabinet, in accordance with the mandate given to it by Cabinet. TERM-A is responsible of achieving the objectives of TERM on behalf of the Government. All energy related projects detailed under the TERM will be the responsibility of the TERM-A.TERM-Committee (TERM-C). Within TERM-A there is the Tonga Energy Road Map Committee (TERM-C) which is the governing entity within TERM-A, and, as approved by cabinet, have the following mandate:Consider the proposed institutional reformation and all energy sector related projects, taking into consideration the whole of Government institutional rationalization programme;Coordinate on Ministry cross cutting energy sector related issues ensuring an integrated approach to the energy sector reformation program as outlined in TERM;Approve projects for the energy sector as detailed under the TERM, taking into account the equitable distribution of development benefits and environmentally sustainable development of the energy sector;Monitor the progress of the TERM implementation and meet with the GOT Development Partners annually to review the TERM;Oversee and approve the operation of TERM-IU, in particular to budget, staffing and TERM-IU program implementation of TERM;Determine own operational procedures and TERM-IU operational procedures (based on Government regulations) as approved by cabinet;Convene at least once a month or more if needed; andReport at least once a month to Cabinet on the progress of TERM. TERM-C is a dedicated and collective policy management and oversight organisation (whilst independent of discreet energy related Ministries) in order to be able to support the achievement of TERM objectives. TERM-C is acknowledged as crucial to the success of TERM and continued Development Partner funding. The members of TERM-C are: (1)Prime MinisterChair(2)Minister of Environment & Climate ChangeAlternate Chair(3)Minister for Finance and National PlanningMember (4)Chairperson Public Service Commission Member(5)Secretary for Foreign AffairsMember(6)Director of Environment & Climate Change Member(7)Secretary for Finance and National PlanningMember(8)Secretary for Labour, Commerce & IndustriesMember(9)Director for Public EnterprisesMember(10)Secretary for TransportMember(11)Solicitor GeneralMember(12)Secretary (to be appointed by TERM-C) MemberThe role of Secretary is to be responsible for keeping a regular oversight on the performance of the Director of TERM-IU, facilitating Sub-Committee work commissioned by TERM-C, and working with individual TERM-C members on matters directed and required by TERM-C.TERM Implementation Unit (TERM-IU). TERM-IU is the operating entity under TERM-C directly implementing TERM. The Implementation Unit was given the following mandate by TERM-C:Implement TERM objectives as detailed in the TERM document, endorsed by TERM-C and approved by Cabinet;Source development partner funding for the operation of TERM-IU and TERM projects for a period of not less than 5 years (3 years remaining from April 2012);Recruit appropriate staff for TERM–IU (local and overseas technical expertise); Coordinate the projects and different phases of TERM implementation; Provide secretariat services to TERM-C;Report at least once a month to TERM-C on the operation of TERM-IU (financial and program management); Comply with Government financial management and procurement regulations; and Transition the TERM-IU, upon completion of TERM implementation, to a Ministry the Government decides upon.The interim TERM-IU Director was appointed in February 2012 for a period of six months. The substantive TERM-IU Director will be appointed by July 2012 for a term of two years, and will be responsible for inter alia; quality, relevance, and coherence of the work of the Unit as well as recruitment of key personnel for the IU; design and implementation of the Unit’s work program for the first two years; and monitoring and regular reporting of the Unit’s activities and outputs to the TERM-C. The Director of TERM-IU is not a Member of TERM-C but presents and reports on relevant matters to TERM-C during its normal meetings and provides secretariat support services, through the TERM-IU, at TERM-C meeting.Tonga Power Ltd (TPL)TPL’s organizational structure is in accordance with the Public Enterprise Act 2003. It establishes a Board that reports to its shareholder the GOT through the Ministry of Public Enterprise (MPE). The MPE oversees all of GOT’s shareholdings and monitors the performance of the State Owned Enterprises (SOEs). Tonga's SOEs and TPL in particular have performed comparatively better than those of other Pacific countries because this governance structure generally allows them to operate independently of the political process, with fewer unfunded Community Service Obligations (CSOs).As part of TPL’s recognition of the importance of coordinating the implementation of donor-funded projects, all donor-funded projects generally fall directly under the responsibility of the CEO with day-to-day management of projects expected to fall under the proposed ‘Strategic Initiatives’ unit.Results Monitoring and EvaluationAnnex 1 sets out the Results Framework and indicators that will be used to monitor and evaluate the project.SustainabilityPreceding the preparation of this project, the GOT and TPL have undertaken a number of actions demonstrating commitment to working with the WB and other Development Partners (DPs) to begin to address key energy sector issues. The development of the TERM is a clear example of strategic focus and thinking in this regard. The setting up of the TERM-C and the TERM-IU, together with the periodic TERM-Coordination meetings and follow up, provide enough comfort level of the GOT’s commitment towards the sustainability of the program. KEY RISKS AND MITIGATION MEASURESThe 2010 national elections under the new constitutional arrangements proceeded smoothly. The new administration has made transparency and good governance a centrepiece of its platform and has affirmed its commitment to implement the TERM. One major pressure point for the new government – the budget gap – is being partly addressed by a series of WB-funded budget support operations which include a strong focus on implementing key aspects of the TERM. The TERM features prominently in the GOT’s dialog with other development partners, both traditional and new partners that have been attracted to provide support to Tonga in part because of the GOT’s commitment to the TERM. Both the previous and current administrations have enthusiastically adopted the TERM and it has gained regional prominence. The risk of developments at the country level disrupting the GOT’s efforts to implement the TERM is considered low. The proposed WB project is fully aligned with the TERM and consequently the risk from events at the country level is considered low.Implementation risksRisk associated with stakeholders is considered to be moderate to low. In any project involving a shift in institutional authority and/or a revision to laws and regulation, some individual stakeholder interests will inevitably not be fully met. Implementation of the TERM will involve such changes. Mitigation of stakeholder risk is an early and continued effort at building broad stakeholder support. Within the GOT this process is underway with respect to the institutional changes to strengthen the TERM-IU, which are being managed as an integral part of the overall civil service reform program. The TERM-IU, with assistance from REEEP, will actively engage in consultation with respect to proposed changes in the policy, legal and regulatory structure, with inputs from Parliament, business associations, and a broad range of government stakeholders.Risk associated with the GOT’s commitment to implementing the project is considered to be low. The GOT has taken a number of actions, including Cabinet approvals and made high level commitments with traditional and new development partners associated with the TERM implementation. Risk associated with implementing agencies’ capacity is considered to be moderate. The GOT has taken a number of actions to strengthen implementation capacity, including sourcing and allocating new bi-lateral funds to the restructuring of the TERM-IU, appointing a high level TERM-IU interim Director and three core support staff, partnering with REEEP and obtaining Cabinet approval of TERM-A as a Government Agency responsible of achieving the objectives of TERM on behalf of the Government. TPL management has demonstrated willingness and ability to implement technical improvements. More details follow in the section below.Implementing Agency AssessmentTERM-IU. This is a newly restructured entity, but with resources, experienced leadership and high level GOT support to quickly access implementation support from across GOT, e.g. from ministries responsible for environment and land/compensation issues. Procurement training will be provided to designated technical staff and if necessary the proposed project will support a short-term consultant to progress procurement activities initially. Financial Management will be handled through the normal Ministry of Finance channels.Tonga Power Ltd. TPL is already implementing a new solar PV electricity supply on the Tongatapu grid planned for August 2012 and preparing for subsequent renewable energy (RE) projects on the other three grids. Managing the existing grid to accommodate RE supply is becoming part of their core business. The support under the proposed project is integral to TPL’s ability to plan and improve the grids to make best use of new RE supply. TPL will assign a senior staff member to head up the TPL Project Management Unit. Procurement training will be provided to designated technical staff and if necessary the proposed project will support a short-term consultant to progress procurement activities initially. Staff in the finance and accounts unit will receive training on WB financial management (FM) and disbursement. If necessary the proposed project will support a short-term consultant to progress support FM function while TPL staff becomes familiar with WB processes. TPL already prepares annual audit reports which will be extended to include audit of funds from the proposed project.Project Stakeholder AssessmentThe TERM generally enjoys broad support across the Government and this extends to the proposed WB-supported project to assist in TERM implementation. However, as implementation of the TERM and the proposed WB-supported project will involve a shift in institutional arrangements and/or revision to laws and regulations, some stakeholder resistance may be expected. Early and continued broad-based consultation lead by the TERM-IU with the assistance of REEEP will help to understand any concerns and address these to the extent possible. TERM has already been widely available in public since its adoption in June 2010. DPs and Regional entities have been involved through the development of the TERM and re-confirmed support for TERM implementation at the May 2011 first annual TERM review.Table 5. Risk Ratings SummaryRiskRatingStakeholder RiskLowImplementing Agency RiskCapacityModerateGovernanceLowProject RiskDesignLowSocial and EnvironmentalLowProgram and DonorLowDelivery Monitoring and SustainabilityLowOverall Implementation RiskModerateOverall Risk Rating ExplanationThere is strong, broad-based GOT ownership of the TERM. Cabinet has recently approved the creation of TERM-A as a Government Agency responsible for the implementation of the Energy Roadmap. The GOT has appointed an experienced interim Director of the TERM-IU and the TERM-IU is partnering with REEEP for early, hands-on assistance in implementation and strategic guidance. The GOT has obtained donor funding for start-up of the TERM-IU. The proposed project directly supports the institutional and regulatory framework strengthening of the Tongan energy sector. This project is an integral part of a strong WB energy and macroeconomic dialog with the GOT, which also includes a series of budget support operations with a focus on energy issues. APPRAISAL SUMMARYEconomic and Fiscal ImpactsThe proposed project will provide assistance to strengthen the core institutions and regulatory framework relating to TERM and it is a key precursor for the ongoing and planned operations under the Energy Roadmap. As described below, the net economic impacts of implementation of the TERM will be positive and substantial. This underscores the importance of the institutional and sector framework assistance that will be provided under the proposed project, in response to the GOT’s request. ElectricitySuccessful implementation of the TERM is expected to yield substantial reductions in diesel imports for electricity generation purposes, relative to a business-as-usual approach. This, in turn, is expected to reduce the merchandise import bill and the current account deficit, and improve overall price stability in the event of oil price spikes, without significant detriment to government revenue from diesel imports.For illustrative purposes, estimates have been generated for alternative scenarios in 2020, based on the extent of the implementation of the TERM. In the event that electricity supply and demand are made more efficient and reasonably large-scale use of renewable energy sources is achieved by 2020, diesel imports for electricity generation are estimated to be some 45 percent below those under a business-as-usual scenario. Other things being equal, that reduction in diesel imports for electricity generation is estimated to have the following implications for government revenue from diesel imports, merchandise imports and the current account deficit, and overall price stability in 2020:Government revenue from diesel imports is likely to fall by a negligible amount (estimated to be a fall of just over 0.1 percent of total government annual revenue). The reason for this negligible impact on government revenue is because government does not derive significant revenue from diesel imports for electricity generation under the tax regime as it currently stands: these imports are exempt from excise tax on fuel; as an intermediate good they do not incur consumption tax; and the wharfage they do incur is a negligible contributor to government revenue.Merchandise imports are likely to fall significantly, given both the estimated size of the reduction in diesel imports for electricity generation and the significant share of merchandise imports that diesel imports represent. Given a mid-range fuel price forecast, the reduction in diesel imports for electricity generation in 2020 is estimated to yield a merchandise import bill that is almost 6 percent less than the business-as-usual scenario. That, in turn, would reduce the current account deficit by nearly a quarter, relative to the business-as-usual scenario.The volatility of the electricity price – and, in turn, of the overall level of prices – in the event of a spike in oil prices is expected to fall in the event that efficiency gains and large-scale renewable energy use is achieved by 2020. For example, a fuel price spike from a low price forecast in 2020 to a high price forecast (nearly a 150 percent price increase), is estimated to increase electricity prices by just under 40 percent – relative to a more than 80 percent increase in electricity prices under the business-as-usual scenario. Overall, then, this would more than halve the inflationary impact of the rise in electricity prices caused by such a fuel price spike.The above estimates are simply provided for illustrative purposes. They focus on estimating direct impacts of the reduction in diesel imports for electricity generation, and are not intended to capture wider implications of reduced energy costs, for example on the general level of business activity. In making these estimations, it is assumed that the changes that need to be made under the alternative scenarios have been completed by 2020. This means, for example, assuming that the equipment required establishing large-scale renewable energy generation has already been imported by 2020. In each case, the estimates are made using the assumption that other things remain the same. For example, in estimating revenue impacts, it is assumed that the current tax regime remains in place in 2020.Petroleum Tonga’s high dependency on petroleum for its overall energy needs (i.e. energy for both its stationary and transport sectors) is likely to continue, even if steps are taken to improve fuel efficiency in the power sector and diversify some power generation towards renewable energy sources. For Tonga, there appear few other sources of energy with the security and reliability of supply, proven performance, energy density and portability of petroleum fuels. Tonga’s energy policy needs to recognise that oil will continue to play a vital role in meeting the energy requirements of the country, and appropriately manage the risks and consequences of this energy dependency. Tonga’s high dependency on imported petroleum products to meet its energy demands makes Tonga highly vulnerable to two types of risks: 1) Oil price shocks; and 2) Interruptions in the delivery of fuel. These risks pose threats to Tonga’s energy security.Recent analysis of Tonga’s downstream petroleum sector identified a number of gaps and made recommendations aim to: (i) improve the regulation of the petroleum sector; (ii) improve petroleum supply chain efficiency; and (iii) introduce improved risk management practices. These recommendations are summarized below. A number of the recommendations are for further, more detailed assessment in certain areas - making it premature to quantify the economic or fiscal benefits. Other recommendations target actions to bring the sector up to international standards with respect to safety and environmental considerations. In some cases, this requires that Tonga’s existing laws and regulations be implemented and enforced. In other instances, changes to current laws, regulations and their application are recommended. The cost to the economy and environment of delaying or avoiding improvements in these areas could be very high, especially given the central location of the fuel storage facilities on Tongatapu. The recommendations also include the introduction of price risk management. The main benefits would be greater price stability overall and in particular a much reduced exposure to price spikes which can have a destabilizing effect in a small economy such as Tonga’s. Illustrative cost/benefit analysis for a range of price risk mitigation instruments applied to petroleum prices in Tonga using actual data from 2009 show a break-even to small (~$0.4 million) cost of purchasing a financial cap, on a quarterly basis, to hedge the total annual petroleum import for Tonga. This indicates that the cost of reducing the petroleum price risk is likely to be manageable, and in years where the price rises quickly, the benefits could be substantial. Clearly more detailed analysis of specific options would be required to select the best strategy for Tonga and to quantify the potential fiscal and economic impacts. The recommendation is for Tonga to begin to gain experience with simple price risk management instruments (e.g. caps or swaps) covering only a limited portion of the annual fuel purchase volumes initially. The gradual introduction of financial hedging on some of the fuel volumes imported into Tonga (such as those used for power generation) has enabled the understanding of financial risk management to grow, together with an understanding of the costs, benefits and risks of various hedging strategies.The Project will provide technical assistance and capacity strengthening for TERM-IU and TPL aimed at improving energy security and reducing vulnerability to oil price shocks in Tonga.A Petroleum Assessment Report is currently being prepared, for review by TERM-C in July 2012. This will inform Government policy decisions regarding reforms to the downstream petroleum sector and national energy security.Mitigation of Tonga’s energy security risks would involve a portfolio approach that could include:Fuel substitution; for example: a) using renewable energy to displace oil fired power generation when renewable are economically, technically and financially feasible; b) using LPG instead of electricity for some energy services such as cooking and air-conditioning;Energy efficiency programs in the power generation and transport sectors; on both the supply side and usage side. For example, on the supply side: improving fuel efficiency of power generation; reducing electrical losses on the network; implementing minimum efficiency standards for appliances, motor vehicles, and boat engines. And, on the usage (or demand) side, implementing programs to encourage: energy conservation; uptake of efficient appliances; and switching to more fuel efficient motor vehicle and marine engines.Improving the efficiency of petroleum supply chains to and within Tonga, so that there can be reductions in the significant costs associated with fuel transportation, storage and handling. Tonga’s remoteness, combined with its small fuel consumption means that transport and storage cost are high on a per liter basis and this feeds in directly to the cost and affordability of energy in Tonga. Improvements in the efficiency of the fuel supply chain, if passed on to Tonga’s users, will have a direct impact on the price and affordability of energy in Tonga — in both the transport and electricity sectors.Developing a national policy on minimum levels of fuel safety stocks, and balance of these between on-shore and off-shore storage facilities. This would inform any policy and investment decisions on new storage capacity in Tonga to ensure at least 30 days of fuel reserves are held, for each type of petroleum fuel;Emergency fuel rationing. Develop a detailed contingency plan for managing a liquid fuels shortage in Tonga, including fuel rationing arrangements. Regularly test and improve the plan by conducting simulated fuel emergencies, as required by Tonga's existing emergency management laws.Financial risk management. Increase the use of financial hedging for more of Tonga's fuel supply, drawing on lessons learned from the experience of TPL in 2011. This could mitigate the amplitude of energy price fluctuations in Tonga, and the negative impact this has on the price of goods and services, national inflation, and energy affordability. Options for an institutional framework for commodity price risk management were discussed in the World Bank’s 2010 petroleum report and these can be further elaborated during project implementation.Upgrading downstream petroleum safety, licensing and regulation as a means of ensuring national energy security and reliability of supply. Review and update Tonga’s outdated Petroleum Act (1959) and Petroleum Regulations (1960), with the objective of bringing them up to best international practice in terms of licensing, safety planning, validation and verification of asset integrity and fuel handling processes.Seeking to improve the fuel efficiency of Tonga’s transport sector, which accounts for 75% of petroleum imports, versus the 25% used in the power sector. Review Tonga's current vehicle fleet, its growth and likely future composition to inform: a) the review of Tonga's fuel standards; and b) fuel consumption projections. This is critical to understanding fuel demand in Tonga, as around 75% of fuel is used for transportation (land, sea and air); the vehicle fleet is growing; and the efficiency of fuel consumption in transport is a key issue for the TERM which has not yet been assessed.Introducing fuel standards that are appropriate for Tonga's conditions and engine fleet, and efforts to improve its energy efficiency.Modern engines combined with modern fuel quality results in high fuel efficiency. Old vehicles, old and badly tuned engines and lower quality fuels equals higher fuel consumption and operating costs.Moving to reduce the age of Tonga’s vehicle fleet (land & sea) and replacing engines with more modern and efficient ones will take time, but provide benefits, especially if better quality fuels are available. At present, most of Tonga’s vehicle fleet is old, with high mileage and old second hand or third hand imported motor vehicles. And there are no national fuel standards.Importantly, the quality of fuel also affects its price, so greater scrutiny of any fuel quality premia built into Tonga's fuel pricing template is recommended. At present, Tongans pay fuel quality premia on each litre of the fuels they consume, but there is no independent testing by the government of the actual quality of fuels. This whole-of-sector approach is something that was absent in Tonga until the TERM. The lack of such an approach, combined with a lack of adequate resources to implement it effectively and political will, are some of the key reasons for the “fuel crisis” that struck Tonga and other Pacific Islands in 2008. Implementation of the TERM is about mitigating the risks arising from a high dependency on imported fuels for energy, inefficient use of energy. It is also about addressing fundamental historical weaknesses in the areas of energy planning, energy policy, and dealing effectively with national energy security issues — particularly financial risks and supply interruption risks. By addressing these issues effectively, energy security and energy affordability in Tonga will be improved. Illustrative Economic AnalysisBecause this Project aims mainly at building capacity and enabling environment to establish a foundation of sustainable energy sector in the future, direct economic impacts cannot be measured and its impacts are largely indirect (e.g. scaling up of renewable energy and energy efficiency investments due to the capacity and enabling environment established by the Project) and long term. For this reason, the immediate foreseeable impacts represent only illustrations of small initial portion of the real impacts coming along. However, these attempts to illustrate the immediate impacts are important because the results can provide a general direction of the proposed project’s impacts and can indicate which variables are sensitive to the expected benefits in terms of net present value (NPV). These sensitivity analyses are crucial for the decision makers as this will indicate which areas that interventions should focus in promoting energy security, renewable energy and energy efficiency in implementing TERM.In this preliminary indicative economic analysis, the economic costs of the project include: (i) Project cost (TA), (ii) investment and operation and maintenance (O&M) costs of generic examples of two 1 MW capacity solar power plants, since this project will provide the enabling environment. These solar power plant costs are based on indicative analysis from the TERM report in 2010. The economic benefits of the base case were valued by (i) the fuel (diesel) and O&M costs savings from (a) two solar power plant and (b) the reduction of the system loss due to the results of capacity building of the Project that strengthens necessary institutional environments and technical capacity; and (ii) reduced fuel import values by keeping fuel import share no more than 10 percent of GDP though the petroleum price risk management under the project. Additional associated economic benefits are: (i) reduced NOx impacts on health and social welfare, and (ii) reduced global economic benefits of CO2 emissions. However, these might not be relevant under the current situation in Tonga and thus will be presented only for illustrative purposes in case diesel use remains high and urbanization is intensified.The base case economic internal rate of return (EIRR) is estimated at 53.0 percent with an NPV at 10 percent of US$ 280.8 million (Table 6). An illustration of indicative estimates of distributional impacts are presented in Table 7. Consumers would be the largest gainer due to the avoided fuels costs passed on to the electricity bills and other fuels costs. Suppliers (TPL and TERM-IU) would gain from avoided costs of fuel and O&M costs of diesel power plants and system loss reduction. The government would have used the cost of investments for other purposes such as other projects in energy, health and/or education sectors. The basic need poverty incidence rate was 22.5 percent in 2009. Thus, 22.5 percent of the benefits to the government and consumers are assumed to be allocated to the poor. This resulted in the poverty impact ratio of more than 20 percent on the basis that 20 percent is derived from the existing poor (22.5 percent) but also there would be an increase of poor due to the increased fuel costs in the counterfactual scenario.Table 6. Indicative Key Project Economic Analyses Results10 percent discount rateBase caseNPVUS$ 280.8 millionEIRR53.0 percentTable 7. Distribution of Impacts of Indicative Project Economic Analyses ResultsConsumersGovernment/EconomySupplier (TPL and TERM-IU)$269.7 million-$16.0 million$27.2 million96%-6%10%Of which poor (based on poverty incidence of 24% in FY03/04)$64.7 million -$3.9 million0Poverty Impact RatioMore than 20% (based on the existing poor 20% in FY03/04 + mitigation of potential increased poor by prevention of increased fuel imports)Sensitivity analyses at 10 percent discount rate are conducted to evaluate changes in the effectiveness of fuel price risk management to contain the incremental share of fuel import value that exceeds more than the current 10 percent of GDP, and in capital costs of the solar power plants.Table 8 shows that if the Project’s fuel price risk management could contain only 50 percent of the increased share of fuel import over the current 10 percent share of GDP, EIRR decreases from 53.0 percent to 42.3 percent and NPV decreases from US$280.8 million to US$134.9 million. Switching value (SV) is 3.7 percent and sensitivity indicator (SI) is 1.04. This means that in order for the NPV at 10 percent to be breakeven, the fuel price risk management needs to contain at least 3.7 percent of the increased share of fuel import that exceeded more than the current 10 percent share of GDP.Table 8. Changes in Containment of Increased Fuel Import Values% coverage of an increase over 10% import share of GDP100%50%NPV280.8 million134.9millionEIRR53.0%42.3%SI1.04SV96%,3.7%Table 9 shows that when the capital cost of solar power plant decreases from US$6,900/kW to US$6,000/kW (i.e., total project cost increases from US$17.7 million to US$15.9 million), the NPV increases from US$280.8 million to US$282.4 million and the EIRR increases from 53.0 percent to 56.1 percent. Switching value (SV) is US$161.3 million/kW of solar power plant cost (i.e., the project cost is US$326.6 million) and sensitivity indicator (SI) is -0.06. Thus, the changes in the capital cost do not have significant impacts on EIRR because there are other benefits such as the fuel price risk management.Table 9. Changes in Capital CostProject costs 17,70015,900NPV 280.8 million282.4 millionEIRR53.0%56.1%SI-0.06?SV-1,745%326,576This means that the fuel price risk management is crucial to ensure that the project outcome benefits to the society of Tonga. Especially without the fuel price risk management, the incremental fuel prices will be reflected in the electricity tariff and will be passed on to the consumers. According to TERM (page 18), no correlation was identified between tariffs and consumption. This means that even when the tariff level may increase, the consumers may have difficulties in adjusting the level of consumptions accordingly (assuming economic growth and GDP per capita remain stable). Therefore, without the effective fuel price risk management, there would be a high risk that a sizable amount of populations could slip into poverty or could be under fluctuations of in- and out- of poverty due to the uncertainty of volatile fuel prices.For illustrative purpose, if the value of reductions of CO2 emission is included, EIRR becomes 53.1 percent with an NPV at 10 percent of US$ 281.0 million. With NOx impacts added to CO2, EIRR becomes 62.0 percent and an NPV is US$ 300.5 million. This high NPV and EIRR is because the NOx impacts are health and social welfare impacts including premature respiratory (70 percent), adult chronic morbidity (10 percent), material soiling (5 percent), acute morbidity (10 percent), and visibility reduction (5 percent). Poverty and Social ImpactsImplementation of the TERM supported by this institutional strengthening project will have significant, direct positive social impacts including: reducing household expenditure on electricity services through reduced cost of supply passed on to consumers and improved end-use efficiency to reduce the amount of electricity required to achieve a given level of electricity services; reducing the volatility of electricity prices so that households can budget sensibly for the cost of electricity. improving access to affordable, quality electricity services in remote areas. The Off-Grid Initiative which is part of the TERM will provide remote communities with access to electricity options from renewable sources that are sustainable and also provide for their varied power needs. The program aims to provide both enhanced quality of life and offer the potential to increase economic activity of the outer islands communities through a novel “Tiered Approach”. The approach takes into account the wide variation of energy demand and development opportunities as well as the economic abilities throughout the islands and to match the supply concepts to match energy demands. The TERM includes principles of environmental and social impact assessment as an integral part of new energy sector investments. Any potentially negative social impacts will be identified and plans developed to avoid or mitigate possible negative consequences.A key social issue that the implementation of the TERM is seeking to address is affordability of energy. A large share of household expenditure is on energy: for cooking and lighting (e.g. electricity, LPG, firewood, kerosene); and for transportation (of people, for economic activity such as farming or fishing, or to get products to and from markets). High costs of energy can adversely impact on disposable incomes of households, their buying power, and the net incomes they receive from economic activity. People near the poverty lines among about 95 percent of the total population connected to the grids in Tonga are at risk to slip in to the poverty due to increasingly volatile fuel prices. As noted above in the economic analyses, the available data on basic need poverty incidence was 22.5 percent in 2009. Applying the July 2011 tariff of TOP0.98/KWh or US$0.57/KWh and GDP per capita as a proxy to an average income per capita, a share of expenditure of electricity within per capita GDP is 9.4 percent. Ten percent share of electricity expenditures within the household income is often regarded as a measure of affordability. Further fuel price increase pushing up the electricity tariff, e.g., 20 percent increase of TOP 1.2/KWh, would lead to 11.3 percent share of electricity expenditure within per capita GDP. This means households who are just above the poverty line are at high risk to slipping into poverty and would need to go through uncertain livelihoods fluctuating below and above the poverty line in tandem with the fluctuation of fuel prices. Therefore, improving fuel price and supply risk management and laying the foundations for Tonga to introduce renewable energy in the electricity system would contribute to reducing the vulnerability to fuel prices and supply fluctuations, increasing energy security and mitigating the increase of poverty.Financial ManagementThe financial management assessment was carried out in accordance with the “Financial Management Practices in World Bank-Financed Investment Operations”, issued by the Financial Management Sector Board on November 3, 2005 and further rationalized in the “Principles Based Financial Management Practice Manual” issued by the Board on March 1 2010. Under the Bank’s OP/BP 10.02 with respect to projects financed by the Bank, the borrower and implementing agency are required to maintain financial management systems – including accounting, financial reporting, and auditing systems adequate to ensure they can provide the Bank with accurate and timely information regarding the project resources and expenditures. Overall, the financial management arrangements satisfy the financial management requirement as stipulated in OP/BP 10.02, subject to implementation of agreed actions and mitigating measures. The assessed financial management risk of the project before the mitigating measures is considered substantial and could be reduced to moderate after the proposed and existing mitigating measures are implemented and have shown effective impact. The FM requirements for this project are quite straight forward and hence there are limited mitigating measures. The main risk is the current lack of structure in the TERM-IU and hence no accurate FM capacity assessment can be conducted. The mitigating measures to overcome this are: (1) Not to open a Designated Account (DA), (2) To realize payments only through Direct Payments by the Bank and receive reimbursements for prefinanced activities, (3) TERM-IU will employ a person with the appropriate accounting skills to enable the preparation of Withdrawal Applications (WA)for the Direct Payments, accurate recording of financial transactions, consolidation of the reports, and preparation of accounts for audit, and (4) TERM-IU will determine what accounting software (or spreadsheet) will be used to maintain the financial records for Component 1. All requirements need to be in place within 3 months from effectiveness.ProcurementProcurement Risk Assessment: An assessment of the capacity of the Implementing Agencies (TPL and TERM-IU) to implement procurement actions for the Project was carried out in November 2011. The assessment reviewed the organizational structure for implementing the Project and the interaction between the staff responsible for procurement and other national agencies. The overall Project risk for procurement is “high”, consistent with the operational procurement review (OPR). The agencies risks were assessed as “high” for TERM-IU and “substantial” for TPL. Most of the issues/ risks concerning the procurement component for implementation of the Project have been identified as: TERM-IU is a recently created entity composed currently of an Interim Director and three core support staff with no procurement experience and TPL’s lack of experience with the World Bank procurement policies. An action plan has been proposed and with the implementation of the mitigation measures the overall risk is expected to be reduced to “substantial” during implementation (see Annex 3).Social (including Safeguards)This project has been classified as Category C and is likely to have no adverse social impacts. The project does not trigger any of the social safeguard policies. The project involves funds for the TERM Implementation Unit, policy, strategic planning and changes to the electricity network (equipment, systems and procedures). The changes to network equipment will be small scale, and not require any structures, earthworks or other construction work that will adversely affect the community or environment.It is recognized that other components of the TERM (not funded by this project) may have potential adverse social impacts, in particular renewable energy generation projects funded under TERM, for example through the Tonga Green Investment Fund (TGIF) currently under design. Part of the scope of work for Component 1 of this project is to assist the TERM-IU to prepare the Environmental and Social Management Framework (ESMF) in preparation for TGIF funding at a later stage and any other TERM related investment. The ESMF will provide the framework for TERM-IU and / or developers to: (i) identify suitable land for development, (ii) approaches to consultation, (iii) methods for land acquisition and compensation, and (iv) prepare Land Acquisition and Resettlement Action Plans (LARAP) that meet the safeguards policies of the World Bank (and other donor agencies) and the Tongan legislation. Environment (including Safeguards)This project has been classified as Category C and is likely to have no adverse environmental impacts. The project does not trigger any of the environmental safeguard policies. It is recognized that other components of the TERM (not funded by this project) may have potential adverse environmental impacts, in particular renewable energy generation projects in preparation for TGIF funding at a later stage and any other TERM related investment. The TGIF ESMF (prepared under Component 1 of this project) will provide the framework for TERM-IU and / developers to prepare Environmental Impact Assessment (EIA) and Environmental Management Plans (EMP) that meet the safeguards policies of the World Bank (and other donor agencies) and the Tongan environmental legislation.An outline ESMF has been prepared by TERM-IU, but the document needs further work to detail the process of preparing the EIA, EMP and LARAP, and guidelines for community consultation. The document will also need to clearly show how these processes fit into the overall process of TGIF funding approval for renewable energy projects. The approach will be to develop the ESMF at the same time as the design of the TGIF to ensure that the requirements of the ESMF are integrated into the functions of the TGIF and vice versa. This approach will also ensure that the requirements of the ESMF are discussed during the various consultations about the funding scheme.Annex 1: Results Framework and MonitoringProject Development Objective (PDO): The Project Development Objective is to support the strengthening of the institutional and regulatory framework of the Tonga Energy Roadmap.PDO Level Results Indicators*CoreUnit of MeasureBaselineCumulative Target Values**Freq.Data Source/MethodologyResponsibility for Data CollectionDescription (indicator definition etc.)YR 1YR 2YR3Indicator One:Petroleum risk management framework completed. FORMCHECKBOX Framework completed and submitted to TERM-C.No risk framework currently in place.Draft risk management framework completed.Active consultations on draft framework across government entities and non-gov’t partners. Framework submitted to TERM-C for consideration.Risk management framework adopted.As needed.TERM-IUStatus of documents (drafts for review etc).Indicator Two:Environmental and Social Management Framework completed. FORMCHECKBOX Framework completed.Significant gaps in existing environment and social management framework.Consultants in place for key studies.Active consultations on draft framework across government entities and non-gov’t partners.Framework submitted to Cabinet for approval. As needed. On-going supervision.TERM-IUStatus of documents (drafts for review etc).Indicator Three:Development Plan for the grid completed. FORMCHECKBOX Plan completed as basis for future investments in the grid.Out-dated studies with insufficient detail to support good planning.Study 1.Study 2.Plans incorporated into the asset management plan and disclosed to TERM-C.As needed.On-going supervision.TPLDeliverables as per the consultants’ contract.Indicator Four:Improvements in network reliability indexes. FORMCHECKBOX International indexes. Modest indexes compared to international stds. Assessment of improvements to network. Procure and install.Goods installed and operational.Measured and reported as SAIDI minutes saved.As needed.On-going supervision.TPLDeliverables as per the consultants’ contract and installation of goods.Indicator Five:Ability of TPL to model and predict the effects of new generation on the power systems. FORMCHECKBOX TPL have power system modeling capability in-house.No overall system modeling software utilized.Power system models developed and staff trained in their use.Evidence of power system models being used and maintained.Outputs form part of asset management planning process.TPLIndicator Six:Summary report of processes and documents required for investment in generation systems. FORMCHECKBOX Status of power purchase agreement, connection agreement and operations & maintenance agreement.No current processes defined.Documents produced and processes well-defined.Processes used as the basis for the implementation of one project.Processes used as the basis for the implementation of multiple projects.As needed.TPLIndicator Seven:A well-developed power system planning document for the years 2012-2017 FORMCHECKBOX Status of power system planning document.Power system planning documentation, asset management plan, and strategic plan exist; but need to be strengthened.Power system plan developed.Power system plan revised by TPL to reflect implementation status, and disclosed to TERM-C.Power system plan revised by TPL to reflect implementation status, and disclosed to TERM-C.TPL INTERMEDIATE RESULTSIntermediate Result (Component One):Indicator One:Adequate staffing of TERM-IU FORMCHECKBOX Number of staff.TERM-IU Director.TERM-IU CEO and admin staff in place.Sectoral specialists hired.As needed. On-going supervision.TERM-IUIntermediate Result (Component Two):Indicator One:Control and protection equipment installation to enable the network for intermittent renewable energy generation FORMCHECKBOX Status of the project required to design, specify, procure and implement new control and protection equipment.Control and protection systems currently inadequate for high penetration renewable energy generation.Equipment specified and procured.Equipment installed, calibrated and operational.As needed On-going supervision.TPLStatus of documents (drafts for review, etc).Indicator Two:Feasibility studies relating to fuel substitution, coconut biomass/biofuel, wind generation, solar pv generation, energy storage and demand side management. FORMCHECKBOX Status of the suite of feasibility studies and technical options reports completed.Technical and commercial viability of large scale implementation of renewable generation is not well determined.Project scale and location determined.Consultant awarded contract.Feasibility studies and technical options reports completed.As neededOn-going supervision.TPLStatus of documents.*Please indicate whether the indicator is a Core Sector Indicator (see further )**Target values should be entered for the years data will be available, not necessarily annually.Annex 2: Detailed Project DescriptionTONGA: Energy Roadmap Institutional and Regulatory Strengthening ProjectThe Project Development Objective is to support the strengthening of the institutional and regulatory framework of the Tonga Energy Roadmap.The TERM sets out a ten year road map to reduce Tonga’s vulnerability to oil price shocks and achieve an increase in quality access to modern energy services in an environmentally sustainable manner. The proposed project will provide assistance in implementing aspects related to improving energy security rather than the energy access aspect. Other development partners are providing support focusing on increasing quality access. The direct beneficiaries of this project will be TERM-IU and TPL, and indirect beneficiaries will be energy consumers (households and businesses). TERM implementation will lead to more efficient use and targeting of available resources which will in turn lead to lower, more stable energy bills, improved quality of electricity service and improved access to affordable electricity. The project’s assistance to a sector structure and institutional arrangements to coordinate strategic planning and targeting of resources will set in motion actions to improve the efficiency, cost-effectiveness and transparency of the sector institutions, investments and operations. Support for the development of robust process and financing mechanisms and investment in domestic renewable energy will improve the effectiveness and rate of diversification from diesel-based power generation. Improved petroleum price risk management will contribute to electricity price stability and facilitate planning and management of Tonga’s balance of payments situation. Reducing the vulnerability of the economy to oil price rises and shocks will improve the macroeconomic stability which will have positive implications for the general public. The international community will also benefit from reduced GHG emissions. Benefits with respect to the energy sector aspects also extend beyond Tonga. The process of developing and now implementing the TERM is widely seen in the region as a concrete example of a new paradigm for Government leadership and development partner coordination to undertake sensible planning followed by coordinated implementation. Phases of the TERM Implementation PlanThe Project will support the implementation of key components of Phase 0 and Phase 1 of the Indicative TERM Implementation Plan. The specific Phase 0 activities to be supported under the proposed project are:Implementation of key recommendations for improving petroleum supply chain efficiency and price risk management;Implementation of institutional, legal, policy and regulatory updates for petroleum and electricity;The specific Phase 1 activities to be supported under the proposed project are:Implementation of up to 1 MW on-grid solar PV on Tongatapu. This capacity is expected to be small, distributed installation and will be in addition to the 1MW solar plant under construction at the Popua diesel power station. (The proposed project would support strengthening of TPL system to effectively use the energy supplied from this and future RE power plants.)Review of initial experience with petroleum financial risk management and implementation of modifications as required.Other DPs are working with the GOT and TPL at various stages of preparation and implementation of Phases 0 and 1 (see Annex 4).There will be two implementing agencies: the TERM Implementation Unit (TERM-IU) and Tonga Power Ltd (TPL). Project ComponentsComponent 1: Strengthening the Energy Sector Framework and Structure (AusAID/PRIF US$0.70 million; ASTAE US$0.40 million; GOT US$ 1.00 million. Implementing Agency: TERM-IU). This component will support the GOT to strengthen the functioning of the TERM-IU including through technical assistance inter alia in the areas of: Review and update of energy (electricity and petroleum) sector policy, legal and regulatory aspects to be consistent with TERM vision and approach. REEEP and GOT are finalizing a scope of work for some REEEP assistance in this area. Activities under the current contracted scope between the GOT and REEEP are to be finalized by the end of June 2012. Support under the proposed project will be defined taking into account the final outputs of REEEP’s assistance.Environmental and social safeguards frameworks harmonized with the existing legal framework in Tonga and with safeguards policies applicable in international financing institutions such as the World Bank and other Development Partners.Development of a petroleum price risk management strategy.Development of feasibility studies for power generation from renewable sources: a study to determine the technical and financial feasibility of installing a tidal power system in Vava’u has been proposed. Detailed surveys of electricity-use by a statistically relevant number of consumers in Tonga. The results of such a survey are essential for the planning of an effective Energy Efficiency program.Developing and implementing an awareness/communications plan to rally key stake-holders around the TERM’s long-term goals and activities being implemented and, thus, mitigate risks of misinformation that may arise. Under the TERM it is anticipated there may be institutional and/or policy changes within the sector that will have ramifications for a range of stake-holders, so ongoing awareness activities will be critical to the success of the implementation of the TERM. This activity will include the preparation of dissemination and awareness raising packages in local language. Table 10. Indicative Cost of Component 1Component DescriptionAusAID/PRIF (US$)ASTAE (US$)GOT(US$)Total(US$)Strengthening the institutional, policy, regulatory and legal framework 100,000 90,000190,000International technical energy advisors200,000 200,000Feasibility study of renewable sources for power generation100,000 100,000Development of an Environmental and Social framework40,000 40,000Petroleum price risk management framework100,000100,000Detailed surveys of electricity use45,00045,000Awareness/communication plan, including materials in local language110,000110,000Training and Workshops10,00010,000 20,000Local professional staff for TERM-IU400,000400,000Administrative staff for TERM-IU300,000300,000 IT equipment (computers, printers, etc)35,00035,000Incremental Operating Costs of TERM-IU260,000 130,000390,000Other TERM-IU activities 170,000 170,000Total700,000400,0001,000,0002,100,000Component 2: Preparing TPL for Renewable Energy Supply (AusAID/PRIF US$1.80 million; TPL US$0.10 million. Implementing Agency: TPL). This component will support TPL to strengthen its capacity to: (i) carry out power system modeling to determine the most cost effective way to diversify energy generation, with a focus on achieving a high long-term renewable and distributed energy penetration; (ii) design and specify upgrades to monitor, control, and protect systems to ensure a reliable and secure supply of energy through the electricity system with high levels of renewable energy generation; (iii) develop standards and procedures for connection to the power system by independent power producers; and (iv) develop (in conjunction with TERM-IU and to be approved by TERM-C) a power system plan for a period of five years focusing on specific renewable energy technology projects such as solar, wind, biomass and biofuels, but also covering energy storage options and demand side management. Main activities under this component include: Development of industry standard software-based power system modeling tools that can be used on an ongoing basis by TPL to investigate the network effects of different generation technologies and protection and control systems. These models will be developed for Tongatapu, Vava’u and Ha’apai in order to: Facilitate the design, specification and implementation of system control and protection systems to mitigate the negative impacts of high penetration intermittent generation sources based on renewable energy;Enable more renewable energy power plants while minimizing the consumption of diesel fuel and maintaining system reliability; andDevelop a long term plan for the integration of mix of generation technologies into the networks.Produce standard documents that enable third party investment in the generation plant. The document includes a Power Purchase Agreements (PPA), a Connection Agreements (CA), and an Operations and Maintenance Agreement. The commercial and technical framework of these documents will be developed. Produce a suite of feasibility reports into specific generation projects including rigorous studies into coconut oil biofuel/biomass, wind energy, solar photovoltaic (PV), and automotive diesel fuel substitution with heavy fuel oil or liquefied natural gas.Using the software tool developed, and the feasibility studies into the cost of renewable energy generation, produce a technical options report investigating the possibility of energy storage and also of demand side management in order to decrease energy costs and increase renewable energy penetration.Develop a least-cost generation and associated network development plan for the period of five years (2013 through 2018) with renewable energy plants scheduled to achieve the GOT target of a 50% reduction in imported fuel for electric generation plus an indicative plan for the system development for an additional 10 years (through 2028). Importantly, TPL staff would receive training and tools so that they will be able to update the plans at regular intervals.Table 11. Indicative Cost of Component 2Component DescriptionAusAID/PRIF (US$)TPL ContributionStudies on Generation and Network Analysis (Study 1) and Least cost development plan of renewable energy projects (Study 2)900,00070,000Procurement and installation of System Upgrade Equipment900,00030,000Total1,800,000100,000Annex 3: Implementation ArrangementsTONGA: Energy Roadmap Institutional and Regulatory Strengthening ProjectProject Institutional and Implementation ArrangementsTERM Governance StructureTERM. In April 2010, the Tonga Energy Road Map 2010-2020 (TERM) was completed and published in June 2010. In June 2010, the Tonga Petroleum supply report was submitted to the GOT. This petroleum report and recommendations are a critical component of the TERM. The TERM was then approved under Cabinet Decision 739 of 20thAugust 2010. TERM-Agency (TERM-A). On 20th April 2012, Cabinet approved the TERM-Agency (TERM-A) as a Government Agency accountable directly to Cabinet, and responsible for achieving the objectives of TERM. All energy related projects detailed under the TERM will be the responsibility of the TERM-A. The mandate for TERM-A is the following:Consider the proposed institutional reformation and all energy sector related projects, taking into consideration the whole of Government institutional rationalization program;Coordinate on Ministry cross cutting energy sector related issues ensuring an integrated approach to the energy sector reformation program as outlined in TERM;Approve projects for the energy sector as detailed under the TERM, taking into account the equitable distribution of development benefits and environmentally sustainable development of the energy sector;Monitor the progress of the TERM implementation and meet with the GOT Development Partners annually to review the TERM;Oversee and approve the operation of TERM-IU, in particular to budget, staffing and TERM-IU program implementation of TERM;Determine own operational procedures and TERM-IU operational procedures (based on Government regulations) as approved by Cabinet;Convene at least once a month or more if needed; and(8)Report at least once a month to Cabinet on the progress of TERM. TERM-Committee (TERM-C). Within TERM-A there is the Tonga Energy Road Map Committee (TERM-C) which is the governing entity within TERM-A. TERM-C is a dedicated and collective policy management oversight organisation (whilst independent of discreet energy related Ministries) in order to be able to support the achievement of TERM objectives. TERM-C is acknowledged as crucial to the success of TERM and continued Development Partner funding. The members of TERM-C are: (1)Prime MinisterChair(2)Minister of Environment & Climate ChangeAlternate Chair(3)Minister for Finance and National PlanningMember (4)Chairperson Public Service Commission Member(5)Secretary for Foreign AffairsMember(6)Director of Environment & Climate Change Member(7)Secretary for Finance and National PlanningMember(8)Secretary for Labour, Commerce & IndustriesMember(9)Director for Public EnterprisesMember(10)Secretary for TransportMember(11)Solicitor GeneralMember(12)Secretary MemberThe role of Secretary is to be responsible for keeping a regular oversight on the performance of the Director of TERM-IU, facilitating Sub-Committee work commissioned by TERM-C, and working with individual TERM-C Members on matters directed and required by TERM-C.TERM Implementation Unit (TERM-IU). TERM-IU is the operating entity under TERM-C directly implementing TERM. The Implementation Unit was given the following mandate by TERM-C:Implement TERM objectives as detailed in the TERM document, endorsed by TERM-C and approved by Cabinet;Source development partner funding for the operation of TERM-IU and TERM projects for a period of not less than 5 years (3 years remaining from April 2012);Recruit appropriate staff for TERM–IU (local and overseas technical expertise); Coordinate the projects and different phases of TERM implementation; Provide secretariat services to TERM-C;Report at least once a month to TERM-C on the operation of TERM-IU (financial and program management); Comply with Government financial management and procurement regulations; and (8)Transition the TERM-IU, upon completion of TERM implementation, to a Ministry the Government decides upon.The interim TERM-IU Director was appointed in February 2012 for a period of six months. The substantive TERM-IU Director will be appointed by July 2012 for a term of two years, and will be responsible for inter alia; quality, relevance, and coherence of the work of the Unit as well as recruitment of key personnel for the IU; design and implementation of the Unit’s work program for the first two years; and monitoring and regular reporting of the Unit’s activities and outputs to the TERM-C. The Director of TERM-IU is not a Member of TERM-C but presents and reports on relevant matters to TERM-C during its normal meetings and provides secretariat support services, through the TERM-IU, at TERM-C meeting.In addition to the TERM-IU Interim Director, three core TERM-IU staff are currently in place, including an executive assistant to the Interim Director, an accountant and a statistics officer. All administrative work relating to the functioning of TERM-IU and secretariat support for TERM-C is currently being carried by these staff, with technical staff (on clean energy, institutional, legal, and regulatory matters) envisaged to be recruited as of July 2012 after the appointment of the permanent TERM-IU Director. Procurement advice will be provided to TERM-IU by the Ministry of Finance and National Planning.Funding of US$1million from other donor sources has been provided to support TERM-IU as Government counterpart funding support. The cost of most Tongan TERM-IU staff / consultants will be covered from this source of funds. It is expected that the TERM-IU will evolve in a few years time into an Energy Department/Division within a Ministry in the Government’s structure.Tonga Power Ltd (TPL)TPL’s organizational structure was born out of the Public Enterprise reforms of 2003 (see Figure 4 below). It establishes a Board that reports to its shareholder the GOT through the Ministry of Public Enterprise (MPE). The MPE oversees all of GOT’s shareholdings and monitors the performance of the State Owned Enterprises (SOEs). Tonga's SOEs and TPL in particular has performed comparatively better than those of other Pacific countries because this governance structures generally allows them to operate independently of the political process, with fewer unfunded CSOs.As part of TPL’s recognition of the importance of coordinating the implementation of donor-funded projects, all donor-funded projects generally fall directly under the responsibility of the CEO with day-to-day management of projects expected to fall under the proposed ‘Strategic Initiatives’ unit.Figure 4: Organizational structure of TPL (source TPL)Financial ManagementThe field and desk review financial management assessment was carried out in accordance with the “Financial Management Practices in World Bank-Financed Investment Operations”, issued by the Financial Management Sector Board on November 3, 2005 and further rationalized in the “Principles Based Financial Management Practice Manual” issued by the Board on March 1 2010. Under the Bank’s OP/BP 10.02 with respect to projects financed by the Bank, the borrower and implementing agency are required to maintain financial management systems – including accounting, financial reporting, and auditing systems adequate to ensure they can provide the Bank with accurate and timely information regarding the project resources and expenditures. Overall, the financial management arrangements satisfy the financial management requirement as stipulated in OP/BP 10.02 subject to implementation of agreed actions and mitigating measures. The assessed financial management risk of the project before the mitigating measures is considered substantial and could be reduced to moderate after the proposed and existing mitigating measures are implemented and have shown effective impact. Full implementation of the Mitigating Measures is expected to be realized within 3 months from effectiveness The FM requirements for this project are quite straight forward and hence there are limited mitigating measures. The main risk is the current lack of structure in the TERM-IU and hence no accurate FM capacity assessment can be conducted. The mitigating measures to overcome this are: (1) Not to open a Designated Account, (2) To realize payments only through Direct Payments by the Bank and receive reimbursements for pre-financed activities, (3) TERM-IU will employ/designate/delegate a person with the appropriate accounting skills to enable the preparation of Withdrawal Applications for the Direct Payments, accurate recording of financial transactions, consolidation of the reports, and preparation of accounts for audit. (4) TERM-IU will determine what accounting software (or spreadsheet) will be used to maintain the project’s financial records and reporting. All requirements need to be in place within 3 months from effectiveness.Budgeting Arrangements: TERM-IU is currently unstaffed, but the unit will have direct links with the MoF, so, it is expected there will be adequate budgeting capacity including budgeting for the counterpart contribution. TPL have experience in the preparation of the corporate budget and have the capacity in management. As all expenditure for this project will be on procurable items, the budget should be consistent with the procurement plan. Each implementing agency will be expected to review and update the budget at least annually, including quarterly budgets. For TERM-IU to be able to send the Bank the consolidated annual budgets and to prepare the consolidated Interim Unaudited Financial Report (IFRs), TPL will be sending the annual budgets to the TERM-IU on a timely basis.Accounting Arrangement: Each implementing agency will maintain financial records for their respective component. At the time of this assessment TERM-IU did not have an adequate structure in place to meet the accounting arrangements of the project. Before disbursements through Direct Payment requests, TERM-IU should have an experienced accountant/finance officer, with terms of reference satisfactory to the Bank and make sure that the unit has the capacity and time to prepare the Withdrawal Applications, maintain accurate records of the financial transactions, to capture/register Counterparts funds contribution, consolidate the financial information from the two implementing agencies for the preparation of the interim financial quarterly reports (as required in the legal agreement), and preparation of accounts for audit. In addition the TERM-IU needs to determine what accounting system they wish to put into place to maintain the project records.TPL use QuickBooks with a network of 10 users. QuickBooks has the capacity to record the financial information required for this project however a contracts register will need to be maintained on a spreadsheet and reconciled back to the QuickBooks contract transactions. There are 4 accounting staff at TPL and their skills and capacity are adequate to manage the FM requirements for Component 2 needing training on the preparation of World Bank Withdrawal Application processes and procedures by project launching. The direct payments requests will be prepared by TPL and sent to the TERM-IU for further forwarding to the WB, through the MoF.Internal Controls: It is expected that TERM-IU will adopt the internal control systems and processes as the Civil Service of the Government of Tonga, within 3 months from effectiveness. Based on previous projects in Tonga these systems will be adequate. The current internal controls for TPL expenditure are robust with adequate segregation of duties. The process of preparation, review and signing of payments are all done be different people. It is recommended the same processes are used for the expenditure of project funds and that a flow chart outlining the process from requisition through to payment is made available to the WB. Flow of Funds: Under the current project design all expenditures will be for relatively large contracts, so, no Designated Account will be opened. Most of the payments will be realized through direct payments, where the approved supplier invoice is submitted to the Bank with a Withdrawal Application and funds are paid directly to the supplier. Reimbursement of already occurred expenses paid out of local funds during the retroactive period and implementation would be accepted by the World Bank. This will help to making small payments acceptable and reimbursed by the World Bank. This way the project will have very simple flow of funds and the risk of delays and misuse of funds would be relatively low. Financial Reporting: While each implementing agency will maintain its own financial records for the component it is implementing, the project reporting will be realized through quarterly interim unaudited financial reports (IFR), consolidated into one report by the TERM-IU, and in a format agreed to with the Bank. Each report shall be prepared in accordance to the disbursement categories and the project components for the reporting quarter, year to date and cumulative expenditure. The 2 sources and uses of funds (AusAID Grant and ASTAE Grant) should be clearly stated in the IFRs. In addition commitments, contracted amounts not yet expended, will be included in the reporting requirements. The IFRs will be submitted to the Bank not later than 45 days after the end of the reporting period.TPL accounts are maintained on QuickBooks which has adequate reporting capacity given the relatively straightforward reporting requirements for this implementing agency. TERM-IU do not at this stage have an accounting system in place and this will need to be put into place within 3 months from effectiveness. The Bank will need to be satisfied the system can meet the Bank’s reporting requirements. External Audit: The Tongan Office of the Auditor General will conduct an annual audit of the consolidated project accounts. The two components from the implementing agencies will be consolidated into one set of financial statements, by TERM-IU. Hence only one audit will be required annually. The audited financial statements will be required to be received by the Bank within 6 months of the end of each of the reporting periods. The Office of the Auditor General has extensive experience in auditing government departments and World Bank Funded projects and is an auditor acceptable to the Bank. As TPL is a public enterprise receiving and using Bank funds, its own annual financial statements should be sent to the Bank, within the same deadlines.Disbursement ProceduresThe project will use only the Direct Payment and Reimbursement methods of disbursements. The procedure for paying project expenditure through Direct payment is the completion of a Withdrawal Application accompanied by an approved for payment invoice from the supplier. All Direct Payments and reimbursements must be incorporated into the project financial accounts.Each implementing agency will prepare Withdrawal Applications – (WAs) for their respective expenditures and it will send the Withdrawal Applications along with accompanying documentation (through the IU in the case of TPL) to ACU/MOF for checking, signing and submission to the World Bank. The project will be financed out of two sources of funds as outlined in Table 12 below:Table 12. Disbursement Categories and AmountsCategoryAmount of the AusAID/ PRIF GrantUS$ MillionPercentage of Expenditures to be Financed(inclusive of Taxes)Goods, non-consulting services, consultants’ services, training and workshops, and incremental operating costs2,500,000100%TOTAL AMOUNT2,500,000100%CategoryAmount of the ASTAE GrantUS$ MillionPercentage of Expenditures to be Financed(inclusive of Taxes)Consultants’ services, training and workshops400,000100%TOTAL AMOUNT400,000100%There is a provision for retroactive financing of up to 20% of both the AusAID and ASTAE grant amounts. Any retroactive financing will have been paid less than 12 months prior to the signing the Grant Agreement.ProcurementProcurement Risk Assessment: An assessment of the capacity of the Implementing Agencies (TPL and TERM-IU) to implement procurement actions for the Project was carried out in November 2011. The assessment reviewed the organizational structure for implementing the Project and the interaction between the staff responsible for procurement and other national agencies. The overall Project risk for procurement is “high”, consistent with the OPR. The agencies risks were assessed as “high” for TERM-IU and “substantial” for TPL. Most of the issues/ risks concerning the procurement component for implementation of the Project have been identified as: TERM-IU is a recently created entity composed currently of a single permanent staff (Interim Director) with no procurement experience and TPL’s lack of experience with International Financing Institutions’ procurement policies. The below action plan has been proposed and with the implementation of the mitigation measures the overall risk is expected to be reduced to “substantial” during implementation. TERM-IUFactorRiskMitigation MeasureIndicative Target TimeframeAccountability for Procurement Decisions in the Implementing Agency Lack of clarity on who is accountable for which procurement decisions.TERM-C to issue a directive defining instructions on accountability for procurement decision making covering all steps of the procurement process and has timeframes for the decision, including the time allotted to make them. TERM-C may consult with MOF in preparing this directive. By effectivenessDelays in processing procurement within the Borrower's internal structure.Internal Manuals and Clarity of the Procurement Process Staff have limited practical guidance on the steps of the Tonga’s internal procurement process, which could lead to implementation delays.TERM-IU’s Interim Director to meet with representatives of MOF to receive instructions on Tonga’s internal procurement process. By effectivenessRecord Keeping & Document Management SystemsImproper filing facilitates abuse.TERM-IU’ to prepare and apply filing instructions that clearly describe what records should be kept in the contract file and for how long.By effectivenessInclude auditing of filing practices in TOR for audits.During implementationStaffing Absence of procurement staff may lead to improper implementation of procurement activities under the project (in terms of efficiency, competition, transparency).Agree and implement a training program (internal/ external) to be implemented over the life of the project that is both relevant and practical. By negotiationsTERM-IU to utilize the service a Procurement Adviser for a period of time commensurable with the project procurement load. For practical reasons and consistency for the project, TERM-IU and TPL could utilize the same Procurement Adviser.By effectivenessProcurement PlanningPossible delays in project implementation due to weak procurement planning and monitoring.Preparation of a realistic procurement plan and quarterly status monitoring updates.By appraisal (Plan to be finalized prior to negotiations) and quarterly status monitoring updatesPackage contracts to a size and type manageable by TERM-IU (mainly Shopping and Individual Consultants).Evaluation and Award of contract Lack of understanding/expertise of evaluation factors resulting in improper evaluation and incorrect awards.As to ensure that all evaluators are qualified experts, the agency will reach agreement with the Bank on the minimum qualification criteria for members of the Evaluation Committee, which is to be appointed shortly before submission of CVs.During implementationContract Management and Administration Lack of control over contract management could cause incorrect disbursements, disputes and implementation delays.Adopt as much as possible Lump-Sum type contracts, as type of contract is easier for the agency to administer because no matching of inputs to payments is required (to be included in the procurement plan).During implementationProcurement Oversight Unreliable oversight of operations.Include appropriate coverage of procurement aspects to meet project requirements in the audit TOR. Need to distinguish between compliance and performance audits so that auditors know what to do.During implementationTPLFactorRiskMitigation MeasureIndicative Target TimeframeStaffing Staff without experience with IFI’s procurement policies may lead to improper implementation of procurement activities under the project (in terms of efficiency, competition, transparency).Agree and implement a training program (internal/ external) to be implemented over the life of the project that is both relevant and practical. This plan would focus on Project Management Unit Staff.By negotiationsTPL to employ the services of a Procurement Adviser for a period of time commensurable with the project procurement load.By effectivenessProcurement PlanningPossible delays in project implementation due to weak procurement planning and monitoring.Preparation of a realistic procurement plan and quarterly status monitoring updates.By appraisal (Plan to be finalized prior to negotiations) and quarterly status monitoring updates.Bidding documents (pre qualification, short listing, and evaluation criteria) Poorly prepared shortlists could lead to inefficiencies (e.g. non responsive proposals) and/or low quality services. As to ensure that all firms on shortlist are qualified the agency will treat the firms’ written representations skeptically, and will take up references from the proposed firms’ clients. Also, the agency will consider in addition to the information asked for in the request for EOIs, key factors as a consultant’s reputation of integrity and impartiality rooted in independence from third parties.During implementation Technical specifications/TORs are vague or restrictive to few bidders/firms.Involve technical staff and end users in preparation of specifications or agree to hire competent consultants to draft TS/TORs.During implementationEvaluation and Award of contract Lack of understanding/expertise of evaluation factors resulting in improper evaluation and incorrect awards.As to ensure that all evaluators are qualified experts, the agency will reach agreement with the Bank on the minimum qualification criteria for members of the Evaluation Committee, which is to be appointed shortly before proposals submission.During implementationReview of Procurement Decisions and Resolution of ComplaintsDisincentive to participation due lack of transparency in the procurement process. Meticulous application of the Procurement and Consultants Guidelines provisions in terms of transparency (e.g. publication of the general procurement notice, request for expressions of interest or contract award notices).During implementationProcurement Oversight Unreliable oversight of operations.Include appropriate coverage of procurement aspects to meet project requirements in the audit TOR. Need to distinguish between compliance and performance audits so that auditors know what to do.During implementationGuidelines: Procurement for the proposed Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated January 2011, and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers” dated January 2011; and the provisions stipulated in the Financing Agreement.Procurement Scope: Funds to TPL are expected to finance consulting services (individuals) with some minor goods. Funds to TERM-IU are expected to finance larger consulting services (firms and individuals) and major equipment to ensure continuing stable operation of the generation and transmission systems. Provision is being made to retroactive financing and he procurement will be carried out in accordance with Bank’s Procurement and Consultant Guidelines for these contracts and any other procurement that commenced before project effectiveness in order for the contracts to be eligible for Bank financing. Thresholds: Prior-review and procurement method thresholds recommended for the project are indicated in below. These thresholds may be revised during project implementation, based on risk assessment updates. All the prior review contracts would be stated in the Procurement Plan.Selection MethodPrior Review ThresholdApplicabilityFIRMSQCBS≥ US$100,000In accordance with the authorizing circumstances provided in the Consultant's GuidelinesCQSLCSIndividualsPrior Review ThresholdApplicabilityCompetitive Selection≥ US$50,000All TORs are subject to prior review.In accordance with the authorizing circumstances provided in the Consultant’s Guidelines.Sole SourceAllShort list comprising entirely of national consultants: The ceiling for short-lists of consultants composed entirely of national consultants would be $200,000. In the event that sufficient numbers of qualified national firms are not available for effective competition, then the short-list would consist of both national and international consultants.Procurement MethodPrior Review ThresholdApplicabilityGoods ICBAllEstimate >= US$100,000ShoppingFirst two contractsEstimate <= US$ 100,000* Any contract financed under retroactive financing will be prior reviewed by the Bank. Procurement Plan: The implementing agencies developed a Procurement Plan for project implementation which provides the basis for the procurement methods. This plan will be finalized prior to negotiations and would be available at agencies’ head office. It would also be available in the Project’s database and in the Bank’s external website. A summary of the project procurement plan is provided the below. The plan will be updated every year to reflect project implementation needs. All retroactive financing would require prior review.Summarized Procurement Plan (Key Contracts) Ref. No.Description of AssignmentEstimated Cost (US$)Selection MethodContract Signature DatePrior/PostCommentsTERM-IU1aClean energy policy30,000.00Indiv CS06/15/2012PriorEligible for retroactive financing1bTERM-C Advisor160,000.00Indiv CS08/01/2012Prior1cPetroleum Advisor 150,000.00Indiv/ Firm CS09/2012Prior1dPetroleum Advisor 250,000.00Indiv/ Firm CS09/2013Prior1eClean energy technical advisor90,000.00Indiv CS08/2012Prior1fEnvironmental advisor for framework20,000.00Indiv CS09/2012Prior1gSocial advisor for framework20,000.00Indiv CS09/2012Prior1hCommunication specialist50,000.00Indiv CS08/2012Prior1iPrinting of Communications materials50,000.00 NCSShopping08/2012Post1jElectricity end use survey45,000.00CQS09/2012Prior1kIT equipment35,000.00Goods/ Shopping08/2012Prior Eligible for retroactive financing1lFeasibility study tidal power100,000.00CQS09/2012PriorTOTAL first 24 months: US$ 700,000.00 TPL2aStudy 1: Upgrade of grids and prepare the Utility for Operations with Renewable Energy Plants500,000.00Firm QCBS09/2012Prior2bStudy 2: Preparation of systems to enable renewable energy projects to be implemented in Tonga Power Limited networks400,000.00Firm QCBS09/2012Prior2cNetwork control and Management Hardware900,000.00Goods ICB03/2014PriorSubtotal for first 24 months: US$ 1,800,000.00 (expected disbursements are US$1,500,000.00 as the three activities would not be completed in 24 months).Procurement Post Review: Procurement supervision and post-review missions will be carried out annually. A sample of 20% of contracts not subject to prior review will be post reviewed.Environmental and Social (including safeguards)Because this project is classified as Category C, there are no safeguards issues to implement or monitor as a result of implementing Components 1 and 2.Within Component 1, the TERM-IU will be responsible for completing the Environmental and Social Management Framework(s) for future investments in energy infrastructure under the TERM (for example through the Tonga Green Incentive Fund currently under design). The TERM-IU will need to engage an environmental and / or social specialist (as contractors or consultants) with experience in preparing frameworks, community consultation, impact assessment and land acquisition. World Bank environmental and social specialists can support and assist the TERM-IU where necessary. The ESMF will be required to meet World Bank environmental and social safeguards policies (and the policies of any other contributing funding agency). The ESMF will be submitted for appraisal by the World Bank. Monitoring & Evaluation Annex 1 sets out the Results Framework and indicators that will be used to monitor and evaluate the project.Annex 4: Role of PartnersTONGA: Energy Roadmap Institutional and Regulatory Strengthening ProjectThe development of the Energy Roadmap was supported by fifteen Development Partners (DPs), including ASTAE, IRENA, Pacific Region Infrastructure Facility partners (AusAID, NZAid, Asian Development Bankand World Bank), SPREP, SPC, PIFS, PPA, EIB, EC, IUCN, JICA and REEEP. Coordination among DPs for TERM is very good. TERM-IU has been hosting periodic development partner consultations on the energy sector. DPs are working with the GOT and TPL at various stages of preparation and implementation of phases 0 and 1 of TERM. All DPs focus on energy security as a driver for energy policy, including renewable energy and energy efficiency. Table 13 below summarizes the ongoing & planned activities by each DP. Table 13. Summary of Ongoing/Planned Activities of TERM Development Partners World BankOngoingPetroleum Sector Technical Assistance .As a further technical assistance to the GOT on implementation of petroleum sector reforms, this activity will assess a range of issues relating to: improving regulation of the petroleum sector; Alternative Supply Models and means of ensuring competition and efficiency; and review the GOT’s work to improve energy security, specifically the construction of new fuel storage facilities and the use of a Medium Range Tanker to bring fuel to Tonga. Under preparationNatural Gas Study funded by ESMAP.Study of the role for natural gas and storage in electric grid networks that use intermittent renewable energy inputs.Tonga Green Incentive Fund Project (TGIF) (IDA US$5 million).This project will support the design of a financial mechanism to support the development of sustainable renewable energy to reduce reliance on imported petroleum and diversifying sources of supply to improve energy security. Renewable Energy and Energy Efficiency Partnership (REEEP)OngoingStrategic framework for the implementation phases of the TERM-AUD$120,000 AusAID in June 2008 (contract signed November 2011).This will strengthen the policy, institutional, legal and regulatory frameworks, including a draft operational plan for the TERM-IU and a tariff review framework.Pacific Island Countries Energy Efficiency and Appliance Labeling Project.Project: Situation analysis including a study of the impacts of introducing a programme and the selected countries to outline the regulatory requirements necessary to be developed and enacted to ensure the transition.Asian Development Bank(ADB)OngoingPromoting Energy Efficiency in the Pacific - Phase 1 (PEEP 1).US$1.2 million regional technical assistance for identification of demand-side energy efficiency initiatives in Cook Islands, PNG, Samoa, Tonga & Vanuatu. PEEP 1 was completed in 2011. Project in Tonga trialed installation of LED street lights. Financed through the Clean Energy Fund.Under preparation Outer Island Renewable Energy Project.The proposed project will assist the government’s efforts to reducing the country’s reliance on imported fossil fuels for power generation. By providing a secure, sustainable and environmentally-sound source of electricity for private and commercial consumers, it will implement 1.2 MWp solar power capacity connected to the existing diesel networks, (i) 0.75 MWp of Tonga’s outer islands of Ha’apai, Vava’u and ‘Eua; and (ii) 0.45 MWp of Ha’pai’s outer islands ('Uiha, Nomuka, Ha'ano and Ha'afeva); and the not electrified Niua islands (Niua,Toputapu and Niuafo'ou). Phase 1 of the project preparation technical assistance is grant funded by the Japan Fund for Poverty Reduction (JFPR).Promoting Energy Efficiency in The Pacific: Phase 2 (PEEP2)- Tonga Chapter Technical Assistance.The objective of the TA is to improve efficiency in the use of electrical power for consumers in five Pacific developing member countries (PDMCs) — the Cook Islands, Papua New Guinea (PNG), Samoa, Tonga, and Vanuatu — through demand-side energy efficiency improvements in the residential, commercial, and government sectors of each country, especially in buildings. The TA will focus on reducing the energy intensity of the PDMC economies and thereby enhancing energy security, making energy services more affordable to end-users, and reducing Greenhouse Gas (GHG) emissions. Pacific Infrastructure Advisory Center (PIAC)OngoingTechnical Assistance activities funded by AusAID. ?US$ 190,000 (estimate) in CY2012 to fund two 6 month positions (an institutional advisor – international, and an operations officer – local) to help establish and staff the TERM-IU.US$140,000 (estimate) in CY2012 to undertake a power sector tariff review.GIZ (German Agency for International Cooperation)OngoingCoping with Climate Change in the Pacific Island Region (CCCPIR) Project, funded by the Federal Republic of Germany, Ministry for Economic Cooperation and Development (BMZ).It is implemented with Secretariat of the Pacific Community (SPC) and started in 2009 focused on land use resources in Fiji, Tonga and Vanuatu. The project expanded to 12 PICs in 2010 and new components on education, tourism and energy were added. The energy component started in January 2012 for two years. Its objective is for public and private service providers in the energy sector to strengthen and improve their services for sustainable, reliable and cost-effective energy supply within the region. The project focuses on TA and in Tonga is just beginning. The first activity in Tonga will be a wind energy pre-feasibility study for Tongatapu based on 18 months of data collected by the Tonga Energy Division from the Lapaha wind and monitoring mast.Secretariat of the Pacific Community (SPC) (regional projects including Tonga):Pacific Appliance Labelling and Standards (PALS) programme, funded by the Government of Australia (Australian Department of Climate Change and Energy Efficiency), January 2012.Ten PICs (Cook Islands, Fiji, FSM, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu) have expressed their interest to participate. FAESP Energy Security Indicators.As part of the going work of the Framework for Action on Energy Security (FAESP) and its Implementation Plan (IPESP), SPC is collecting and publishing over 30 energy security indicators from data collated from the region. Also through 2011 and 2012, a series of national workshops in energy planning and policy are being implemented to transfer the knowledge and information on the energy security indicators for the FAESP and to promote and develop the same indicators for national and local energy planning. The first compilation of the Energy Security Indicators, including Country Profiles will be published in May 2012.Petroleum Advisory services.A petroleum pricing advisory service is delivered on a monthly basis to the Tonga Competent Authority. SPC provides the data for the verification of the Tonga petroleum prices.Australia (AusAID)Support for TERM is delivered through PRIF, and is led by other development partners:Funded a Petroleum Supply Study 2009/10 (WBG-led) to provide options for improved fuel supply arrangements for Tonga. This work formed part of the TERM. Funding support of $1.05M to the WBG-led Energizing the Pacific framework in 2008/09 to assist with development of the TERM.Funding provided to REEEP activities in Tonga.New Zealand (NZMFAT)OngoingPopua Solar Farm Project, NZD$ 7.9 million November 10, 2011-August 1, 2012.The project will plan, develop, construct and commission 1MW AC photovoltaic solar facility to supply solar generated electricity into TPL’s Tongatapu power system and deliver an annual average of 1,880 MWh of renewable energy offsetting 470,000 liters of diesel per annum.Tonga Village Network Upgrade Project, NZD$ 5.4 million, June 30, 2012-June 30, 2013.The project will ensure public safety from the dangers (such as electrocutions and electrical fires) and inefficiencies of a deteriorated low voltage electricity network; increase training of TPL linesman to level 4 ESITO standards; increase network efficiency through reduced line losses; increase quality of access to electricity; and improve resilience of the network.Japan Agency for International Cooperation (JICA)OngoingClean Energy by Solar Home System Project, 590 million Japanese yen grant, June 2012 (implementation starts) -June 2013.512 units of solar home systems (SHS) of more than 170 Wp each will be installed in two outer islands of Tongatapu group and 11 outer islands of Vava’u group.Under preparationTonga Power Micro grid development Project.Micro grid controller, storage system, solar PV and wind turbine (500KW each) will be installed in Tongatapu main land. Feasibility study will be finished by December 2012.Pacific Islands Forum Secretariat - Pacific Environment Community Fund ProjectOngoingThe Pacific Islands Forum Secretariat currently administers and manages the Pacific Environment Community (PEC) Fund which is a US$66 milion contribution from the Government of Japan to be used on projects with a focus on solar power generation or salt water desalination or a combination of both. There are fourteen Forum Island Countries participating in the PEC Fund, including Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, Niue, Palau, Papua New Guinea, Republic of Marshal Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu. Each FIC has an indicative allocation of US$4,000,000 to use on projects.Under preparationTonga intends to utilize its US$4,000,000 for solar power generation and the TERM-IU has recently submitted a new concept note titled “Rural/Remote Community Socio-Economic Productivity Improvement through Solar Power Generation Projects” for consideration. International Unit for the Conservation of Nature (IUCN)Rehabilitation of solar home systems in two outer islands (Moungaone and Mango) in the Ha'apaii group. In addition, IUCN has secured additional funds to provide solar home systems to Lofanga (also in the Hapaii group).United Nations Development Program (UNDP)As part of SPREP/UNDP/GEF Pacific Islands Greenhouse Gas Abatement through Renewable Energy Project (PIGGAREP) in 2009 the following activities among others are preliminary planned to take place: support to REM/FEMM 2009, third party opinion on feasibility of wind power project proposed for Tungapatu and evaluation of Niuafo'ou SEIS. Via SIDS DOCK/PIGGAREP support has been requested to replace village based diesel based water pumps in Haapai with solar PV.European Union (EU)Identification of outer islands renewable / hybrid energy.Renewable energy and energy efficiency project.Identification of grid connected renewable efficiency through loan / subsidy scheme.Source: (i) TERM Donor Coordination Meeting (Tonga, April 13, 2012); (ii) comments received for the WB quality enhancement review meeting of this project (May 15, 2012); and (iii) Pacific Energy Working Group meeting (Fiji, May 18, 2012).Annex 5: Map of the Kingdom of TongaTONGA: Energy Roadmap Institutional and Regulatory Strengthening Project ................
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