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“Fakafoou – To Make New”

TUVALU INFRASTRUCTURE STRATEGY AND INVESTMENT PLAN 

February 2012

TUVALU INFRASTRUCTURE STRATEGY AND INVESTMENT PLAN

“Fakafoou – To Make New”

TABLE OF CONTENTS

EXECUTIVE SUMMARY........................................................................................................... iv

1. INTRODUCTION............................................................................................................... 1
2. Background to the TISIP............................................................................................. 1
3. Tuvalu Infrastructure Strategy & Investment Plan (TISIP)......................................... 2
4. TISIP & Tuvalu‟s Planning Framework....................................................................... 3
5. Layout of the TISIP...................................................................................................... 7
6. INFRASTRUCTURE NEEDS............................................................................................. 8
7. Infrastructure Drivers.................................................................................................. 8
8. Key economic infrastructure drivers........................................................................... 8
9. Key social infrastructure drivers............................................................................... 10
10. Review of the Country Development Strategy.......................................................... 12
11. Climate Change Considerations................................................................................ 13
12. INFRASTRUCTURE SECTOR ANALYSIS...................................................................... 15
13. Population.................................................................................................................. 15
14. Water and Sanitation.................................................................................................. 17
15. Solid Waste Management.......................................................................................... 21
16. Power & Energy......................................................................................................... 23
17. Information and Communication Technology............................................................ 26
18. Civil Aviation............................................................................................................... 27
19. Roads and Public Works........................................................................................... 29
20. Maritime..................................................................................................................... 30
21. Overview of Planned Investments............................................................................ 33
22. PRIORITIZING INFRASTRUCTURE INVESTMENT...................................................... 34
23. The Project Ranking Process................................................................................... 34
24. Options Development................................................................................................ 37
25. PROJECT FINANCING................................................................................................... 39
26. Whole of Life Costs.................................................................................................... 39
27. Current Operating and Maintenance Expenditure..................................................... 40
28. Future Operating and Maintenance Expenditure...................................................... 44
    1. FUNDING STRATEGY.................................................................................................... 46
       1. Demand for Infrastructure Finance........................................................................... 46
       2. Capital Expenditure.................................................................................................... 48
       3. Current Capacity of Capital Markets......................................................................... 51
       4. Overall Funding Strategy........................................................................................... 55
29. SECTOR PRIORITY PROGRAMS.................................................................................. 57
    1. Water & Sanitation..................................................................................................... 57
    2. Waste Management................................................................................................... 58
    3. Power......................................................................................................................... 59
    4. Telecom..................................................................................................................... 59
    5. Roads........................................................................................................................ 60
    6. Air............................................................................................................................... 60
    7. Maritime..................................................................................................................... 61
    8. THE WAY FORWARD..................................................................................................... 63
       1. Improved Coordination.............................................................................................. 63
       2. Improved Sector Planning......................................................................................... 63
       3. Maintenance.............................................................................................................. 64
       4. Streamline Processes............................................................................................... 65
       5. TISIP Review............................................................................................................. 66

APPENDICES

ABBREVIATIONS

CURRENCY EQUIVALENTS

(as of February 7, 2011) Currency Unit – A$ (Australian dollar))

A$1.00 = US$1.07

$1.00 = A$0.93

EXECUTIVE SUMMARY

Introduction

Tuvalu is among the world‟s smallest nations on a population basis. Despite a small public service and limited private sector, there are high expectations to respond to both domestic and international policy and appropriate infrastructure regulatory and delivery requirements. The National Strategies for Sustainable Development 2005-2015, Te Kakeega II (TKII), reaffirmed Tuvalu‟s commitment to sustainable development and achieving the Millennium Development Goals (MDGs). It aims to achieve full employment, economic growth, improved healthcare, education and infrastructure, and continued social stability.

Objectives

The Tuvalu Infrastructure Strategy and Investment Plan (TISIP) represents a country led and prioritized investment plan for economic infrastructure for the next 5-10 years. The plan identifies the needs and priorities for investments in economic infrastructure and assesses the financial resources to support implementation. The TISIP aims at improving coordination in planning and financing of infrastructure development and maintenance between national stakeholders and international development partners and to strengthen the capacity of the Government to plan and manage the development of its economic infrastructure.

Methodology

The TISIP is closely linked to achieving the economic and social strategies of the NSSD or Te Kakeega II. It is based on sector policies, targets and standards and assesses the economic and social drivers that determine the demand for infrastructure. Simultaneously,  an assessment of the current status and service levels in the various infrastructure sectors was carried out. This resulted in a long list of projects for each sector. A project prioritization tool using multi-criteria analysis has been developed and projects were ranked resulting in a short list of high priority projects. Short project descriptions and “whole of life” cost estimates of the prioritized projects were prepared, and based on this, a funding strategy has been developed. The methodology is schematically presented in the figure below.

8

Tuvalu has the same basic infrastructure drivers as other countries. However, due to the isolation, smallness, fragmentation and lack of resources of this atoll country, which are critical in determining economic growth, the priorities for new infrastructure are somewhat different as compared to most other countries. Also, the dominance of aid to fund new projects means that Tuvalu must negotiate with development partners whose requirements may not always fully align with the goals of the government. The reality is that Tuvalu will continue to be very dependent on outside assistance to maintain the current standard of living let alone catch up with their bigger more resource rich neighbours. In addition, the country‟s dependence on highly volatile sources of revenue which includes fisheries licenses and its sovereign wealth fund – the Tuvalu Trust Fund, has led to a call to broaden the economic base.

Project Prioritization

The process of project prioritization is presented in the figure below. Tuvalu‟s PRIF Taskforce undertook an analysis of each of the infrastructure sectors, comparing performance with relevant plans and policy targets. A long list of 30 projects was identified across eight sectors that would address gaps and inadequacies and enhance Tuvalu‟s capacity to achieve its TK II goals. The long list was rationalized, with some  projects identified as already underway, others combined to enhance efficiency, and others removed due to their premature planning nature. The remaining list of projects was subjected to a multi-criteria analysis, which ranked projects based on their alignment with seven key selection criteria - policy, economic, financial, social, environmental, readiness, and maintenance. The draft list of priority projects was subsequently presented and discussed by the PRIF Taskforce which resulted in a final list of eight high priority actions and  investments.

High Priority Actions and Investments

The following list of Actions and Investments were ranked as high priority, and prioritized for development in the next 5-10 years. They include (in no specific order):

Complementary Planning and Capacity Building

In addition to the priority investment program are a number of complementary planning and capacity building activities. These include:

Preparation of a Water and Sanitation Policy (including Building code revision) Finalization of a Renewable Energy Master Plan (with an emphasis on the use of solar power)

Transport Sector Feasibility Study

Assessment of SOE Reforms and Private Sector Facilitation

10-   year Infrastructure Strategy with rolling 3-year implementation plans to support  the NSSD

  “Fakafoou” (to make new) - a proposed program of using south/south exchanges of maintenance supervisors, teamed with local labour, to change Tuvalu‟s perspective and practice to maintaining, repairing and refurbishing infrastructure rather than replacing it.

Funding Strategy

The government team then examined methods for scheduling and funding of the proposed high priority infrastructure investments and actions. Whole of life costs were calculated for all projects taking into account capital expenditure, up-front planning and design costs and lifetime operating and maintenance costs. Taking into account the current capacity of government to obtain funds, the priority investments were assembled into a comprehensive and rational investment strategy.

Current and committed projects were costed at close to $32 million excluding full operation and maintenance costs. High-priority projects ranked in the TISIP total almost $71 million, including planning and detailed design. When full maintenance is included for current, committed and proposed projects, the total demand for finance over five years is $114 million. A more rational implementation period is over 10 years where the total demand for finance (including capital, recurrent and full O&M) averages $15.9 million, of which, $7.3 million is capital costs. This more closely matches the indicative development partner  funding envelope of about $15 million per annum. All these investments are scheduled over the next five years until 2015. With the inclusion of medium priority projects and calculation  of whole of life costs until 2036, there is close to $212 million worth of investment (including operation and maintenance) required in the infrastructure sector.

It is clear that Tuvalu does not have the capacity and capability to fund and manage existing infrastructure let alone new investments. TISIP therefore recommends placing an emphasis on programs to boost the maintenance of existing infrastructure as a first priority. The concept of the Fakafoou Program is seen as the way to cure the Pacific disease (of lack of maintenance and, in particular, lack of preventative maintenance). This will require development partner funding and systems to monitor and evaluate performance. The estimated cost per annum of the gap between existing and full maintenance is $4.08 million. Project management, including monitoring and evaluation costs, would need to be added to this annual figure.

Ownership

The TISIP has been formulated at the initiative of the Government of Tuvalu and with  support of the Pacific Infrastructure Advisory Center (PIAC). Its preparation has been managed by the Planning and Budget Division of the Ministry of Finance and Economic Development under the direction of the PRIF Taskforce consisting of senior officials of each sector, which has also been responsible for the initial prioritization of the projects. The TISIP has been developed in close consultation with government and private sector stakeholders who participated in a series of workshops conducted throughout its preparation. Cabinet and ministries have been briefed on various occasions throughout the process.

The Way Forward

The Government of Tuvalu intends to use the TISIP to improve coordination in planning and financing of economic infrastructure development among national stakeholders and international development partners. Oversight and regular monitoring (every two years) of the TISIP will be the responsibility of the National Development Committee (NDC) with the support of the Planning and Budget Division (PBD) of the Ministry of Finance and Economic Development.

The Government is committed to ensuring that the priority program is delivered as quickly and effectively as possible and is keen to enhance cooperation. The TISIP is a means for Tuvalu to streamline the development of economic infrastructure by providing a clear direction and information about its infrastructure development to its own departments, the private sector and the donor community.

1. INTRODUCTION

1. The Tuvalu Infrastructure Strategy and Investment Plan (TISIP) has been developed by the Department of Planning and Budget of the Ministry of Finance and Economic Development (MFED) of the Government of Tuvalu (GoT). It is being coordinated by the PRIF Taskforce, which has been established by the GoT and is chaired by the Ministry of Public Utilities, Communications and Transport (MPUTC) and comprises heads of relevant departments and key technical specialists. A Technical Assistance (TA) consultant team was provided by the Pacific Infrastructure Advisory Centre (PIAC) to assist with  TISIP preparation.

1. The Plan was developed over a period of three months in late 2011, and comprises  of an infrastructure stocktake, technical and economic analysis, and a prioritized list of infrastructure investments. In places, the plan follows the outline and draws upon methods used in other Pacific Island infrastructure plans, including the Nauru Infrastructure Strategy and Investment Plan (Government of Nauru, 2011), the Tonga National Infrastructure Investment Plan (Government of Tonga, 2010) and the Cook Islands Preventative Infrastructure Master Plan (ADB, 2006).

A.             Background to the TISIP

1. Tuvalu is among the world‟s smallest nations on a population basis. Despite a small public service and limited private sector, there are high expectations to respond to both domestic and international policy; and appropriate infrastructure regulatory and delivery requirements. The National Strategies for Sustainable Development (NSSD) 2005-2015, Te Kakeega II (TKII), reaffirmed Tuvalu‟s commitment to sustainable development and achieving the MDGs. It aims to achieve full employment, economic growth, improved healthcare, education and infrastructure, and continued social stability. Its framework and performance measures were re-assessed in 2008 (TKII Revisited, 2008) and again in October 20111.

1. The Government of Tuvalu established a PRIF Task Force among various departments involved in infrastructure development and service delivery in August 2009 to take advantage of the recently established PRIF mechanism. The Committee decided to work with PRIF on a project by project basis, submitting individual project proposals for funding to PRIF through PIAC. Although some projects were funded, PRIF partners were concerned that there was an overall lack of strategic prioritisation and technical justification across infrastructure sectors. Following a range of discussions with PIAC regarding “project” versus “sector” approaches, the Government of Tuvalu agreed to start preparations for the TISIP in February 2011. PIAC was requested to assist in the preparation of such a plan beginning in August 2011.

1. It is the intention of the government to fully integrate the TISIP with the TKII review and update. The TISIP will also be reviewed regularly (every two years) as part of the annual national planning and budgeting process in order to ensure its relevance for guiding sector planning and discussions with development partners. In order to do this, the TISIP preparation process focused on working closely with the PRIF taskforce and related Government agencies, applying the processes and tools and building capacity.

1. The TISIP balances the Government‟s objectives of providing improved economic infrastructure where rational, with improving social conditions in the country, particularly   the

1 An account of the TKII review is in section 2.c.

outer islands. It balances infrastructure that drives the economy with infrastructure that improves livelihoods and promotes efficiencies.

B.             Tuvalu Infrastructure Strategy & Investment Plan (TISIP)

1. This Plan identifies the Government‟s needs, strategies, policies, and immediate priorities in the infrastructure sector as well as the financial resources to support their realization. The plan assesses current status and needs in each infrastructure sector, and uses this assessment to review proposed projects. The development of a project  prioritization tool and investment and funding strategy will assist Government to regularly update (every two years) and utilize the Plan.

1. The TISIP includes the following key economic infrastructure sectors with a lower  limit on individual project size of $400,000:

Water, Sanitation and Solid Waste Management Electricity and Energy

Telecommunication and ICT Transport – Air, Road and Maritime

1. Tuvalu‟s planning, institutional and implementation arrangements are often haphazard. In most sectors, numerous studies and assessments have been undertaken in recent years, yet there is often political and development partner inertia to commit to sector master plans, let alone comprehensive infrastructure investments. This is often due to a lack of financial and technical resources and capacity in Tuvalu to plan, manage, operate and maintain current infrastructure, let alone new investments. To ameliorate this inertia, the TISIP was developed with the following principles:

1. Integration with TKII – TKII is Tuvalu‟s national sustainable development strategy. The TISIP will become the detailed implementation plan of the infrastructure components of the TKII.

1. Funafuti and Outer Islands – Infrastructure needs, costs and standards differ significantly between the populated areas of Funafuti, and the communities of the outer islands. For example, while environmental degradation already occurs in Funafuti, this has generally been avoided elsewhere; greater cost recovery is more likely in the cash economy of Funafuti, whilst the community cohesion yet remoteness of the outer islands places different demands on the mix and type of infrastructure delivery. Because of this, where it makes sense, the analysis of sectors and the presentation of projects has been undertaken differently for Funafuti versus the outer islands.

1. Private Sector – Where possible, private sector options are considered an integral part of infrastructure implementation and maintenance process. Where it makes sense, movement towards more commercial approaches of Government functions (such as power and telecom) is already happening, and this is encouraged. This is difficult to achieve in Tuvalu as it is remote and has a small population scattered across nine islands, reducing the ability for cost competitiveness and increased efficiencies.

1. Realistic funding and maintenance – Current infrastructure is often not maintained in accordance with economic or technical standards (often funded less than one-third of optimum), ensuring that deterioration of assets is accelerated. Maintenance funds need to  be found for existing assets, while new and replacement infrastructure needs to be able to  be maintained and operated within the current budget envelope or attract additional revenue. Whole of life costs are calculated for new infrastructure and compared with current required expenditures. The TISIP recommends a new approach to maintenance called “Fakafoou”

which makes use of the pool of skilled tradespeople in the region and under-utilised local labour to more effectively manage asset maintenance.

1. Cross Sectoral Efficiency – where there is ability to combine construction/maintenance activities across multiple projects/sectors/agencies; or develop infrastructure for multiple purposes, these have been noted and given relevant priority. This is particularly relevant in the outer islands, where cross sectoral projects are more effective and efficient due to cost and scale.

1. Demand Driven – a shift in focus so that infrastructure planning is motivated by demonstrated demand and improved cost recovery rather than just free supply. This has been demonstrated internationally, and with small island states, to improve sustainability through better care and maintenance, and service delivery in line with economic resources.  A case in point is the move to cost recovery in the electricity sector in Nauru. This resulted in major savings through reduction in wastage and significantly reducing peak power demand to the extent that perceived needs for increased generating capacity were no longer valid. The reality is that resource constraints will always be a factor limiting the degree to which Tuvalu can manage the imported infrastructure that development assistance brings. Sitting down with development partners and talking this through should result in more appropriate infrastructure investment in the future that is within the capability of Tuvalu to manage with the assistance that is available from partners.

1. Development Partnership – enabling Government to determine its own development agenda and investment envelope so that it can move from being a development partner recipient to an equal partner in negotiating international development assistance.

1. TISIP and Tuvalu’s Planning Framework

1. Each of Tuvalu‟s nine inhabited islands is based around a single village and has a distinct sense of community and identity. Traditional councils of chiefs work with the elected government and are the authorities on matters of custom. To ensure continuity of traditional customs, a council of chiefs operates alongside the official system at the local level. Under the Falekapule Act 1997, increased powers were given to the island councils to prioritise local development needs within the framework of the central government‟s overall development objectives.

1. While the TISIP forms an integral part of the national planning and budgeting  process, it also takes account of the different development and infrastructure needs of both Funafuti and the other eight islands. Overall, the TISIP provides an indication to development partners of the priority investments that Tuvalu wishes to pursue over the next 5-10 years. Figure 1 outlines how the TISIP fits within the overall infrastructure planning, policy and operational framework in Tuvalu.

Figure 1 : TISIP Role in Tuvalu Planning Structure

1.         National Strategies for Sustainable Development (NSSD)

1. The 2005 NSSD (Te Kakeega II or TKII) has a clear focus for the infrastructure  sector and how it relates to achieving the vision and objectives for Tuvalu‟s sustainable growth. It also highlights the different needs of the outer island communities versus those of Funafuti. The NSSD is consistent with a number of internationally agreed development goals such as the MDGs, the Pacific Plan, and Paris Declaration, detailing  key performance criteria that are monitored on a regular basis.

1. The Vision of the NSSD is that “By 2015, guided by strong spiritual values enshrined in its motto - „Tuvalu mo te Atua‟2 - we will have achieved a healthy, educated, peaceful and prosperous Tuvalu”.

1. The key development priorities for the NSSD are: good governance; economic growth; job creation; more economic opportunity; better health and education; improved  basic infrastructure; social development (youth, housing, gender equality, sports and recreation); natural resources (agriculture, fisheries, tourism, environment); and social stability.

1. In order to achieve these priorities, the NSSD includes strategies grouped into eight key areas. Of these, four have particular relevance for economic infrastructure:

2 Tuvalu for God; God for Tuvalu.

1. Furthermore, the TKII indicates that each sector should develop its own Strategic Plan; these would support a Corporate Plan for each Department; and allow an overall Public Sector Investment program to be developed.

1. The TISIP is being developed to integrate with the relevant NSSD goals (including relevant MDGs) and strategies; and incorporate approaches that ameliorate the key hindrances to infrastructure development. In setting priorities, projects that are closely aligned with, and contribute to, long term goals receive a higher rating.

2.         Sector Plans and Studies

1. Over 65% of the foreign arrivals in Tuvalu comprise of development partner officials and technical assistance consultants. It is not surprising then that a multitude of studies have been undertaken. These are often in support of detailed funding proposals, but have not resulted in sector strategies. The exceptions to this are the telecom and energy sectors, which have detailed policies and strategies. The Tuvalu Electricity Corporation (TEC) is currently developing a sector master plan. A water resources policy is expected to be completed by early 2012 under SOPAC and IWRM guidance. A solid waste master plan is expected to be developed by the Solid Waste Agency of Tuvalu (SWAT) during the current EU assistance.

1. There are only two state-owned enterprises (SOEs) in the infrastructure sector - electricity (TEC) and telecommunications (TTC). Each has a detailed corporate plan. While there is a drive from development partners to allow independent management and economic pricing of these, the Government is wavering as the reality of realistic and economic pricing of services impacts on Government operations and community politics.3

1. The TISIP incorporates key elements of all plans developed in recent years in the relevant sub-sector needs analyses. In most cases, these have formed outline sector strategies as an interim measure prior to the development of detailed sector master plans.

3.         Institutional Arrangements

1. There are three main ministries involved in infrastructure provision. The Ministry of Public Utilities, Communication and Transport (MPUCT) has two divisions. The Public Utilities division is responsible for the Department of Energy (electricity and fuel) and the Public Works Department (water & sanitation, roads). The Communications and Transport division is responsible for communications and the Departments of Civil Aviation and Maritime. Solid waste management is the responsibility of the Solid Waste Agency of Tuvalu (SWAT) and the Kaupules (Island Councils), all of which are the responsibility of the Ministry of Home Affairs. The Ministry of Economics and Financial Development (MFED) oversees the budget, planning and aid management functions of Government. Figure 2 outlines the infrastructure responsibilities of its key Ministries, Departments and SOEs.

1. Tuvalu has a small private sector comprising mostly of service-based enterprises – retail and trade services. There are few private professional services, with most  professionals either employed by Government or moving abroad. There is a lack of skilled tradespeople for constructing, maintaining and operating infrastructure. Private enterprise development is constrained by the small market and a lack of small-scale funding, onerous establishment processes, and often unfavourable Government (and development partner) policy and practices. By seeing itself as part of a regional market, Tuvalu has the challenge of increasing the use of regional resources, particularly in professional services, e.g., utilising communications technology such as the internet and Skype.

1. The Government (under an ADB TA) had an active policy (TKII) to corporatise infrastructure functions where possible; and to encourage private sector involvement. Until recently (November 2011), it was pushing for more commercial approaches for existing  SOEs to stimulate economically rational management practices; and facilitate training and private sector capacity. Unfortunately, this process is currently being reversed, attracting significant development partner concern – and the future for the existing SOEs and further corporatisation is still unclear.

3 In November 2011, the Government voted to re-nationalise TEC. This process is still underway.

Figure 2: Institutional and SOE Infrastructure Responsibilities

D.             Layout of the TISIP

1. The TISIP has been developed and organized as follows:

1. Needs Analysis – this section assesses the need for infrastructure in the context of Tuvalu‟s national policy and economy; and outlines the key drivers of infrastructure in Tuvalu and its sector-wide needs.

1. Sector Analysis & Investment Plans – provides brief details about each sub-sector

- policy, planning, financial and operational position. A gap analysis leads to a description of current and proposed projects and the proposed investment plans for each sub-sector.

1. Prioritizing Infrastructure Investment – outlines the details of the multi-criteria analysis (MCA) adopted by Government to rank projects and guide investment decision- making. A prioritized list of infrastructure is developed.

1. Life Cycle Costs – outlines the life cycle costs of infrastructure and the current situation in Tuvalu. It examines the current balance between maintenance needs and maintenance expenditure and contrasts that with the potential operational and maintenance implications of the TISIP infrastructure investment program.

1. Funding Strategy – outlines the projected demand for infrastructure-related finance; the capacity of Government and SOEs to address total costs; and the interventions that Government can make to improve the infrastructure financing environment.

1. Sector Priority Programs – the section combines the prioritization, timing and investment analyses, and outlines the key program requirements and necessary supporting activities for each sector over the coming 5-10 years.

1. The Way Ahead – outlines the key supporting activities that Tuvalu needs to undertake to plan, manage and deliver the infrastructure over the short- to medium-term.

1. INFRASTRUCTURE NEEDS

1. This section outlines the key drivers of infrastructure in Tuvalu and sector-wide needs.

A.            Infrastructure Drivers

1. In order to develop a comprehensive infrastructure plan, it is necessary to  understand the economic and social factors that drive the need for infrastructure in Tuvalu. This section assesses how infrastructure forms an integral part of the National Policy and is a positive driver for the economy. Each sub-sector is analysed for its linkage with policy and planning outcomes, relevant demand drivers, and potential investment directions.

1. Growth in demand for basic infrastructure capacity and services is typically driven by population growth and economic activity. Individuals want, as a minimum, for their basic needs to be met so that they have a good quality of life. In addition, the services delivered by economic infrastructure are an intermediate input into production and affect business efficiency and economic growth.

1. There is general international consensus that there is a positive correlation between infrastructure and economic outcomes and that investment in infrastructure is a major driver of productivity. More efficient, core economic and social infrastructure (transport, electricity generation, telecommunications, water and wastewater systems, solid waste management, and ICT) leads to the higher levels of productivity, particularly when delivered with increased efficiency and reduced service prices. However, it should be noted that there are constraints to productivity improvement in a small remote country like Tuvalu.

1. Inadequate infrastructure is a bottleneck to economic activity. Inadequacy can be due to a lack of assets or where there is diminution of service due to poor management and maintenance. Appropriate maintenance is a much more efficient approach to the effective use of infrastructure than capital expenditure. Poor maintenance results in the compromise  of service coverage, pricing and quality. As a result, the TISIP focuses not just on physical infrastructure but also on the way that it is used and managed.

B.            Key Economic Infrastructure Drivers

1. Tuvalu has the same basic infrastructure drivers as other countries. However, due to the isolation, smallness, fragmentation and lack of resources of this atoll country, which are critical in determining economic growth, the priorities for new infrastructure are somewhat different as compared to most other countries. Also, the dominance of aid to fund new projects means that Tuvalu must negotiate with development partners whose requirements may not always fully align with the goals of the government. Twenty to thirty years ago there was a widely held expectation among donor countries that developing countries including the atolls would become economically self-reliant at some point in the future. The reality is that the atoll countries will continue to be very dependent on outside assistance to maintain the current standard of living, let alone, catch up with their bigger more resource-rich  neighbours. In addition, the country‟s dependence on highly volatile sources of revenue which includes fisheries licenses and its sovereign wealth fund – the Tuvalu Trust Fund, has led to a call to broaden the economic base.

1. From an economic point of view, an important step in developing a prioritized infrastructure program is to identify the main sectors of economic growth and social development over the relevant period of 5-10 years. But Tuvalu, like its near neighbours,    is

not well placed to escape an aid dominated economy due to the constraints imposed by its location and atoll structure.

1. While the development of an export-focused fishing industry would seem sensible, there are many examples of previous attempts by Pacific island countries including Tuvalu to develop local fishing industries, only to fall well short of expectations because the risks cannot be adequately managed. Export of high value fish species requires excellent regular air connections to markets in Asia that are not possible for the foreseeable future for Tuvalu. Domestic on-shore processing facilities need to be large scale to be economically competitive. In addition, they require large amounts of fresh water – a scarce commodity in Tuvalu. Running fishing boats out of remote islands is relatively expensive compared with operating from a major regional base, as needed infrastructure is specialised and cannot survive on a small scale of operation. This situation leads to the critical need to ensure Tuvalu extracts the maximum out of fishing licenses. To do this, it needs the ongoing and increased support of development partners and other Pacific Island nations which share the resource.

1. Tuvalu‟s major resource is its people; and over time, the country‟s leaders have recognised this by pursuing a policy of exporting people to jobs within the region with the expectation they will make a contribution to the nation from afar. The Tuvalu Maritime Training Institute (TMTI) has been a key in training seafarers who take up jobs with  merchant ships trading around the globe. For a variety of reasons, this avenue is likely to face declining demand as other nations capitalize on lower wage rates, better training facilities and cheaper logistics in placing seafarers. Tuvalu has also suffered a tarnishing of its reputation due to increased social issues arising from abuse of alcohol and drugs among seafarers. Given this situation and the limited potential for domestic job creation, it is particularly important that young Tuvaluans have the education and training to be internationally competitive.

1. Tuvaluans are filling senior regional positions in multilateral organisations and other PICs in numbers greater than Tuvalu‟s size would suggest. Such opportunities can be  further exploited. In addition, seasonal works schemes in New Zealand and to a lesser  extent in Australia, offer further opportunities with wage rates far exceeding that available at home. Infrastructure that would support external job creation includes better telecommunications including internet and better transport connections, both internal and external.

1. Local employment opportunities outside of government have been limited. The TISIP emphasises an increased focus on maintenance which has a two-fold benefit of providing jobs and circulating money in the economy rather than it going offshore to purchase new assets that have failed well short of their economic life.

1. Tuvalu offers a special tourist experience due to its remoteness, relatively untouched nature of the outer islands, and strong culture. Remoteness is also the major impediment to developing tourism into a significant generator of overseas funds and local employment due to the extra cost of travel. The culture, while very friendly and welcoming in general, does not have a strong service ethic. Sophisticated tourists who would be willing to pay the high marginal cost of visiting Tuvalu, compared with other well established Pacific Island tourist destinations, expect a high level of service that is not available in Tuvalu. At the other end of the scale, the backpacker sector would be put off by the extra cost of getting to Tuvalu. Despite many training courses, there is little evidence of service standards that are expected by tourists. Even the low number of tourists that do make it to Tuvalu are likely to be disappointed with the service they receive.

1. Tuvalu has been able to capitalise on its unique features in specialist areas. For example, the philatelic bureau offered overseas buyers a unique series of Tuvaluan stamps for a number of years before running out of ideas. The lease of Tuvalu‟s country internet domain name (.tv) was a major coup that continues to generate annual revenue. The Tuvalu Trust Fund (TTF) and Fale Kaupule Trust Fund (FTF) are vehicles for accumulating capital that is invested overseas; generating revenue for the national budget and local communities respectively. Tuvalu‟s success with their trust funds provides an opportunity to use the existing structures and administration units of these funds for a climate change fund. Government projects on climate change in the TISIP are primarily aimed at reducing  Tuvalu‟s dependence on high priced fossil fuels using solar technology which has the benefit of mitigating climate effects even if it is on a tiny scale. There is also a need to fund adaptation projects at the community level. Tuvaluans over generations have learned to survive the vagaries of a tough physical environment including extreme climatic events such as droughts and cyclones. The expected increase in these extreme events will tax communities to the limit and external funding assistance will be necessary for life to continue on the islands with any sense of humanity. In the end, provision needs to be made for relocation of communities should life on the islands become impossible due to climate change. To make a climate change fund a reality, there will be a need to meet the high standards of management and accountability demanded by the UN, World Bank and IMF for such funds.

1. While growth in exports may be severely constrained, there are opportunities to  make considerable savings on imports. A dollar saved on imports has the same value as a dollar gained on exports due to the opportunity cost of each dollar saved. The key catalyst  for savings is to ensure consumers are faced with real prices for the services provided by imported goods. Subsidies ensure more is consumed than would be otherwise. A pertinent example is the price of water. If water was priced at the delivered cost, the demand for Reverse Osmosis (RO) water would plummet and people would ensure that every square meter of roof catchment was connected to a water storage tank – the much cheaper alternative. Tuvalu has adequate water resources even to cover drought situations. Unnecessary spending on expensive RO water means dollars are not available for other much needed infrastructure. This concept applies in many parts of the economy including ICT, energy and transport. Where subsidies are used there needs to be a clear price signal so people are aware of the real cost.

1. Over the long term, there may be mineral deposits that could be exploited; but there are many other places in the Pacific where the logistics of extraction and supporting infrastructure are far more attractive than Tuvalu. One example would be the Chatham Rise off the east coast of New Zealand.

1. The reality is that Tuvalu has relatively few options to increase economic growth based on international competitiveness. Development partner countries will continue to be the major contributors to infrastructure development. Over the last four years (including 2011) on average, domestic revenue has funded just under 40% of total Government expenditure (see Table 14). This would imply that any new infrastructure will have to be totally funded by development partners as the government is not in a position to fund current spending, let alone additional spending.

C.            Key social infrastructure drivers

1. Population growth is the major social driver for infrastructure development. In  addition to more people, the socio-demographic characteristics of the population are also important. On the outer islands, the usual population distribution is skewed as young men such as seafarers, leave their islands for work. This leaves much of the burden of community development to women and “old” men. In addition, the small size of communities means that

everyone is related in some way to everyone else. It also limits the ability of the private sector to function as it would in large communities without creating extra community  tensions. For these reasons, there is a limit to the sensible commercialisation of service delivery. Of concern to the government is the continued movement of people from the outer islands to Funafuti.

1. The increase in population of Funafuti is stretching the basic infrastructure of water and sanitation to cope. The water lens has long been destroyed and increases in septic tank overflows are thought to have caused the recent algal blooms in the lagoon. During the current water crisis there have been calls from community leaders for people from the outer islands who are not contributing to the island‟s economy to go home. The island is over- crowded with squatter settlements along the surge wall on the eastern side of the main islet and new housing stretching out along the road in both directions from the main centre.

1. A government policy aimed at reducing the pressure on Funafuti is the decentralisation of some government services to Nukufetau and Vaitupu. Such a policy has significant implications for infrastructure, not the least, the need for much more reliable and faster transport options between these three islands.

1. Another key policy that could reduce or even reverse the flow from the outer islands to Funafuti is to increase employment opportunities for young people on the outer islands. Here, the FaleKaupule Trust Fund (FTF) has the potential to have a significant impact in the long term. The FTF was set up to provide a new source of development funds for the  islands. Allowable expenditure includes development projects, wages, repairs and maintenance of island infrastructure, and local training. As the Fund grows, there will be increasing amounts of money available to the communities to improve life on the outer islands, thus reducing the pull of the brighter lights of Funafuti and beyond. Improved ICT would be a key component of such development, but it is a moot point as to whether this would act as a further pull factor or act to retain young people. As with Kiribati, Tuvalu children who go to high school must leave their islands to attend, in this situation, at either Vaitupu or Funafuti. Those who undertake higher education may only return to their island  for holidays.

1. The FTF has a checkered history of fits and starts in respect to its contribution to outer island development. Over the first 12 years, there have been only four years when there were distributions. At the end of its first financial year ending 30 September 1999, the FTF had a capital of $7.3 million. This was made up of a soft loan from ADB of $4m to the Tuvalu Government plus $3.3 million of contributions from the island communities that were matched dollar for dollar by the Government. The FTF made a good start and in 2000, there was a distribution of $634,000 to the island communities. There followed a four year gap and the next distribution of $1.9 million came in 2005. This was followed by distributions of $1.8 million and $2.3 million in the following two years. The global financial crisis has meant that there have been no further distributions to this day. Like the TTF, the outer island FTF is required to be maintained in real terms before a distribution can be made. At 30 September 2010, the maintained value was $27.3 million; the result of capital growth and contributions from development partners. This is some $3.5 million higher than the market value of $23.8 million. Thus, there is still a gap of 15% to be recouped before another distribution can be made.

1. So far, the FTF has distributed $6.4 million with some $5.3 million allocated to island development. This equates to an average of $55,000 spent per island per year (the balance of $1.1 million is held in reserve by the communities). In theory, at its current size, the FTF

should provide around $140,000 per island per year for outer island development.4 This equates to 14 projects at the average project size to-date of around $10,000. The reality is that there will be no distribution for 2012, extending the gap since the last distribution to four years. Furthermore, in the present fragile, low growth outlook for the global economy, this could continue for another year or more. Thus, the expectation of a regular supply of money for outer island development from FTF is yet to be fulfilled.

1. The overall success of the management of the economy will determine the amount of money in people‟s pockets and thus, the demand for basic infrastructure such as electric power, transport and water. Increased use of vehicles reduces the time people take walking to places and without active recreation pursuits, there will be a reduced level of fitness in the population with consequent health issues. The “Greening” of the economy may see more people walking or cycling, although this is not readily apparent yet.

D.            Review of the Country Development Strategy

1. The principal document guiding the country‟s development is the NSDS 2005-2015, more commonly known as Te Kakeega II (TKII). TKII which has been formulated by the government, civil society, development partners and other stakeholders, is currently under Mid-term Review. The review has been conducted by the Government and NGOs with a  draft report being presented to the communities at a National Summit from 5-8 October  2011.

1. The purpose of the review is “to assess progress and achievements over the last five years and identify challenges in implementation and to provide the best way forward to achieve TKII ultimate goals.” The framework of TKII has eight strategic areas on which the government is focusing development. Positive results are sought in more employment opportunities, higher economic growth, better health care, better education, improved basic infrastructure, and continued social stability in Tuvalu.

1. At the time of the review there were 148 strategies that were being implemented by the government, the private sector and NGOs. Of these, 32% are considered to have been achieved, 48% partially achieved, and 20% not achieved. The MFED has prepared an Evaluation Report (dated 21 September 2011) which identifies lack of skilled human resources, lack of funds and low priority given to some key result areas of operation as reasons for less than 100% implementation. In addition, an overwhelming influx of external advice and agendas, duplication of content, and a requirement to facilitate and cater to advisers has diverted local capacity from implementation.

1.         TKII Review Evaluation

1. Most of the Summit‟s time was taken up with presentations by senior officials who presented the findings of an evaluation of TKII undertaken by the MFED.5 At the end of each sector statement, a panel of discussants (consisting of high-level, expatriate Tuvaluans brought back to Funafuti specifically for the summit and other prominent Tuvaluans) critiqued the evaluation. This was followed by questions and comments from the floor.

1. The main points made by the discussants and from the floor of the Summit are set out in Appendix D. Interestingly, there was no discussion of the key objectives set out in TKII, which implies that there is no change in the objectives that were set in 2005. Nor was there any apparent challenge to the high level strategy. Rather, the Summit focused on

4 This is based on an average real return of 4% real on capital of $27.3m divided by the eight islands.

5 Te Kakeega II Evaluation Report, Ministry of Finance and Economic Development, 21 September 2011.

achievements, and non-achievements and the reasons so far. Also, little attention was given to the way ahead, also implying that it is business as usual for TKII. Most of the feedback from the Summit to government related to routine matters of the type that would be raised in question and answer sessions in Parliament.

1. In summary, the Evaluation Report provides a good assessment of progress on TKII so far; the Summit itself provided a networking opportunity for island community leaders, the government, civil society and expat Tuvaluans; but little substance at a strategic level in guiding the government for the remainder of TKII to 2015. Based on this assessment, one view that could be taken is that TKII has proven to be a robust strategic plan for the nation that at its half-way point is basically on track, with little need to change focus or direction. An alternative view would be that the Summit did more to create political capital for the government and did little to make advances on strategic issues.

E.             Climate Change Considerations

1. The effect of climate change on low lying island countries such as Tuvalu can be significant. Envisaged climate change conditions include impacts from extreme events such as tropical cyclones, intense periods of rainfall or droughts and extremely high winds, or air temperatures. The effect of these impacts across a widely scattered group like Tuvalu means that normal conditions will change by exceeding the current “normal” extreme event occurrences. These maritime influenced conditions will contribute to an increased development of extreme events both during and outside current climate seasons, affecting already vulnerable areas and sections of society who reside on these islands.

1. The Intergovernmental Panel on Climate Change (IPCC) in its Fourth Assessment Report (2003) outlined that for small island states in the Pacific region, the following scenarios could be identified with some confidence. The scenarios are:

1. Rise in sea level. Sea level may rise 0.5 meter (in a best-guess scenario) to 1meter (in a worst case scenario) by 2100.
2. Increase in surface air temperature. Air temperature could increase 1.6º-3.4ºC by 2100
3. Changes in rainfall. Rainfall could either rise or fall by about 20% from current rates in 2100 leading to more intense floods or droughts.
4. Increased frequency of more El-Nino like conditions. The balance of  evidence indicates that El Nino conditions may occur more frequently, leading to higher rainfall in the central Pacific and northern Polynesia.
5. Increased intensity of cyclones. Cyclones may become more intense in the future, with wind speeds increasing by as much as 20%; it is unknown whether cyclones will become more frequent.

1. Within the context of socioeconomic development, climate change thus has a profound impact upon current and future development initiatives. A wide range of scientific, technical, and research oriented initiatives have been undertaken over the past decade to try to better define what these effects could be and to quantify the cost of the impacts. Tuvalu is a vulnerable country already at risk from changes in social, political, economic, and environmental factors. Taking into account climate change exacerbates vulnerability under each of these risk areas.

1. Climate change risk reduction processes will be incorporated into current project design and development processes. Each step in the climate risk reduction process ensures that there is adequate information obtained to enable the level of the climate risk for each

project to be assessed; the project feasibility is examined; and project engineers and other experts identifying least cost solutions to address the risks. Quantifying the cost of climate change risk is an end result of the process.

1. Economic development in Tuvalu is at risk from both current climate conditions as well as changing climate conditions in the future. Each of the projects proposed in the TISIP will need to undergo further assessment once more project information is developed. The required assessment, called a Project Adaptation Brief provides for a preliminary detailed assessment of the conditions that could affect the project in the future over and above current normal conditions. The brief results in a term of reference for a climate expert to undertake detailed feasibility as part of a project feasibility team on the specific project, with resultant options or solutions available for modifying the proposed project to ensure climate impacts are minimized, reduced, or addressed. This resultant work “climate proofs” the project to an acceptable level of risk and least cost design and implementation.

1. Climate change risk reduction is already embedded into the estimated design and construction costs of the proposed projects.

1. INFRASTRUCTURE SECTOR ANALYSIS

1. Table 1 provides an overview of the current status, performance and needs of the infrastructure sector, followed by a brief analysis of each infrastructure sub-sector. The projects proposed are primarily those provided by existing reports and departments.

1. The analysis generally takes the format:

National Strategy and Policy Demand, targets, standards Sector strategy

Current sector performance Analysis of major gaps and needs Proposed investments and actions

1. Projects are listed at the end of each sub-sector analysis, and are based on identification by the relevant departments and through the infrastructure stocktake process. Their status is listed as Funded (and in progress); Committed (for funding by Government or development partners); Planned (by departments); or Identified (at concept level). Proposed project costs and timing are outlined, with certainty increasing the closer the project is to being funded and implemented. Development partners are identified where known.

A.                               Population

1. The 2010 end-of-year resident population of Tuvalu was 11,145 as reported in the 2011 Biannual Statistical Report.6 Between 2002 and 2007, the population increased at an annual rate of about 2.7% from 9,561 in 2002. This was caused largely by the return of former employees of the Nauruan Phosphate Commission (NPC) and their families who were repatriated in 2005-2006. Since then, total population has remained almost constant.

1. Of the total resident population, 47% resides on Funafuti; followed by 17% on Vaitupu; and approximately 4-7% (450-780 people) on each of the remaining 6 islands, except for Niulakita with only 41 people (0.4%). There is a high proportion of children (35% aged 0‐14) amongst the resident population. Many 20-34 year olds are absent from the outer islands, moving to either Funafuti to join the civil service, at sea on merchant ships or move overseas for education. There are a large number of 30-50 year olds who, together with increasing life expectancy due to improved health care, may result in the resident population rising slightly over the next decade.

1. Visitors totalled 1,684 in 2010, a slight increase over previous years. The majority (over 65%) were on business, development officials or technical consultants. About 20% of visitors were tourists (360 people) and 11% were expatriates returning to visit family. Anecdotal evidence suggests that the average stay is approximately one week, resulting in an average daily visitor population of 32.

1. The TISIP is based on a projected 2020 population of approximately 11,800 people reflecting an annual increase of 0.6% due to increased life expectancy. Based on the 2002 census and an average of 6 persons per household (5.8 in rural and 6.2 urban areas), this equates to approximately 1,970 households.

6 1st Biannual Statistical Report, 2011, Central Statistics Division, Ministry of Finance and Economic  Development. Tuvalu

1. ADB estimates that in 2010, 26% of the population lived below the basic needs poverty line.7 Table 1 provides a brief description of current economic infrastructure  in Tuvalu.

7 Key Indicators for Asia and the Pacific 2011, ADB. Manila

B.             Water and Sanitation

1. The Tuvalu development strategy for water as outlined in the NSSD is to expand collection and storage of water for housing, businesses and other structures (especially on Funafuti) and to promote water conservation through education and awareness  programmes. Improved sanitation is promoted as a means to protect the environment from further degradation.

1. The key agencies in the sector are the Public Works Department, within the Ministry of Public Utilities, and in particular the Water & Sewage Division. Additionally, the Kaupule in each of the outer islands are responsible for community water storage and long term planning and facilitation of water security. The Kaupule are supported by the Ministry of Home Affairs.

1. Tuvalu is currently developing a National Water Resources Policy under the Integrated Water Resource Management (IWRM) Project and the Pacific Adaptation to Climate Change (PACC) Project, which are sponsored by the Global Environment Fund/SOPAC; it is expected to be completed in early 2012.

1. Government water planning has established a target of between 50 and 100L of water per person per day accounting for drinking water, cleaning, community and cultural activities. This target will be realistically clarified by the forthcoming Water Policy development process and the PIAC supported water security consolidation project design. Business and commercial use is not calculated, as they are responsible for their own rainfall water supplies.

1. There are two natural sources of water in Tuvalu. The first is the freshwater lens that forms under a typical coral island due to the lower density of freshwater relative to saltwater. The second is rainwater, collected and stored primarily at the household level. Both of these sources are used on all of the outer islands.

1. Over $6.1 million has been provided by Development partners to the water sector over the past 10 years, mainly in the form of household and community water tanks, RO units and household systems. Rotomould has established a tank manufacturing plant on Funafuti, providing 1,000 m3 tanks for distribution under various development partner programs.

1. To try to minimize further degradation of groundwater quality, Tuvalu is piloting the use of composting toilets and trying to improve the treatment of sewage sludge from septic tanks. The current sludge truck on Funafuti is disabled, and septic tanks are leaking into groundwater and the ocean/lagoon. The composting toilet trials (20 units) by SOPAC have been a huge success, with a long list of households (42% of Funafuti) signing up for future toilets. This demand is strong as they are currently fully subsidised, are located in individual households (versus community) and having the appearance of modern flush facilities. However, at a cost of $5000 per unit, this is not sustainable. SOPAC believes that with a toilet unit-cost of approximately $30 (bulk supply from Asia), the installed and housed price can be reduced significantly. The main benefit of the toilets is the reduction in scarce household water supplies by an estimated 30%.

1.         Water in Funafuti

1. Rainwater harvesting is the principal source of freshwater on Funafuti. Every household has been supplied with water tanks and associated  plumbing fittings,  although not all roof space is utilised for harvesting. Groundwater resources on Funafuti are now non- potable due to seawater inundation and pollution from septic tank effluent. A small number of household wells are used by their owners as a secondary water supply only. With water in short supply due to varying rainfall, government has renovated and expanded the system of water storage and catchment in recent years. Government and community storages supplement household storages during dry conditions and a desalination plant are utilised to refill the government storage when this storage falls below one third capacity. However, in times of prolonged dry periods, the desalinated water is also distributed to households and businesses.

1. The 65 m3 desalination plant can produce about 55 m3 per day based on a 90% operational capacity. Real production has been closer to 40 m3 per day.  Government cisterns are replenished by both RO (desalinated) water and rainwater. Theoretically, RO water is only produced when storage falls below 30%; however the reality is that it is constantly produced due to demand from households for subsidised tanker-delivered water. Water is delivered on demand to replenish household storage supplies at a cost of $3.50 per m3. Cost of production and delivery has been estimated by PWD at $6 per m3, with the remainder subsidised by Government. Delivery is by two tanker trucks (1x 10 m3 and 5 m3).

1. The 2011 drought became a state of emergency in September 2011. The development partner response was immense, with the provision of RO plants (including a 100 m3 plant from the Pacific Environment Community Fund, PEC), bottled and bulk water. At the conclusion of the emergency, the exact water production capacity is still unclear.  Some RO units used during the drought are being withdrawn; and others are still being delivered. It is expected that overall there will be a 5-10 m3 RO unit on each of the outer islands; and a 200-250 m3 per day RO capacity on Funafuti.

1. Government storage on Funafuti is estimated at 3,200 m3  of water, as shown in  Table 2. A number of communities also have established harvesting and storage facilities on their meeting halls and churches with an estimated total volume of 2,600 m3. Total household storage in 2011 is estimated at 23,400 m3. PWD has estimated that water storage capacity stands at between 64 and 127 days based on respectively 50-100 L per person per day standard.

1. Tuvalu has reasonably high rainfall spread evenly throughout the year. Seasonal changes do occur and periods of dry weather are regularly experienced with severe drought occurring about every 11 years. 1950 had the longest dry period of 109 days and 2,613 mm rain for the year. The lowest recorded rainfall was in 1971 with 2,226mm. A state of emergency was declared in 1999 when only 2,408mm fell, and again in 2010 and 2011. It is suggested in many studies8 that with adequate household and community storage, well- maintained catchments (roofs and gutters) and judicious use during periods of drought, Tuvalu households could be fully reliant (including non-animal subsistence agriculture) on rainfall with a 50-100Lpd water consumption target except in cases of extreme drought.

1. Daily household water needs have steadily increased over the years in conjunction with an improved economy and community hygiene. Although PWD monitors household storage and harvesting ability, households are left to manage their own supplies and usage. Improvements to household catchments have been undertaken by maintaining leaking gutters and providing extra gutters to roofs. The aim is to maximize rainwater harvesting at the household level. Despite this, household re-supply of water from Government reserves (especially RO) is often continuous, with the desalination plant working constantly to  maintain supplies. Estimates made during the 2010 drought show that 44% of all tanks (including Government and community storage) were not collecting water due to poor maintenance, lack of guttering and dirty intakes. Most tanks had not been cleaned in years. Evidence from the 2011 drought would indicate that the situation has deteriorated further.

1. Household water management is a key requirement throughout Tuvalu. This includes maintenance of gutters (leaks, leaves); use of all roofing area for rainwater harvesting; connection and maintenance of all storage tanks; conserving water by repairing pipes, and reducing   toilet   flush   volume.   The   Department   of   Meteorology   provides   warning of

8 Reserve Water Storage in Tuvalu, Greg Wolff, PWD 2009; Water Resources in Tuvalu, UNDP, 2010.

forthcoming drought events, often months in advance, allowing households to reduce their usage and conserve water in advance of extreme events. SOPAC is trialling composting toilets which can significantly reduce water use by up to 30%. Many (or all) of these measures could be mandated in a revised building code.

1. If Government is confident that households have adequate water catchment and storage capacity, then it can begin to use the pricing of RO water for re-supply as further incentive to conserve. Increasing the price towards cost-recovery levels will further ensure water conservation measures are undertaken except in extreme circumstances.

1. Given the international discussion of climate change, there is a common perception that rainfall will vary significantly. While rainfall may increase in some years, droughts are also expected to be longer. This highlights a need for further Government and community storage of rain water to ensure supply can be accommodated throughout the longest predicted drought period. PWD studies in 2009 suggested that there be an additional 3,000 m3 of Government storage to ensure reserve supply during extreme droughts.

1. RO water production is, theoretically, only required in times of extreme drought. Japan is providing a solar RO plant that will produce 100 m3 per day for Funafuti and two 10 m3/day portable solar RO units for outer island use. Four more solar RO units have been provided during the drought and their usage (and maintenance) is still being assessed.

2.         Outer Islands

1. Regular access to safe drinking water also poses an ongoing challenge in the outer islands. Only three of seven outer islands possess fresh water lenses. Nukufetau, Vaitupu and Nanumea are considered the only islands with sustainable groundwater supplies.

1. Rainwater collection is still the most efficient and sustainable source of fresh water throughout the outer islands. The existing storage in the outer islands is approximately 29,000 m3. Storage and household collection has been mapped under a recent SOPAC initiative, and contained in a GIS database.

1. The EU is currently supplying household rainwater tanks (10,000L) and guttering throughout the outer islands to boost supply.

1. Table 3 outlines the current and proposed water and sanitation projects for Tuvalu. The Water security consolidation project (W1) is planned to be designed under the current PIAC TISIP project to consolidate investments in the sector, particularly following the 2011 drought. It is expected that it will comprise limited additional investment in community tanks, and a focus on regulatory, educational and pricing reforms. The two composting  toilet projects are an extension of the current SOPAC initiative and seek to balance sanitation provision with a demand based approach. On Funafuti in particular, it will be fully integrated with the water consolidation project.

Note: F – Funded; C – Committed; P – Planned; I – Identified; U - Unfunded

C.            Solid Waste Management

1. The Tuvalu Government has placed a strong emphasis on solid waste management over the past decade. The TKII specifically highlights the objective to “develop and implement an urban and waste management plan for Funafuti.”

1. Solid waste management has traditionally been delegated to the Kaupule. During the 1990‟s integrated waste management was also undertaken by the Department of Environment, often in parallel with the Kaupule. As one of the requirements under the Act (Waste Operation and Services Act 2009), the existing waste management project became  a department in 2010 within the Ministry of Home Affairs and was given a new name Solid Waste Agency of Tuvalu (SWAT). The Agency works closely with the Kaupule for each island to work within its jurisdiction; relevant government departments such as environment and health to be engaged in monitoring and production of standards; NGOs (especially TANGO) for community outreach program; Taiwan and Ministry Agriculture for composting; and also private sector waste management groups such as recyclers and equipment maintenance. This arrangement ensures that special initiatives, such as composting and recycling, can be outsourced to the private sector, and greater coordination can be achieved in planning and managing the establishment of tariffs and charges.

1. An integrated waste management plan (IWMP) has been prepared with ADB assistance in 2005. Both EU and AusAID have been instrumental in supporting the sector over the past decade, mainly with equipment, technical assistance and operating costs. There is still a lack of environmental enforcement of the IWMP, and there are plans to  update the Environmental Management Act to provide a policy base for the sector.

1. The AusAID funded waste management project in 2000, undertook a range of waste production estimates. Final estimates were 0.43 kg per person per day and consisted of over 50% biodegradables; 10% each of metals, paper, plastic and bottles; and the remainder are construction, textiles and hazardous wastes. Based on the 2000 Funafuti population, a compaction ratio of 2:1 with the exclusion of biodegradables (for compost), metal recyclables and hazardous items (<1%) – Funafuti households would generate approximately 800m3 of waste each year. Allowing for the 30% increase in Funafuti‟s population, and an increase in the waste stream due to enhanced lifestyle, it is now estimated that over 1,100m3 would be required per year. With outer island households having smaller populations, relying more on locally produced goods and using less packaging, it is expected that their waste disposal needs are significantly less.

1. Although there is no sorting of wastes at source (households) there are a number of opportunities for reducing the waste stream. There is a successful private sector recycler, who has in the past been actively recovering steel from the waste stream at the dump site. With some additional training, it is expected that this business can expand into other recyclables,  in  addition  to  being  contracted  to  handle  (and  export)  some      hazardous

materials. The Republic of China (Taiwan) demonstration farm project has a shredder and is actively sourcing material for composting. This would be more effective if the material was separated at source for collection rather than going to the dump as is often the case now. Additional chippers will be provided to the farm for the production of quality compost to be used in the garden and continue selling to the public for home gardening.

1.         Funafuti

1. Waste on Funafuti is collected weekly utilising two trucks (depending on maintenance). Previous projects facilitated the subsidised distribution of household wheelie bins and small commercial skip bins (although these are now in poor repair), which are lifted onto, or emptied into the trucks. After waste is collected it is driven to the north of the island for disposal.

1. There are three dumpsites at the northern end of Funafuti. All are simply the borrow pits excavated during World War 2 to construct the runway. One site has been completely filled, compacted and closed (not sealed) with vegetation allowed to cover it. This was undertaken by the AusAID project in 2000, who then established the northern large borrow pit as the main recipient of waste. Although the waste was originally dumped within the pit and partially compacted, it is now neither compacted nor covered. Vectors are not as significant an issue as before as it is far removed from most residences. As the pit has filled, trucks have been forced to dump along the roadway, and this is now piled up for over a 1km of road. The main dump has therefore been closed to allow operators to work on the site and a small borrow pit just to the south of the northern dumpsite has been opened to accept waste.

1. The EU EDF 10 will be providing rehabilitation of the dump site on Funafuti; provision of waste management material to the Kaupule, increasing the size of the composting shed at ROC and provision of material to shred green waste.9 SWAT will also rationalise and better manage the northern main dumpsite. This will include pushing all rubbish into  the  pit; clearing the road and surrounding areas (including the rehabilitation of the AusAID dumpsite to the south); compacting the rubbish; and sourcing cover material (e.g. earth/vegetation). The project will also enhance the capacity of the private sector recycler to accept metals, bottles and some hazardous waste. The ROC (Taiwan) agricultural demonstration project has also indicated that it will accept all biodegradable materials collected and diverted from disposal site to the designated composting site, shredded (by ROC (Taiwan) Project), composted and sold. Equipment will be provided and managed by SWAT, with maintenance of all machines to be outsourced to PWD or the private sector. Apart from establishment costs, the SWAT operations (throughout Tuvalu) are proposed to be funded through a minimal import levy, which is expected to yield $400,000 per year and fully cover all operations and maintenance. It is expected that these initiatives combined will ensure that the dumpsite will be able to accept Funafuti‟s waste stream well beyond 2025.

2.         Outer Islands

1. Communities in the outer islands produce significantly less non-recyclable  waste than Funafuti. Their dump space requirements are minimal, and normally consist of a small pit that may have been used as source for earlier construction. Handling equipment is minimal and often in poor repair. The Kaupule on each island are responsible for managing waste, and they will now be overseen by the SWAT.

9 This aspect is still being designed,with clarity still to be reached on who the material and equipment purchased will belong to (maintenance responsibility) and payment of waste collection services

1. The EU EDF 10 project will also be providing a tractor/trailer, bins and a chipper to manage solid waste on each of the outer islands. Operation and maintenance, in addition to privately outsourced repairs, will be funded through the proposed import levy.

1. Table 4 outlines the only SWM project (under the EU EDF10) that is currently being prepared and implemented in Tuvalu.

F – Funded

D.            Power & Energy

1. Tuvalu has a policy to provide adequate, efficient and cost effective economic infrastructure to its population, including electricity. It aims to improve the provision and quality of services to the outer islands, and ensure more efficient and less subsidized services overall. The Tuvalu National Energy Policy (TNEP) was formulated in 2009 which clearly defines and directs current and future energy developments. The TNEP highlighted an ambitious target of 100% Renewable Energy for power generation by 2020. Seven strategic areas were identified to ensure that the objectives of the policy improve the livelihood of the people. In implementing the TNEP, an Energy Strategic Action Plan was developed as a guide to ensure that the target of TNEP can be achieved by 2020. Presently a detailed renewable energy master plan is being developed to guide and facilitate the development of the sector towards the 100% renewable energy target.

1. The energy sector is managed by the Department of Energy within the Ministry of Public Utilities. The Government established the Tuvalu Electricity Corporation (TEC) in  1991 and in 2010 became a fully State Owned Enterprise (SOE), with the responsibility for managing and operating grid connected systems on eight Islands. At the end of 2011, the Government began to re-nationalise TEC due to concerns over security of power supply.  The impact on TEC, and the response from development partners to this situation is still to be determined. The scale and scope of Community Service Obligations (CSO) expected of SOEs in Tuvalu is considerable. Aside from the well-documented issues of scale, the established pattern of requiring SOEs to provide subsidized service poses a major challenge to the sustainability of infrastructure services. The de-corporatization of TEC in part because of non-payment of Government accounts is a reminder that commercial operations face substantial challenges and there may need to be consideration of less conventional service provision models in Tuvalu.

1. Bulk fuel storage in Tuvalu is owned and operated by a private supplier. There are bulk supplies in Funafuti, and drums are transported to the outer islands. Although the Department of Energy oversees demand and supply, it intends following Government policy and leaving operations and logistics in the hands of the private sector.

1. Over 98 per cent of the population of Tuvalu has access to electricity, which is very high by Pacific standards.10 With diesel fuelling the bulk of generation, power costs are very sensitive to increasing fuel prices. Despite substantial development partner subsidy, Tuvalu now has the third highest energy costs per person in the region, which are to a degree a function of the small size and dispersed nature of the island group. Costs are estimated at a distributed  rate  of  $1.05  per  kWh,  two  thirds  of  which  comprises  the  generation   cost

10 The outer islands only have supply 12-18 hours per day.

($0.70/kWh). Of the generation cost, more than 50% ($0.40/kWH) is the subsidised fuel. Current  tariffs  are  set  at  $0.29/kWh  for  the  first  50kWh  (the  so-called  „lifeline   tariff‟),

$0.38/kWh for the next 50kWh, and $0.55/kWh thereafter and for commercial and government users. Average revenue is $0.48 per kWh. Without the subsidy, and utilising current generating systems, Tuvalu may soon have the highest energy costs in the Pacific.

1. Because of rising fuel prices, Tuvalu began seriously working towards increased renewable energy in 2006. Various studies and demonstration projects have been undertaken, and the renewable energy target of 100% by 2020 was established with rational economic justification and technical analysis. The country is now in the early stages of a program to implement the 100% renewable energy project, subject to on-going development partner support.

1.         Funafuti System

1. The generation system on Funafuti comprises a recently installed (JICA 2007) power station comprising three 750kVA diesel generators with 11kV operating voltage. Total power output is 1,800kW. This is backed up by the old generators that have remained offline (1920kW) but are still able to be used as necessary. The new generators are run using  diesel that is substantially subsidised by approximately 40% of the annual fuel consumption through the Japan Non Project Grant Assistance (NPGA). It is not expected that these funds will be sustained over the coming years. There is also a grid-connected 40kW solar system established by the E8 and Japan Government through Kansai Electric Company (Japan) in 2008 on Funafuti that also contributes 1% of production. Since commissioning the new  diesel power station, the island of Funafuti has not experienced any power black outs.

1. Power generated from the two systems (generators and solar) is transmitted through an 11kV underground ring main system before distributing it to homes at 415V for three phase system and 230V for single phase users. The underground transmissions and distribution have recorded only 7% system losses since the JICA upgrade (2007)  and provide reliable electricity throughout the island. Maintenance problems are still high due saltwater corrosion at substations and house connections.

1. Funafuti residents have been estimated to demand 420kWh of electricity per person per annum. The bulk of electricity is utilised on refrigeration (34%) followed by air conditioning (30%). Electronics, mechanical and light requirements equally (~12% each) comprise the remaining demand. For Funafuti this results in a total demand in 2010 of 4.7MWh, well within the supply envelope of TEC (5.0MWh). With the small projected population growth and the energy-saving and efficiency projects that are currently occurring under NZ funding, demand is not expected to rise significantly over the 5-10 year planning horizon.

2.         Outer Islands Systems

1. Seven of the eight outer islands are powered by 48-80 kW diesel generators with a total generating capacity per island averaging 176kW, apart from Vaitupu with 208 kW and Nukulaelae with 144kW. Niulakita is powered by individual DC home solar systems. The diesel generators run for 12-18 hours per day to save fuel and maintenance, and are reported to be in reasonable condition. However, it is expected that extreme salt environments will take their toll over the coming years, and result in them requiring replacement by 2020. The generators in the outer islands are oversized, and thus consume more diesel fuel than necessary, making them inefficient to operate. Blackouts are a regular occurrence, more often from a lack of diesel fuel and spare parts than mechanical breakdown.

1. A stand-alone 46kW battery storage solar system was installed in 2009 on Vaitupu Island to provide electricity supply to the Motufoua Secondary school. It has been used as demonstration project to assess the benefits of non-grid-connected power in the outer islands. It is currently being repaired under NZ- Aid Programme funding.

3.         Electricity Sector

1. The major issues presently facing the power sector include the high power losses from generation to distribution, a dependency on imported fuels, the high cost of generator maintenance in a marine environment and the need for capital to finance the outer island power infrastructure requirements. TEC is also suffering from insufficient revenues from tariffs to meet operating and maintenance costs, requiring additional subsidies from Government.

1. The Government is currently implementing the Tuvalu Renewable Energy and  Energy Efficiency Unit (REEEU). It has bilateral assistance from New Zealand for 18 months to operationalise the REEEU and capacity building for TEC staff to be able to manage and maintain renewable energy projects. The assignment coincides with an EU funded project of AUD$3.3millon to provide grid connected solar power to Nukufetau, Nukulaelae and Nui.11

1. The New Zealand assistance is crucial to update earlier plans and kick start the process towards Tuvalu‟s 100% renewable energy targets. The unit is exploring opportunities for demand side reductions including improving existing air conditioning, refrigeration and lighting systems in Government buildings12 and providing demonstration programs to consumers on ways to reduce electricity consumption. Consideration is also being given to increasing the import duty on inefficient electrical appliances so that their true cost is realised; the tax being used to fund additional renewable energy capacity. The consultant is also training TEC staff to manage the program over the remaining eight years (2013-2020).

1. Apart from energy efficiency improvements, the REEEU is assessing potential investments in solar and biofuel energy projects in order to reach the 100% RE target. They are utilising various existing studies on wind and solar generation that showed that these technologies are economically and technically feasible and expect to have a program developed by the end of 2011. Earlier estimates for achieving the 100% RE target were in the order of $40million over 10 years. These have now been revised to over $70million (including project management costs) by the TA.

1. A recent peer review of the REEEU project suggests that there needs to be an increased emphasis on capacity building outcomes within TEC and a whole of system approach to sector planning and design. It is expected that these reforms will be  incorporated under the current project.

1. Other sectors have also included solar power projects as part of their development plans, most notably TTC (telecom) and PWD (RO water). These projects will be overseen in a coordinated manner by the REEEU in TEC. As they will not be grid-connected, this will require a change in the mission of TEC to oversee all Government supplied power systems in Tuvalu.13

11 This project is on hold due to the de-corporatization of TEC which calls into question the sustainability of the project.

12 Government buildings consume 30% of Funafuti power generation.

13 Presently TEC is charged with only managing grid-connected power to consumers.

1. Table 5 outlines projects the Tuvalu Electricity Corporation (and the REEEU project) is planning for its program for achieving the NSSD and corporate goals. The phases are described in more detail in the project profiles in Appendix B and still being finalised, but are designed to incrementally and consistently improve RE capacity on each of the islands such that it is within overall O&M capability limits.

F – Funded; P – Planned; U – Unfunded; I - Identified

E.             Information and Communication Technology

1. Tuvalu is reliant on good information and communications technologies (ICT) to remain in touch between its islands and the outside world. Therefore, Government strongly supports the ICT sector in its national strategy. In particular its objective is to improve and extend ICT services nationwide, especially to schools, clinics and Kaupule. It aims to do this by improving the efficiency of operations and considering increased privatisation and competition where viable.

1. ICT falls within the Ministry of Transport and Communications, particularly the Department of Communications. Apart from limited information technology (IT) services provided within Government, the majority of ICT infrastructure and operations is controlled by Tuvalu Telecom Corporation (TTC) – a fully state-owned enterprise (SOE) established in 1994 under the Tuvalu Telecommunication Corporation Act. With the Governments Public Enterprises (Performance and Accountability) Act passed in 2010, the TTC has been the focus of recent ADB technical assistance to improve its corporate operations in order to comply with the new legislation.

1. TTC has developed its own corporate strategy and business plan. Its aim is to profitably provide Tuvalu with ICT that supports community development, social wellbeing and foster economic growth. It is attempting to balance improving its financial operations through expansion and better Governance. There is also a need to maintain 24 hour telecommunication systems in the outer islands in the advent of emergencies (such as cyclones).

1. TTC is a local distributor of Fiji TV service (Sky Pacific satellite television service)  and 300 fixed line telephone services across the outer islands. These services are limited by electricity supplies, which are normally 12-18 hours per day. Mobile phone service is available on Funafuti, Vaitupu and recently established in Nukulaeale. This supplements the copper land line access to almost every household (1000) on Funafuti. Internet is provided to households, business and to some Government‟s departments through a DSL service over the copper lines and via satellite to a limited number of TTC internet cafes on the other islands. Government has its own internet link, while other subscribers using TTC services have to pay a monthly fee. Services were disrupted by a lightning strike in 2007 which damaged both the TTCs main PSTN switch and the GSM network for over two years; only recently being restored to its original capacity at a cost of $2.3 million. Technology upgrades and maintenance of existing equipment in a marine environment are extremely expensive.

1. Government is following its strategy of encouraging privatisation and has sought other operators to increase competition. Digicel was recently approached, but negotiations failed as Digicel demanded a monopolistic status (an overall take-over of TTC) due to a limited market to sustain two operators. This is a realistic assessment by Digicel. The question is whether a monopolistic private sector supplier of services will be more efficient and effective than a government monopoly. With appropriate controls and international benchmarking it is likely to be the former.

1. JICA‟s recent re-commissioning of Tuvalu Media Department‟s AM radio transmitter on Funafuti replaced TTC FM radio service to the outer islands, and so freed up satellite bandwidth for mobile services. The Government is being encouraged to use (and pay for) TTC internet service so that TTC can improve its revenue and to meet its community services obligations. Under the ADB SOE TA, TTC is improving its corporate governance and operations, with the intent of being financially independent by 2013.

1. TTC is trying to improve the reliability and efficiency of its outer islands services through the provision of solar power systems for all its Very Small Aperture Terminals (VSATs) and its Funafuti base. This would enable the telecommunication network on the outer islands to be operational at all times and reduce operating (electricity) costs. It is also trying to extend its subscriber base by extending the GSM network to two other islands by the end of 2012.

1. Table 6 outlines the ICT projects that are being proposed in line with the NSSD and TTC‟s corporate plans and strategy. T1, to ensure all switching and telecom units are solar powered, is separate to, but will be managed by, the TEC-run REEEU. T2 aims to expand internet services to the outer islands such that island communities can have reliable access to online education and services. T3 has been included due to aspirations for the GoT to follow other neighbouring countries that have/are establishing submarine cables to boost internet and telecom coverage and speed.

P – Planned; I – Identified;

F.             Civil Aviation

1. Tuvalu, as a remote island nation, relies heavily on air transport to afford access to international destinations. Services are currently unreliable, and aviation infrastructure improvements are required if tourism and time-critical exports are to be increased. Reflecting this, the TKII highlights the need to improve international air service links. It also places an emphasis on improving quality, frequency and cost-effectiveness of transport services (such as air services) to the outer islands. The strategy outlines that infrastructure, including new domestic and international air services, are to be provided where it‟s economically viable; and current infrastructure should be supported by improved management, operation and maintenance.

1. The Department of Civil Aviation (DCA) within the Ministry of Transport and Communications has its own strategic plan, which aims for Tuvalu to have one of the safest and  efficient  civil  aviation  industries  in  the  South  Pacific.  This  is  to  be  undertaken by

complying with agreed International standards. Its objectives revolve around improving safety standards, increasing capacity and training of its staff and ensuring coordination with international legislation so that it may one day be able to join the International Civil Aviation Organisation (ICAO).

1. Tuvalu has only one international airport located on Funafuti. It consists of a 1,535 m long by 30 m wide asphalt runaway with two aprons, that was originally constructed using coral aggregate (from island borrow pits) in World War II. The sub-base layer is 8 cm thick coral gravel, surfaced with a 1-2 cm asphalt chip seal. It was last resurfaced in 1992 under EU funding. Originally rated at 50 tonnes landing capacity, it is now reduced due to sub- surface water, sub-grade deterioration and lack of surface maintenance to 20 tonnes. It is under constant repair and has numerous soft spots that are of concern to aircraft. It has no fencing or runway lighting, restricting operations to daylight hours only.

1. The airport has access (not control) of two aging (unserviceable) fire trucks provided by the Police force. The control tower was built in the early 1980‟s and has minimal VHF radio and air services equipment. Navaids include an operational Non-Directional Beacon (NDB), and an inoperative Distance Measuring Equipment (DME).14 There are limited supplies of jet A1 fuel provided by a private firm. The terminal was constructed by AusAID in 1994 and has limited capacity for passenger and baggage handling, and inadequate security measures. All equipment and buildings are in a poor state of repair, and lack adequate maintenance as DCA has no control over ancillary services (fire & meteorology) and maintenance (PWD).

1. Limited air services have been provided by numerous airlines over the years, including sea planes to the outer islands. One of the longest serving was Air Marshall Island operating an HS748 with a passenger load of 55, which was ended in 1999. The service was replaced when Government purchased a share of Air Fiji in 2001. This gave Tuvalu greater control of its airline access and therefore the potential to develop tourism. The recent adoption of the route by Air Pacific caused Air Fiji to halt services. The current schedule of flights is twice weekly from Suva to Funafuti and return using an ATR-42 500 with a capacity of 42 passengers and cargo. The service is subject to numerous break downs and schedule changes as the aircraft is also used on the Fiji domestic routes and other regional routes.

1. The current runway and associated infrastructure is in a poor state of repair and only capable of handling turbo-prop ATR type aircraft. The development strategy is for additional capacity added by having more flights arriving instead of accommodating larger aircraft. There is a potential for expansion of the service for a third flight per week to be added during peak times (November to March) when there are waiting lists and passenger demand sometimes cannot be met Currently, Air Pacific does not have aircraft available to provide this service however.15

1. The World Bank has recently approved an airfield upgrade under its Pacific Regional Aviation Investment Project. The $11 million funding will be used to strengthen and resurface the existing runway; an extended Airport terminal to allow separation of arriving/departing passengers, improved baggage handling and security measures; and, a new control tower with adequate radio and air services equipment to meet minimum ICAO standards. Government expects that improving the airport (although not fully to ICAO standards) will facilitate  the provision of  increased air services.16  It  is  critical that  the DCA also have   the

14 NavAids were procured under government funds at the cost of A$400,000.00

15 Although Air Pacific may not have the capacity for this, discussions should be undertaken with AP and other carriers / private operators.

16 Tuvalu is not a member of ICAO at this time

capacity and recurrent funding to regularly maintain the runway and associated infrastructure over the long term. This will be addressed under the World Bank financed project.

1. ADB is also funding TA 7684-REG: Institutional Strengthening for Aviation Regulation to the Pacific Aviation Safety Office and its member countries. This TA may support DCA in updating legislation/regulation after conducting a needs analysis in early 2012.

1. Air services are difficult to influence. With limited numbers and no competition, tickets are expensive, limiting the attractiveness of Tuvalu as a destination or a competitive exporter. The runway will not allow jet aircraft to land (except in emergencies) which limits the number of passengers and volume of freight that can be carried. This further impacts on prices and also the ability to export time-critical freight such as seafood products. The government would like the runway extended to accommodate larger planes and thus encourage tourism and fish exports. This would require either significant relocation  of houses or a completely new location. Even if the runway was to be expanded to allow B737, there is no certainty that the route would be serviced. There is a need for Government to justify this level of investment given the current lack of evidence that it would be economically effective.

1. Tuvalu is facilitating increased economic traffic between its outer islands, resulting in higher levels of cargo and passenger traffic. Its strategy is to also increase the ability for tourists to access the islands, further improving the economy. There are 2 disused grass airstrips on Nanumea and Nukufetau that could be re-furbished, although there are still significant land issues that would need to be addressed. Seaplanes were used in the past for outer island traffic, but did not prove sustainable because of low demand at the real cost of providing the service. Helicopters and high speed boats are used in similar situations around the world (such as the Maldives). At present, there is little evidence to show that there is the local or tourist demand to support this financially or economically in Tuvalu.

1. While Government has flagged a need for a study to assess the options for servicing the outer islands, an examination of all domestic transport needs (maritime and air) may be more appropriate. This would examine cargo and passenger (local and tourist) demand; and perhaps point the way to a balanced and planned investment and expansion of services.

1. Table 7 outlines current and proposed projects in the air transport sector.

P – Planned; I – Identified; U - Unfunded

G.            Roads and Public Works

1. Tuvalu Government policy is to provide adequate infrastructure where economically feasible and maintain existing infrastructure. Although transport is highlighted in the TKII, this primarily relates to marine and air. Most roads in Tuvalu were constructed when the funds from the dot.tv sale were released over 10 years ago.

1. The PWD in the MPUCT is responsible for the management and maintenance of all roads in Tuvalu and has an annual budget (for roads) of about $20,000.The department only has limited equipment and materials at its disposal. The PWD is also responsible for Government vehicles, housing and infrastructure maintenance in addition to managing water and sanitation programs.

1. There are about 18 km of paved roads on the island of Funafuti which are in good condition. This is mainly due to the small volume and weight of traffic rather than the quality of maintenance. They were constructed with a crushed aggregate base course stabilized  with cement, topped with two-coat asphalt and coral-chip seal. None of the roads are adequately drained and water often inundates the sub-grade, softening the surface and causing pot holes. Erosion of the road edges is repaired with concrete and potholes are filled with cold-ready mix asphalt. All repairs and maintenance only occur either when limited funds are available or when absolutely necessary. Road user vehicle licences are all collected by the Kaupule and therefore there is a lack of cost recovery measures put in place for maintenance of roads.

1. The outer islands only have unpaved roads. The Kaupule have limited ability to maintain roads and no funds.

1. PWD has identified that there is private sector capacity and capability on Funafuti (and to a limited extend on other islands) to undertake reasonable quality repairs and maintenance and that it conforms with the TK II private sector objectives, including the updated TK II objectives matrix for the current review. It also ensures PWD can focus on its core functions. There is potential to further develop capability in the private sector to undertake limited works, equipment repair, plumbing and electrical repairs and maintenance. An ADB vocational education team is currently examining ways to coordinate private and public sector formal and informal approaches to improving technical skills in Tuvalu (and the region). Additional funds could be used to facilitate workshops and training.

1. Table 8 identifies the proposed project being considered in the road sector. It is at a preliminary stage only, and is based on utilising the construction equipment that will be on the island during the airport runway re-paving. It has not been considered as part of the TISIP at this time.

F – Funded; I – Identified; P – Planned; U - Unfunded

H.             Maritime

1. Tuvalu‟s National Strategy highlights the importance of maritime transport to Funafuti and the outer islands. In particular, it emphasises the need to improve the quality and frequency of transport services to the outer islands in an efficient and cost effective manner.

1. Maritime transport is managed by the Department of Marine and Port Services, which owns and operates the port in Funafuti and the two vessels that are used for inter-island and international shipping services. The Department is part of the Ministry of Transport and Communications and is managed by a Director. The other port at the island of Vaitupu (Nukufetau)  is  unable  to  handle  containerized  shipping  and  is  owned,  operated     and

maintained by the local government. There are recent moves under the ADB SOE project to corporatise maritime, particularly its port operations in Funafuti.17

1. The main focus for shipping is domestic and international trade. The outer islands are reliant on delivery of cargo and passengers by sea from Funafuti, and this has suffered severely due to poor maintenance of facilities and vessels. As a result, large sums are expended just to keep the inter-island services afloat and without the capacity to address the deferred maintenance problem. Fishing is seen as an important driver of future economic growth and will require improved ports and shipping services.

1.         Funafuti

1. Funafuti harbor consists of a dredged basin and two finger wharves that have drive- on and -off access. One wharf was constructed by AusAID in the 1980s and is dedicated to the handling of dangerous goods (such as fuel). The other wharf, recently constructed by JICA, provides domestic services and for general traffic. The port was constructed with a 1,500 m2 fully-enclosed, concrete-floored stevedores shed combined with a large in-ground water tank. Surrounding the shed is a 6,400 m2 container storage yard  constructed of  packed coral (unsealed) that is unable to accept stacking of containers. Adjoining the yard there is a small administrative office (which can only accommodate three personnel) and machinery shed.

1. There are approximately 235 passenger arrivals internationally each year by boat, and an estimated 4,000 domestic passenger movements. A total of 120,000 tonnes of cargo in 20 ft containers are handled each year. This was assessed by the JICA design team (prior to the reconstruction) as adequate for expected growth over the next 25 years.

1. The port operator indicates that it has a handling capacity of 4 containers per hour, taking roughly 10 hours to unload one ship. The port charges customers $117 per container to unload and move 50 m to the container storage area. The process is hindered by only a single tractor-trailer which is often subject to urgent repairs due to lack of regular maintenance schedule. Further container handling delays occur due to the inability to stack containers, while spaces are juggled to manage. Often, wet weather severely delays processing as the handling machinery cannot traverse the softened-coral container storage area and potholes place undue pressure on the limited equipment. There are no container- washing facilities, with shipping companies charging $236 per container to clean on return. Some shipping navaids and the port maintenance workshop also require refurbishment.

1. International shipping services are also tenuous and very expensive. The Kiribati Shipping Service is filling a vital gap but the company is operating at a loss and it is questionable if the service is sustainable over the longer-term. The ship on the service is also in a bad state of repair and the on-board crane can only lift 10 tonnes which limits the type of freight and volume that can be carried.

2.         Outer Islands

1. The outer islands can only be accessed by sea. The Nivaga II and the Manu Folau are the two vessels used for the scheduled domestic transport of both people and cargo,  with the Nivaga II undertaking the occasional international run to Fiji as well. The posted sailing schedule is not always followed, and delays are common. The two vessels are both in a bad state of repair, despite JICA repairing the Mano Folua in 2011. JICA has been requested to repair or replace the Nivaga II in 2012.

17 Draft proposal for corporatizing the Port was completed in June 2011.

1. There are existing access channels on each of the seven outer islands, with Vaitupu consisting of a small but functional port. Jetties in each of the islands are in poor repair, and a lack of maintenance is also impacting reef growth and sedimentation of the channels. Navigation aids are poor, and channels are often unmarked. NZ Aid Programme is undertaking a project to broaden and deepen the reef channels for 6 of the 7 outer islands to facilitate navigation. The project will also provide some limited navigation aids,  turning basins, alternate channels and minimal cargo handling facilities (breakers and containers). AusAID has been approached to co-fund the project (through PRIF), which is currently subject to an EIA.

1. The Government has also identified the need to finalise handling facilities at the Funafuti wharf (Project M1). This would include a crane, paving the container holding area, an additional container tractor (with potential lifting/stacking capability), and a container wash using recycled water. They have also identified the need for the refurbishment and construction of new jetties and cargo handling facilities on each of the outer islands  (excluded from the NZAID project) as a priority to ensure safe handling (M2). To date, the outer islands have been “getting by” with minimal cargo handling facilities as the cost per island of upgraded facilities at an average of over $6 million per island has not been able to be justified on a cost-benefit basis. Project M3 is the development of a fisheries harbour to safeguard the small recreational and subsistence fishing fleet and perhaps accommodate visiting (paying) yachts.

1. Table 9 presents a list of current and proposed projects in the Maritime sector.

F – Funded; P – Planned; I – Identified

I.               Overview of Planned Investments

1. A list of current and planned investments is contained in Table 10. Note that the red coloured cells denote projects that have been considered and ranked under the current TISIP review.

Table 10 : Current and Planned Infrastructure Investments in Tuvalu

1. PRIORITIZING INFRASTRUCTURE INVESTMENT

1. The full list of infrastructure investment projects for the next five years includes 30 projects totalling more than $188 million (excluding the aviation sector developments). Of these, $31 million are already underway or committed, and an additional $157 million of proposed projects for which funding is not confirmed. While it is estimated that existing infrastructure is underfunded by about $3 million per year (lack of maintenance and repair), there is an additional $3 million of recurrent funding required for operation and maintenance of the projects that are currently funded and underway.

1. It is unlikely that it will be possible to fund all of these proposed projects within this timeframe from resources available to Government. Therefore, priorities need to be set. This part of the TISIP brings together the results of the analysis of infrastructure needs and challenges, planned investments and supporting measures to identify a set of initiatives that Government sees as priority areas for development of the economic infrastructure sector over the next 5-10 years. It uses a tool called Multi-Criteria Analysis (MCA) to assist in the setting of priorities.

A.             The Project Ranking Process

1. The multi criteria analysis is a tool that can be used to rank projects across sectors. The objective of this tool is to enable quick prioritization of projects in the “absence” of a detailed national economic policy being in place. It is a rapid approach in lieu of a full social and economic Cost Benefit Analysis (CBA). It is not a project feasibility evaluation tool.

1. The MCA is intended to be used for the development of the TISIP, but also as a tool that the MFED can use on a regular basis to update the plan and coordinate its comments  on the annual budget. Because of this, the MCA needs to be simple but not simplistic, with only the minimum but necessary criteria to achieve agreed results. In order for it to be sustained in the future, it must also be easy to apply, able to be improved, transparent and repeatable. It needs to be a tool that is owned by the stakeholders.

1. The Project Ranking process includes steps shown in Table 11:

1.         Initial Screening

1. The prioritization focused on screening the planned investments to identify those that align strongly with national priorities and deliver significant benefits to the Tuvalu people, the

economy and the environment. The overall pool of projects (funded, committed, proposed, identified) is first split into two components:

  Those that are funded and underway or have been committed to by development partners.

  Those that remain – planned and identified.

1. The immediate priority of Government is to complete investment projects already underway or committed. Therefore, those projects automatically become part of the TISIP priorities. Of the 30 originally proposed projects, 8 are already underway or funded, leaving 22 projects that were further screened.

1. The 22 planned and identified projects were then progressively screened and rationalized to identify projects that have the ability to proceed in the next five years. Additional screening criteria included:

Deferral until after comprehensive master plan Long Term (10 + years)

Combined with other projects

A further 9 projects were rationalized, leaving 13 projects to proceed to ranking. These are outlined in detail on project data sheets contained in Appendix B. Figure 3 outlines the Project Ranking process

Figure 3: The Project Ranking Process

Is the Project already underway or committed?

Project Inclusion Criteria

Multi-Criteria

Assessment

Projects already underway or committed

8

Rationalised Projects

9

Low / Medium

Priority Projects

5

2.         Criteria Selection

1. The key criteria for the MCA include seven thematic areas:

Policy – Link with NSSD existing plans

Economic – Contribution to growth

Financial – O&M costs, ability to pay, financial return and investment

Social – Basic services, level of service, living standards Environmental – Protecting or improving environment Readiness – Level of preparation

Maintenance – Adequate

1. The criteria are assessed using a number of questions to inform an average ranking for those criteria. The detailed questions are outlined in Table 12.

1. Although the criteria can be subject to weighting to enable more emphasis to be placed on one versus another, the Government determined that each of the 7 criteria should be weighted evenly, given there was already an emphasis on financial, economic and readiness factors.

Table 12 : The MCA Tool

3.         MCA Scoring Process

1. The scoring process was through the use of a modified Delphi Technique. This utilizes individual scoring, compiled into anonymous results. This is followed by group discussion of results where there are major outliers (e.g. one respondent scored one criteria outside 1 standard deviation). When fully discussed, the process is repeated until results are smoothed – representing consensus.

1. The PRIF taskforce was the scoring group. It comprised the director from each of the infrastructure sectors; a planning, an economic and a Cabinet representative; and 2 significant private sector representatives (such as TANGO and Chamber of Commerce). Full details are outlined in Appendix E.

1. Each project was first presented to the group. Each member then scored the project by providing a number (1-4) against each question in the criteria. The score of 1 meant the

project did not satisfy the question in any way. A score of 4 indicated that it fully or strongly satisfied the question. Scores of 2 and 3 indicated less confirmation, with no allowance for a middle score. To work consistently, each member needs to score each question for each project.

1. The final scores were entered into a spreadsheet and then averaged across all respondents for each question. The average scores for each question were then averaged for each of the seven thematic criteria resulting in 7 scores for each criterion under each of the 13 projects.

1. Within each criterion, the range between maximum and minimum scores across the projects were assessed and divided by three – allowing for a high, medium or low band. Each project‟s criteria were then identified in which band they fell. This allowed for project ranking to be smoothed and minimized amplification of minimal  differentiation  between tightly clustered projects. Projects were then ranked by the number of high, medium and low scores it received.

4.         Sanity Check

1. To complete the modified Delphi technique, the ranking process and results were reviewed by the participants. The standard deviation across aggregated and averaged scores was presented to indicate where there were significant differences of opinion. Scores were discussed by the group as a whole, to ensure that everyone understood the questions and was happy with the resultant score. The final ranking was discussed as to whether it made sense within their understanding of the needs of Tuvalu.

1. The final list of projects was ranked into high, medium and low categories. Appendix E contains a report from the initial ranking process; followed by the TISIP Taskforce report with the final ranking and justification.

1. The final ranking of projects by the PRIF Taskforce is as follows:

1. P2: Energy Sector 2013-2014
2. P3: Energy Sector 2015-2016
3. T1: Outer Islands Solar Telecom
4. M1: Port Amenities
5. W1: Water Consolidation
6. W2: Outer Island Compost Toilets
7. W3: Funafuti Compost Toilets
8. T2: Outer Island Telecom
9. A2: International Air Port & Services
10. T3: Submarine Cable
11. O1: Integrated Outer Island Infrastructure Project
12. M2: Outer Island Ports Upgrade
13. M3: Fisheries Marina

B.        Options Development

1. The final ranked projects were then subject to timing and funding implications. Some projects have significantly longer lead times (planning and design) than others. Some required significant funding commitments, while others could be spread over numerous years. Government agreed that only the top eight ranked projects would be prioritised over the TISIP‟s 5-10 year planning period due to these funding and timing implications. Figure 4 shows the potential project timing for the highest ranked projects over 5 years.

1. Requirements for funding options and investment strategies were then developed, and are outlined in Chapters V and VI.

1. PROJECT FINANCING

1. This section outlines the life cycle costs of infrastructure and the current situation in Tuvalu. It examines the current balance between maintenance needs and maintenance expenditure; and contrasts that with the potential operational and maintenance implications of the TISIP.

A.             Whole of Life Costs

1. The costs associated with new infrastructure do not end with the purchase or construction. It is one step in the life cycle of an asset that begins with the initial identification of needs through to the disposal of the asset at the end of its useful life. The stages of the asset life cycle are set out below. Each stage requires planning and coordination; and involves costs and time.

  Concept and planning: the costs and time involved in planning and investigations, development of the design concept, and associated studies such as environmental impact and climate change assessments.

  Detailed design specification: the costs and time required for preparing detailed designs and/or specifications and contract documentation.

  Construction/supply: includes an allowance for contingencies and cost escalation over the period of supply. For a major infrastructure project, the combined duration of planning, detailed design/specification, contracting and delivery can amount to several years to over a decade.

  Contract supervision: includes the technical, financial and legal costs to ensure that the work is carried out to the required standard and in compliance with contract requirements.

  Operation and maintenance: operating costs over the life of an  asset  include labour, energy and consumables. Maintenance costs are required to keep it in good condition. This includes small scale routine activities to minimize wear and tear, and larger scale activities such as the routine replacement of moving parts to maintain operational status. The economic life of infrastructure can range from 5-10 years for plant and equipment to 100 years for major civil works.

  Disposal/decommissioning: costs include demolition or dismantling and removing the asset from the site and disposing/recycling materials. Significant environmental costs may occur such as removal of toxic wastes.

1. When all these costs are combined, the total may be more than double the cost of  the initial purchase/construction price. This fact is often overlooked in decision making on new assets, particularly in developing countries. The outcome is under-budgeting of on- going costs, with key maintenance not being undertaken, resulting in a much shorter life than expected. This is wasteful of scarce resources and imposes an unnecessary burden on future budgets where money could be better utilized elsewhere. Typical lifecycle costs are shown in Table 13. This table shows the additional costs that may be associated with an initial $100 of capital expenditure depending on the type of investment.

Notes:   a.       Based on typical infrastructure costing parameters.

1. Varies from zero (e.g. for buried pipes) to 20% p.a. for mobile plant and equipment.
2. Varies from zero to 5% p.a. for routine maintenance of assets such as roads
3. Based on 20 year asset life with periodic maintenance every 7 years.
4. Varies from zero to 100% (e.g. clean-up of toxic chemical sites).

B.             Current Operating and Maintenance Expenditure

1. National Recurrent Budget

1. The concept of life cycle costs appears new to Tuvalu; at least it does not appear to enter into current thinking at household, business or government levels. It will take some years and a concerted effort to change old habits in Tuvalu where the expectation is that development partners will provide new infrastructure and when it breaks down they will replace it. This expectation is largely reinforced by development partner behaviour, which often does exactly that – repairs or replaces broken infrastructure.

1. In the present environment, budgeting for life cycle costs beyond the initial capital purchase or construction is not given the necessary priority; mainly because experience shows development partners will come to the party if they think it is important enough. Short term considerations over-ride medium to long term thinking in most cases, with each new development partner generation seemingly unable to learn from the past. This is not to say that there are not genuine attempts by development partners to ensure that operating and maintenance costs are factored into aid projects. All too often, however, for  whatever reason, grant funded projects are not maintained.

1. Information to assess overall government current allocations to operating and maintenance (O&M) expenditure is contained in the 2008 to 2011 National Budgets. The Budget does not include SOEs. There are two infrastructure related SOEs: the Tuvalu Electricity Corporation (TEC) and the Tuvalu Communications Corporation (TCC), which are analysed separately.

1. Table 14 shows government revenue and expenditure, comparing the budget with  the actual outturn over the last four years to 2011. During this time, total budgeted and  actual expenditure has increased by 37% due to increased development partner funding.  The 2008 budget would have been formulated prior to the onset of the Global Financial  Crisis (GFC), the depth of which occurred in August 2008 when financial markets bottomed out. Over the three-year period from 2008 to 2010, domestic revenue fell by 9% while grants

increased by 28%. If the current year is included, based on the projected outturn for the current year, domestic revenue will have fallen by 2%, while grants will have risen by 87%.

1. A comparison of recurrent budgeted and actual outturns for the four years to 2011 shows a remarkable consistency within years and across years (see Table 15 and Figure 5). Total recurrent expenditure outturn is consistently higher than budgeted, with a high reached in the election year 2010. A key reason for this is the blow-out in expenditure on the Medical Treatment Scheme. “Staff” actual outturn is consistently less than budgeted.

1. Actual outturn operating expenditure is consistently higher or equal to budgeted, and maintenance expenditure outturn varies little compared with budgeted  expenditure. Budgeted operating expenditure as a percentage of total recurrent expenditure varies little year to year at an average of 21.0% over the period. The actual outturn of operating expenditure as a percentage of total recurrent expenditure is higher than budgeted at an average of 22.4%.

1. Maintenance expenditure varies little year to year and between the budgeted and the actual outturn at an average of 4.3% and 4.6%, respectively. This consistency between budgeted and outturn expenditure on maintenance indicates that departments are actually undertaking the maintenance they budget on. This is encouraging; however, the question is whether it is enough to do the job. Anecdotally, it would seem not. For example, during the water crisis a visual inspection of guttering and down pipes on certain government buildings showed a lamentably low level of maintenance.

1. The major variation in total expenditure comes from variations in XB (development partner funding). The government consistently budgets on a higher level of XB expenditure than is actually delivered (see Figure 6). The other major area of non-recurrent spending is on Special Development Expenditures (SDEs). SDEs started out at a low level in 2008, budgeted at $2.2 million (actual $1.8 million) increasing to $7.0 million ($5.0 million) in 2009 and then remaining at about this level through to 2011. It is somewhat surprising that the government has maintained a high level of SDEs during this period of the GFC. It is also noteworthy that the government has maintained a high level of SDEs when expenditure on maintenance is consistently low. This appears symptomatic of the widely held view in Tuvalu that the maintenance of development partner funded infrastructure is the responsibility of development partners and not the government.

1. In recent years, Tuvalu governments have increasingly emphasized the difficulties in funding recurrent expenditure. Development partners are beginning to respond with a trend towards direct budgetary assistance. This started with the Republic of China (or Taiwan), followed by New Zealand (through the CIF) and now ADB, Australia and the EU have signalled a move in this direction. Whether the Tuvalu Government recognizes that this  move means there will be less money available for project orientated aid is not clear. However, development partners typically have an envelope of assistance country by country, so an increase in budgetary aid will inevitably mean a reduction in project  aid. In other words, there is a clear opportunity cost associated with every dollar – it‟s one or the other, not both.

1. There is a danger in moving aid to budgetary assistance if there is a chance it will be cut off. There will be considerably more pain associated with a falling recurrent budget compared with reduced project funding. In addition, budgetary aid implies an increasing dependence on aid for the day to day provision of government services. If such budgetary  aid is targeted to provide a higher level of maintenance for existing infrastructure, then, this will be a good use of the funds. However, if it goes towards inflating civil servant salaries and per diems then that may be less desirable.

1. Given that development partners have been supporting the merits of preventative maintenance for many years, it is a moot point whether performance will ever improve. Wherever one looks in the Pacific there is little evidence of a preventative maintenance culture. Maybe it is time that this was recognised and development partner funded projects  in Tuvalu routinely include provision for maintenance that remained the explicit responsibility of development partners. This would require a rethink by development partners as to their long term relationships with PICs beyond the typical five year time horizon for projects. It would clearly signal the continuing economic dependency that is a reality for PICs and result in a significant improvement in the efficient use of capital. An alternative approach would be for development partners to make the provision of new infrastructure, conditional on demonstrated improved performance by PICs on the maintenance of existing infrastructure.

C.             Future Operating and Maintenance Expenditure

1. At the beginning of Section II, reference was made to short-term thinking. As well as the government, development partners also need to take a longer term view and make specific provision for whole of life costs. There are several possible approaches to this issue.

1. In Tuvalu, where the Budget is severely constrained, life cycle costs should be a serious consideration in all capital purchases. If life cycle costs cannot be accommodated within the budget for a particular capital asset, then consideration should be given to down grading the functionality and/or sophistication of capital expenditure until these costs can be accommodated. If this is not done then lack of maintenance will inevitably be perpetuated in the future.

1. Development partners are increasingly turning from project based aid to direct budgetary support. Typically, such funding would go into the consolidated revenue account and be co-mingled with the rest of the government‟s revenue. Alternatively there is an opportunity to provide specific increased funding for maintaining existing infrastructure. Increased funding could be conditional on verification of agreed maintenance programs being carried out to an acceptable standard.

1. A bonus would be contracting out this work to the private sector. This not only provides jobs, it results in greater efficiency in the use of scarce capital and keeps money circulating around the economy rather than coming in and going straight out to purchase  new infrastructure. Much of the maintenance does not require advanced technical knowledge. It is exactly the work seafarers could do when waiting for their next ship and it would help soak up a proportion of young people who are currently without work. Typically the skills required would be similar across most sectors and include basic trades such as carpentry, painting, plumbing, electrics and electronics.

1. The extent that it is practical and cost effective to implement should be tested with a pilot project that covers at least three sub-contracts to ensure the concept is given a fair test. The idea is to use experienced regional trades people on period contracts as supervisors tasked with maintaining specific infrastructure (e.g. Funafuti‟s rain water catchment and storage systems, the power distribution network, RE systems, etc). They would work in the region, but not their own country. This would break the social obligations and social  hierarchy traps. They would manage a budget that would cover management, training, parts, materials and labour and be accountable for outcomes. For example, they could be on annual contracts and if they don‟t perform, their contract is not renewed. They would form teams of young people both skilled and unskilled to do the work; thus making a significant contribution to a major Pacific problem – youth unemployment.

1. This approach would result in money circulating in the local economy and providing jobs rather than the money coming in and going straight out to buy new infrastructure. Extending the life of infrastructure frees up money for other uses. On the coral atolls, in particular, there are few opportunities to generate foreign exchange – but a dollar saved on imports has the same value as a dollar generated from exports. Donors are moving into direct budgetary assistance and some of these funds could be allocated specifically to these programs. Tuvalu has a word “Fakafoou” which means to make new. It is to do  with repairing, as well as refurbishing or even to build a new structure altogether. This word could be used to highlight (brand) a new program of using south/south exchanges of maintenance supervisors.

1. Under project-based aid, the government is often expected to provide for the ongoing maintenance of capital items. Usually, there will be provision for initial training and one or two years  of  spare parts  in the aid package.  However,  once these are consumed,  all  too

often that is the end of maintenance until the item stops working. This may be less than half the economic life of the item if properly maintained. Regional skilled people on annual contracts could manage maintenance, replacing the use of high priced contractors. Consultants could be replaced by regionally-sourced, experienced and competent people who understand the harshness of the island environment.

1. There is already a trend evident of development partners sourcing regional technical specialists (e.g. Tuvalu providing the Financial Secretary for Nauru) and skilled people (e.g. PNG providing a technician to maintain hospital equipment in Tuvalu) to provide effective services in the Pacific. Much more could be made of this modality, particularly for maintenance. The need is for an ongoing focus on maintenance, continual training and un- relenting attention to the preventative approach. Once out of the context of their own island community, Pacific Islanders are freed from the pressures of political and social obligations that often are part of the problem.

1. Both external and internal factors will have potential impacts on the TISIP. External forces, including global economic cycles, will continue and impact negatively on Tuvalu at times. Improving the resilience of the economy to these shocks is very dependent on the development partners continuing to assist Tuvalu at least to the extent of recent years. Better management of assets will ensure that the scarce capital Tuvalu has access to, will give the greatest economic and social return.

1. Ensuring that new infrastructure is engineered to the needs of Tuvalu will be a good start. It should be functional and recognise that Tuvalu does not have a culture of maintenance. Changing that culture to one that recognises the benefits of preventative maintenance and timely and regular maintenance will take some time and will take a concerted effort at all levels. In the meantime, the approaches outlined above can make a real difference. A focus on maintenance will create local jobs and free up money for other high priority purposes instead of being wasted by replacing items well before the end of their economic life.

VI.         FUNDING STRATEGY

1. The funding strategy outlines the projected demand for infrastructure-related finance; the capacity of the Government and the SOEs to address total costs; expected development partner funding for infrastructure; and the interventions the Government can make to  improve the infrastructure funding environment.

1. Demand for Infrastructure Finance

1. The overall demand for financing infrastructure is divided not only between financing new projects and maintaining and operating these projects, but also the full maintenance of existing infrastructure. Table 16 shows the total projected demand for infrastructure financing over the next five years, covering full maintenance for existing infrastructure, projects that  are underway or committed, and high priority investments identified by the MCA process. Total demand for finance over the next five years amounts to $113.95 million, of  which 12.6% is for full maintenance of existing infrastructure, 8.8% is for maintenance of new capital, 8.1% is for operating expenditure on new infrastructure and 70.5% is for new capital expenditure. Over the 25-year lifecycle of new infrastructure the O&M costs, including full maintenance of existing infrastructure will rise to 78.0% of total funds required.

Table 16 : Projected expenditure by activity over 5 years – from MCA ($ million)

1. When the demand for infrastructure finance determined by the MCA process is matched against the likely supply of funding from    development partners, averaging around

$15 million per annum (see Table 17), there is a shortfall of $5-$10 million per annum.

Table 17 : Funding Envelope

Source: Donor meeting, 7.11.11, Suva.

1. A schedule that more closely aligns with the supply of funds results in a 10-year implementation period (see Table 18). Here, the total demand for finance averages $15.9 million per annum compared with an average of $22.8 million per annum over five years. This schedule spreads the planned investments over ten years instead of five years. The consequences of doing this will be a program that is more closely aligned with the availability of funding for projects and the capacity and capability of Tuvalu to implement them.

Table 18 : Projected expenditure by activity over 10 years ($ million)

1. This schedule does not take into account possible funding from climate change funds that could be available to assist the funding of the renewable energy projects. Given the Government‟s priorities, and capacity and capability to manage existing and new infrastructure, it is unlikely that the target of 100% renewable energy by 2020 can be achieved without significant climate change funding.

Figure 7 : Infrastructure Schedule over 5 years ($ million)

Figure 8 : Infrastructure Schedule over 10 years ($ million)

1. Capital Expenditure

1. Tuvalu‟s capital expenditure requirements are set out in Section V. This expenditure is divided between projects that are committed and funded and TISIP high priority projects. Table 19 shows the projected capital expenditure by project category for schedules over five and ten years.

Table 19 : Projected capital expenditure* by priority ($Million)