Timor-Leste: Power Distribution Modernization Project (formerly Electricity System Strengthening and Sustainability Project)

Energy / Electricity transmission and distribution - Energy sector development and institutional reform

The principal weaknesses in the power sector are the high cost of generation, inefficient distribution, low level of revenue generation, ongoing need for substantial fiscal subsidies, and excessive technical and non-technical network losses. These problems are, to some extent, the result of other weaknesses in the institutional, legal and regulatory environment, namely the absence of proper commercial practices within EDTL and poor implementation of the legal and regulatory frameworks for the sector.

Substantial challenges remain beyond the high cost of diesel generation. Roughly 60% of generated electricity is not billed to customers. Network losses are high, and the installation of meters has not kept pace with new connections. Substantial investment needs also remain, especially at the distribution level (20 kV and lower voltages) to extend service to populations that still lack access to modern energy services. The government's Strategic Development Plan 2011-2030 (SDP) target for 100% electrification by 2015 has not been met, which implies the need for additional investment in new distribution assets. Existing legacy networks also need investment in modernization and replacement of ageing assets. This is a particularly acute need in Dili and Baucau, where networks are several decades old and service interruptions are frequent.

To sustain progress in the sector and promote expanded economic opportunity throughout Timor-Leste, EDTL must begin to operate on a more commercial basis: the government currently subsidizes roughly 85% of operating costs in the sector (over $100 million per year). The amount of subsidy required will grow unless technical and non-technical losses decline and generation costs can be reduced. The government also recognizes that the solution may lie in changes to the institutional, legal and regulatory arrangements in the sector. EDTL remains a department within the Ministry of Public Works, Transport, and Communications (MPWTC) and has never operated on a commercial basis. It lacks the human capacity and business systems and processes to operate efficiently and cope with the myriad operational and developmental challenges it faces.

Addressing the sector's identified shortcomings and facilitating its sustained development will require further targeted investments in EDTL's distribution assets to reduce physical and commercial losses, improve service quality, and improve financial performance of EDTL as a commercial enterprise. Investments are also required to provide for: (i) expansion of service coverage to population not currently served by formal network electricity service; (ii) lowering the cost of power generation through public and private investments in fuel-switching and development of Timor-Leste's renewable energy resources; and (iii) the introduction of new management systems and practices, and new commercial and contractual arrangements within EDTL.

PR program and CIS and ERP system implementation

Distribution networks modernized and service extended

Meter installation at customer and feeder level completed

Generation investments completed to reduce diesel generation to less than 80% of total generation