Avoiding A Disaster?

To focus attention on the latter concern, the 27 member utility companies of the Pacific Power Association (PPA) at their August annual meeting in Guam called for a regional investigation into fuel pricing. The PPA is seeking the help of the Pacific Islands Forum to tackle the oil companies' fuel pricing in a systematic way.

An independent report by the Asian Development Bank on Mobil's fuel pricing in the Cook Islands says Mobil has "deliberately and systematically" manipulated fuel prices, with the overcharge estimated at 5-to-7 cents per liter. Mobil's response, according to the Cook Islands Times reports, is to say it was "very concerned and disappointed" by the report.

The Marshall Islands in mid-October requested a U.S. government investigation into Mobil's negotiating methods with the main utility company, Marshalls Energy Company. Mobil "has taken full advantage of its de facto monopoly in fuel products in our region by using exploitive and price gouging tactics," Marshalls Chief Secretary Robert Muller told Mobil Oil Micronesian in an October 14 letter. Guam and Saipan have joined American state attorneys general in action against the oil companies for what they charge is "price gouging" by the oil companies. While this may help in the long-term, most islands are facing a huge cost crisis today.

William F. Roberts (Photo: Giff Johnson)

"It's a real worry," says William F. Roberts, chairman of the PPA and general manager of the Marshalls Energy Company in Majuro. "The biggest problem is the ability of small island utilities to adjust to the enormous price increases in the last 12 months. There's a good danger they (costs) will be setting people back 30 years. People just won't be able to afford power." With minimum wage workers in the region earning from less than US$1 up to about US$3 per hour, there's little room in their paychecks to absorb the electricity price hikes that are hitting every island in the Pacific. "Local people increasingly can't afford the combined costs of food, electricity and water," Roberts says. "People have to eat."

But it's not just that fuel price is rising, it's the trauma of a near doubling of the cost to produce power in a matter of months. It's hitting the pocketbooks of island residents like never before and putting power companies into debt, while straining government budgets to pick up the slack in a number of islands where power costs have historically been subsidized.

Although Papua New Guinea, with its own refinery and fuel purchases amounting to about US$350 million last year, and Fiji, with fuel imports of US$160 million, have a modest measure of clout with multinational fuel companies, at the other end of the spectrum are islands such as Niue, Tuvalu, the Federated States of Micronesia and Kiribati with annual imports ranging from less than US$1 million up to just US$4.4 million.

The PPA, jointly with the Forum, is also promoting sub-regional fuel buying to give groups of small islands more price clout. Roberts, wearing his hat as GM of the Marshalls Energy Company, and Public Works Minister and power company chairman Mattlan Zackhras, recently met with Federated States of Micronesia Vice President Redley Killion in Pohnpei to begin discussions of joint Marshall Islands-FSM fuel buying. The FSM, however, is disadvantaged by the fact that it owns none of its fuel tanks, decreasing its already minimal leverage in negotiations.

Forum Secretariat fuel expert Jared Morris has been conducting workshops around the Pacific to increase understanding of fuel pricing and how to negotiate with the fuel companies. Key to this, he says, is engagement by island governments to have "fair, sound working relationships with suppliers to ensure that the 'best solution' is achieved for the people, the government and the investor."

In most islands, "there is a mechanism in place (to determine) how prices are to be built up," said Morris recently. While some islands have opted for multiple fuel suppliers, others contract with sole suppliers. "There's no single 'right' answer," Morris says.

>> American Samoa's government owns its fuel storage facility, and bids it out for use by two oil companies to provide a measure of competition.

>> Neighboring Samoa also owns its tanks and bids out a contract to one supplier for a five-year period that has produced the lowest fuel prices in the region.

>> Fiji has three suppliers, but the government uses price control to maintain prices.

>> The Marshall Islands has a single supplier (Mobil) that owns its tank farm, although the power company also owns its own tanks that allow it to import large volumes of fuel at lower prices and to sell excess fuel to fishing vessels, which in turn helps to subsidize the cost of power production.

"Each island has to decide the most cost-effective means for achieving a fair price," says Morris. But essential to this is understanding fuel companies' pricing 'templates' so that island negotiators-who are already at a disadvantage by virtue of their miniscule markets-are not further hurt by the high-powered fuel companies.

"The PPA is working with the Forum to look at pricing and options for each country," says Roberts. The past year has shown that the Pacific is at the mercy of global events that impact fuel prices. But Roberts is hopeful that regional efforts by the PPA and Forum will provide a modest counterbalance to the current situation facing most islands.