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Improving the Institutional Framework for Energy in the Maldives: A First Step to Help Meet Mitigation Goals

In addition to being recognized as a prime tourist destination, the Maldives is increasingly well known for its vulnerability to climate change and its efforts on the global stage to raise awareness about its plight.  As part of this campaign, the Government of Maldives declared a policy objective in 2009 to become a carbon neutral country by 2020.

 

Less well recognized at the time were the tremendous challenges inherent in attempting to reach this goal.  The Maldives depends heavily on imported fossil fuels to meet its energy and transport needs.  The electricity sector runs almost entirely on imported diesel fuel.  The geographic dispersion of the country means there is no national grid connecting one island to another. In addition, tourist resorts, which are some of the largest energy consumers in the country, operate their own independent diesel systems.

 

While the Maldives has a higher per capita income than many other small island developing states, it shares with most other island nations an acute vulnerability to oil price volatility.   Because of local subsidies on fuel and usage, price spikes put a great deal of pressure on the government’s fiscal position.

 

A World Bank project, funded by ESMAP, set out in 2010 to support the Maldives in its goals of reducing dependence on diesel-powered electricity and moving towards carbon neutrality.  The activity was focused on helping the government develop and implement a robust regulatory regime for the energy sector.

 

At the time the work started, the government had only a small unit devoted to energy—a department within the Ministry of Housing and the Environment.  The Maldives Energy Authority (MEA), the de facto regulatory body for the sector, was unable to clearly exercise its mandate owing to a variety of technical and administrative limitations. There was clearly a need for a regulatory overhaul, and a large component of the World Bank project centered on an assessment of current energy policies and legislation.  But before the regulatory architecture Male, Maldivescould be improved, the foundation—the regulator itself—had to be strengthened.

 

The team working on the project carried out an analysis of the current sector and the obstacles the MEA was facing.  While the government wished to give the MEA the resources it needed to fulfill its mandate, financial and human resource constraints were an issue, as they are in many small developing countries.  The analysis looked at what it would take to achieve efficiency and economy of scale by comparing regulatory bodies from similar countries around the world to the Maldives.  It soon became clear, however, that the Maldives was unique, with a densely-populated capital coupled with far-flung, sparsely populated islands.

 

A skills gap analysis was also conducted to see where technical capacity would need to be increased within the MEA.  An interim report was delivered to the government in early 2011 with two options: a) to strengthen the existing MEA as a stand-alone body responsible for all energy regulation, or b) to set up a combined authority merging two or more regulatory bodies together.   

 

In March 2011, the government expressed its desire to move forward with the first option, and use the existing MEA to focus solely on the energy sector.  One of the primary reasons for the decision was the need to develop the energy sector to meet national development goals.  A single-sector regulator, it was felt, would have the credibility and focus to meet this mandate.

 

“We began by focusing on policies and regulation,” said Abdulaziz Faghi, Senior Energy Specialist in the World Bank’s South Asia region, and the team leader for the project. “But we soon realized that we needed to help the government get the institutional framework right before anything else could happen.”

 

Once the decision had been made on the MEA’s authority, the project could continue with a wider scope, focusing on a comprehensive framework for energy sector regulation.  The final result presented to the government was not only a report but a set of draft regulations for licensing of electricity operators, procedures for investment approvals, utility performance standards, and an institutional development plan for the MEA.  The recommendations emphasize the paramount importance of safety and network security, and call for regulations that promote investment, are suited to the geographic spread of the country, and that institute standards and compliance while not putting an undue burden on suppliers.

 

“A strengthened MEA and a revitalized regulatory environment will not only help to protect the interests of energy consumers and producers in the Maldives, it also will help attract private investment and provide a foundation for sustainable and renewable energy production, which is vital for the country’s energy and economic security,” said Faghi.