Union Electrique du Vanuatu (UNELCO)

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Port Vila’s system has been in private hands under the monopoly operator UNELCO (subsidiary of French Suez via Elyo) since 1994. Via tender, the Vanuatu Government granted UNELCO a concession contract in 1994 to supply water and electricity services to Port Vila for a period of 40 years. Under this contract, all management, operating and investment functions were delegated to the concessionaire. Asset ownership and contract performance monitoring was controlled by the Government based on periodic technical and financial reports. Regulation consisted in the Government ensuring that the terms of the contract were respected. Under this concession, UNELCO was required to guarantee quality, quantity and continuity of service and incurs penalties for non-compliance. In return, the operator was allowed charges for services. UNELCO was to generate and distribute electricity in the two towns of Port Vila and Luganville including Malekula and Tanna and also operate the distribution of water in Port Vila. Outside of the 15-km mark or on the other islands, anybody was allowed to produce and supply their own electricity and water. The initial concession was signed in 1994 and comprised mainly the Municipal area of Port Vila. In 1995 an addendum was signed, extending the concession area to include the sectors of Erakor and Ifira. In 1997, a second addendum was signed, adding the sectors of Pango, Manples and Black Sands. The network remained the property of the Government and was supposed to be returned to the Government free of charge at the end of the contract. The operator has the responsibility to operate, renew, upgrade, maintain and extend the network within the geographical limits of the concession area and within a predetermined budget for the next 40 years. At the end of the contract, the operation was supposed to be returned to the state, or there could be a new contract signed. A total investment of US $11.6 million was anticipated during the contract period, with US $580,000 per year for the first five years. As special fund to which the operator allocated 1 vatu per cubic meter, was established. This fund was used at the discretion of the Government to finance water connections for low income earners. When new areas have been serviced, that was Ifira Island, Erakor village, Pango village and others, this fund was used to finance all connections. The contract stipulated that it was the responsibility of the Government to provide access for the service. The intention in holding a tender was to select the operator which could provide services at the lowest tariff. However, UNELCO won the bid in part because of its ability to crosssubsidize the new rural concessions from its urban services. UNELCO’s concession contracts in Vanuatu provided that tariffs could be adjusted for changes in the general price level of key inputs, such as wage rates in Port Vila, but not for changes in actual labor costs in the company. Tariffs could be reviewed every five years. The price of the water was fixed and varied by the application of a price adjustment. By 2003, UNELCO had 9,500 electricity customers, 5,000 water customers, generated 22 mega-watts of electricity and distributed 2.8 million cubic meters of water annually.