Energy / Energy sector development and institutional reform

Water and other urban infrastructure and services / Urban water supply

The Ministry of Commerce, Industry and Environment is responsible for the regulation of the utilities sector, but it does not operate within a clear regulatory framework. This limits its ability to effectively perform its regulatory oversight role. For many years, electricity was free in Nauru. Metering was introduced in 2009 but electricity charges do not cover all the costs of running the utility. The utilities authority, for example, received a fuel subsidy of approximately A$6 million in 2009-2010.

The NUA inherited the key infrastructure and physical assets from the Nauru Phosphate Company following its restructure in 2005. However, there is no record of a formal handover. Significant investments have also been made by the government and its development partners (i.e., Australian Agency for International Development and the European Union) on NUA operations to strengthen and improve its existing infrastructure and management capacity. Nevertheless, poor management of the NUA's assets over a number of years has led to frequent power outages. This restricted phosphate processing and exports in 2011, requiring RonPhos, the phosphate export company to purchase its own generating capacity.

The Utilities Working Group was established in early 2010 to advise the government on an appropriate legal and regulatory policy framework for the utilities sector. Two studies of the utilities sector were commissioned by the government with the support of ADB staff consultancy in early 2011--one examined the economic regulation of the sector, and the other examined safety regulation. The key recommendations of the economic regulation studies are: (i) the NUA should be corporatized immediately; (ii) the NUA should be gradually commercialized through the use of performance contracts; and (iii) a private management contractor should eventually be engaged to help improve the financial and operational performance of the NUA.

Cabinet has approved the key recommendations of this study, and an Act to establish the Nauru Utilities Corporation (NUC) was enacted in June 2011. The Act commenced on 1 August 2011. The government has requested further assistance from ADB to (i) ensure the newly established NUC operates effectively; and (ii) ensure effective regulatory oversight of the utilities sector.

Reduced drain on the fiscal position of the government.

Better management of infrastructure assets.

Separate NUC from the government physically and in terms of accounting.

Review NUC institutional capacity and develop its business/corporate strategy.

Develop performance management system for NUC.

The TA will finance the services of international consultants for a total period of 6 person-months for (i) physical and accounting separation of NUC from the government; (ii) review NUC's institutional capacity and develop its business/corporate strategy; and (iii) develop a performance management system for NUC. The consultants will provide expertise in regulation and restructuring of public enterprises, institutional capacity development and training, operational management, and financial analysis. The consultants will be selected and engaged on an individual basis in accordance with ADB's Guidelines on the Use of Consultants (2010, as amended from time to time). The proceeds of the TA will be disbursed in accordance with the Technical Assistance Disbursement Handbook (2010, as amended from time to time). The seminars and workshops will be administered by the consultants. The government will ensure that all required counterpart staff, other human resources and support facilities will be available to the consultants in a timely manner.

The consultants will prepare and submit to the government and ADB (i) an inception report 1 month after the TA starts, including an issues paper outlining the approach, emerging factors and constraints, and a detailed TA work plan; (ii) a midterm report; and (iii) a draft final report.