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Petroleum and Alternative Liquid Fuels Strategies and Investment Plan (2014-2019)

Contents

Foreword................................................................................................................................... 5

Preface and Acknowledgement...................................................................................................... 6

Executive summary..................................................................................................................... 7

PART 1 INTRODUCTION............................................................................................................. 8

1.1                       Purpose........................................................................................................................... 8

1.2                       Methodology................................................................................................................... 9

1.3                       Links to the National Development Strategy focus areas............................................................ 9

1.4                       Preface and acknowledgment............................................................................................ 11

PART 2 REVIEW OF THE PETROLEUM SUB SECTOR..................................................................... 13

2.1                       Introduction.................................................................................................................... 13

2.2                       Empowering and holding accountable key energy sector institutions........................................... 14

2.3                       Implementing a sector-wide approach (SWAp) to investment.................................................... 14

2.4                       Review of the 2007 SINEP and petroleum strategic action plan................................................... 15

PART 3. PETROLEUM AND ALTERNATIVE LIQUID FUELS STRATEGIES.......................................... 20

3.1                       Energy sector vision......................................................................................................... 20

3.2                       Petroleum sector outcomes................................................................................................ 20

3.3                       Petroleum sector policy goal............................................................................................... 20

3.4                       Petroleum sector policy statements..................................................................................... 20

3.5                       Petroleum sector strategies................................................................................................ 20

3.6                       Summary of outcome, policy statements, strategies and actions................................................ 21

PART 4. PETROLEUM AND ALTERNATIVE LIQUID FUELS INVESTMENT PLANS.............................. 27

4.1                       Next steps and investment plans......................................................................................... 27

4.2                       Summary of investments required....................................................................................... 29

Annex 1: Stakeholders consulted .................................................................Error! Bookmark not defined.

List of Tables

Table 1: Links between the energy sector strategic areas, the NDS and the MMERE corporate plan................... 10

Table 2: Summary of petroleum sub-sector status of implementation........................................................ 15

Table 3: Key strategies, activities and indicators and estimate costs........................................................... 21

Table 4: Key activities timelines (2014–2018)....................................................................................... 23

Table 5: Petroleum distribution in the provinces investment plan............................................................... 29

Table 6: Petroleum standards (safety, health and environment) investment plan.......................................... 30

Table 7: Fuel price monitoring investment plan..................................................................................... 31

Table 8:  Coordination of alternative fuels projects................................................................................. 32

Table 9: Summary of investment schedule for the petroleum sector.......................................................... 33

I am pleased to present to you the third volume of the Solomon Islands National Energy Policy and Strategic Plan which presents the priorities of the government and the strategic directions for the petroleum sub-sector over the next five years. The Petroleum and Alternative Liquid Fuels Strategy and Investment plan (PET- ALT SIP) is one of the Solomon Islands Government Strategic Plan which is aligned to the 2014 National Energy Policy vision and goals.

Petroleum use will continue for a long time and its use for electricity and transport has increased over the past years. Therefore coordination to monitor and regulates the safety and standards of imported petroleum products as well as providing fair prices to all people of the Solomon Islands is vital. This strategy provides complementary activities to improving the implementation of existing regulations relating to the petroleum pricing, safety and standards.

It is also very important to note the need for promoting alternative liquid fuels for both electricity and transportation uses and I am happy to note that it is also considered as  one of the outcome of this strategy and investment plan.

The PET-ALT SIP was developed in close consultation with energy service providers, representatives of the government and community, the private sector, and development partners. The strategy also includes capacity development and technical assistance and it is anticipated that through the implementation of this strategy that efficient petroleum supply and that affordable and safe products reaches the remote and isolated communities.

In conclusion, I wish to thank all national stakeholders and development partners for their contributions to this strategy and investment plan. Its implementation requires concerted effort from all stakeholders and I strongly encourage you to continue to support and contribute to the implementation of the strategies and activities identified in this document that will help improve the lives of all Solomon Islanders.

Hon. Moses Garu

Minister for Mines, Energy and Rural Electrification

The Energy Programme of the Economic Development Division is acknowledged for the technical support provided to the Energy Division in the formulation of this strategy and investment plan. In addition, appreciation is accorded to the local stakeholders, government ministries, private sectors, non- government organisations who have participated at both the national consultations and those who have provided direct inputs to this strategy.

The formulation of this strategy was done as part of the review and development of the 2014 SINEP and formulation of energy sub sectors strategies and investment plan including the energy efficiency and conservation and renewable energy. The Ministry of Energy, Mines and Rural Electrification has been instrumental in directing the development of SINEP and strategy and investment plans as it sees a need for a more cohesive approach to its planning and that all its efforts are aligned to the National Development Strategy key focus areas. A five years approach to budget allocations by Parliament has also been adopted by the Solomon Islands Government in 2014 and this provides a clear direction in financial resources that are available against implementation of sectoral policies and strategies. Thus the PET-ALT SIP is a five year plan and is intended as a guiding document to the Solomon Islands government and development partners.

The first consultation on the review and the formulation of the PET-ALT SIP was conducted in November 2012. The final draft was presented at the National Energy Forum held in Honiara in June 2013. The draft PET-ALT SIP was circulated for comments by various stakeholders in November 2013.

This PET-ALT SIP is presented as Volume 3 of the Solomon Islands National Energy Policy and Strategic Plan which contains 4 Volumes; Volume I covers the overarching policy and how its aligns to the National Development Strategy, Volume II contains the Energy efficiency and conservation sub sector strategies, actions and investment plan, Volume III contains petroleum sub sector strategies, actions and investment plans, while Volume IV contains renewable energy strategies, action and investment plan. A report titled “Solomon Islands Energy Sector Review “provides a review of the 2007 SINEP and its 2009 National Action Plan as well baseline information and data on the different energy sub sectors.

The Petroleum and alternative liquid fuels strategies and investment plan (PET-ALT SIP) is delivered at an appropriate time as government strives to underline the importance of good governance, credible and stable policies guided by the newly developed Solomon Islands National Development Strategy 2013–2020 (NDS). This PET-ALT SIP provides a way forward in meeting one of the 2014 Solomon Islands National Energy Policy (SINEP) goals: Increase the access of safe, affordable and reliable petroleum products and alternative liquid and gaseous fuels.

The strategy has four outcomes, which are also taken from the SINEP petroleum sector priorities.

1)     Supply and affordability of petroleum products to outer islands and remote rural locations are improved.

2)     Petroleum storage and handling facilities conformed to local and international safety, health and environmental standards.

3)     Regulated petroleum prices effectively monitored in the nine provinces.

4)     Alternative fuel projects coordinated.

The reliance on petroleum products will continue into the foreseeable future as the country improves its economic base through increasing production of its natural resources. In 2009, Solomon Islands petroleum imports accounted for over 15% of its GDP, which is significantly higher than its neighbouring Pacific Island countries (PICs) such as Fiji and Vanuatu. In 2012, the total import cost of petroleum fuels was SBD 843 million, which, as a proportion of GDP, accounted for slightly less – 14%.

It is estimated that more than 50% of Solomon Islands fuel is used for the transport sector (land vehicles and domestic shipping vessels) while the remaining is used for electricity generation, mainly for the urban areas in Honiara and provincial centres. The cost of electricity and fuel prices in Honiara is amongst the highest in the Pacific region and is directly affected by the fluctuation in global prices. Petroleum products are not always available in the outer islands and access to grid connected electricity in limited to 16% of the population, mostly in the urban areas. There is high dependence on the use of kerosene for lighting and on small solar PV home systems in rural and outer islands. Improving energy security in rural areas could be enhanced through the use of renewable energy sources such as bio-fuel. However, there is a need for collaboration with relevant stakeholders and for government to set acceptable quality standards on alternative fuels. While this is being pursued, the need for further collaboration with provincial councils on the supply, storage and regulation of petroleum prices in the rural and outer islands should be a priority.

This strategy highlights commitments, policy statements, strategies and activities that the Ministry of Mines, Energy and Rural Electrification (MMERE) through its Energy Division will focus on in the next five years to better manage and coordinate the petroleum sector in Solomon Islands. It is highly likely that there will be continued reliance on petroleum products for transport and electricity generation into the foreseeable future and the onus is on  government to ensure that reliable and affordable energy services are provided with improved accessibility and energy security.

The 2014 SINEP emphasises the need for strong leadership and a clear forward vision in the energy sector to be supported by a relevant legislative framework, capacity, commitment and resources. Training in all aspects of the energy sector and in particular in the petroleum sector is still a challenge due to limited capacity and resources and the out-dated Petroleum Act 1978. However, this strategy, PET-ALT SIP, hopes to reduce these challenges.

PET-ALT SIP is presented in four parts. Part 1 is an introduction to the strategy but also highlights the methodology used in developing PET-ALT SIP, as well linking the energy sector to the economic development of Solomon Islands. Part 2 contains a review of the petroleum sub-sector and discusses the need for a broader regulatory framework governing the petroleum sector and the need for a sector-wide approach. Part 3 covers the strategies and actions, and Part 4 covers petroleum investment plans.

1.1           Purpose

The purpose of developing this PET-ALT SIP is to provide a clear vision of how best to plan, manage, coordinate and lead the petroleum sector. The strategy is developed in line with the Solomon Islands Government's focus areas and objectives as outlined in the National Development Strategy 2011–2020 (NDS) and considers the challenges to the supply of safe, reliable and affordable petroleum products to the population.

The governance of the petroleum sector in Solomon Islands in terms of safety, environmental and health standards is covered by the Petroleum Act 1978, which is outdated and in need of review. Price control and related regulation of petroleum products pricing are governed under the Price Control Act 1982, which is also outdated. There are inadequate provisions for fines for non-compliance. The two acts are administered by two government ministries, the Ministry of Mines, Energy and Rural Electrification administers the Petroleum Act, while the Ministry of Commerce, Industry, Labour and Immigration administers the Price Control Act.

Petroleum fuels such as diesel and gasoline are used for land and sea transportation and diesel is used for electricity generation. Dual purpose kerosene is mainly used for aviation fuel but also for cooking and lighting.

Rising fuel prices in past years, notably in the first half of 2011, have translated into an increase in the cost  of electricity in Solomon Islands. The electricity tariff for domestic users was increased by 27%, to USD 5.25 per kWh from USD 4.15 per kilowatt hour (kWh) and is noted as the highest in the Pacific region.

The energy sector is dependent on petroleum products for driving the electricity and transport sector (land, air and sea) of the economy and it is therefore very important that the petroleum sub sector is properly regulated to ensure that suppliers and end users get a fair deal.

There are several challenges faced by government relating to the petroleum industry and the promotion of alternative liquid fuels. Four such challenges are:

• ensuring that fuel prices are fair and reasonable. Enforcement of the Price Control Act has been a serious challenge, especially in the outer islands, due to a serious lack of resources made available to government enforcement officers;
• the limited availability of affordable petroleum fuels in the outer islands and remote rural areas is hindering development opportunities;
• the lack of alternative fuel project coordination; and
• the lack of safety and environmental standards.

1.1.2      Fuel price regulation

Enforcement of the Price Control Act in the outer islands is not effective due to the lack of resources (human resources and financial constraints). It has been suggested that a minor levy could be placed on imported petroleum fuels and that those funds could be made available to assist the Price Control Unit to check that proper prices are applied in rural and remote areas. The amount of the levy would need to be based on what activities it would need to fund.

1.1.3      Availability and affordability of fuel in outer islands and remote rural areas

The limited availability of affordable petroleum fuels in a safe and sustainable manner in the outer islands and remote rural areas is a challenge that the government needs to address. This limitation hinders opportunities for energy access and uses.

1.1.4      Coordination of alternative fuel projects

Currently, alternative fuel projects are being undertaken on a small scale and would benefit from improved coordination.

The Asian Development Bank (ADB) and Solomon Island Electricity Authority (SIEA) biofuel plant of 36 kW is being trialled in Auki in Malaita Province and SIEA is promoting and scaling up its use. SIEA also has a power purchase agreement with Solomon Tropical on generation using biofuel. The transport trial in Honiara and Lata is still in small-scale use.

The challenges faced by the SIEA in maintaining the use of coconut oil is the shortage of copra supply from plantation owners and farmers which is related to competition from well-established exporters to foreign markets that have links to local farmers.

The potential for harnessing biomass through a gasification process of by-products and forest waste needs to be properly assessed in terms of harnessing this technology as an economically viable alternative for power generation.

1.1.5      Safety and environment standards

The lack of safety and environmental standards has been related to limited local capacity to develop these standards. They can be based on international standards but may need to be adapted to local conditions.

It is anticipated that PET-ALT SIP will assist government to address the issues related to the proper management of the petroleum sector and encourage collaboration among relevant stakeholders.

1.2           Methodology

PET-ALT SIP was developed through the following methodologies.

• Review of the 2007 Solomon Islands National Energy Policy and action plans which includes the petroleum sub-sector review
• Consultations with the relevant ministries, the private sector and non-governmental organisations (NGOs) in Solomon Islands. (Refer to Annex 1 for list of stakeholders consulted.)
• A two-day workshop conducted in Honiara, Solomon Islands in November 2012.
• A two-day National Energy Forum held in Honiara, Solomon Islands on 19–20 June 2013 for presentation of the draft strategy and more input. (Refer Annex 1 for list of organisations.)

1.3           Links to the National Development Strategy focus areas

The correlation between access to energy and economic and social development for Solomon Islands has  not been well documented, even though the energy sector has been integrated into the NDS.

The SI NDS 2011–2020 is a ten-year planning document that identifies government’s development priorities. The focus areas of the NDS include:

• the overarching focus area: Building better lives for all Solomon Islanders;
• the central focus area: Taking better care of the people;
• the central focus area: Improving the livelihoods of the people; and
• the underlying focus area: Creating and maintaining the enabling environment.

The objectives of the NDS are supported by the medium-term strategy of the Ministry of Mines, Energy and Rural Electrification with budget details, timelines, indicators and strategies aligned to national sector policies and strategic areas. The energy sector plays an important role in facilitating the achievements of the NDS focus areas and this is highlighted in Table 1.

Table 1: Links between the energy sector strategic areas, the NDS and the MMERE corporate plan

The petroleum sub-sector, in addition to electricity and energy sector planning and coordination, will assist in achieving one of the two focus areas of the NDS – Improving the livelihoods of the people – as well as meeting the NDS Objective 6 – Develop physical Infrastructure and utilities to ensure that all Solomon Islanders have access to essential services and markets.

Solomon Islands' geographical setting requires that petroleum fuels are readily and economically available to support the transportation of goods and services. Therefore, links to the transportation sector are integrated in this strategy. Solomon Islands can improve its economic development potentials by improving energy services to its urban, rural and remote communities through the use of renewable energy sources, proper management of its petroleum-based power supplies, improving the efficiency of energy generation and consumption, strengthening institutional energy sectors, and improving partnerships locally, regionally and internationally to foster funding resources.

1.4           Preface and acknowledgment

The Energy Programme of the Secretariat of the Pacific Community's Economic Development Division is acknowledged for the technical support provided to the Energy Division in the formulation of this strategy and investment plan. In addition, appreciation is accorded to the local stakeholders, government ministries, the private sector and non-governmental organisations that have participated at the national consultations and have provided direct input to this strategy.

The formulation of this strategy was done as part of the review and development of the 2014 SINEP and the formulation of the energy sub-sector's strategies and investment plan, including energy efficiency and conservation and renewable energy. The Ministry of Energy, Mines and Rural Electrification has been instrumental in directing the development of SINEP and strategy and investment plans, as it sees the need for a more cohesive approach to its planning and aligning all its efforts to the NDS key focus areas. A five- year approach to budget allocations by parliament was adopted by the Solomon Islands Government in 2014. It provides a clear direction for financial resources that are available against implementation of sectoral policies and strategies. Thus, PET-ALT SIP is a five-year plan and is intended as a guiding document to the Solomon Islands Government and development partners.

The first consultation on the review and development of PET-ALT SIP was conducted in November 2012. The final draft was presented at the National Energy Forum held in Honiara in June 2013. The draft PET- ALT SIP was circulated for comment by various stakeholders in November 2013.

This PET-ALT SIP is presented as Volume 3 of the Solomon Islands National Energy Policy and Strategic Plan which contains four volumes; Volume I covers the overarching policy and how its aligns to the NDS; Volume 2 contains the energy efficiency and conservation sub-sector strategies, actions and investment plan;  Volume 3 contains the petroleum sub-sector strategies, actions and investment plans; and Volume 4 contains renewable energy strategies, action and investment plans. 

A monitoring and evaluation (M&E) plan is to be developed as part of the administration and planning sub sector work plan. A report titled Solomon Islands Energy Sector Review provides a review of the 2007 SINEP and its 2009 National Action Plan, as well baseline information and data on the different energy sub-sectors.

2.1           Introduction

Solomon Islands is heavily dependent on petroleum fuels to sustain its economy. The provision of a secure, reliable and affordable fuel supply to both urban and rural areas is of paramount importance. Storage facilities and fuel supply infrastructure in Solomon Islands require stringent adherence to international safety and environmental standards. Fuel quality is also of importance and the development of national fuel standards is fundamental to an efficient and sustainable petroleum sector.

The Solomon Island Government understands that substantial capital investments will need to be made to improve the fuel supply security into the future. This will necessarily involve discussions with current operators, including finally addressing the national necessity and implications of moving one or more of the fuel terminals to a more long-term sustainable location. Legislation related to fuel price regulation needs to be reviewed to achieve affordable prices and a fair return to suppliers.

Innovative solutions must be found to have a positive impact on improving the security of supply without adversely affecting the people in the outer islands and rural provinces. Related legislation is long overdue for review. Reviewing legislation and increasing capacity building should focus on efficient price monitoring in rural areas, as well as monitoring the operations of petroleum importers, retailers and distributors. Strategic investment by government could assist in achieving downward pressure on prices, as well as improving compliance of oil companies to safety, health and environment standards. More efficient local distribution and government subsidies would have an impact on lowering the price in the rural provinces. This, however, needs to be evaluated from a national benefit perspective.

2.2           Regulatory framework

The petroleum sector in Solomon Islands needs updated legislation, as the policies and national plans are not effectively monitored and reported to ensure that the envisioned outcomes, strategies and targeted activities are being met. Two pieces of legislation relating to the petroleum sector that need updating and reviewing are the regulatory framework that provides for storage and supply of petroleum products, i.e. the Petroleum Act (1939, revised in 1978) and the Price Control Act 1982, related to the monitoring and regulating of petroleum prices in Solomon Islands.

2.2.1      Petroleum Act 1978

The Petroleum Act (1978) defines the word petroleum as 'any oil, liquid or spirit derived wholly or in part from any petroleum, shale, coal, peat, bitumen or similar substance, but does not include any oil ordinarily used for lubricating purposes or having a flash-point above two hundred degrees Fahrenheit'. As such, the act does not cover biodiesel.

The Petroleum Act needs to be amended so that it addresses a broader definition of petroleum and includes liquefied petroleum gas, biodiesel and biofuel. In addition, the review will cover data and information sharing; licensing of petroleum companies, including offshore bunkering and logging companies; and stricter penalties for breaches of the act.

2.2.2      Price Control Act 1982

The Price Control Act provides for the 'review of prices or charges for sale of goods or supply of services'. The act needs to be amended to include an efficient price monitoring process, lubricants and biofuel as a regulated good, and penalties for breaches of the act.

Petroleum products prices are monitored in Honiara but not in rural provinces, so prices there are often unaffordable. Lack of human resource capacity is one of the factors that makes price monitoring in rural provinces a challenge, one that the government needs to address. Monitoring may improve suppliers' incentives to pass on efficiency gains, hence limiting the upward pressure on petroleum prices and making petroleum products more affordable in the provinces.

2.2           Empowering and holding accountable key energy sector institutions

Regulating the petroleum sector will require strong and effective institutions, which need to be empowered in order to effectively implement petroleum sector initiatives. Establishing effective price monitoring  and/or regulation of petroleum products in Honiara and the provinces will require capacity building and engaging provincial council officers to monitor prices in the rural areas. Price monitoring is the responsibility of the Price Control Unit (PCU) under the Ministry of Commerce, Industry, Labour and Immigration (MCILI). A more strategic approach to improving capacity and effective price monitoring in the nine provinces could be by training and updating the officers at provincial councils on changes in petroleum prices.

The government needs to be committed to ensuring that the PCU has the capacity to monitor prices at regular intervals in order to ensure that customers are charged equitable fuel prices. Additional funding is required to support the PCU and in the 2011 Annual Review of pricing, the Price Advisory Committee recommended that a 1 cent per litre levy be applied to fuel prices through the pricing template. This fund would be allocated to reviewing petroleum price instruments and recruiting staff so that price regulatory functions are fully enforced.

2.3           Implementing a sector-wide approach (SWAp) to investment

The increasing consumption of petroleum fuel poses concerns in terms of environmental impacts, not only  in terms of carbon emissions but also from improper handling and management of petroleum products. Discharge and storage of petroleum products and disposal of waste produced in a petroleum storage facility need to be managed properly. This section describes the investments in the petroleum sector that the government should be requiring of suppliers in order to improve the security of supply and affordability of petroleum products throughout Solomon Islands.

2.3.1      Barge for local distribution

Improving the efficiency of the distribution of petroleum products to outer islands will place downward pressure on retail fuel prices in rural locations. Efficient distribution will also significantly improve the security of petroleum supply in the outer islands.

Fuel suppliers and shipping companies need to explore the option of using barges for local and inter-island distribution. Barges will help to increase the efficiency of the domestic supply chain, in addition to improving the operating and safety standards of domestic distribution.

At this time there are no plans by government or the oil companies to invest in barges for local distribution. This contrasts with neighbouring countries such as Vanuatu, where the government and the Pacific Petroleum Company (PPC) have signed a memorandum of understanding to invest in a  double-hulled fuelled barge for efficient distribution to outer islands. The government will contribute 30% towards the cost of the barge, with PPC investing the remaining 70%. The Solomon Island Government can similarly look into the prospect of partnerships with oil companies for investment in barges for local distribution.

2.3.2      Additional storage

There is a need to rationalise and, if necessary, to increase bulk fuel  storage  capacity on Guadalcanal in order to achieve economies of scale available through bulk shipments by medium range (MR) tankers.

New storage facilities in outer islands may also be required to improve the security of supply of petroleum products. Improving storage facilities will facilitate better distribution of petroleum products to the population living in the outer islands. A more strategic approach is for the government-owned company South Pacific Oil Limited (SPOL) and the Energy Division to work together with the provincial council to set up proper storage facilities and depots to increase energy security and facilitate proper safety and environmental standards. The government is targeting achieving a balance between improving security of supply (by increasing storage) and keeping prices down. Therefore, the government will need to enter into negotiations with fuel and LPG suppliers to understand how the required investments can be incorporated into capital investment plans.

2.3.3      Upgrade safety of infrastructure

A variety of investments may be needed to address safety and environmental risks in the bulk storage terminals. Minimising the risks of fire and spills will improve the reliability of the supply chain for both petroleum and LPG.

The current location of bulk fuel storage terminals in the main Honiara town centre poses significant risks  of fire, explosion and oil spills. The government believes that in order to improve the safety of the terminals, Markwarth Oil and SPOL will need to relocate outside Honiara.

SPOL capital investments include:

• relocation of terminal to Ranadi Industrial Area, with only one diesel storage tank to remain at the present location to cater for marine sector;
• construction of 500 ppm diesel tanks for additional storage at Lungga for Solomon Islands Electricity Authority (SIEA); and
• construction of T55,000 litre diesel tanks in provinces where SIEA power houses are located.

Markwarth Oil capital investments include the construction of a depot at Lungga.

2.4           Review of the 2007 SINEP and petroleum strategic action plan

The 2007 SINEP with its strategic action plan was reviewed in 2013 and the outcome of the review formed part of the 2014 SINEP and the Energy Efficiency and Conservation Strategy and Investment Plan, the Renewable Energy Investment Plan and this PET-ALT SIP.

The 2007 petroleum sub-sector policy and action plan has six key policy statements, nine strategies and nineteen key actions. The goal is ‘an efficient and well-managed petroleum sector’.

The table below provides a summary of the achievements on the implementation of the petroleum sector from 2007 to 2013, showing whether the policy statements, strategies and activities have been fulfilled, and providing an explanation, a ranking and also whether the policy statement, strategy or activity is still relevant.

Table 2: Summary of petroleum sub-sector status of implementation

1 This issue should be covered under the environment legislation

Summary of the review

Out of the six policy statements only one policy statement was fulfilled:

• Demonstration of the biofuel plant in Auki implemented by ADB’s Solomon Islands Sustainable Energy Project in collaboration with SIEA.

Out of the nine strategies, only one was fulfilled and three were partly fulfilled.

• Ensure government ownership of the petroleum storage. As noted during the consultations the government owns the Noro petroleum storage depot and it is leased to Markwarth Oil.
• Ensure the Energy Division has the capacity to plan and manage the petroleum sector. One officer was assigned the role of Petroleum Officer but also manages the ODS activities, which seem to have a higher priority than petroleum.
• Maintain a minimum volume of petroleum fuels. There is energy security for 30 days, enough to meet the demand in the urban centre but not the rural areas.

• Promote the use of non-fossil fuels. ADB biofuel project demonstration for use of biofuel for power generation.

Out of the 19 activities, only two activities were fulfilled. These activities are:

• The review of the supply chain mechanism and regulations – which was done by the Price Advisory Committee under the Price Control Act. A review was carried out in 2010 and 2011.
• The 2011 annual review was independently reviewed by the SPC Petroleum Officer. The 2011 Annual Review Report was adopted and three recommendations as per the annual review were approved. The first was the approval of a 1 cent per litre levy to be set aside to cover the cost of monitoring the outer Island fuel price. The second recommendation was the removal of the 45 cents per litre recovery fee from fuel as at 1 November 2011 due to the financial crisis and exchange rate losses. The third recommendation was that the two companies opted for bulk purchasing, which was implemented.

The overall assessment of the 2007–2009 petroleum sub-sector strategies could be stated as not satisfactory and this may be attributed to the following:

• a lack of capacity and resources within the Energy Division to effectively enforce the Petroleum Act;
• the changes in priority of government and therefore reallocation of funding resources away from the petroleum sub-sector;
• the Petroleum Officer within the Energy Division focused on implementing the Montreal Protocol, related to ozone depleting substances, as more resources and support were provided to this project; and
• the legal framework, the Petroleum Act, is out-dated with fines too low to cover the cost of enforcement.

It was also noted that the strategies and activities fulfilled or achieved are those that are implemented with external assistance or funding. 

The following section discusses the links of this strategy to the 2014 SINEP, highlighting the petroleum sector outcomes, goal, policy statement, strategies and relevant activities.

3.1           Energy sector vision

The SINEP energy sector vision is: Unlocking the development potential of Solomon Islands' economic base through a dynamic and effective energy sector.

3.2           Petroleum sector outcomes

The SINEP petroleum sector priority areas are presented in this strategy as outcomes.

1. Supply and affordability of petroleum products to outer islands and remote rural locations are improved;
2. Petroleum storage and handling facilities conform to local and international safety, health and environmental standards;
3. Regulated petroleum prices in the nine provinces are effectively monitored; and
4. Alternative fuel projects are coordinated.

3.3           Petroleum sector policy goal

To increase access to safe, affordable and reliable petroleum products and alternative liquid fuels and gaseous fuels

3.4           Petroleum sector policy statements

The petroleum sector policy statements are also aligned to the PET-ALT SIP outcomes and these are commitments or intentions which the stakeholders will commit to, thereby meeting the outcome and goals of SINEP.

1)     A reliable supply of quality petroleum products at landed cost is provided to all people in Solomon Islands.

2)     Petroleum storage and handling facilities conform to local and international safety, health and environmental standards.

3)     Suppliers and users of petroleum products dispose of petroleum-related waste in an environmentally sound manner.

4)     The monitoring and regulating of petroleum prices is done in transparent and coordinated ways.

5)     Research in alternative liquid and gaseous fuels is promoted and supported.

3.5           Petroleum sector strategies

The strategies are aligned to the policy statements, which directly also contribute to achievement of the goal and ultimately the petroleum sector outcomes.

1. A reliable supply of quality petroleum products at landed cost is provided to all people in the Solomon Islands.                                                                                                                                                                                                      

1.1            Ensure a secure and reliable supply of petroleum products within Solomon Islands.

1.2            Develop appropriate technical guidelines and standards for petroleum storage permits.

2.1            Ensure that petroleum storage and handling facilities conform to local and international safety, health andenvironmental standards.

3.1            Ensure the draft contingency oil spill plan is finalised and implemented.

3.2            Ensure there is regulation for disposal of petroleum-related waste.

 4      The monitoring and regulating of petroleum prices is done in transparent and coordinated ways.

4.1            Ensure that an appropriate and effective regulatory framework is in place.

4.2            Ensure compliance to regulated oil and gas prices in urban and rural areas.

 5      Research in alternative liquid and gaseous fuel is promoted, supported and well-coordinated.         

5.1            Promote the use of biofuel for power and transportation.

5.2            Enhance private sector participation in production and supply of alternative fuels.

5.3            Promote the use of cleaner fuels for cooking.

3.6           Summary of outcome, policy statements, strategies and actions

Table 3: Key strategies, activities and indicators and estimate costs

2 It is expected that the study can be done within 60 days at a rate of USD 450.00 a day, USD 30000 for rural areas visits

3 Oil companies have their own operating HSSE standards. The Petroleum Act has provisions for licensing companies for storage and cartage and this can be used to monitor operations of oil companies by having conditions of operation attached to the licences.

4  Consultancy rate of AUD450 per day for 10 days

Costing for the PET-ALT SIP was done during two in-country consultations and the National Energy Forum in Honiara in June 2013. A proposal submitted to the Energy Division on the development of a laboratory and the training of energy officers on safety, health and environmental standards was also used, assuming that costs would remain in 2014. The consultancy fees such as those required for the review of the acts were based on previous consultancy quotations and costs.

On the monitoring of petroleum prices in the outer islands, the costs are exorbitant due to remoteness. Transport costs by air, sea and land are quite high and therefore costs incurred are only for training of provincial officers.

Table 4: Key activities timelines (2014–2018)

5 Oil companies have their own operating HSSE standards. The Petroleum Act has provisions for licensing companies for storage and cartage and this can be used to monitor operations of oil companies by having conditions of operation attached to the licences.

4.1           Next steps and investment plans

There are four main issues of concern for the petroleum sector and strategies to minimise the challenges have also been identified. These issues are: (1) improve the security, safety and efficiency of fuel supply in Solomon Islands; (2) improve the affordability, availability and access of petroleum products and alternative liquid fuels; (3) fuel price regulation; and (4) coordination of alternative fuel projects.

In addition, there is a need to increase awareness and uptake of energy efficiency practices both on the supply side and at end use. This will reduce the amount of fuel imports needed and the fuel bills of the population and businesses. A variety of approaches are necessary to achieve these goals. Authorities need to be given the legal mandate for effective enforcement, capability needs to be increased, public awareness raised, and investments considered where current infrastructure is lacking or insufficient.

Most importantly, leadership and governance need to be strengthened with stringent legal frameworks to enable more effective management of the sector. Although improving energy services is known to be vital  in developing Solomon Islands’ economy, until now there has been no national energy committee or other mechanism to coordinate energy sector issues.

The Energy Advisory Committee (EAC) now being proposed will provide leadership and drive the strategy, coordinate between ministries and agencies, and assist in the implementation of the energy programme and projects across the energy sector. However, a legal framework under the proposed energy sector management act will provide a legal mandate for the EAC to effectively coordinate the planning of the energy sector, in particular the alternative fuel projects. In the petroleum sector in particular, fuel pricing and monitoring should be coordinated through the EAC and therefore effective collaboration is essential between the PCA Committee and the Energy Division, which is responsible for energy sector planning coordination, leadership and partnership, as well as Petroleum Act administration. In addition, proper regulation of petroleum storage and cartage of petroleum products to the provinces is important. Even though these issues are administered through different legislation, the activities complement each other. For instance, a province that has access to reliable petroleum products and conforms to proper enforcement for safety, health and environmental standards will ultimately require proper price monitoring and regulation to ensure that consumers receive fair and equitable prices. Figure 1 shows the links between the petroleum sector policy framework, including goals and key strategic areas, the Price Control Act, the Petroleum Act and the proposed energy sector management act.

PET-ALT SIP Outcomes

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Energy Divsion

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Figure 1: Petroleum sector policy and regulatory frameworks

Figure 1 illustrates a sector-wide approach needed to ensure that high-level, comprehensive enabling reforms are put in place, leadership is taken, partnerships developed, stakeholders consulted, and progress monitored. It will  also enable better co-ordination of private sector and donor projects and financing to increase investment effectiveness. A clear institutional planning framework is required to transform the petroleum sector into an enabler for socio-economic development by supporting:

1. strong leadership from a well-resourced ED with support from all stakeholders;
   1. a well-resourced and competent regulator;
   2. a firm legal framework, providing the authority for the division to perform its role;
   3. a human resource capacity development plan;
   4. the promotion of partnerships with international, regional, national and local communities; and
   5. the promotion of energy efficiency and conservation strategies, including the use of petroleum in all sub- sectors.

To ensure that strategic goals are achieved, there should be a clear monitoring and evaluation (M&E) plan, identifying the outcomes and indicators of success, so that progress can be tracked and results evaluated. M&E of the petroleum sector action plan is being strengthened in the ED through the development of the energy sector planning strategic plan, which should also include M&E of all the energy sub-sectors, including petroleum.

4.2           Summary of investments required

With a new institutional framework in place, and resources strengthened, the ED will be better placed to perform more of its regulatory and oversight functions, begin programmes and investments to improve energy security and safety, and reduce demand for fuel imports. The recommendations presented in these investment plans were developed in consultation with stakeholders to identify the immediate priority needs in the petroleum sub-sector. These are the steps that it is considered can viably be taken in  the  short  to medium term to progress the PET-ALT SIP.

This review has enabled the ED to identify its priorities. The next stage will be actioning them and securing committed financing to do so. If it becomes clear that not all the proposed actions are feasible due to lack of time or because of resource or financial constraints, then it will be necessary to prioritise. Projects to be taken forward should be subject to cost-benefit analysis to ensure they offer value for money – and that  their impact has been fully considered.

The investment plans for the initiatives  recommended  for  the  petroleum sector are presented in T a b l e s

6 t o 8 , which also illustrate the funding requirements. Committed funding is identified. The identified proposals will require the involvement not just of MMERE, but also the Environment Department, the Ministry of Finance, the Ministry of Education, the Ministry of Commerce, SIEA, oil and gas companies, and commercial businesses. Coordinating this will require strong leadership from the EAC.  By  working  together to implement these plans, all involved in the sector can contribute to a change in  delivery of  energy services for all Solomon Islanders.

Table 5: Petroleum distribution in the provinces investment plan

Table 6: Petroleum standards (safety, health and environment) investment plan

Table 7: Fuel price monitoring investment plan

Table 8: Coordination of alternative fuels projects

Table 9: Summary of investment schedule for the petroleum sector

Planning stage Implementation stage

Petroleum and Alternative Liquid Fuels Strategies and Investment Plan (2014-2019)