EAP - The Pacific Infrastructure Challenge - World Bank (2006).pdf

Box 7.5: Public Sector Reforms in the Pacific
This box contrasts two public sector reforms in the Pacific. We review two attempts at corporatization
in Fiji – Fiji Electricity Authority and the Water Division in Fiji’s Public Works Department. The
former attempt has been successful, while the latter attempt failed. We highlight reasons for success
and discuss lessons for future reforms.
Fiji Electricity Authority
Fiji Electricity Authority (FEA) is responsible for
electricity supply, distribution, transmission and
generation.
Prior to 2000, FEA faced significant problems. The
company was unprofitable and faced capacity and
efficiency problems in the face of increasing demand.
A new Board was appointed in 2001, and targeted
with restructuring the business and returning it to
profitability in three years.
Major business reforms were implemented. These
included a focus on improving efficiency, reducing
losses and production costs, increasing labor
productivity and implementing improved accounting
practices.
Significant financial and operational improvements
have been made in three years. US$ 35 million in
costs have been saved (annual business revenues are
US$ 70 million), staff numbers have been halved,
systems losses have been reduced from 18 to 10
percent, efficient generators have been installed and
engineering maintenance efficiency and collection
maintenance efficiency have been improved. These
have contributed to substantial revenue increases.
Fiji Public Works Department
The Water and Sewerage Department in Fiji’s
Public Works Department is responsible for
providing water and sanitation services.
In the late 1990s, two Technical Assistance projects
were initiated to corporatize the Fiji Public Works
Department. The aim was to establish a wholly
Government-owned limited liability company,
with clear commercial objectives, accountability
and operational autonomy.
Recommendations were implemented “on paper”,
but the water utility was soon returned to its
original state as a Government department after
the political upheaval in 1999 and 2000.
The government’s intention is to restructure the
Water and Sewerage Department, internally
improving operations to the point where it can
function without additional Government funding,
after which it will be corporatized.
These internal reforms have not yet delivered any
performance improvements, and in some cases,
the utility’s performance has deteriorated.
These cases provide two very different examples of how public sector reforms are undertaken. The
timing of the corporatization attempts was an important factor. FEA’s corporatization was initiated
after the political upheaval, while the Public Works Authority’s corporatization was initiated just prior
to this, and was overturned in the process.
That aside, the FEA’s corporatization can be contrasted with the Fijian Government’s attempt to first
improve performance in the Water and Sewerage Department, before undertaking full reforms. This
hasn’t worked. Key features of FEA’s success include:
The Government’s willingness to support an independent, commercially focused Board and
management team, with profit objectives
Outsourcing larger diesel generation plants to the private sector under operator management
contracts, allowed management to focus on improving efficiency in the rest of the business, while
importing key skills and experience in generation
The drive and capability of individuals on the Board and Senior Management team have been
crucial to success.
By comparison, the Fiji Public Works Department has no independent decision making ability, no
control of its own budget, and tariffs are held below cost and subsidized by the Government. Existing
budget allocations from the Government do not allow for system improvements and general
maintenance. There is therefore little incentive to radically transform performance.
Source: Castalia
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