Report proposing ADB financing for renewable energy in the Southern Group released

The Ministry of Finance and Economic Management (MFEM) released a report today which outlines the impact of a proposed $12.98 million loan from the Asian Development Bank (ADB) for renewable energy investments across the Southern Group of the Cook Islands. Overall, the value of the project is $27.2 million.

Table 1 Funding sources for the Renewable Energy Project in the Southern Group:

Type of Source

$m

% of Cost

Asian Development Bank Loan

12.98

48%

European Commission Grant

8.37

31%

Government of the Cook Islands

5.83

21%

Total

27.18

100%

Note : For the purposes of the activity the Cook Islands contribution also includes recognition of an amount of $4.6 million which is provided through the Japanese Government’s Pacific Environment Community Fund which is managed by the Pacific Island Forum Secretariat.

It is expected that the project will provide increased energy security in an environmentally sustainable manner. The outcome will be an increased access to a higher share of electricity generated by renewable energy sources. The project has two major outputs, solar photovoltaic power system development, and institutional strengthening and project management support.

The MFEM report outlines several considerations around whether the Cook Islands Government should proceed with the project. Key among these are:

  • That the net debt to GDP ratio not go above 30 per cent. When including the proposed debt, the debt ratio rises to approximately 25 per cent of estimated GDP in 2015/16.
  • That debt servicing only just exceeds 5 per cent of total revenue. Inclusion of the proposed debt would increase debt servicing to 5.1 per cent of total revenue in 2017/18.
  • An economic assessment of the project was undertaken, and showed that it positively contributed to the country and was a sound financial investment.
  • That the Loan Reserve Fund be adequately resourced to cover future repayments.

MFEM believes that the borrowing is sustainable and recommends that the investment proceed with the use of ADB funding.

“Donors have come to the table to assist us with our investment in renewable energy, but this does not mean that the investment has come at no cost. As we are taking on a portion of the project as debt, it is even more important that we strengthening our management capacity to make sure that this investment continues to provide renewable energy for future generations of Cook Islanders.” Said MFEM Secretary, Richard Neves. “Financial and economic cost-benefit analysis has been undertaken to show that this is a good investment, and we have made sure we are investing our loans in a sustainable and well thought-out manner.”

A copy of the report is available at www.mfem.gov.ck/other