Technical Assistance Consultant’s Report

Project Number: 36661 March 2007

Regional: Pacific Regional Transport Analysis

Prepared by Meyrick and Associates

Australia For Asian Development Bank

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

ADB TA-6166 (REG): Pacific Regional Transport Analysis

Prepared for Asian Development Bank

Final Report: Volume 1- Main Report March 2007 ADB TA-6166 (REG): Pacific Regional Transport Analysis

Copyright

This work is copyright © 2007 Meyrick Consulting Group Pty Ltd The Copyright Act 1968 permits fair dealing for study, research, news reporting, criticism or review. Selected passages, tables or diagrams may be reproduced for such purposes provided acknowledgment of the source is included. More extensive reproduction permission must be obtained from the consultant whose contact details are shown below.

Disclaimer

Meyrick and Associates professional advice is prepared for the exclusive use of the party or parties specified in the report (the addressee) and for the purposes specified in the report. The report is supplied in good faith and reflects the knowledge, expertise and experience of the consultants involved. Meyrick and Associates accepts no responsibility whatsoever for any loss occasioned by any person acting or refraining from action as a result of reliance on this report, other than the addressee.

For information on this document, please contact:

Steve Meyrick Managing Director Level 2, 63A Market Street, Wollongong NSW 2500 Australia TEL +61 2 4227 1484 FAX +61 2 4227 1515 Email: [email protected] Mobile: +61 419 498 904 Meyrick Reference: 11090

Meyrick and Associates is the trading name of Meyrick Consulting Group Pty Ltd, ABN 60 113 345 743, which is incorporated in N.S.W.

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Table of Contents

LIST OF ABBREVIATIONS AND ACRONYMS ...... I EXCHANGE RATES...... IV 1. OVERVIEW OF THE PROJECT AND PACIFIC ISLANDS COUNTRIES ...... 1 1.1 Objectives of the project...... 1 1.2 Scope ...... 1 2. REGIONAL OVERVIEW...... 2 2.1 Regional diversity...... 2 2.2 Challenges in the transport sector...... 6 2.3 Regional maritime institutions ...... 6 2.3.1 Regional Maritime Programme ...... 6 2.3.2 Association of Pacific Ports...... 7 2.3.3 Pacific Islands Maritime Association...... 9 2.3.4 Pacific Women in Maritime Association (PacWIMA)...... 10 2.3.5 Pacific International Maritime Law Association (PIMLA)...... 10 2.3.6 Pacific Islands Forum Secretariat ...... 11 2.3.7 Pacific Forum Line ...... 12 2.4 Shipping services ...... 12 2.4.1 Overview of shipping services within the Pacific Islands ...... 12 2.4.2 Intra-regional feeder services...... 27 2.4.3 Freight costs...... 36 2.5 Ports sector ...... 37 2.5.1 Organisation...... 37 2.5.2 Port charges...... 39 2.5.3 Stevedoring...... 42 2.5.4 Landside structures and networks ...... 46 2.5.5 Logistics arrangements...... 47 2.6 Maritime security ...... 47 2.7 Maritime training...... 48 3. ASSESSMENT AND RECOMMENDATIONS ...... 51 3.1 International shipping services...... 51 3.1.1 Assessment...... 51 3.1.2 Structural changes to international shipping systems...... 53 3.2 Regional cooperation ...... 54 3.2.1 The need for regional cooperation ...... 54 3.2.2 Existing cooperative vehicles...... 55 3.2.3 Possible model...... 56 3.3 National transport plans ...... 57 3.4 Maritime sector subsidies...... 58 3.5 Structuring the maritime sector ...... 59 3.5.1 National responsibility ...... 59 3.5.2 The tri-partite model...... 60 3.6 Port Administration...... 61 3.6.1 Governance ...... 61 3.6.2 Cargo handling performance...... 62 3.6.3 Port infrastructure...... 65 3.7 Domestic shipping...... 69 3.7.1 Assessment...... 69 3.7.2 Government provision...... 69 3.7.3 Service franchises...... 70 3.7.4 Donated vessels...... 70 3.8 Human resources...... 71

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3.8.1 Seafarer training...... 71 3.8.2 Port management...... 71 3.9 Information issues ...... 73 A. PACIFIC FORUM LINE ...... 75 B. INTERVIEWED PARTIES ...... 81 C. REFERENCES...... 83

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LIST OF ABBREVIATIONS AND ACRONYMS

Abbreviation Definition ADB Asian Development Bank APIMTIMA Association of Pacific Island Maritime Training Institutions and Maritime Administrations APP Association of Pacific Ports ASEAN Association of South East Asian Nations ANZ Australia and New Zealand BAF Bunker adjustment factor Break bulk Break bulk cargo is generally referred to the opposite of containerised cargo BCPNG Business council of Papua New Guinea CABAF Currency and bunker adjustment factor CAF Currency adjustment factor CEMA Solomon Islands Commodities Export Marketing Authority CFS Container freight station CIF Cost, insurance and freight CSO Community Service Obligations EEZ Exclusive Economic Zone DWT Deadweight tonnage FCL Full Container Load FEU Forty foot equivalent unit FIC Forum Island Countries FIMSA Fiji Islands Maritime Safety Administration FOB Free on Board FPCL Fiji Ports Corporation Limited FSM Federated States of Micronesia GDP Gross Domestic Product GPDLR General purpose discharge, land, restow: a shift from one bay to another GPMT General purpose empty container GPSOB General purpose shift on board: a shift within the same bay GRT Gross registered tonnage GSS The Fijian Government Shipping Services GST Goods and Services Tax GT Gross tonnage Handysize A relatively small bulk carrier between 10,000-35,000 dwt ICCC Independent Consumer and Competition Commission IMO International Maritime Organization

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Abbreviation Definition ISPS International Ship and Port Facility Security code JICA Japan International Cooperation Agency LCL Less than Container Load LOA Length overall MARPOL International Convention for the Prevention of Pollution from Ships (1973) and (1978) MID Ministry for Infrastructure and Development (Solomon Islands) MOU Memorandum of Understanding MPAF Maritime and Ports Authority of Fiji MSC Micronesian Shipping Commission NTP National Transport Plan NVOCC Non-vessel operating common carrier ODG Out of gauge PacMA Pacific Islands Maritime Association PacWIMA Pacific Women in Maritime Association PAF Ports Authority of Fiji PDL Pacific Direct Line PDMCs Pacific developing member countries PFL Pacific Forum Line PICs Pacific Island countries PICTs Pacific Island countries and territories PIMLA Pacific International Maritime Law Association PPP Purchasing power parity PSC Port service charges PSV Public service vehicle PTL Ports Terminals Limited RAMSI Regional Assistance Mission to Solomon Islands RMI Republic of the Marshall Islands RMP The Secretariat of the Pacific Community’s Regional Maritime Programme Ro-ro Roll-on roll-off SIPA Solomon Islands Port Authority SOLAS International Convention for the Safety of Life at Sea (1974) SPA Samoa Ports Authority SPARTECA South Pacific and Regional Trade Agreement SPC Secretariat of the Pacific Community SSC Samoa Shipping Corporation

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Abbreviation Definition STCW International Conventions on Standards of Training, Certification and Watchkeeping for Seafarers (1978) and (1995) TEU Twenty foot equivalent unit THC Terminal handling charges TOR Terms of Reference VSA Vessel Sharing Agreement

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EXCHANGE RATES All quoted exchange rates are taken from http://www.xe.com, accessed December 2006.

Country Currency Conversion to United States Dollar (USD) Australia Australian Dollar (AUD) $0.79 Cook Islands New Zealand Dollar (NZD) $0.69 Fiji Islands Fiji Dollar (FJD) $0.60 Japan Japan Yen (JPY) $0.0084 Kiribati Australian Dollar (AUD) $0.79 Marshall Islands United States Dollar (USD) $1.00 Federated States of Micronesia United States Dollar (USD) $1.00 Nauru Australian Dollar (AUD) $0.79 Palau United States Dollar (USD) $1.00 Papua New Guinea Kina (PNK) $0.33 Samoa Western Samoa Tala (WST) $0.36 Singapore Singapore Dollar (SGD) $0.65 Solomon Islands Solomon Islands Dollar (SBD) $0.14 Timor-Leste United States Dollar (USD) $1.00 Tonga Tonga Pa’anga (TOP) $0.49 Tuvalu Australian Dollar (AUD) $0.79 Vanuata Vanuatu Vatu (VUV) $0.0094

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1. OVERVIEW OF THE PROJECT AND PACIFIC ISLANDS COUNTRIES

1.1 Objectives of the project The overall goal of the project is to develop consensus on ways to improve the efficiency of regional transportation services in the Pacific region that will lead to better pricing structures for exports and imports, improved conditions for private investment, greater employment generation, and subsequently, poverty reduction. The objectives are to: a) assess the structure, market conditions, and policy environment of maritime transport services b) make recommendations for improving the prevailing transport markets.

1.2 Scope The scope of the study set out in the Outline Terms of Reference (TOR)1, is to analyse the shipping sector in participating countries. The primary emphasis is on the efficiency of the maritime logistics services that connect the Pacific Island countries to the global economic system: that is, the services that facilitate the movement of international cargoes. Domestic shipping services, and the way in which these services are managed, are also of relevance to the project, where these comprise part of the logistics chain in the transport of imports and exports. Maritime logistics services for this purpose are defined to include ancillary services (such as complementary inland transport services, cargo handling, pilotage, towage and port infrastructure services) as well as ocean shipping services. The scope of the analysis includes: a) assessment of direct and indirect logistics costs of each transport sub-sector b) analysis of market structures including public and private sector operators, policies, and regulations c) identification of the impacts of market structure and constraints on the improvement and expansion of efficient services. This analysis should provide the foundation for improving public sector operations, private sector participation, and regional cooperation.

1 Pacific Regional Transport Analysis – Outline Terms of Reference for Consultants, ADB document revised 30 June 2005 and annotated by Steve Meyrick (see Appendix A)

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2. REGIONAL OVERVIEW

2.1 Regional diversity The Pacific developing member countries (PDMCs) have much in common—most importantly their essentially maritime character, small economic scale and remoteness from major markets. This project will focus to a large extent on these common characteristics, and generally applicable strategies (and where appropriate collective strategies) to alleviate the problems that arise from these characteristics. However, in discussing common attributes and shared problems it is easy to lose sight of the diversity that exists within this group. Table 2-1 provides some quantitative indication of the extent of this diversity, focussing on aspects that are some relevance to the provision of maritime transport. These aspects are summarised below:

Location Many of the PDMCs are remote from both major population centres and maritime trade lanes. But this is not universally true. PNG lies adjacent to the major trade lanes connecting eastern Australia and New Zealand to Asia. Many vessels traversing this route typically navigate passages that are close to PNG’s major ports, particularly Lae, creating opportunities for the provision of maritime services through wayport calls2. Fiji enjoys similar, though more limited, opportunities to attract wayport calls from services between Australasia and North America. Two of the PDMCs—PNG and Timor-Leste—occupy parts of islands, the remainder of which form part of a major regional economy: Indonesia. However, there are very poor land transport connections, and few economic complementarities between these two nations and the abutting regions of Indonesia: cross-border trade by land therefore does not provide an effective substitute for maritime services. In the case of Timor-Leste in particular, however, relative proximity to main productive regions of Indonesia as well as to Singapore and the rest of South-East Asia, does mean that the problem of long thin maritime routes that is so critical an issue for many other PDMCs is not such a central consideration.

2 A wayport call is described as a situation where a vessel is travelling from Port X to Port Y and calls at Port Z due to Port Z being ‘on the way’ to from Port A to Port B.

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Physical Size There are vast differences between PDMCs in both land and sea area. At one end of the scale, Nauru and Tuvalu each have a total land area of less than 30 square kilometres. At the other end, PNG, with a land area of approximately 462 thousand square kilometres, is larger than Japan. Although there are of course other mediating factors, these differences have obvious implications for the likely scale of long-term production from agricultural and extractive industries. The archipelagic character of a number of PDMCs means that some countries with relatively small land areas, however, have very extensive Exclusive Economic Zones. Kiribati, for instance, with a land area of only 811 square kilometres, has a maritime EEZ of 3.5 million square kilometres—more than twice the size of that of PNG. The area of the EEZ serves as a rough proxy for the area of sea over which the population of each PDMC is spread, and hence the area that needs to be covered by domestic shipping services.

Population While there is clearly a strong relationship between area and population, this relationship is mediated by the fact that some of the more remote PDMCs have some of the highest population densities in the world. Nauru and Tuvalu, for instance, both have population densities that are higher than those of the Netherlands, placing them in the most densely populated 10% of countries. On the other hand, several of the PDMCs with larger land areas— in particular PNG, Solomon Islands, and Vanuatu—have population densities similar to New Zealand, placing them in the bottom 25% of world rankings by population density. All other things being equal, high population densities tend to assist the achievement of effective shipping services.

Imports and For most of the PDMCs, imports far outweigh exports. In some cases this exports imbalance is extreme—in the case of Nauru, the ratio (by value) of imports to exports is over 600:1. More typically, the ratio lies in the range between 3:1 and 20:1. For a small number of PDMCs, however, this is not the case. For PNG in particular the value of physical exports outweighs the value of physical imports. The same is true, in stable times, for Solomon Islands. However, in these cases, the predominant exports require different shipping arrangements from the major imports. Imports are still dominated by general cargo, often in containerised forms, while major exports are generally carried as bulk cargoes.

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Trading The pattern of trading relationships also varies significantly between relationships PDMCs. For many of the countries of the South Pacific, the most important trading relationships are with Australia and New Zealand, and this is reflected in the pattern of shipping services to these countries. For the countries of the North Pacific, the predominant trading relationships are with the United States and the major economies of North and East Asia. For Timor-Leste, and to a lesser extent PNG, Solomon Islands, Fiji and Vanuatu, the ASEAN nations are also important trading partners.

Income level Income levels of the Pacific Island countries range from very low to the middle income bracket. Per capita income of Timor-Leste and Solomon Islands is less than USD1,000 per year (in PPP terms). This places these countries amongst the very poorest in the Asia-Pacific region. At the other end of the scale, the Cook Islands, with a per capita income approaching USD10,000 per year, ranks as a middle income economy. From a maritime transport perspective differences in income are important because, in Pacific Island countries, many essentials and virtually all luxury goods are imported—mainly by sea. The demand for imports increases more than proportionately with rising income.

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TABLE 2-1: BRIEF PROFILE OF PACIFIC DEVELOPING MEMBER COUNTRIES (PDMCS) Country Population Land Populated Islands / Maritime GDP Imports Exports Main Trading Partners Main Ports (July Area Number of Islands Area / EEZ per/capita (2005) (2005) 2006) USD Cook Islands 21,388 236.7 sq 15 2 million 9,100 $81.04 million $5.222 million Australia, New Zealand, Fiji, USA, Japan Avatiu km sq km Fiji Islands 840,000 18,300 100/332 1.3 million 5,900 $1.462 billion $719.6 million Singapore, USA, Australia, UK, New Zealand, Labasa, Lautoka, Levuka, sq km sq km c.i.f. f.o.b. Samoa Savusavu Bay, Suva

Kiribati 105.432 811 sq 23/33 3.5 million 1,900 $62 million $17 million Australia, Fiji, Japan, New Zealand, USA, Belgium, Betio km sq km (2004) c.i.f. f.o.b. Samoa, Malaysia, Taiwan, Denmark

Marshall 60,422 11,854.3 21/1,152 1.2 million 2,900 $54.7 million $9.1 million USA, Japan, Australia, New Zealand, Singapore, Majuro Atoll Islands sq km sq km f.o.b. (2000) f.o.b. (2000) Fiji, Peoples Republic of China, Philippines Federated 108,004 702 sq ? /607 1 million 2,300 $132.7 million $14 million USA, Japan, Guam, Hong Kong Chu’uk, Pohnpei, Yap States of km sq miles f.o.b. (2004) f.o.b. (2004) Micronesia Nauru 13,287 21 sq km 1/1 5,000 $20 million $64,000 f.o.b. South Korea, Australia, USA, Germany, South Nauru c.i.f. Africa, South Korea, Canada Palau 20,579 458 sq 9/300 7,600 $107.3 million $5.882 million USA, Singapore, Japan, South Korea Koror km f.o.b. (2004) f.o.b. (2004) Papua New 5,670,544 462,840 2,600 $1.651 billion $2.833 billion Australia, Japan, Singapore, China, Malaysia Alotau, Kavieng, Kieta, Kimbe, Guinea sq km f.o.b. f.o.b. Lae, Lorengau, Madang, Oro Bay, Port Moresby, Rabaul, Wewak Samoa 180,900 2,944 sq 10/10 1,832 $285 million $94 million Australia, New Zealand, USA, Japan, Fiji, China, Apia km f.o.b. (2004) f.o.b. (2004) American Samoa Solomon 520,000 24,450 347/ 992 1.35 million 600 $159 million $171 million Peoples Republic of China, Korea, Thailand, Aola Bay, Dakolae Anchorage, Islands sq km sq km f.o.b. (2004) f.o.b.(2004) Australia, Singapore, Fiji, Papua New Guinea Gizo, Honiara, Noro, Tulagi, Viru Harbour, Yandina

Timor-Leste 1,062,777 15,007 800 $202 million $10 million Indonesia, Australia, Singapore, Japan Dili sq km (2004) (excludes oil) Tonga 101800 748 sq 2,200 $122 million $34 million New Zealand, Fiji, Australia, Japan, USA Nukualofa km f.o.b. (2004) f.o.b. (2004) Tuvalu 11,810 26 sq km 1,600 $9.186 million $1 million Fiji, Japan, Peoples Republic of China, Australia, Funafuti (2002) c.i.f.(2004) f.o.b. (2004) New Zealand, Germany, Italy Vanuatu 213,300 12,200 65 / 83 1,530 $117.1 million $34.11 million Australia, Japan, Singapore, Poland, New Zealand, Port Vila, Santo sq km (2005) c.i.f. (2004) f.o.b. (2004) Fiji, Thailand, India, Turkey

Sources: Asian Development Bank website, http://www.adb.org, Lloyd's List Ports of the World, CIA World Fact Book online, https://www.cia.gov/cia/publications/factbook/

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2.2 Challenges in the transport sector The study will identify and quantify to at least some extent the challenges in the shipping sub- sector and how these are manifesting themselves as costs to the community through imposts on logistics costs. Some of these challenges are immutable but others may be addressed by local or regional initiatives. Challenges that are immediately evident from initial research but are not easily addressed can be summarised as: ƒ long distances between ports ƒ trade volumes ƒ low population and far-flung communities ƒ imbalance in trade with exports usually far outweighed by imports ƒ widely varying port facilities with varying but generally inadequate financial support. These factors combine to make services relatively expensive: because of long distances between ports and low trade volumes the PDMCs cannot take advantage of the economies of scale available to the larger international ports. Also, the imbalance in trade means costly container positioning; and, varying port facilities with a general lack of major cargo handling plant means ship operators are driven to employ relatively expensive, geared container vessels.

2.3 Regional maritime institutions Existing regional maritime institutions include: ƒ Secretariat of the Pacific Community’s Regional Maritime Programme (RMP) ƒ Pacific Islands Maritime Association (PacMA)—formerly the Association of Pacific Island Maritime Training Institutions and Maritime Administrations (APIMTIMA) ƒ Association of Pacific Ports (APP) ƒ Pacific Women in Maritime Association (PacWIMA) ƒ Pacific International Maritime Law Association (PIMLA) ƒ Pacific Islands Forum Secretariat (PIFS) ƒ Pacific Forum Line (PFL).

2.3.1 Regional Maritime Programme The Regional Maritime Programme (RMP) is based in Suva and operates under the auspices of the Secretariat of the Pacific Community’s (SPC) within the Marine Resources Division— which also includes the Coastal and Oceanic Fisheries Programs. The objective of the RMP is: to strengthen the capacity of Pacific islanders to manage, administer, regulate, control and gain employment in the maritime transport sector in a socially responsible manner. (Secretariat of the Pacific Community’s website, http://www.spc.org.nc/ )

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The Regional Maritime Programme grew out of the South Pacific Maritime Development Plan, endorsed by the 17th Forum Meeting in 1986, which commenced with recruitment in 1993 of a Maritime Legal Adviser to assist Forum Island Countries (FICs) in adopting the STCW Convention and the South Pacific Maritime Code. There are two main components of the current RMP programme: ƒ the provision of legal advice on maritime policy and legislation ƒ the provision of training and HR advice to regional maritime administrations, training institutions and seafarers. To carry the initiative forward, the SPC set RMP three main objectives for the period 2003– 2005: ƒ strengthening the region’s maritime institutions ƒ strengthening the region’s human resource capabilities ƒ improving the exchange of information and experience among FICs. In 2003 an independent review carried out by the New Zealand Maritime School concluded that: RMP has been extremely active during the review period, at least partially because of the programme’s success in obtaining and deploying donor funding. RMP activities have generally reflected the programme’s planning and have been consistent with both the expressed needs of the region and SPC objectives. A high degree of satisfaction with programme services from stakeholders is evident. (SPC 2005) However, although the RMP continues to pursue its goals, there has been some criticism among members recently (in 2006) that progress has slowed on the specific issues selected to drive the plan forward. There may be a need to encourage the member nations to re-focus on the above objectives, or to refine them, to ensure that more achievable, practical and measurable goals are developed. The review mentioned above recommended that the RMP should, inter alia: ƒ Consider including the port operations sector within program services ƒ Ensure that further development of model legislation by RMP is contingent upon the introduction of effective supporting strategies to improve the rate of enactment.

2.3.2 Association of Pacific Ports What is now known as the Association of Pacific Ports was originally established as the South Pacific Ports Association (SPPA) in 1978. To reflect a broadening membership base, in 1999, the name of the organisation was changed to Association of Pacific Ports (APP). The objective of APP is to promote ‘regional cooperation, friendship and understanding between member ports and port users through mutual association, exchange of knowledge and the dissemination of information useful to port administrations’ (APP Fact Sheet, SPC website, http://www.spc.int, accessed 27 December 2006).

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The APP has three categories of members: regular, associate and honorary. Regular membership is restricted to port or marine authorities, or port companies, of a Pacific country. Regular members include port organisations from Cook Islands, Fiji, Norfolk Island, New Caledonia, Tonga, Tahiti, Tuvalu, Vanuatu, Solomon Islands, Papua New Guinea, Samoa and American Samoa. Associate membership is available to a much broader group: any port user, organisation, entity or individual engaged or involved in port related activities in the Pacific region is eligible for associate membership. SPC reports that ‘port organisations from Australia and New Zealand are associate members of the Association’. Honorary membership is conferred on individuals or organisations at the discretion of the executive of APP. APP and its predecessor, SPPA, have been active in developing training programmes for its members. APP also promotes measures to increase port efficiency and safety, facilitating harmonious development of ports in the region. Training has been delivered through seminars on containerisation, maritime legislation, handling of dangerous goods, Law of the Sea and computerization. SPC notes that: These seminars were made possible with the assistance of funding agencies which include United Nations Development Programme (UNDP), International Maritime Organization (IMO), Economic and Social Commission for Asia and the Pacific (ESCAP) and donor Governments such as Australia, New Zealand and France. In addition, the association has organized a number of training attachments for officials of island ports to be attached to Australia, New Zealand or Fiji Ports. (APP Fact Sheet 2006) Although APP is not formally associated with other regional bodies, it works closely with such organizations, including the Secretariat of the Pacific Community, the Secretariat of the Pacific Regional Environment Programme (SPREP) and Pacific Islands Forum Secretariat (PIFS). APP has been collaborating with SPC’s Regional Maritime Programme RMP on matters relating to ports and shipping in the region, specifically the implementation of the International Ship and Port Facility Security (ISPS) Code. Closer relationships are evolving: In June 2006, RMP and APP signed a memorandum of understanding defining their roles and responsibilities in the development of a more cooperative maritime sector in the Pacific Islands region. The APP Secretariat is now based at SPC. (APP Fact Sheet 2006)

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2.3.3 Pacific Islands Maritime Association As well as providing a vital conduit for the trading activities of Pacific Island countries, the maritime sector in its own right is an important source of employment and economic activity in many Pacific Island countries. This implies a substantial need for the maritime training. The Pacific Islands Maritime Association (PacMA)3 provides the principal forum for discussion, harmonization and development of coordinated education, training and examination infrastructure for Pacific Island seafarers. The Pacific Islands Maritime Association (PacMA) is the successor to the Association of Pacific Islands Maritime Training Institutions and Maritime Administrations (APIMTIMA), which was founded in 1995 with assistance from the Regional Maritime Programme. Up to 2005, RMP acted as a secretariat for the Association and in this role organised meetings and sourced support funding for the Association. SPC notes that: APIMTIMA was perceived to have been of great benefit in ensuring cooperation between training institutions and maritime administrations, in particular during the implementation of STCW-95. APIMTIMA also formally discussed and endorsed generic model certification structures, earlier RMP strategic plans and some of the generic model legislation developed for and by RMP. Both the formal activities, including information exchange, and informal networking associated with the meetings were believed by members to have been effective in promoting improved harmonisation of standards and initiatives in the region. (PacMA Fact Sheet, SPC website, http://www.spc.int, accessed 27 December 2006). This was confirmed during the field work for the present study. In particular, the work done by PacMA’s predecessor in developing common standards and facilitating mutual recognition of seafarer qualifications was generally acknowledged to have been a significant benefit to the region. The 2003 APIMTIMA meeting approved a proposal that the Association become the key regional advisory body for maritime issues and that the membership be broadened to include ship and port operators to support this function. A new title, ‘Pacific Islands Maritime Association’ (PacMA) was adopted to signify the extension of the mandate of the Association beyond its original mandate, which was focused strictly on training activities. There is, however, some concern that too rapidly expanding the range of responsibilities of PacMA may dilute the focus of the Association and consequently diminish the Association’s effectiveness. The development of PacMA into a body capable of effectively shouldering broader responsibilities has therefore been seen as a staged process:

3 Formerly the Association of Pacific Islands Maritime and Training Institutions and Administrations, APIMTIMA.

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In the shorter term, PacMA will take some time to effectively evolve to manage the increased decision-making and direction-setting role. In the longer term, an expanded role involving the provision of technical assistance, capacity supplementation and a number of trans-boundary functions would provide increased autonomy and greater ownership of initiatives in the maritime sector. (PacMA Fact Sheet 2006)

2.3.4 Pacific Women in Maritime Association (PacWIMA) PacWIMA is a relatively new organisation, established only in February 2005. Its goals are to: ƒ promote overall development of the maritime sector in the Pacific ƒ advocate gender equity in the Pacific maritime sector ƒ promote education, training and career opportunities for Pacific women linked to the maritime sector ƒ increase the recognition of social responsibilities relating to Pacific women in the maritime sector ƒ promote cooperation, friendship and understanding through the exchange of knowledge and the dissemination of information ƒ promote safe, secure and efficient shipping and cleaner oceans. Regular membership of PacWIMA is open to women from a Pacific Island Country or Territory (PICT) that is a member of SPC who are employed in the maritime industry or are maritime students. The Association also has provision for associate, corporate and honorary membership. Although recently established, PacWIMA appears to be making its presence felt very rapidly, and was regularly identified as an important regional institution during the field work for the present study. The RMP acts as the Secretariat for PacWIMA (PacWIMA Fact Sheet, SPC website, http://www.spc.int, accessed 27 December 2006).

2.3.5 Pacific International Maritime Law Association (PIMLA) The Pacific International Maritime Law Association (PIMLA) is also a rather new organisation. It was officially launched in Port Vila, Vanuatu in September 2005. PIMLA was established as a forum for legal professionals in the Pacific Islands maritime sector to discuss and pursue legal maritime issues of concern to the region; advise international or regional entities and national governments and to enhance the uniformity and harmonisation of maritime practices; and promote legal maritime capacity building. (PIMLA Fact Sheet, SPC website, http://www.spc.int, accessed 27 December 2006)

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Regular membership of the Association extends to International Maritime Law Institute graduates and maritime lawyers from the Pacific region. The Association also has provision for associate membership which has much broader criteria and is effectively open to any person that the PIMLA’s Executive judges could contribute to the achievement of the goals of the Association. The Regional Maritime Programme provides secretariat and treasury functions, in an ex- officio capacity, to the Association.

2.3.6 Pacific Islands Forum Secretariat The Pacific Islands Forum consists of 16 PDMCs. The main focus of the Pacific Islands Forum is to provide a place to discuss political and economic policy, and implementation and co-ordination assistance. The agenda is based on reports from the Pacific Islands Secretariat (PIFS), and any other matters that the member PDMCs raise. The PIFS is the Forum’s administrative arm, and is located in Suva, Fiji, and is funded by contributions by the member PDMCs. In 2006, its budget was approximately USD21.6M. The PIFS is headed by the Secretary General. The Forum Officials Committee — which is comprised of representatives from all member governments — is the governing body for the PIFS. The main roles of the PIFS include: ƒ acting as the Secretariat for Forum-related events ƒ implementing decisions by the Leaders ƒ facilitating the delivery of development assistance to member states ƒ undertaking the political and legal mandates of Forum meetings.

Source: Pacific Islands Forum Secretariat website, http://www.forumsec.org, accessed 15/02/2007

The Pacific Plan The Pacific Plan is an attempt to promote regional co-operation and integration amongst the PDMCs by outlining specific goals and targets. It aims to identify and collectively address areas where countries will gain the most from sharing resources and aligning policies. By learning from other PDMCs past experiences (both what works, and what does not work), the Pacific Plan attempts to deliver four key goals: economic growth, sustainability, good governance, and security. The Pacific Plan incorporates a commitment to implementation of the Forum Principles on Regional Transport Services (FPRTS) including development of the Pacific Aviation Safety Office (PASO) The responsibility for the implementation of the Pacific Plan lies with the PIFS.

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2.3.7 Pacific Forum Line Pacific Forum Line (PFL) was established in 1977 after the formation of the South Pacific Forum. The original Memorandum of Understanding (MOU) on establishment of the Line was carried out in Suva in June 1977, and entered into force in August 1978; the line began operating in 1978. The rationale was for the Line to be not only a shipping company but also an instrument for regional development. PFL is a limited liability private company. Its eleven shareholders are the governments of the Cook Islands; Fiji; Marshall Islands; Nauru; New Zealand; Niue; Papua New Guinea; Solomon Islands; Tonga; Tuvalu and Samoa—Kiribati was formerly a shareholder but has since withdrawn. PFL operates eight vessels, capable of carrying containerised and break bulk cargoes on a wide range of services, offering services linking Australia, New Zealand and the Pacific Islands container services. Both full container load (FCL) and less than container load (LCL) are offered, and vessels will also carry break bulk cargo. Using the direct call services, they also offer transhipment to other destinations through ships of other companies. Further information on the evolution of the Pacific Forum Line is provided in Appendix B.

2.4 Shipping services

2.4.1 Overview of shipping services within the Pacific Islands

Types of International Service Most international import trade is carried in containers although there is a significant movement of bulk (dry and liquid) and break bulk. For many countries, export volumes are very low; where they are not, they typically consist largely of bulk cargoes. Bulk trades Bulk trade can be categorised as liquid bulk, including petroleum based products, chemicals and edible oils, and dry bulk including export commodities such as sugar and forestry products, and imports such as fertiliser and cement. Ownership of vessels tends therefore to be vested in overseas companies, although a measure of control would be exercised by regional or local branches of the global companies involved, who may operate or have access to dedicated tonnage.

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Other than the inevitable high costs resulting from the remoteness of many PDMCs, export bulk shipping is generally unproblematic. Cargo shippers (or their customers), often large multi-national enterprises, charter vessels which sail at the times and to the ports determined by the cargo interests. Generally liquid bulk is carried in vessels owned or time chartered by the major cargo interests or oil companies. Dry bulk is carried predominantly in vessels chartered by cargo interests, shippers or consignees, sometimes on a time charter basis4 but often on one-off voyage charters. Ships are usually readily available on an extremely open and competitive market. Container trades The majority of general cargo imports and exports to most Pacific island nations — as elsewhere in the world — are now carried in containerised form. The vast majority of containerised cargoes are carried on regulated scheduled services operating on (more or less) fixed routes. Break bulk trade International sourced or destined break bulk generally covers cargo not suitable for carriage in containers, and may comprise over-dimensional cargo such as machinery, structural steel, wheeled units such as trucks and buses, and occasional large heavy lift items such as industrial project cargo, cargo handling equipment such as cranes, straddle carriers or fork lift trucks. Many of the vessels used to carry containers to and from PDMCs are in fact multi- purpose vessels, capable of carrying break bulk as well as containerised cargoes. However, some scheduled services — notably the Indotrans and PAS/AAL services (see below) — are primarily designed to carry non-containerised goods. Ultra heavy lift items (e.g., wharf cranes) can be moved on chartered heavy lift vessels. Perishable Cargoes The main perishable cargo of concern to PDMCs is seafood processed and packed for export. Much of this cargo is now containerised. However, some is loaded into conventional refrigerated vessels at both common user and dedicated wharves, and by ship to ship transfer by fishing vessels operating in the region under license.

Scheduled International Services Scheduled cargo operations, carrying container and/or break bulk cargoes, are more complex than bulk operations. Routes, vessel size, and service frequencies are decided by the shipping line, which will carry cargoes for a wide variety of customers. In this section we discuss the services currently serving the region, detailing service characteristics such as frequency, destinations served, and operational aspects such as vessel size and configuration.

4 Time chartering refers to chartering a vessel for a stipulated period of time — for example three months. In voyage chartering, as the name suggests, the vessel is hired for a single journey.

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Ownership of most of the vessels concerned with international trade lies with overseas companies and the services are represented by agents, often local companies, but sometimes covering a range of ports in different countries. Ownership by island nations is usually limited to smaller vessels trading domestically. Pacific Forum Line, with its regional ownership, is the major prime exception. The lack of influence on shipping matters, such as the setting of freight rates and surcharges, is an issue for PDMCs as it is for larger neighbours in the Association of South East Asian Nations (ASEAN). Asian and around-the-world trades The Asia-Pacific Island trade is comprised of a number of major services calling weekly or monthly at key ports within Pacific Islands. A number of around-the-world services also operate through the Pacific Islands. However, the Pacific Island countries are sometimes bypassed if there is an insufficient volume of cargo. The vessels used on these routes are multi-purpose5 or ro-ro6 vessels, and typically transport between 400 and 1,000TEU. The significant Asian port linkages to the Pacific Islands include Hong Kong, Kaohsiung, Busan, Singapore (PSA)and Jakarta. Table 2-2 below outlines the major services between Asia and the Pacific Islands; the shipping line operators; the shipping route and the vessels deployed on these routes. TABLE 2-2: MAJOR SERVICES BETWEEN ASIA AND THE PACIFIC ISLANDS

Service Participants Freque Vessels Service ncy Type/Ship size Kaohsiung / Hong Kong / Busan / Kobe Kyowa Shipping Co Twice Kyowa Cattleya Ro-ro: 400-900 / Nagoya / Yokohama / Majuro Atoll / Ltd / Mitsui OSK per Kyowa Hibiscus TEU (plus car Tarawa / Port Vila / Noumea / Lautoka / Lines / NYK-Hinode month Coral Islander II deck space for Suva / Apia / Pago Pago / Papeete / Line Ltd (Greater Bali Pacific Islander II 500 veh.); 8000- Nuku’alofa / Santo / Honiara / Hai) MP 17000 GT Kaohsiung Jeddah / Gizan / Mundra / Mumbai/ Indotrans Once Pacific Makassar, Multi-purpose: Singapore / Tanjung Priok / Kimbe / per Pacific Flores, 1200 TEU; Lae/ Apia / Pago Pago / Papeete New month Pacific Celebes, 30000 GT Orleans/Houston / Camden/ St John Pacific Java

5 A multi-purpose vessel is capable of carrying several different types of cargo at once. 6 These roll-on roll-off vessels are typically capable of carrying containers and other general cargo. As the name suggests, this cargo is driven on and off the vessel on ramps.

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Service Participants Freque Vessels Service ncy Type/Ship size Tanjung Perak / Tanjung Priok / Port Tasman Orient Line Every Tasman Challenger Multi-purpose: Klang / Sriracha / Singapore (PSA) / 15 days Tasman 1250-1350 Noumea /Suva / Auckland / Tauranga / Commander TEU; approx. Wellington / Taranaki Tasman Mariner 18000 GT Keelung / Taichung / Kaohsiung / Hong Tasman Orient Line Every Tasman Pathfinder, Multi-purpose: Kong / Mawan / Ho Chi Minh / Sriracha 15 days Tasman Provider, 950-1250 TEU; / Singapore (PSA) / Noumea / Lautoka / Tasman Trader, approx 15000 to Suva / Auckland / Taranaki / Wellington Tasman Endeavour 18000 GT / Timaru / Bluff / Nelson / Tauranga / Auckland Port Klang / Map Ta Phut / Sriracha / Austral Asia Line BV Once Cape Conway Cape Multi-purpose: Signapore (PSA) / Tanjung Priok / Lae / per Moreton Cape 740-840 TEU; Port Moresby / Brisbane / Newcastle / month Preston Cape York approx 17000 Melbourne / Port Kembla / Tanjung GT Priok / Singapore (PSA) / Port Klang Port Klang / Pasir Gudang / Singapore Austral Asia Line BV Every Newpac Cirrus Multi-purpose: (PSA) / Tanjung Priok / Port Moresby / 17 days Newpac Cumulus 650-973 TEU; Lae / Alotau / Oro Bay / Rabul / Papuan Gulf 6300-13000 GT Kavieng / Port Klang Busan / Kobe / Nagoya / Yokohama / Kyowa Shipping Co Twice Asian Hibiscus Ro-ro: Saipan / Apra / Yap / Koror / Truk / Ltd per Kyowa Salvia 236-300 TEU Ponape / Busan month Shanghai, Busan, Kobe, Yokohama, Palau Shipping Every Baffin Express Not known Saipan, Guam, Yap, Palau, Manila Company three weeks

Sources: CI-Online, http://www.ci-online.co.uk; NZ Shipping Gazette; Lloyds List DCN; Fiji Times; Solomon Star; Schedules provided by ships agents. North American trades In addition to the Indotrans service, which carries cargo from the Pacific to the East Coast of the USA as well as carrying cargo from Asia to the Pacific (see Table 2-2), there are two other services that provide a direct connection between the Pacific Islands and North America. As Table 2-3 shows, each has very limited coverage of PDMC ports, one calling only at Suva and the other calling only at Apia. (There are several other services to North America that call at Pacific Island ports, but only at ports outside of PDMCs: mainly at Guam (Apra), Papeete and Noumea).

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TABLE 2-3: SERVICES BETWEEN NORTH AMERICA AND THE PACIFIC ISLANDS

Service Participants Frequency Vessels Service Type/ Vessel Size Melbourne/ Hamburg Sud- Weekly Cap Agulhas, Maersk Auckland, Container: 1700-1750 Sydney/ Tauranga/ FANZ-Hapag- Maersk Hong Kong,Hansa TEU 18000 GT Suva/ Ensenada*/ Lloyd-Maersk Flensburg, Hansa Rensburg, Los Angeles Hansa Sonderburg Long Beach Hamburg 2 per month Cap Matatula, Polynesia Container: 1100-1200 /Oakland Sud/Polynesia TEU, 12000 GT /Papeete/ Apia / Line Pago Pago * Every second voyage

Sources: CI-Online, http://www.ci-online.co.uk; NZ Shipping Gazette; Lloyds List DCN; Fiji Times; Solomon Star; Schedules provided by ships agents; shipping line websites.

European trades Apart from the Indotrans service, only one other regular service provides a direct connection between the Pacific Islands and Europe. This service, provided by Bank Line, has been a feature of Pacific Island shipping for many years and continues to follow a long and complex itinerary, which is frequently made even more complex by inducement calls at ports such as Honiara. Details of the regular ports on the service’s itinerary are provided in Table 2-4 below. TABLE 2-4: SERVICES BETWEEN EUROPE AND THE PACIFIC ISLANDS

Service Participants Frequency Vessels Service Type/Ship size Algeciras / Hamburg / Hull / Antwerp / Bank Line Once per Boularibank Multi- Dunkirk / Le Havre / Papeete / Auckland / month Gazellebank purpose: Noumea / Suva / Lautoka / Port Vila / Santo Mahinabank 700 TEU; / Lae / Madang / Kimbe / Rabaul / Jakarta / Tikeibank 18,600 GT Singapore (PSA) / Algeciras

Sources: CI-Online, http://www.ci-online.co.uk; NZ Shipping Gazette; Lloyds List DCN; Fiji Times; Solomon Star; Schedules provided by ships agents; shipping line websites. The following seven pages schematically present the shipping routes—and their respective port calls— as outlined above in Table 2-2,Table 2-3 Table 2-4.

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The Greater Bali Hai Service: The Greater Bali Hai service links Japan and Korea to the South Busan Greater Bali Hai Service Chofu Pacific Islands. Four multi-purpose Shanghai Yokohama vessels operate on this route to Nagoya Taichung KeelungKobe Mawan create a service which calls twice a Kaohsiung Chuuk month at the major ports. Hong Kong Phonpei Sriracha Guam Yap Majuro Atoll

Map Ta Phut Palau Tarawa Atoll Port Calls Ho Chi Minh Port Klang Kavieng Kaohsiung Hong Kong Nauru Singapore Lihir Rabaul Busan Kobe Pasir Kimbe Gudang Tanjung Priok Madang Noro Santo Fortuna Nagoya Yokohama Lae Port Villa Jakarta Wallis Apia Port Moresby Honiara Majuro Atoll Tarawa Alouta PagoPago Funafuti Port Vila Noumea

Noumea Papeete Lautoka Lautoka Suva Aitutaki Suva Alofi Apia Pago Pago Townsville Rarotonga Papeete Nuku’alofa Nukualofa Santo Honiara Newcastle Brisbane Sydney Auckland Kaohsiung Port Kembla Nelson Tauranga Melbourne Napier Wellington Lyttleton

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Bank Line The Bank Line is an around-the-world service calling at Northern Europe, Busan Chofu Bank Line South East Asia and the South Pacific

Shanghai Yokohama Islands. The complete journey takes Nagoya Taichung KeelungKobe approximately 128 days. A number of Mawan Kaohsiung the smaller ports in the South Pacific Chuuk Hong Kong Phonpei are serviced only when there is a Sriracha Guam Yap Majuro Atoll sufficient volume of cargo to be Map Ta Phut Palau uplifted. Tarawa Atoll Ho Chi Minh Port Klang Kavieng Nauru Port Calls Pasir Gudang Lihir Kimbe Rabaul Algeciras Hamburg Singapore Madang Noro Santo Fortuna Lae Port Vila Jakarta Wallis Apia Hull Antwerp Surabaya Port Moresby Honiara Alouta Dunkirk Le Havre PagoPago Funafuti Papeete Auckland

Noumea Papeete Lautoka Noumea Suva Aitutaki Suva Lautoka Port Vila Alofi Townsville Santo Lae Rarotonga Nuku’alofa Madang Kimbe Newcastle Brisbane Rabaul Jakarta Sydney Auckland Port Kembla Singapore (PSA) Algeciras Nelson Tauranga Melbourne Napier Wellington

Lyttleton

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Indotrans (Swire) Indotrans operates four large multi-purpose vessels with a nominal capacity of 1300 TEU to Busan Chofu Indotrans provide a monthly service from Yokohama Shanghai/Huangpu India and Saudi Arabia to North Note: Nagoya Taichung Kobe The Indotrans service calls at other Pacific ports, Keelung America via SE Asia and the Mawan including Port Vila, Lautoka, Suva, Honiara and Kaohsiung Santo, on inducement. Pacific. Of the PDMCs, only PNG Hong Kong Chuuk Phonpei and Samoa are fixed calls on the Sriracha Manila Guam Yap Majuro Atoll schedule, but inducement calls are Map Ta Phut Palau made in Fiji, Vanuatu and Tarawa Atoll Ho Chi Minh Solomon Islands. Port Klang Kavieng Nauru Singapore Lihir Rabaul Port Calls Pasir Kimbe Noro to N America Jeddah Gudang Madang Santo Fortuna and India Jakarta Lae Port Villa Gizan Wallis Apia Port Moresby Honiara Mundra Alouta Funafuti PagoPago Mumbai Papeete Singapore Noumea Lautoka Jakarta Aitutaki Suva Kimbe Alofi Lae Townsville Rarotonga Pago Pago Nukualofa Apia Newcastle Brisbane Papeete Sydney Auckland Port Kembla New Orleans Nelson Tauranga Melbourne Houston Napier Wellington Camden Lyttleton St John

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Kyowa Micronesia Kyowa Shipping Corporation operates a fortnightly service from Busan Keelung Kyowa Shipping Co: Chofu North Asia to FSM and Palau Yokohama Micronesia Service Shanghai using two ro-ro vessels of Nagoya Taichung Kobe approximately 250 TEU nominal Mawan Kaohsiung Saipan Chuuk capacity. Hong Kong Phonpei Sriracha Guam Kosrae Yap Majuro Atoll

Map Ta Phut Palau Tarawa Atoll Port Calls Port Klang Ho Chi Minh Kavieng Busan Nauru Pasir Rabaul Gudang Lihir Kobe Singapore Kimbe Madang Noro Santo Jakarta Fortuna Nagoya Lae Port Villa Wallis Apia Port Moresby Honiara Yokohama Alouta PagoPago Funafuti Saipan

Noumea Papeete Lautoka Apra (Guam) Aitutaki Suva Alofi Yap Townsville Rarotonga Koror (Palau) Nukualofa Chu’uk Newcastle Brisbane Sydney Auckland Pohnpei Port Kembla Nelson Tauranga Melbourne Napier Wellington Lyttleton

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Tasman Orient Line Tasman Orient Line operates two overlapping services from Asia to Busan Tasman Orient Line Chofu Noumea and Fiji, using multi- Yokohama Shanghai SE Asia – Pacific Service purpose vessels of 1000-1300 TEU Nagoya Taichung Kobe Keelung East Asia – Pacific Service Mawan capacity. One of these services Kaohsiung Chuuk focuses primarily on SE Asia, the Hong Kong Phonpei Sriracha Guam other on East Asia, but both Yap Majuro Atoll include calls to the key SE Asian Map Ta Phut Palau Tarawa Atoll hub of Singapore. Each service Ho Chi Minh Port Klang Kavieng offers two sailings per month, and Nauru Pasir Rabaul proceeds on to New Zealand after Gudang Lihir Kimbe Santo Singapore Madang Noro the Pacific calls. Fortuna Jakarta Lae Port Villa Wallis Apia Port Moresby Honiara Port Calls Alouta PagoPago East Asia Service SE Asia Service Funafuti Keelung Tanjung Priok Noumea Papeete Lautoka Taichung Port Klang Aitutaki Kaohsiung Sri Racha Suva Alofi Mawan Singapore Townsville Rarotonga Hong Kong Noumea Nukualofa Ho Chi Minh Suva Newcastle Brisbane Sri Racha NZ Ports Sydney Auckland Port Kembla Singapore Nelson Tauranga Melbourne Noumea Napier Lautoka Wellington Lyttleton Suva Bluff NZ Ports

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Palau Shipping Palau Shipping uses vessels chartered from Mariana Express Lines to provide a service for North Asia to Busan Chofu Palau Shipping Company Palau, western FSM and the Yokohama Shanghai Philippines. Nagoya Taichung KeelungKobe The service operates every three Mawan Kaohsiung Saipan weeks using a multi-purpose vessel. Hong Kong Chuuk Phonpei Sriracha Guam Manila Yap Majuro Atoll Port Calls Map Ta Phut Palau Tarawa Atoll Shanghai Ho Chi Minh Port Klang Kavieng Busan Nauru Pasir Lihir Rabaul Gudang Kimbe Kobe Madang Noro Santo Singapore Fortuna Yokohama Lae Port Villa Jakarta Wallis Apia Port Moresby Honiara Saipan Alouta PagoPago Funafuti Apra (Guam)

Noumea Papeete Lautoka Yap Aitutaki Suva Alofi Koror (Palau) Townsville Rarotonga Manila Nukualofa Newcastle Brisbane Sydney Auckland Port Kembla Nelson Tauranga Melbourne Napier Wellington Lyttleton

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Hamburg Sud/Maersk/Hapag Lloyd Hamburg Sud, along with Maersk Group and Hapag Lloyd operate weekly service calling at Australia, New Zealand, Fiji and North America using 1,700-1,750 TEU vessels.

Hamburg Sud/Polynesia Line Hamburg Sud and Polynesia Line operate a bi-weekly service calling at North America, French Polynesia, Fortuna, Western Samoa and American Samoa using 1,100-1,200 TEU vessels. Port Calls Aus-NZ–Fiji Eastern Service Pacific Service Melbourne Long Beach Sydney Oakland Tauranga Papeete Suva Apia Ensenada Pago Pago Los Angeles

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Austral Asia Line The Austral Asia Line operates two services: the PNG Express

Chofu Austral Asia Line Busan Service and South East Asia that Yokohama Shanghai SE Asia Service call at the PNG ports of Lae and Nagoya Taichung Kobe Keelung PNG Service Mawan Port Moresby. The multi-purpose Kaohsiung Chuuk vessels which operate on these Hong Kong Phonpei Sriracha Guam routes hold between 650 and Yap Majuro Atoll 973TEU Map Ta Phut Palau Tarawa Atoll Ho Chi Minh Port Calls - SE Asia Service Port Klang Kavieng Nauru Port Klang Singapore (PSA) Pasir Oro Bay Gudang Rabaul Tanjung Priok Kimbe Tanjung Priok Port Moresby Singapore Madang Noro Santo Fortuna Lae Port Villa Apia Wallis Lae Brisbane Jakarta Port Moresby Honiara Alouta PagoPago Newcastle Melbourne Funafuti Papeete Port Kembla Tanjung Priok Noumea Lautoka Aitutaki Singapore (PSA) Port Klang Suva Alofi Port Calls – PNG Service Townsville Rarotonga Nukualofa Pasir Gudang Singapore Newcastle Brisbane Jakarta Port Moresby Sydney Auckland Port Kembla Nelson Tauranga Lae Alotau Melbourne Napier Wellington Oro Bay Rabaul Lyttleton Kavieng Port Klang

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Australia and New Zealand (ANZ) Trade A significant proportion of the total seaborne trade into and out of the Pacific Islands originates in or is destined for Australia or New Zealand. There are numerous shipping services destined for specific Pacific Island countries, as well as few services that make wayport calls at a number of the key ports in the Pacific Islands. These services can be categorised into four broad groups. ƒ Services operating between ANZ and other non-Pacific Island countries (in Asia, North America or Europe) that make a call or calls to one or more PDMC en route. In making the PDMC call, these services are not exclusively, and may not be primarily concerned with, trade between ANZ and the Pacific. Although these services do carry cargo between ANZ and the PDMCs, they are not included in the list of services in the tables below, but have been included in the sections discussing services to the Pacific from Asia, Europe and North America (depending on the main non-ANZ trades served by the particular service). ƒ Services between ANZ and the Western Pacific, of which PNG is the core market (although some of these services also call at Solomon Islands or Vanuatu) ƒ Services between ANZ and Eastern Pacific Services, which include calls at the major central and eastern Pacific destinations of Fiji, Tonga and Samoa ƒ Regional feeder services, which operate out of an ANZ port, but are not exclusively, or even necessarily primarily, devoted to the carriage of cargo between ANZ and Pacific Island countries. They are designed with the intent of carrying cargoes transhipped from Asia or North America over the hub port. In the case of some of the smaller destinations (for instance, Tarawa) there is no alternative to these transhipment services for cargoes to and from the more distant markets. In others—and this is a more recent phenomenon—a line has opted to use a transhipment alternative to compete with other lines providing a direct service. Maersk’s Auckland-based service to the central Pacific clearly fits into this category. These feeder services are dealt with in a separate section dedicated to intra- regional services.

Services between ANZ and Western Pacific Scheduled services between ANZ and PNG are shown in Table 2-5. Two of the three major dedicated services between ANZ and PNG offer a similar style of operation. Chief Container Services and Sofrana (the former using an Australian base, the latter focussing largely on cargoes to/from New Zealand) operate fairly long itineraries covering a range of ports in the base country. ANL’s APX service, a relatively new entrant into the trade, has a far more streamlined itinerary, making it possible to provide a competitive frequency of service while operating only one vessel.

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TABLE 2-5: MAJOR SERVICES BETWEEN AUSTRALIA AND NEW ZEALAND AND PNG

Service Operator Frequency Vessels Service Type/ Employed Vessel Size Brisbane / Port Moresby / Lae / ANL ‘APX Fixed-day ANL Kokoda Container: 500 TEU; Madang / Brisbane Service’ fortnightly 6400 GT Sydney / Melbourne / Brisbane / Chief Container Fixed-day Papuan Chief, Multi-purpose: 981 Port Moresby / Lae / Honiara / Service (Swire)(1) weekly Aotearoa Chief, TEU; 7900 GT Tauranga / Napier / Nelson / Lihir Chief, Sydney Coral Chief Lyttleton / Napier/Tauranga / Sofrana Unilines Every 18 Sofrana Multi-purpose: 550- Auckland / Brisbane / Port Moresby days Magellan, 600 TEU / Lae / Rabaul / Lihir I / Honiara / Sofrana Port Vila / Lyttleton Kermadec Townsville-POM-Alotau-Lae- Consort Express Fixed-day Niu Ailan Coast, Semi Container: 85- Townsville Lines weekly Madang Coast, 165 TEU Bougainville Coast, Sepik Coast Townsville / Port Moresby / Lae / Coral Sea Shipping Weekly? Bosavi Ro-ro: 79 TEU Townsville Lines Pty Ltd

Services between ANZ and Central and Eastern Pacific The major service providers in this segment—Pacific Forum Line (PFL), Pacific Direct Line (PDL), Reef Shipping and Neptune Shipping—collaborate in the provision of the main Australia–central Pacific services, but Pacific Forum Line operates a separate service from New Zealand (see Table 2-6). There is, however, extensive slot chartering: for instance, PFL has space aboard PDL’s Southern Moana from New Zealand to Vanuatu.

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TABLE 2-6: SERVICES BETWEEN AUSTRALIA AND NEW ZEALAND AND CENTRAL AND EASTERN PACIFIC

Service Operator Frequency Vessels Service Type Employed Brisbane / Sydney / Melbourne / Reef Shipping / Two Forum Samoa Multi-Purpose: Lautoka / Suva / Pago Pago / Apia / Neptune Shipping sailings per Capitaine Tasman 600-650 TEU; Nuku’alofa / Suva / Lautoka / Brisbane Line PDL / PFL month 7000-7500 GT Tauranga/Auckland/Lautoka./Suva/ Neptune/PDL Fortnightly Capitaine Wallis Container: 520 Funafuti /Tauranga TEU; 4500 GT Auckland-Nuku’alofa-Apia-Pago Pago- Reef Shipping, Every 14 Southern Cross Multi-purpose: Auckland PDL, Sofrana days 512 TEU; 4000 GT Lyttleton/Napier/Auckland / PFL Fortnightly Forum Pacific, Multi-purpose: Lautoka/Suva / Apia / Pago Pago Forum Fiji III 61-512 TEU; up /Nuku’alofa/Lyttleton to 7600 GT Lyttleton/ Whangarei/ Auckland/ PDL 21 days Southern Pearl Container: 325 Nuku’alofa/ Papeete TEU; 4366 GT

Sources: CI-Online, http://www.ci-online.co.uk; NZ Shipping Gazette; Lloyds List DCN; Fiji Times; Solomon Star; Schedules provided by ships agents; shipping line websites.

2.4.2 Intra-regional feeder services In addition to the major services, several smaller scale services operate between ANZ and smaller PDMCs. The services to the smaller PDMCs use the ANZ ports—particularly Auckland—as a mini-hub, with cargoes to these destinations from Asia, the USA and Europe transhipped onto the service at the hub port. In addition, there are two more recently introduced services that are specifically designed to provide a transhipment alternative to direct services. These are Matson’s Guam-centred transhipment service to FSM and RMI, and Maersk’s Auckland-based transhipment service to the South Pacific. The main features of these services are shown in Table 2-7 below.

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TABLE 2-7: MINOR SERVICES BETWEEN AUSTRALIA AND NEW ZEALAND AND PACIFIC ISLANDS

Service Operator Frequency Vessels Service Type/ Employed Vessel Size Suva / Lautoka / Tauranga / Maersk Line Fortnightly Maersk Asia Container: 846 TEU Auckland / Noumea / Suva Decimo

Guam / Ebeye / Kwajalein / Majuro / Matson Fortnightly MV Islander II Container: 648 TEU Kosrae / Pohnpei / Chu’uk.

Melbourne / Sydney / Brisbane / Chief Container Every Kiribati Chief Container: 876 TEU, Noumea / Port Vila / Santo / Suva / Line (Swire) 33 days 7900 GT Tarawa / Majuro / Santo Port Vila / Noumea / Melbourne Auckland / Noumea / Vila/ Suva / PDL Every Southern Moana Multi-purpose : 512 Funafuti / Wallis / Futuna 20-25 days (aka Moana TEU; 4400 GT Pasifika) Auckland / Rarotonga / Aitutaki / Express Cook Every Southern Express Container/break bulk: Alofi (Niue) Auckland Islands Line 21 days 246 TEU; 2800 GT Auckland Suva Raratonga Auckland PFL Every Matua Multi-purpose : 125 21 days TEU; 2037 GT Sydney / Brisbane / Nauru / Sydney Neptune Shipping 35-42 days Capitain La Semi-container: 221 Line Perouse TEU

Sources: CI-Online, http://www.ci-online.co.uk; NZ Shipping Gazette; Lloyds List DCN; Fiji Times; Solomon Star; Schedules provided by ships agents; shipping line websites. The following page schematically presents the Pacific Forum Lines’ shipping routes—and each service’s port calls.

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Pacific Forum Line Regionally-owned Pacific Forum Line remains a major provider of Busan Pacific Forum Line Chofu shipping services to the PDMCs. Australia – Pacific Services Shanghai Yokohama The Line operates as a vessel Nagoya NZ – South Pacific Taichung Kobe Keelung NZ Cook Islands Mawan operating carrier in three trades Kaohsiung Chuuk linking Australia and New Zealand Hong Kong Phonpei Sriracha Guam to southern and eastern Pacific. In Yap Majuro Atoll addition it participates as a slot Map Ta Phut Palau Tarawa Atoll charterer in the trade between Ho Chi Minh Port Klang Kavieng Australia and New Zealand and Nauru Singapore Lihir Rabaul PNG and carries cargo from Asia Pasir Kimbe Gudang Madang Noro Santo to Pacific Island countries through Fortuna Lae Port Villa Apia Jakarta Wallis connecting carrier agreements. Port Moresby Honiara Alouta PagoPago Funafuti

Noumea Papeete Lautoka Aitutaki Suva Alofi Townsville Rarotonga Nukualofa

Newcastle Brisbane Sydney Auckland Port Kembla Nelson Tauranga Melbourne Napier Wellington Lyttleton

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Pacific Direct Line Pacific Direct Line operate three services between New Zealand and (1): Tuvalu, Wallis and Futuna; (2) Tonga and Tahiti; and (3) Tonga and Samoa. These services operate once every three-four weeks.

Port Calls – Wallis/Futuna Service Auckland Noumea Port Vila Suva Funafuti Wallis Fortuna Auckland Port Calls – Tonga and Tahiti Lyttleton Whangarei Auckland Nuku’alofa Papeete Lyttleton Port Calls – Tonga and Samoa Auckland Nuku’alofa Apia Pago Pago Auckland

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Chief Container Line Chief Container Line operates two services between Australia, New Zealand and: (1) Papua New Guinea and; (2) the East–Pacific. The Papua New Guinea service operates every week, whereas the East–Pacific service operates every 33 days Port Calls —East–Pacific Melbourne Sydney Brisbane Noumea Port Vila Santo Suva Tarawa Majuro Atoll Santo Port Vila Noumea Port Calls —New Guinea Service Sydney Melbourne Brisbane Port Moresby Law Honiara Tauranga Napier Nelson

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Neptune Line Neptune Line operates two services: (1) between Australia and Nauru and (2) between New Zealand, Fiji and Tuvalu. These services operate every two weeks.

Port Calls —Nauru Service Sydney Brisbane Nauru Sydney Port Calls —Fiji/Tuvalu Service Tauranga Auckland Lautoka Suva Funafuti Tauranga

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Sofrana Line Sofrana line operates a service every 18 days between New Zealand, Australia, Papua New Guinea, Solomon Islands and Vanuatu.

Port Calls Lyttleton Napier Tauranga Auckland Brisbane Port Moresby Lae Rabaul Lihir Honiara Port Vila Lyttleton

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Other Australian and New Zealand based services There are four other Australia and New Zealand services operating within the Pacific Islands. These services typically operate bi- weekly services using small multi- purpose vessels.

Port Calls ANL Service Brisbane Port Moresby Lae Madang Consort Shipping Townsville Melbourne Alotau Lae Coral Sea Shipping Townsville Port Moresby Lae Townsville Cook Islands Express Line Auckland Rarotonga Aitutaki Alofi

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Feeder Services Maersk Line operates a feeder service between New Zealand, Noumea and Fiji. Matson operates a fortnightly feedering service between Marshall Islands and FSM. Maersk Line Suva Lautoka Tauranga Noumea Matson Guam Ebeye Kwajalein Majuro Atoll Kosrae Pohnpei Chu’uk

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Domestic services Domestic or coastal services are a key element in the mainly archipelagic nations of the region. These vary from relatively sophisticated roll-on roll-off passenger/cargo services— where volumes are able to support them—to a variety of smaller vessels built or modified for the specialised role of serving small ports and beach landings. The vessels employed include many small craft, including wooden vessels and the ubiquitous ‘banana’, ‘fibre’ or ‘long’ boats, offering mostly informal inter- and intra-island freight and passenger services, often acting as feeders to ports served by larger, scheduled vessels. Many of these vessels would be operating outside normally accepted safety and security protocols. Small craft also provide some intra-island transport where terrain or lack of roads hampers land transport and encircling lagoons offer sheltered, if tidally constrained, waters. Domestic services are important to the international trade of Pacific Island countries because the majority of inbound international cargo is shipped to one or two key ports in each country — such as Suva in Fiji or Apia in Samoa. Typically, domestic cargo is then deconsolidated and distributed around the various islands using smaller domestic vessels berthing at local wharves — or in some remote communities, the cargo is transferred either by a beach landing or mid-water exchange. Of general concern in a number of the Pacific Island countries is the lack of commercial feasibility of the domestic shipping sector. This essentially stems from two main factors: the low volume of goods being transported and the ageing domestic shipping fleet in some countries. Domestic services carry break bulk, sometimes in unitised, ro-ro form, in locally developed racks and non-ISO containers, but often in loose form stowed traditionally by cranes or manhandling. Construction materials make up a large part of this freight, and a significant amount of liquids is moved in drum form to service island needs for diesel (transport and power generation), motor gasoline and two-stroke fuel for outboards. Other cargo carried in break bulk form is island exports, including bagged copra, produce such as cassava, bales of pandanus and handicrafts. Where available, details of the domestic shipping services have been included in the sections of this report dealing with individual PDMCs.

2.4.3 Freight costs As a result of these varied factors, freight rates in the region are relatively high and costs further affected by surcharges such as ‘Port Service Charges’, which are unilaterally applied by shipping lines to respond to what they identify as the cost of poor productivity. The impost of surcharges delays vessels and adds additional costs, for instance in maintaining a greater level of supervision than would be needed elsewhere. The following table, adapted from the 2004 Pacific Regional Transport study, illustrates not only the relatively high levels overall but also the variation in rates between countries in the region.

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TABLE 2-8: INDICATIVE FREIGHT RATES PER TEU TO AND FROM PACIFIC ISLANDS COUNTRIES, 2003-04

Route Commodity Base rate Surcharges Route Commodity Base rate Surcharges Australia-Fiji General Cargo USD1,185 Australia-Nauru General Cargo USD3,081 CABAF = 27.59% of base freight rate Australia-Samoa General Cargo USD2,212-2,370 CABAF = 26% of base freight rate Australia-Kiribati Flour, Salt, Sugar, USD2,074 Export PSC = USD.60 + GST, Doc Fee = (Tarawa) Rice USD23.70 per bill of lading

Australia-Kiribati Beverages, Beer USD2,528 CAF = 7.16% BAF = USD235 Export (Tarawa) e PSC = USD59.30 Doc Fee = USD23.70 Additional Charges per bill of lading Australia-Kiribati Reefer USD3555 CAF = 7.16% Export PSC = USD59.30 Doc Fee = USD23.70 per bill of lading (Tarawa) Australia-PNG General Cargo USD1738-2133 BAF =USD234.60 CAF = 7.16% Australia-Tonga General Cargo USD1975-2212 CABAF = 26% of base rate NZ-Samoa General Cargo USD1750-1820 CABAF = 34.15% of base rate NZ-Tonga General Cargo USD1750 CABAF = 34.15% of base rate

BAF = Bunker adjustment factor CAF = Currency adjustment factor CABAF = Currency and bunker adjustment Factor PSC = Port service charges THC = Terminal handling charges

Source: PRTS Team Interviews January – March 2004

2.5 Ports sector

2.5.1 Organisation Each of the island nations has a range of ports, with typically only one or two being involved in international liner trades. Secondary ports provide for domestic services and some privately owned dedicated facilities for bulk exports and imports. Generally, ownership of the ports is with national or provincial governments, although there are moves towards private sector involvement in terminal operations, particularly container facilities. A typical ports sector structure would see one or two major ports owned and operated by government or government corporations, and a range of smaller port facilities owned and operated by provincial bodies or local communities but with facilities, navigational, safety and security aspects overseen by central government entities. Ports range from basic wharves and hardstand, up to more sophisticated facilities with major cargo handling capability aiming for world-class standards in the larger economies.

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The ports in the various countries in the region vary from relatively modern, well equipped container and dedicated bulk facilities to very basic wharves offering only the basic facility to tie up a vessel and work cargo, with ships expected to effectively provide all cargo handling, both hardware and personnel. However, the former are probably the minority, with many ports in the region well below international standards in respect of infrastructure and operations. The 2004 Pacific Regional Transport Study for the Pacific Islands Forum found serious shortcomings at ports in the various Forum Island Countries (FICs). The report commented as follows: Many of the port facilities visited by the Technical Team were built in the 1950s or 1960s, prior to containerisation and such ports pose serious operational problems. Cargo sheds designed to shelter break-bulk cargo from extreme weather conditions now pose obstacles to the efficient movement of containers between ships and stacking areas. Wharf surfaces are typically potholed, making it difficult to operate forklift trucks, thus raising the cost of stevedoring operations. Some wharves, unable to take the weight of a forklift plus heavy container, require double handling of containers. After being unloaded of ship equipment (sic.), containers are initially placed on flat bed trucks, driven to the wharf stacking area, unloaded and positioned in their appropriate slot in the stack by forklift. A lack of maintenance was noticeable in many ports. (Pacific Regional Transport Study 2004, p.37) There has been some progress made in the region in the interim. The ports of Suva and Lautoka for instance have been significantly upgraded and new capital equipment acquired. However, there are also many ports still facing the problems noted above. The study will seek to identify where progress has been made, what that progress means in terms of improved efficiencies in the case study countries, and where infrastructure and management/institutional issues are still acting as a constraint on efficiency and productivity — and consequently, imposing additional costs in the logistics chain. Although there have been some moves towards private sector involvement in ports, particularly in terminal operations, major ports and marine infrastructure are mainly provided by central government, with provincial or local government administering smaller facilities. The progress towards private sector involvement is also patchy, with some examples of stop start processes on the road to contestability. As an example, Papua New Guinea has been endeavouring to move down the path to privatization of its ports sector, only to have progress effectively stop for several years as political changes have cut across the process. In Fiji, recent Asian Development Bank (ADB) finance for developments was conditional on contestability in stevedoring (container terminal operations), but progress towards this has been slower than expected.

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However, in practical terms, contestability may be hard to achieve: cargo volumes are low and new entrants are faced with substantial capital requirements. Whereas, in larger economies, it may be easy to lease in cargo handling equipment, the small size of many ports means that there is no such availability. As discussed above, the economic and financial constraints are such that only the public sector can find the means to offer the necessary services, unless the promise of larger scale business can be used to attract international port operators or shipping lines to become involved through transhipment or other means.

2.5.2 Port charges Comparison of port charges is always difficult, because the structure of port charges differs very significantly from port to port. Typically, the cost of providing port infrastructure is recovered from an array of charges, each of which may go by a different name in different ports. The most common charging elements are:

A charge for entering the port This charge is customarily paid by the ship operator. Variously known as port dues, tonnage charge, ships dues or navigation charge, this is usually related to the size of the ship—most commonly on the basis of gross tonnage. It may be levied per call or per elapsed time period (for example, once every three months). A charge per unit of cargo Most commonly referred to as wharfage, this charge is normally loaded/unloaded charged to the cargo owner. It is also known as cargo dues. This charge is generally regarded as a contribution towards the provision of berth infrastructure. It should not be confused with stevedoring or cargo handling charges, also commonly charged per unit of cargo loaded/unloaded, which are charged to cover the costs of the handling operation. A charge per time spent at the This charge is usually payable by the ship operator, and is variously berth known as berthage dues or berth hire. It may be a flat rate per hour, or may vary with the size of the vessel (measured either in gross tons or LOA). Comparisons are further complicated by not all ports including all charging components within their tariffs; and by some ports including additional elements (for instance, in the case of Honiara, a berth reservation charges). The best approach in comparing port charges is therefore to define a hypothetical ship call, and calculate the total port charges that would be incurred during that call at each port. Ideally this call should be made by a vessel that is of the same size and type as those typically used in the trades, and should load and unload cargo volumes that are also representative. This is a very costly and time-consuming exercise. It is necessary to have access to a comprehensive set of port tariffs.

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As the application of the port tariff is often not entirely clear from the documentation, it is also highly desirable to have the opportunity to discuss the way in which the tariff is applied in practice with the relevant port authority. In addition, since some of the charges are time-dependent, it is also necessary to have reasonably accurate data on cargo handling productivity (measured as cargo loaded/discharged per hour in port) from each of the ports compared. Fortunately, a comparison made on this basis is available from a relatively recent study: the Green Paper prepared by the Vanuatu Ministry of Finance and Economic Management in mid 2003. This study examined the total charges incurred by three different ‘typical’ ships. The scope of the charges included in the comparison is not entirely clear from the source. However, it appears to include infrastructure charges (tonnage dues, wharfage and berth hire) but exclude port services (towage, pilotage, cargo handling). Figure 2-1 is based on the results of that study. In the figure, comparative port charges are presented as an index, using the charges for a 130m LOA vessels using the port of Oro Ba— which provides the lowest total charges in the sample—as a basis and assigning this a value of 100. Although there is some variation across ship sizes, in general ports that are expensive for one vessel are expensive for another. Noumea stands out as the most expensive port in the region, with Suva not far behind. Charges in Port Vila are also relatively high. Nauru is relatively expensive for the largest vessels, but not for the smaller ships. There is some variation amongst the PNG ports, with charges lower at the minor ports of Alotau, Oro Bay and Kavieng and relatively high at the major ports of Port Moresby and Lae. Apia and Honiara are relatively low cost ports.

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FIGURE 2-1: COMPARATIVE PORT TARIFF CHARGES, APRIL 2003

Vila Suva Santo Rabaul Port Moresby Oro Bay Noumea Nauru Port Madang Lae Kimbe Kavieng Honiara Apia Alotau

0 100 200 300 400 500 600 700 800 900 Index (Oro Bay, 130m vessel = 100) Ship Specification LOA 185M 18,391GT LOA 130M 7,914GT LOA 113M 6,030GT

Source: Based on data presented in Pacific Regional Transport Study, 2004, attributed to: (Vanuatu) Ministry of Finance and Economic Management, Government Business Enterprise Unit, Green Paper, Vanuatu Port Privatisation 2003, p15. The comparison does not show the inverse relationship between port charges and port size that might be expected, given the existence of substantial economies of scale in the provision of port facilities. Without a far more detailed analysis than can be undertaken within the resources available to this project, it is not possible to be definitive about the reasons for this. It may be that economies of scale are offset by differences in operational and investment efficiency: that is, that the effect of economies of scale does not show up clearly because some of the larger ports are less well-managed than some of the smaller ports. But there are at least three other contributing factors, which, in combination, provide a more persuasive explanation of the absence of the expected scale effect:

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ƒ Differences in financial performance. The comparison shown in Figure 2-1 shows the relationship between charges at various ports. This provides an indication of relative port costs only if all ports delivered an equivalent financial performance. This is manifestly not the case. Some ports, especially those that are established as port authorities or corporations, are required to be financially self-sustaining; but even within this group the treatment of capital costs varies quite widely. Others, typically those that continue to operate within government departments, do not have separate accounts at all. In these ports, prices are set without much reference at all to costs. Because it is generally larger ports that are required to be self-sustaining, this difference is likely to systematically bias the comparison against larger ports. ƒ Cross-subsidisation. Where a port authority is responsible for a number of ports, there is frequently a level of cross-subsidy between ports. This has been explicitly acknowledged in the case of the PNG ports (ICCC 2006a); it is also likely to be the case in Fiji. Once again, as it is generally the larger ports whose revenues are used to cross-subsidise the smaller ones, this practice will systematically bias the comparison against the larger ports. ƒ Infrastructure quality. The quality of infrastructure (and hence both capital and maintenance costs) varies markedly between Pacific Island ports. In Nauru, for example, general cargo vessels must anchor off-shore while cargo is discharged to lighters; in Suva, for instance, there is a heavy duty wharf (recently improved under an ADB-funded project) that is capable of supporting heavy duty lifting equipment. High quality infrastructure increases the costs incurred by the port (and hence, all other things being equal, port charges) but (again, all other things being equal) increases service quality and reduces the costs incurred by ship operators and cargo owners. Once again, it is easier to justify investment in high quality infrastructure when throughput is higher, so there is a general tendency for the quality of infrastructure to be higher in the larger ports. Again, unless some adjustment is made for infrastructure quality, this will systematically bias the comparison against the larger ports.

2.5.3 Stevedoring The provision of stevedoring varies between ports. In general terms there is a move towards contestability but many ports in government ownership in the region also offer stevedoring, either directly or through subsidiaries or government corporations. Charges also vary substantially. Figure 2-2 is based on a study undertaken by the Vanuatu Ministry of Finance and Economic Management in 2003. It is most unlikely that relative prices have changed since that time. There is great variation in stevedoring charges across the region. The ratio of charges between report charges at the most expensive port (Santo) and the least expensive (Port Moresby) is a staggering 7:1.

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FIGURE 2-2: COMPARISON OF STEVEDORING CHARGES IN PMDCS

$120

$100

$80

$60 S USD/TEU

$40

$20

$-

ia a a a p ara ng ay pei nto ak ieng Lae B n baul a Vil w A utok alof a Suva rawa e Alotau Kimbe u’ oh S a Honi Kosrae R T W Kav La Mada uk Oro P N Port Moresby

Source: Study estimates, based on data presented in Pacific Regional Transport Study, 2004, attributed to: (Vanuatu) Ministry of Finance and Economic Management, Government Business Enterprise Unit, Green Paper, Vanuatu Port Privatisation 2003, p15. Once again, there is a need for some caution in interpreting these results. The comparison in the figure is based on a single basic terminal charge: the charge levied for lifting a loaded twenty foot container on or off the vessel. In reality, stevedoring tariffs are quite complicated. Different stevedores will, for example, differ in the way that they set relative charges for forty foot and twenty foot containers. Some take the view that a lift is a lift, so the cost of moving a forty foot container is, within reasonable limits, the same as the cost of moving a twenty foot container; consequently, they charge the same rate for all loaded general purpose containers, irrespective of their size. This is the case, for instance, in Honiara. Others take the view that a forty foot container is equivalent to two twenty foot units, and the shipowner will get (more or less) twice the revenue from it, and will be able to afford twice as much in container handling charges; they therefore charge twice as much for a forty foot container as for a twenty foot. This is case in Lautoka. Others adopt an intermediate position: in Kimbe, charges for a forty foot container are roughly 50% higher than for a twenty foot container. In some cases, where handling equipment is better suited to handling twenty foot units than forty foot units, and productivity drops significantly, the charge for a forty foot container may even be more than twice that for a twenty foot. This is the case, for instance, in Pohnpei.

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Again, the approach to pricing the loading and unloading of empty containers differs between stevedores. Just as some stevedores do not discriminate between containers of different sizes, some take the view that whether the container if loaded or empty is not their concern—it still has to be loaded onto the ship. These operators charge a common rate for full and empty containers. This is done, for instance, in the PNG port of Lae. Others charge very much less for empty containers than for full containers. In Kimbe, also in PNG, the charge for loading/unloading empty containers is only 15% of the charge for loading/unloading full containers. This approach is usually justified on the grounds that empty containers are earning no revenue for the shipping line, whereas full containers are. A cost-based argument could also be mounted, in so far as the equipment needed to move empty containers is very much cheaper than the equipment needed to move full containers. To provide a more comprehensive appraisal of the extent of these variations, additional 2003 data from the Vanuatu port tariff study was analysed to assess the extent of difference in the structure of stevedoring charges. The results of this analysis are presented in Table 2-9. This table is designed to illustrated differences in the structure of charges, not in their level. To make these structural features more clearly evident, for each port, the charge for a simple lift on or lift off operation for a general purpose twenty foot container was assigned a value of 100. Other charges—for example, the charge for the same operation for a forty foot general purpose container—were then expressed as an index, relative to this base value. This removes from the data the effect of differences in the absolute level of stevedoring charges, and allows differences in charging structure to be seen more clearly. There are other structural features of stevedoring tariffs, not evident in Table 2-9, that may significantly affect the relativities shown in Figure 2-2. In some tariffs, the charge that appears in the tariffs is an all-in charge: that is, it covers all of basic service elements required to move the container from on board ship to on board the truck that will carry it out of the terminal. This (or at least an approximation to it) is the normal practice in well-developed dedicated container terminals. In other tariffs, various service elements of the charge figure separately. In Pohnpei, for instance, there are three separate charges: ship to shore (USD25.50); ship’s side to container stack (USD10.00); and container stack to truck (USD8.00). A comparison of the stevedoring tariff at Pohnpei, obtained during the course of this study, with the Vanuatu data indicates that only the first of these is included in the tariff comparison. As with comparison of port charges, an accurate comparison of stevedoring charges usually requires access to full details of each stevedoring tariff; an understanding of how that tariff is applied in practice—which usually requires extensive consultation with the stevedore—and details of the composition of cargo handling task, so that an appropriate weighting can be given to each component of the tariff. This is beyond the scope of the present study.

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TABLE 2-9: STRUCTURE OF STEVEDORING TARIFFS, VARIOUS PACIFIC PORTS

(INDEX – LIFT ON/LIFT OFF CHARGE FOR GENERAL PURPOSE CONTAINER = 100 IN EACH PORT)

20’ 40’ 20’ 40’ 20’ 40’ 20’ 40’ 20’ 40’ Port GP_L GP_L GPMT GPMT GPSOB GPSOB GPDLR GPDLR ODG ODG Alotau 100 200 53 106 100 200 200 400 n.a. n.a. Apia 100 n.a. 50 n.a. 75 n.a. n.a. n.a. n.a. n.a. Honiara 100 100 100 100 100 100 100 112 112 112 Kavieng 100 200 53 106 100 200 200 400 n.a. n.a. Kimbe 100 153 15 29 15 29 29 59 n.a. n.a. Lae 100 100 100 100 100 100 200 200 100 100 Lautoka 100 200 38 108 85 n.a. 200 n.a. n.a. n.a. Madang 100 100 100 100 100 100 200 200 100 100 Nuku’alofa 100 200 36 71 36 71 71 143 74 149 Oro Bay 100 200 53 106 100 200 200 400 n.a. n.a. Kosrae 100 235 62 157 78 157 78 0 n.a. n.a. Pohnpei 100 235 62 157 78 157 n.a. n.a. n.a. n.a. Port Moresby 100 200 100 200 100 200 200 400 100 200 Rabaul 100 100 100 100 100 100 200 200 100 100 Santo 100 200 100 200 251 492 251 501 100 200 Suva 100 133 28 44 28 n.a. 133 n.a. n.a. n.a. Tarawa 100 200 50 100 57 113 57 113 100 200 Vila 100 200 100 200 422 845 422 845 100 200 Wewak 100 200 50 100 100 200 200 400 n.a. n.a.

GP_L; General purpose loaded container – lift on/lift off; GPMT: General purpose empty container – lift on/lift off; GPSOB: General purpose shift on board ; ODG: Out of gauge – lift on/lift off; GPDLR: General purpose discharge, land, restow. Source: study estimates, based on (Vanuatu) Ministry of Finance and Economic Management 2003.

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Notwithstanding these cautions, it is possible to draw some basic conclusions from Figure 2-2. The first of these is that, in absolute terms, container stevedoring charges in the Pacific are generally low by international standards. Few container ports globally can offer container stevedoring for less than USD100/TEU, and rates of up to twice that level are common. The issue for Pacific ports is therefore not the absolute level of charges, but whether, given the level of service and stevedoring productivity, they represent value for money. Facilities at most Pacific ports are basic, and require the deployment of relatively expensive, and increasingly rare, geared container vessels. The ‘Pacific standard’ rate of 10-12 lifts per hour is roughly one-third of that which would be expected at a modern, well-equipped container terminal. The second feature of the figure is the vast range in charges between Pacific ports. For the reasons outlined above, it is possible that the actual range is somewhat smaller, but it is difficult to conceive of structural differences or omissions that would fully explain the great disparities. More perplexing is that there is no obvious cost or institutional explanation for the patterns in the data; charges at the large and busy port of Lae are low, but no lower than at the minor port of Wewak. Stevedoring charges levied by the private stevedore in Vila are even higher than those charged by the government-owned stevedore in the larger port of Suva, or the government-owned port operator in the much smaller port of Tarawa.

2.5.4 Landside structures and networks Land transport varies in both scale and efficiency. Smaller islands may have little or no mechanised transport and little in the way of formed roads. At the other end of the scale, some larger islands have reasonable road networks and developed transport systems (e.g., the land- bridging of cargo under bond in the Suva/Lautoka corridor in Fiji). However, in relation to other nations outside the region, vehicle fleets tend to be old, often sourced in used form from countries in Asia, and generally not well maintained. Public transport varies similarly between economies, with well developed and maintained bus fleets usually only noted where there are significant tourism needs. Mini buses, trucks and route taxis take up much of the slack in many countries, providing cheap, informal and generally little regulated services for passengers and personal freight. As mentioned above, inter-village transport is often limited to small craft using encircling lagoons. All of these modes would carry some freight, much in ‘parcel’ form or as accompanied baggage. Other modes such as rail are near non-existent, with the exception of some dedicated lines (e.g., sugar cane).

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2.5.5 Logistics arrangements In general terms there is little developed logistics in the region compared to neighbouring regions. Around major ports, a network of container depots and pack/unpack facilities (LCL or CFS) can be seen. In larger countries with supporting population bases, some major warehousing and distribution centres have sprung up, but these are often dedicated to major commodities such as powdered milk products. However, in most case these are quite rudimentary when compared to distribution centres elsewhere in Asia and Australasia. Some progress is taking place, however, and shipping lines and forwarders are developing more sophisticated operations around empty container depots, where congestion of port facilities is driving storage off-wharf. Opportunities can be seen where major port developments are planned, for instance in the new port facilities mooted for Rokobili, Suva, which are expected to attract export processing as well as logistics activities.

2.6 Maritime security International safety and security protocols are having an increasing impact on the transport sector. Maritime security arrangements have been tightened in the wake of the events of ‘9/11’. Following this event, the United States of America unilaterally imposed new maritime security arrangements, the most famous being the ‘twenty four hour manifest rule’, which requires all shipping lines to advise US authorities of the contents of all containers destined for US ports twenty four hours before loading the container on to a vessel in a foreign port. Subsequently, the international community reacted to the threat of terrorism by developing a maritime security regime known as the International Ship and Port Facility Security Code (ISPS). Developed through the International Maritime Organization (IMO), the ISPS Code is embodied in a new chapter of, and amendments to, the International Convention for the Safety of Life at Sea, 1974 (SOLAS). The ISPS Code came into effect on 1 July 2004. The objectives of the ISPS Code include: ƒ the establishment of an international framework involving cooperation between Contracting Governments, government agencies, local administrations, and the shipping and port industries ƒ the determination of the respective roles and responsibilities of the Contracting Governments, government agencies, local administrations, and the shipping and port industries, at the national and international levels, in ensuring maritime security ƒ creation of the means to ensure the early and efficient collection and exchange of security-related information ƒ provision of a methodology for undertaking security assessments.

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The ISPS Code applies to ships engaged on international voyages and the port facilities handling such vessels. It applies to a variety of vessel types: cargo ships of 500 gross tons and above; passenger ships, including high speed craft; as well as mobile offshore drilling units. The Code applies also to port facilities that handle these vessels, whether on a regular or an occasional basis. For seaports and shipping, the ISPS Code (ISPS) requires compliance with a raft of regulations. Each overseas trading vessel of 500 gross tons and above is required to develop an approved Ship Security Plan ‘designed to protect persons on board, cargo, cargo transport units, ship’s stores, or the ship from the risks of a security incident.’ Further, each vessel is required to designate a crew member responsible for the security of the vessel, including implementation and maintenance of the ship security plan and liaison with the Company Security Officer and Port Facility Security Officers. Each relevant vessel is also to be fitted with an approved Ship Security Alert System. Fully compliant vessels are to be issued with a Ship Security Certificate. Every port that handles international shipping is required to nominate a Port Facility Security Officer. This officer will be held responsible for the development, implementation, revision and maintenance of an approved Port Security Plan, as well as for liaison with Company Security Officers and Ship Security Officers (see below). It should be noted that under the ISPS Code the term ‘Port Facility’ extends to the channels and waterways leading to the port. This is an area in which the Pacific Region is benefiting—from sharing experiences and resources in developing compliance measures and cost recovery regimes. Compliance brings additional cost in many cases not fully understood or recovered by the ports. In fact, there is much discussion globally about how these costs should be estimated and recovered, and charges levied vary widely. All but one of the PDMCs met the July 2004 deadline for compliance with the ISPS Code. Beginning in early 2005, the Suva-based Regional Maritime Program has conducted 18 independent audits of the implementation of Code requirements in the Pacific. The results of these audits are not publicly available, but interviews conducted in the case study countries indicated that, in each of these countries at least, while the audit resulted in useful suggestions for future improvement, it did not reveal any major deficiencies.

2.7 Maritime training There are a wide range of Maritime Training Institutions in the PDMCs, but for the most part the level of training is fairly restricted (see Table 2-10 below). Only the PNG Maritime College has the equipment and qualified staff to provide training to the level required of a master or chief engineer on an international vessel.

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TABLE 2-10: MARITIME TRAINING INSTITUTIONS IN THE PACIFIC DEVELOPING MARITIME COUNTRIES

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International maritime conventions and codes require owners and operators to engage officers and crews who are suitably qualified, as determined by the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers 1978 (STCW ’78), as amended in 1995 (STCW ’95). STCW ’95 sets standards for ships sailing in international waters. Countries that are parties to STCW ’95 must ensure that their ships sailing in international waters adhere to these standards. STCW ’95 also stipulates standards for seafarers on foreign-going vessels. To enable its nationals to work on such vessels, a country must ensure that its training institutions meet the required standards. To obtain what is known as White List status, a country must demonstrate compliance. Table 2-11 below lists Pacific Island countries that have attained the White List status. TABLE 2-11: PACIFIC ISLAND COUNTRIES WITH WHITE LIST STATUS AS AT 20 MAY 2005

Country White List Status? Country White List Status? Cook Islands Yes Papua New Guinea Yes Fiji Islands Yes Samoa Yes Kiribati Yes Solomon Islands Yes Marshall Islands Yes Timor-Leste No Federated States of Micronesia Yes Tonga Yes Nauru No Tuvalu Yes Palau No Vanuatu Yes Source IMO website, http://www.imo.org

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3. ASSESSMENT AND RECOMMENDATIONS

3.1 International shipping services

3.1.1 Assessment Scheduled international shipping services are provided to all of the PDMCs, even those with very low volumes of cargo. On most relevant international routes, there is a high degree of concentration, with only one or two lines or consortia providing shipping services. This raises the spectre of the exploitation of a monopoly position by incumbent shipping lines. But in most cases there are no regulatory barriers to entry, and the sunk costs involved in entering the trade are relatively modest. As a consequence, the market is reasonably contestable. It therefore seems likely that any significant abuse of monopoly would be transient. It is true that freight rates are relatively high by world standards. But economies of scale are important in shipping, and cargo volumes on the routes to, from and within PDMCs are generally low. It is not clear that freight rates are any higher than the long voyages and low cargo densities would lead one to expect. Frequency of service and port coverage are other concerns that have been raised from time to time. But again it is not clear that this is anything other than a normal—perhaps inevitable— response to the low volumes of cargo on offer and the large deviations that would be necessary to add additional ports of call. Past direct intervention to encourage ‘improved’ international services has taken two main forms, neither of which has been conspicuously successful: ƒ Direct government involvement in service provision ƒ Regulation of entry.

Direct government involvement in the provision of shipping services Direct government involvement in the provision of shipping services has in general been costly, and failed to produce efficient and reliable services, The Pacific Forum Line (PFL) is a partial exception to this (see Appendix A). But the success that the Line has had came only after some painful lessons were learned the first two decades of the Line’s operation. The development of the Line was an attempt by regional governments to improve the level of service provided to countries of the region. The attempt to provide port coverage/service frequencies well in excess of that justified by commercial considerations was one of the major causes of the financial problems encountered by Pacific Forum Line during its first two decades of operation.

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The later success of PFL has been due in significant part to its willingness to restructure its operations along more commercial lines, and to focus its services on those routes on which it can operate profitably, just as any other line would. PFL’s services are now confined to a relatively small number of PDMCs, mainly the larger ones, with services to the smaller and more remote locations (for example, Kiribati, Tuvalu) provided by other carriers (see Section 2.4).

Regulation of entry The primary example of this approach is the Micronesian Shipping Commission (MSC). Although the Commission continues to enjoy the support of both government and shipping lines, it is not clear that the range, quality, efficiency or stability of shipping services offered to Micronesian countries is greater that it would be in the absence of the Commission (the operations of the Commission and its impact are discussed in Section 2, Volume 2 of this report). What is clear is that considerable effort is expended by lines and associated interests to secure the right to operate a service; this suggests untapped potential for service innovation. International maritime services to and from the PDMCs present a distinct contrast to international aviation services. Entry (with the significant exception of the MSC) is not generally regulated by inter-governmental agreements but is generally free. The sector is predominantly the province of the private sector (the significant exception is the Pacific Forum Line), which has proven to be quite entrepreneurial in its approach, with some form of international service provided to even rather unpromising markets such as Timor Leste, Tuvalu and Nauru. While there may be some dissatisfaction with the price and frequency of these services, there is no real evidence of market failure. Although the resources available to this project preclude a detailed analysis, on a preliminary appraisal, when remoteness and scale of the markets are taken into account, freight rates do not appear excessive and service frequencies are general consistent with the cargo volumes available. This judgement is consistent with that of the Pacific Regional Transport Study, which found that the market for international shipping services functioned well, and that the level of services provided was appropriate to the level of demand in individual PMDCs. In shipping there is a general regional consensus that the provision of reliable and efficient shipping services has broadly been achieved. International services serving the region are generally considered to be adequate and efficient. Container shipping services to and from the FICs are reliable; vessels adhere to published schedules and offer sufficient space for the needs of importers and exporters. (Australian Government, 2004, p12) Under these circumstances, it would be unwise to recommend further direct intervention (either at the level of individual governments or at the regional) in the operation of these markets. On the contrary, the restrictions that do exist on competition should be carefully reconsidered; it is also important that governments refrain from undermining functioning but fragile markets by providing competing services on a non-commercial basis.

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3.1.2 Structural changes to international shipping systems Current changes that are taking place in the way in which international shipping services to the Pacific are structured make a reconsideration of regulatory arrangements particularly appropriate at this time. There are signs of an increasing tendency for direct services to be replaced by hubbing over selected local transhipment centres: the most important of these at present are Auckland (for the South Pacific) and Guam (for Micronesia). These changes are at present poorly understood by many key decision-makers in government — and indeed, by many industry participants. This is unsurprising: the forces that are driving these changes are complex, and intimately liked to changes that are occurring in the global shipping environment. To analyse these forces, and the way in which they may in the future change the way in which the maritime needs of PMDCs are met, is a complex and difficult task. But these developments may have important implications for both the aspirations of regional ports (for instance, the development of a subregional hub in Suva) and the size and type of vessel that may need to be accommodated in different ports of the region. Building a more sophisticated understanding of the global changes taking place in the international shipping, and the implications of these changes for service patterns in the Pacific, could provide high returns in terms of more efficient port investment decisions. This is best undertaken at a regional level, and separately from any particular port or national development plan: past experience suggests that, when such studies are undertaken in connection with a specific port development project or national plan, there is a strong tendency to take an overly optimistic view of the role of the specific port or country in the future regional shipping system. Undertaking this study will require analytical tools and expertise that are unlikely to be readily available within the PDMCs. It will require financial support from the ADB and/or an individual donor nation. But ideally it would be managed through the Regional Maritime Program, as part of the general strategy of expanding the role of the RMP in fostering improved maritime sector performance in the region (see later recommendations).

Recommendations

1. The present commercial focus of the Pacific Forum Line should be retained, allowing the Line to act as an important additional source of competition in the region without distorting regional markets

2. Remaining regulatory impediments to entry into the provision of international shipping services in the Pacific (the most notable of which is the Entry Assurance system operated by the Micronesian Shipping Commission) be progressively removed

3. ADB and donor countries consider funding a regional level study of current and prospective developments in the structure of liner shipping services to the PDMC, to be undertaken under the management of the RMPs.

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While the extension of direct government intervention in the provision of international maritime services is not recommended, there are actions that governments could take that would indirectly facilitate further improvement in maritime services. Many of these relate to improving the quality of services provided to shipping, through improved port performance, better management of maritime safety, encouraging more efficient and reliable domestic shipping, and similar initiatives. Some of the mechanisms that might be used to achieve these improvements are discussed in the following sections.

3.2 Regional cooperation The general framework of regional cooperation in the Pacific is currently under review. It therefore seems opportune to reconsider the architecture for regional cooperation in maritime matters.

3.2.1 The need for regional cooperation The technology of international shipping, the regulatory environment within which it operates, and the training needs of international seafarers are increasing in complexity. In addition, intensifying international competition in trade means that the penalties for failing to meet these challenges are increasing. Few PDMCs individually have the financial and human resources required to meet the challenges that this increasing complexity brings with it, By pooling resources and expertise, Pacific Island countries can greatly increase their ability to deal with an increasingly demanding environment. Regional cooperation will therefore be essential in improving maritime transport services to, from and within the PDMCs Fortunately, however, the need for cooperation between the PDMCs is well recognised by the countries themselves, and by the South Pacific Community. The Pacific Plan, for instance argued: In light of “the serious challenges facing countries of the region”, Leaders agreed that serious consideration be given to “the pooling of scarce regional resources to strengthen national capacities”. They asked for a Pacific Plan to be developed by a Task Force to “give effect to” their new vision through the promotion of “deeper and broader regional cooperation”. (Pacific Plan Action Committee, 2005?, p 1)

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The maritime sector is one of the areas in which the benefits of regional cooperation are regarded as most apparent. The Forum Principles on Regional Transport Services (PIFS , 2004) include a requirement that ‘Increased efforts should be made to implement regional or sub-regional7 solutions to problems in the transport sector’ — see Section 2.3.6. More specifically still, the background paper on maritime transport prepared for the Pacific Plan argues: The advantages of regional cooperation are transparent. It makes good economic sense for small countries and territories to pool and share resources and experience through regional collaboration. Given that many of the maritime issues are common to the region, it is more efficient and effective to cooperate on initiatives to address them, such as training curricula and laws and regulations. In addition, most PICTs do not, on their own, have the resources to keep up with the changing international regulatory environment. (Even much larger Pacific rim states are struggling to meet new codes such as the ISPS Code by the prescribed deadlines.) Maritime administrations in the region typically range in size from two to ten professionals. By comparison, Australia’s has about 200. Having access to shared resources at the regional level (capacity supplementation) helps small administrations cope with the changing environment. (Pacific Plan Action Committee, 2005?, p 63)

3.2.2 Existing cooperative vehicles As discussed in Section 2, regional cooperation in the maritime sector in the last few years has been effected to a very large extent through the Regional Maritime Programme (RMP), and also to a more limited extent through PIFS at the policy level. There is widespread agreement amongst PDMCs that the RMP has made an important contribution, and that this contribution has grown strongly in recent years. The program also operates in a transparent manner: an independent audit of the program was conducted in 2004. A detailed review and assessment of its performance against its objectives over the 2003-2005 period is publicly available; and its operations were recently independently assessed against the Australian Business Excellence Framework, with the key results from that assessment published on the Programme’s website (http://www.spc.int/maritime, accessed 24 Jan 2007).

7 Regional solutions are aimed at covering all of the member PDMCs; whereas, sub-regional solutions might be targeted specifically to sections of the pacific — for example, PNG and Solomon Islands.

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The RMP has also been establishing increasingly strong links with other vehicles of regional cooperation, and in particular with PacMA, APP, PacWIMA and PIMLA. The Programme now provides secretarial services and administrative support to these organisations, and collaborates with them less formally in other ways. The RMP therefore appears to be a strong established kernel around which an effective programme of regional cooperation in maritime matters can be built. But to make full use of this opportunity, the architecture of regional cooperation may need to be clarified. There does not at present appear to be an effective mechanism for clarifying the maritime sector priorities of regional governments, and using these priorities to guide and direct the activities of RMP. PacMA appears to be the organisation that is closest to filling this gap. Although originally a grouping of maritime training institutions, its membership has broadened to include a broader spectrum of interests — it was this broadening that led to the need to change the name of the organisation. It appears to have been informally evolving into a peak advisory group. However, it remains essentially an association of industry interests, with a strong slant towards training institutions. When and if RMP extends its activities to those that may be more controversial and less obviously in all governments’ interests — for instance, into areas such as port governance, or the relaxation of cabotage restrictions — a clearer and somewhat more formal source of advice on the priorities and perspectives of regional governments is likely to be desirable.

3.2.3 Possible model A great deal more consultation with PDMC governments, and engagement with RMP, would be necessary before developing firm recommendations on the architecture for regional cooperation in the maritime sector. But given the promise that has been shown, particularly in recent years, by the existing regional institutions, it is clear that the best approach will be to build on and adapt current structures. This would suggest that further evolution of PacMA to a peak advisory body with a more explicit mandate from regional governments may be the most effective approach. If this is the case, however, it may be necessary to form a new body to represent specifically the views and perspectives of training institutions.

Recommendations

4. The role of RMP as the key source of advice and technical support on maritime matters be further strengthened

5. The existing mutually supportive relationships between RMP and regional maritime bodies, be further developed

6. In addition to these relationship the desirability of establishing a new peak advisory group, with a clearer mandate from participating governments to provide advice and guidance to the RMP, be established.

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3.3 National transport plans A number of factors encourage direct political intervention in maritime activities on an ad hoc basis: ƒ Shipping services are vital to the economic and social life of PDMCs ƒ Relatively small populations make access for lobby groups to key decision-makers easy ƒ There are strong ties between key decision-makers and particular geographical areas and kinship groups, It will therefore always be difficult to ensure that decisions on maritime sector policies and priorities are made on a consistent and coherent basis. Without a clear national transport plan it will be impossible. The Pacific Regional Transport Study reported that: No country in the region has a clearly enunciated set of transport objectives that easily translates into a consistent and coherent transport policy (Australian Government, 2004, Vol 1, p.12) The study suggested that there are number of possible reasons for this: ƒ political instability in many countries impeding the development of long term economic strategy ƒ severe financial constraints in many PDMCs impeding consistent and coherent policy making, and to an even greater extent undermining the ability to implement policies consistently ƒ real or apparent conflicts between the objectives of transport policy and those relating to tourism and domestic industry development. Subsequently, there appears to have been some significant improvements in this regard. At least two PDMCs —Fiji and Solomon Islands— both have national transport plans: in Fiji, the National Transport Sector Plan; and, in the Solomon Islands National Transport Plan. Both of these plans recognize the importance of the maritime sector to the effective functioning of the national transport system. This development is encouraging, and the plans of these countries may be useful as models for other PDMCs. The planning process in itself can yield real benefits, in that it focuses attention on issues that are often neglected, improves the quality of information available to decision-makers, and encourages a systematic and structured approach to the consideration of complex problems. But clearly the major payoff comes from the effective implementation of the plan. For this, clear costing of the initiatives that it embodies and a commitment to a long-term funding plan are essential.

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Recommendations

7. PDMCs be encouraged to develop and document national transport objectives, and national transport sector plans detailing how these objectives will be pursued

8. National transport sector plans include a clear articulation of the role of the maritime sector

9. National transport sector plans include a committed long-term funding plan for maritime sector initiatives

3.4 Maritime sector subsidies The Pacific Regional Transport Study also discusses the widespread use of the transport system of the region to deliver welfare objectives, in particular poverty alleviation (by focussing transport policy on the inclusion of remote communities in national development) and employment creation. It notes that: ...while it is usually possible to deliver these objectives, [transport policy] is usually an extremely inefficient means of delivery. In virtually all countries of the region where an attempt is made to deliver [welfare] objectives through the transport system, delivery is currently achieved through disguised subsidies. While this conclusion is largely correct, in our view the crucial issue here is the manner in which government support is delivered rather than the use of transport sector subsidies to achieve welfare goals. It could reasonably be argued that a transport policy that insists that all transport services (particularly basic transport services to remote communities) will be provided on the basis of full cost recovery from users would be both economically undesirable and antagonistic to the achievement of the Millennium Development Goals. Ultimately, however, whether or not total abolition of subsidies in the maritime transport sector in PDMCs is desirable is of academic interest only. The reality is that such a policy would be politically untenable. The provision of subsidies to transport services in pursuit of broader political, social and economic objectives are a commonplace not just in PDMCs but throughout major donor nations, including the United States, the European Union, Japan and Australia. Given the economic, social, political and cultural importance of maritime transport services to PDMCs, it is most unlikely that they will abandon all public support for maritime transport services in the foreseeable future. It is therefore important to establish guidelines for the provision of transport sector subsidies — including subsidies to the maritime sector.

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Recommendations

10. Any subsidies to transport sector activities have clearly enunciated objectives and be justified within the framework of a comprehensive and coherent transport sector policy

11. Subsidies be transparent, the fiscal commitment clearly defined, and subject to periodic review in the context of the other demands on government revenues and

12. Wherever practical, subsidies be allocated to services providers on the basis of open and competitive tenders of limited duration.

3.5 Structuring the maritime sector

3.5.1 National responsibility Throughout the world, there are many countries in which responsibilities for maritime sector administration are shared between different levels of government. In some instances, this is extremely successful. But while dividing responsibility between levels of government can work, and work well, it is unlikely to be the ideal model for PDMCs. Creating a safe, efficient and reliable maritime sector is difficult for most, perhaps all, PDMCs. The small scale of many PDMCs makes maintaining a competent maritime bureaucracy, and retaining skilled managers in commercialised government enterprises, a constant challenge. The market for provision of maritime services, both internal and external, is thin and vulnerable to disruption if policies are inconsistent or incoherent, or if well-intentioned but ill-informed interventions undermine the operations of the market. Finding the funds necessary to develop — and perhaps even more importantly to maintain — maritime infrastructure is difficult, and allocating these scarce resources according to priorities set within a coherent vision of national development and assessed against consistent criteria inevitably means disappointing sectoral interests. These challenges are exacerbated where responsibility for some aspects of maritime development is fragmented between the national and provincial (or state) governments. In some countries (for example, in the Solomon Islands) some provincial governments assert the right to license shipping operators making calls in the province. In others (FSM and Marshall Islands) responsibility for the development and administration of ports of national significance is divided between various organisations. The risks attendant on this fragmentation are clear: incoherence in policy; inconsistency in planning; duplication of resources; under-capitalisation; and spreading too thinly the scarce resources of talented and experienced personnel. A centralised approach also has its risks: an unwillingness to experiment with different approaches; insensitivity to local needs; a bloated bureaucracy. The balance of risk varies with the environment. But in the PDMCs, strapped for both fiscal and skilled human resources and prone to intense rivalries between groups from different regions within the country, the advantages of strong national control of the maritime sector are likely to far outweigh the risks.

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3.5.2 The tri-partite model Historically, in most PDMCs all of the functions of government within the maritime sector have been undertaken by a branch of the public service. With encouragement and support from ADB and other donors, structural reforms have taken place over the last two decades that have seen port administration in many (though not all) countries transferred to semi- autonomous authorities or corporations. Further structural reforms that have been implemented or recommended in a number of PDMCs (including Fiji, PNG and Solomon Islands) display some common features that point towards a tri-partite Pacific model of maritime administration. This model separates the involvement of government in maritime affairs into three distinct clusters: ƒ Policy and planning, undertaken by a ministry of the government, which is funded from the general revenues of government ƒ Safety and maritime regulation, undertaken by a statutory authority which is wholly or largely funded through mandatory levies on shipping ƒ Port administration, undertaken by a corporatised entity charged with operating on a commercial basis, generating its own revenues from charges on port users. Where governments retain an interest in the provision of freight and passenger services, this could add a fourth element to the model. Preferably, this fourth element would also take the form of a corporatised entity. This tri-partite model has much to recommend it: ƒ It provides greater focus and clarity of objectives for each of the three branches of maritime administration. ƒ It eliminates conflicts of interest between safety and commercial objectives. ƒ By placing both safety and operational functions in the hands of organisations with their own legal existence, the model provides some protection from destructive political intervention in the day-to-day delivery of these functions. ƒ The organisational separation enforces a greater degree of transparency in the financial affairs of the operating organisations. ƒ Financing maritime safety and port management from clearly defined, dedicated revenue streams reduces or eliminates the dependence of these activities on annual allocations from the general government budget. This is important because the effective performance of these activities is critically dependent on long term planning and predictable funding, ƒ The adoption, where feasible, of a self-financing approach imposes a useful financial discipline of the service delivery organisation.

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As always, the diversity of PDMCs needs be acknowledged. Specific features of the legal framework or institutional history of a particular country may make adoption of the model difficult or inappropriate. In the smallest countries, the establishment of a completely separate maritime safety administration may not be justifiable. The rigid application of a standard model is therefore unlikely to be the most productive way forward. Nevertheless, the development and propagation of a conceptual model of national maritime administration, around which individual national variants may be constructed, serves a useful purpose. It can promote consistency and coherence in sectoral reform the same way that the development of standard paradigms of port administration (see below) has facilitated and streamlined the process on port reform. The adoption of a common structural model throughout the PDMCs — or at least variants of an underlying common structural model — permits the development and adoption of template legislation; lays the foundations for progressive regionalisation (or sub-regionalisation) of key maritime institutions; and facilitates shared learning, both in the process of structural reform and in the subsequent operations of the various entities.

Recommendations

13. Where constitutional arrangements permit, policy, planning and regulatory responsibility for maritime safety, international shipping, domestic shipping and ports of national importance be clearly allocated to national rather than provincial governments

14. Wherever economically and technical feasible, government responsibility for (a) maritime sector policy (b) regulation of maritime safety and (c) commercial operations be undertaken by legally distinct entities

15. Organisations responsible for maritime safety and commercial operations, as far as possible, be operated on a self-funding basis with revenues derived from user charges.

3.6 Port Administration Perhaps the most important single contribution that governments can make to improving both international and domestic shipping services is to ensure that the ports that serve the international and domestic ships have adequate facilities and are operated efficiently.

3.6.1 Governance Although a number of port authorities within the PDMCs are formally corporatised (e.g. PNG) or operate under separate statutes that provide for a high degree of independence (e.g. Marshall Islands), others remain essentially branches of the public service (e.g. Timor-Leste). Even where formal corporatisation has been achieved, problems of day to day political intervention in the operations of port organisations persist, either through explicit direction from Ministers (or Ministries) or through board appointees who act as proxies for these agents rather than independent decision-makers.

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Objectives for port organisations do not appear to be always clearly and appropriately defined (Australian Government, 2004, Vol.1, and p38). Nor are the indicators that will be used to measure port performance always defined; and when they are, measurement and reporting of performance against these indicators are not always adequate. More generally, the preparation and presentation of annual reports by port authorities can be very tardy. Clearly, annual reports that are provided several years in arrears are of little value for the effective monitoring and control of port performance.

Recommendations

16. Clear financial and service objectives be established for all port corporations

17. With the assistance of RMP, a common set of Key Performance Indicators be developed and adopted, regularly monitored, and publicly reported.

18. Prompt reporting requirements be established and enforced.

3.6.2 Cargo handling performance

Assessment Cargo handling productivity in PDMCs is low by international standards. Raw comparisons of cargo handling rates are likely to do Pacific Island ports an injustice. For instance, crane rates are usually regarded as a reflection of the efficiency at the port in ship/shore activity and of the speed at which cargo can be moved from the wharf area. However, other factors can influence this and distort comparisons. Vessels on Pacific Island schedules call at many ports, often resulting in stowage that incurs many more double moves, shifts-on-board, and hatch lid movements than would be the case with vessels serving fewer ports and larger cargo volumes. This can result in very slow handling rates even if operations are efficient. Moreover, none of the Pacific Island ports is equipped with specialised container handling cranes. Most rely on shipboard cranes; a few use shore-based general purpose cranes. These handling techniques will inevitably provide cargo-handling rates well below those that can be achieved with container-handling equipment. Nevertheless, even when these factors are taken into account, there is little doubt that cargo handling productivity in many PDMC ports generally falls short of achievable levels. There is a general presumption in economics that efficient service provision is most likely to be achieved where services are delivered in a competitive, or at least a contestable, environment. Separation of potentially competitive port services—stevedoring, towage and mooring—from the activities of regulating the port and delivering port infrastructure is a prerequisite for the development of an effective competitive environment for these services.

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This has been achieved in some countries (for instances, in PNG). In other instances (e.g. Fiji), some degree of separation has been achieved, but plans to make the provision of services fully contestable have, for a variety of reasons, stalled. In a number of PDMCs, the port authority remains the sole provider of port services.

Models of port administration The arrangements that different governments have made for the administration of their ports are very diverse, and there is no standard template for port administration. But it has become customary to talk of four basic ownership and governance modes: ƒ The service port ƒ The ‘tool’ port ƒ The landlord port ƒ The fully privatised port. The ownership characteristics are summarised in Table 3-1 below. TABLE 3-1: CLASSIFICATION OF OWNERSHIP MODELS

Basic Port Management Models

Type Infrastructure Superstructure Port Labour Other functions Public Service Port Public Public Public Majority Public Tool Port Public Public Private Public/Private Landlord Port Public Private Private Public/Private Private Service Port Private Private Private Majority Private

Infrastructure refers to ’below ground’ fixed assets of the ports: breakwaters, channels, berths, etc. Superstructure refers to’above ground’ equipment and facilities: for example,cranes and other heavy lifiting equipment, offices, sheds, and warehouses.

Source: World Bank Port Reform Toolkit, Module 3 The PDMCs do not provide any examples of fully privatised ports. (In this they are not unusual; globally, very few countries have chosen to privatise their principal common user ports).8 Plans to privatise the PNG Harbours Ltd have been plagued by delays and reconsiderations, and appear to be stalled at the present time. Given the low volumes and low growth rates that characterise most ports of the region — the level of interest of private infrastructure investors in PMDC ports (outside of PNG — and possibly but by no means certainly Fiji) is likely to be low.

8 There has been a great deal of privatization of individual port facilities or terminals, and this is often loosely referred to as privatization of ports. But in the overwhelming majority of cases what this has done is convert a Public Service Port to a

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Realistic options available for most PDMCs are likely to be the landlord, tool or public service port options. The conventional wisdom is that the landlord model is generally to be preferred, largely because this maximises the opportunity for private sector participation in port operations. However, one of the more surprising results of the field work is that the correlation between port productivity and structural model is a lot less clear-cut than might be expected. Productivity and customer satisfaction in Pohnpei, which operates as a classic landlord port with a medium-term concession allocated through a bidding process to a fully private stevedoring operator, are both low. Productivity and customer satisfaction in the Solomon Islands, where the port is administered as a public service port, are both high. These observations caution against generalising too glibly about the structural conditions that will give rise to good port performance. However, it remains likely that the conditions most likely to foster the delivery of efficient port services are those in which these services are provided by the private sector and in which maximum use is made of opportunities to introduce competition or the threat of competition. The existence of competition in the ports of Nuku’alofa and Pago Pago demonstrates that competition in the provision of stevedoring services — by far the most important component of port services from the perspective of efficiency of international shipping — can be achieved at rather low cargo volumes. However, at low cargo volumes contestability will be significantly impeded if significant capital investment is required. Even what might be regarded as quite small capital outlays can be a significant issue for PDMC stevedoring companies: the terminal operator in Pohnpei, for instance, who has the advantage of a medium-term sole-user lease on the main cargo wharf, is finding it difficult to fund the acquisition of a single heavy duty forklift, at a capital cost of USD0.25 million. This suggests that for many ports in PDMCs the best model may be the ‘tool port’ model. Adoption of this model requires the port organisation to take the lead in the acquisition of heavy lifting equipment that is used in the handling of ships’ cargo, and to make that equipment available, on equitable terms, to all stevedores working in the port. This significantly reduces capital barriers to entry for the stevedore.

landlord port. Overall administration of the port and responsibility for port development remains in public hands. Exceptions are largely confined to the UK, Malaysia, Eastern Europe and certain Australian states. New Zealand is often erroneously cited as an example of port privatization; but although they have adopted a public company structure, majority ownership of all major New Zealand ports remains in public hands.

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It also reduces the commercial risk, and should consequently reduce the cost of capital. This is because the volume risk borne by the port organisation relates only to fluctuations in the total volume of cargo passing through the port. The volume risk to the stevedore, on the other hand, relates to the total volume of cargo through the port and the stevedore’s ability to maintain its market share. Like all models, the ‘tool port’ has its weaknesses, the most important of which is the absence of the direct link between the operator and the owner that is most likely to achieve infrastructure and equipment changes to improve the overall operation. However, there are examples of very successful developments using this model: for instance, the successful and efficient port of Tauranga in New Zealand developed under this model.

Recommendations

19. Those port organisations that are still involved in cargo handling operations develop and implement plans for transferring these activities to the private sector.

20. Stevedoring licences be issued to all stevedoring firms having the skills and knowledge required to operate safely and competently within the port

21. The issue of exclusive leases to critical port land be avoided unless it is essential to the efficient operation of the port

22. If by doing so they can facilitate entry or reduce the risk of under-capitalisation of cargo-handling operations, port corporations purchase heavy lifting equipment and make it available for hire to all stevedoring companies

3.6.3 Port infrastructure There does not appear to be a general problem with the capacity of port infrastructure in the PDMCs; but there are problems with the appropriateness of infrastructure and often with the standards to which it is maintained.

Appropriateness Many of the port facilities in PDMCs are neither designed nor equipped to meet present-day shipping needs. Many of the port facilities visited by the Technical Team were built in the 1950s or 1960s prior to containerisation, and such ports pose serious operational problems. Cargo sheds designed to shelter breakbulk cargo from extreme weather conditions now pose obstacles to the efficient movement of containers between ships and stacking areas. Wharf surfaces are typically potholed, making it difficult to operate forklift trucks, thus raising the cost of stevedoring operations. Some wharves, unable to take the weight of a forklift plus heavy container, require double handling of containers. After being unloaded by ships equipment, containers are initially placed on flat bed trucks, driven to the wharf stacking area, unloaded and positioned in their appropriate slot in the stack by forklift. (Australian Government, 2004, p38).

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FIGURE 3-1: OUTMODED FACILTIES AT SUVA CONTRIBUTE TO CONGESTION

Source: Cullen Grommitt and Roe, 2002 Note: photograph taken prior to recent port improvements In some of the smaller PDMCs, the problem of appropriate facilities is more extreme. As noted in Section 2, in some cases infrastructure limitations mean that container vessels are unable to come alongside, and cargo must be discharged from ships at anchor. However, a proper assessment of the adequacy of port facilities — both capacity and quality — depends upon a clear understanding of the possible future development scenarios for international shipping services to the Pacific. As noted in section 3.1, shipping services are increasingly operating as an integrated system, whereas port planning is commonly done for a single country, or a single port, in isolation.

Maintenance The chronic difficulties with infrastructure maintenance in the Pacific are widely acknowledged and have been frequently reported in previous studies. More than a decade ago, the World Bank (1993) noted that in many PDMCs funding and execution of maintenance fell well below the level required to keep assets in good working condition. The World Bank’s most recent report on the Pacific Islands suggests that this continues to be an issue across many infrastructure sectors: Infrastructure is complex, capital intensive and lasts a long time. It is therefore important to plan for the long term, when embarking on infrastructure projects. However, in the Pacific, governments have often focused on building new infrastructure, rather than investing in operations and maintenance. (World Bank 2006)

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This is consistent with the PRTS: A lack of maintenance was noticeable in many ports. Our observations suggest that the maintenance backlog is likely to have worsened since the World Bank [1993] Report. (Australian Government, 2004 p38). Observations made and discussions held during the current project were consistent with the findings of these reports. Poor maintenance is at least in part the result of financial constraints. While overseas aid often focuses on the transport sector, offering substantial loans for new investment and rehabilitation of infrastructure, often the nation’s economic state is so fragile that domestic revenue is unable to cope with either maintenance costs or even the repayment of the loans, however favourable the terms may have been. The impact of the resultant poor maintenance may then create other costs, as may arise when excessive downtime for cargo handling equipment in sea ports contributes to low productivity on the wharf. Often also poor maintenance practices result in the asset being run down operationally before its financial maturation. This in turn leads to nations borrowing more funds to replace an asset when careful management and adherence to international standards of preventive maintenance would have prolonged its useful life. Often the port operator’s response to this is to seek finance for major investment in capital equipment to improve ship/shore productivity, while industry takes the view that better maintenance and less downtime in equipment clearing cargo from the wharf would allow much better productivity to be achieved. The Pacific Regional Transport Study (2004) cites a case of a port where relatively new cargo handling equipment lies unused, having deteriorated beyond repair through lack of normal maintenance. However, problems with asset maintenance are by no means confined to the maritime sector; they are common to all major infrastructure sectors. The inception phase of ADB TA 6257- REG (Improving the Delivery of Infrastructure Services) identified asset maintenance as one of seven key issues, commenting that: Infrastructure assets commonly do not perform as well as they should, i.e., service quality is below design quality. Assets often do not reach their design lives before needing extensive rehabilitation or replacement. There is thus a significant element of waste in the past use of infrastructure investment funds.(GlobalWorks 2007). The workshop undertaken as part of the inception phase of the Improving the Delivery of Infrastructure Services TA identified a number of initiatives that could be taken to improve asset maintenance: i) capacity building in service provider institutions (e.g., skills to identify maintenance needs); ii) implementing good maintenance practices, and organising budgets to support maintenance;

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iii) where applicable, purchasing standardised equipment and adopting standardised procedures in order to reduce maintenance costs by reducing the costs of spare parts inventories, training requirements, etc.; iv) considering the sub-regional or regional bulk purchasing of some commodities as applicable in some sectors; v) pooling resources (including expertise) among countries to lower fixed costs; and vi) raising awareness of maintenance issues within utilities and external stakeholder organisations. In the next phase of this TA, work will be undertaken to develop: A framework for implementing sound ‘best practice’ maintenance routines supported by adequate budgets. Increased awareness by managers of infrastructure service sectors and by senior government planning and budgeting authorities of the importance, value, and realistic cost of asset protection and maintenance to obtain maximum performance from, and reduce the life cycle cost of, existing and future infrastructure assets. (GlobalWorks 2007). The early work of the TA makes it clear that asset maintenance problems are generic issues, and will to a large extent be amenable to generic solutions. The recommendations of the Improving the Delivery of Infrastructure Services TA on improving asset maintenance would clearly be relevant to the maritime sector as well as other infrastructure sectors. Moreover, as many of the key actors (in particular, planning and budgeting authorities) have responsibilities across a number of infrastructure sectors, there are clear advantages in ensuring that the approach taken to improve asset maintenance in the maritime sector is consistent with the approach adopted in other infrastructure sectors. Additionally, while Improving the Delivery of Infrastructure Services TA is still in its early stages, it is clear that a substantial commitment will be made to devising practical ways of improving asset maintenance practices. This will include extensive consultations that have not been possible within the scope of the present TA. For these reasons, it seems inappropriate to make separate, specific recommendations on the improvement of asset management practices while this work is still in progress.

Recommendations

23. The outcomes of the work on asset maintenance practices currently being undertaken by ADB Improving the Delivery of Infrastructure Services TA when it becomes available, be used as the foundation for the development of specific programmes to improve asset management in the maritime sector.

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3.7 Domestic shipping

3.7.1 Assessment In contrast to international shipping, domestic shipping operations in many PDMCs are in a parlous state. Ensuring the provision of adequate, efficient and reliable domestic shipping services is one of the most difficult and perplexing challenges facing archipelagic PDMCs. In many cases, services of the quality that are expected by residents of remote islands are not commercially viable; but the delivery of these services is a political, social — and even arguably an economic — imperative. Coastal and inter-island shipping services are generally operated by government or by very small independent shipping companies. Service schedules are frequently poorly maintained, and it is not uncommon for services to be suspended for many months. The ships employed are typically old, poorly maintained and in poor condition; and they are frequently unsuited to the trade in which they operate. Many vessels in the inter-island shipping fleets fall below recognised safety standards, and some country studies have gone so far as to recommend that they should be banned from operating public services (TecnEcon 1995). Nevertheless, the political cost of detaining on safety grounds a ship that provides essential services to remote communities is high, and safety authorities often (either under pressure from government or on their own initiative) turn a blind eye to manifest defects. Financial constraints have a severe impact on the quality of domestic shipping services. Small scale coastal shipping operators have problems in accessing finance for repair and replacement. Commercial banks do not find the coastal shipping sector an attractive area for lending because of the high risk and lack of adequate collateral for loans. As the Solomon Islands Shipping Sector Study 1999 notes Under the present circumstances the shipping sector is locked into a situation where old vessels are replaced by other old vessels and there are no prospects of reducing the high average age of the fleet… (European Commission/European Development Fund 1999, p.ES- 3)

3.7.2 Government provision The historical approach of delivering these services through a government shipping arm — either a stand-alone enterprise or a part of the responsibilities of a government department — is fraught with peril, and in several cases (for example Fiji, RMI) has proved both immensely costly and incapable of delivering an adequate level of services. Government shipping operations in the Pacific have a generally very poor record of performance, for reasons that have been extensively documented in a host of earlier studies and are widely acknowledged within the Pacific community. Furthermore, the existence of competition from Government services tends to inhibit the development of private sector alternatives. But Government- owned lines continue to be a common feature of the shipping scene in PDMCs.

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3.7.3 Service franchises Over the last decade there has been considerable experimentation with service franchising schemes, under which private operators are contracted by government to deliver services of a pre-determined quality to specified populations (some of these are described in some detail in Volume 2 of this report). These experiments have been only partly successful. A range of problems have been encountered, including: ƒ Shortage of private sector operators willing to bid for and operate the services ƒ Unsuitability of vessels deployed to deliver franchised services ƒ Erratic performance of contract obligations by contracted service providers ƒ Unwillingness or inability of governments to enforce sanctions for non-performance ƒ Unwillingness of governments to commit the funds required to make subsidy payments for the full period of the franchise contract ƒ Scope creep of the franchising scheme, with communities not meeting the original criteria for inclusion in the scheme applying pressure to governments ƒ Lack of implementation of contract bidding requirements by the responsible governments. Despite these problems, service contracting schemes remain the most promising approach to improving the efficiency and effectiveness of domestic shipping operations. Lessons have been learned from early experiments, and these lessons are being used to help shape future schemes. The establishment of an organisation dedicated to the management of the contract scheme in Fiji appears to be bearing fruit (Ledua, 2006). Recent initiatives such as the sharing of Fijian experience in service contracting with Solomon Islands officials as part of ADB TA 4588 also make a valuable contribution in this regard.

3.7.4 Donated vessels Donor nations frequently offer to provide ships free or at greatly reduced costs to PDMCs. These donated vessels are a very attractive proposition to many PDMC governments. But unless carefully managed, the deployment of such vessels can undermine the development of commercial shipping markets and, in the long run, have a negative impact on service provision. One possible solution to this problem is to make vessels donated to governments available to private operators on a charter basis. To ensure that access to a vessel on favourable terms does not provide a competitive advantage to a particular operator, it would be useful to develop guidelines on how this might be achieved.

Recommendations

24. PDMC governments be encouraged to continue the recent trend to the privatisation of domestic services, including the development of service franchise schemes to secure access of remote communities to shipping services

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25. As part of the expanded role of the RMP:

• A forum for exchange of experiences in the privatisation of domestic shipping services be established

• Regional guidelines for chartering donated ships to private sector operators be developed

26. Options for providing finance for domestic ship operators be explored

3.8 Human resources

3.8.1 Seafarer training The training of seafarers to international standards is becoming increasingly sophisticated and expensive. Table 2-10 shows evidence of an emerging hierarchy of training institutions, with marked differences in the highest level of certification that can be completed at each institution. So far this evolution has been organic, but as the Pacific Plan advances closer regional cooperation on a number of fronts, including in education and training, it may be appropriate to develop a more structured regional approach to seafarer training. It is unlikely that the region could support more than one institution capable of delivering training to the level of Master Class 1. But it is possible, through regional cooperation, to ensure that the one institution is of world class, and that citizens of all PDMCs have equal access to it. Much of the foundational work that is required to do this has already been done, through the harmonisation and mutual recognition initiatives supported by the RMP, and by PacMA and its predecessor organisation. The next step is to develop and formalise a regional plan for training development.

Recommendation

27. Under the guidance of PacMA, a regional plan for the development of maritime training institutions be developed

3.8.2 Port management The maritime sector in the PDMCs is characterised by a lack of expertise in business and financial management. This shortage is particularly acute in Government Trading Enterprises: In general, there is a serious lack of appropriately qualified and experienced local financial professionals in the region. The problem is magnified in the local context because qualified professionals, where available, tend to join private industry rather than government institutions, which pay less. (PTF 2004a, p.2) Lack of suitably skilled staff will compound the impact of the governance deficiencies discussed earlier.

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The Regional Maritime Programme may provide a vehicle for remedying this deficiency. The RMP’s strategic plan reports widespread support for the extension of Programme activities into new areas: There is strong support for RMP to broaden its services to include harbour and port operations. Often the boundary between the maritime and port sectors is blurred and a significant number of personnel can legitimately claim involvement in both sectors. … The operational efficiency and safety of the maritime and port sectors impact significantly on each other, and increasing the scope of RMP to include port operations would be consistent with the safety and economic component of the Programme’s mission. ((http://www.spc.int/maritime, accessed 25 Jan 2007).

Recommendation

28. The RMP’s sphere of activity extended to cover both technical and commercial aspects of ports and maritime administration as well as shipping matters

Private sector training and development One of the important lessons learned from a decade of experimentation with service franchise schemes is that the supply side of the market for shipping services will require as much attention and development as the demand side. In most PDMCs there are few private sector operators with the skills, experience and financial capacity to provide shipping services of an acceptable quality. In many there are none. The easy and obvious solution to this problem — opening the market to international bidders — is very largely delusory. In most instances, the markets are small, the growth prospects poor, and the prevailing rates prohibitive. When this is combined with the risk on non- payment and possible antagonism of parties that are important to the service’s success, it would be very difficult for international operators to justify the effort of entry. Attempts to actively encourage bids from international operators for franchises in the Marshall Islands met with no success at all. Systematic efforts to develop the commercial and operational capacity of local shipping operators is therefore likely to be critical to the long-term success of endeavours to privatise domestic shipping operators. Training activities undertaken as part of ADB TA 4588 provide a useful start on the development of an appropriate approach to this task.

29. As part of donor support for the implementation of the Forum Principles on Regional Transport Services, training programs for private sector service providers in PDMCs on commercial and operational aspects of shipping line management be developed and implemented.

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3.9 Information issues During the conduct of the current study, the difficulty of obtaining even the most basic data (such as port tariffs and port throughputs) on the maritime sector in PDMCs was striking. In part this is because comparatively little use is made of modern means of sharing this information, such as web sites. In part it is because even fundamental information is sometimes not collected. Improved data collection and data sharing could make an important contribution to mutual learning in PDMCs. Accurate, timely and reliable information is the foundation of sound planning and policy development. It is also essential for monitoring enterprise performance. For each PDMC, the primary need is for information that relates to its own jurisdiction. But a regional approach to the collection and dissemination of data can enhance the utility of information from a number of perspectives. For example, it facilitates the establishment of performance benchmarks, and consequently ƒ Assists in the detection of problem areas in need of policy attention ƒ Supports the establishment of realistic targets for government enterprises. It also allows governments to check whether specific trends and development observed in data from their own jurisdiction are also manifest elsewhere in the region, and hence helps in establishing the underlying causes. Many attempts to improve data collection fail because they are excessively ambitious. Success is more likely if initial aspirations are modest, and the extent of data collection progressively improved once data collection systems are operating smoothly. This also provides any opportunity to prove the worth of improved data to potential users, and build a constituency that will support the funding necessary to expand the data collection. In line with this approach, attempts to build a Pacific region maritime database may best be initially confined to a handful of core elements, such as: ƒ Port cargo throughput ƒ Port tariffs ƒ Basic infrastructure characteristics (for example, berth lengths; maximum draught in approach channels) ƒ International shipping services, including their routes and vessels deployed ƒ Port productivity All except for the last of these are available on the public websites of many ports outside of the region.

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There are many strategies for sharing the information that is collected, and in the PDMC context the simpler are likely to be the more effective. Perhaps the simplest is an agreement for each PMDC to publish a common set of statistics on a suitable website. An alternative would be to establish a single central web registry, similar to that which has been established on the ADB website for the exchange of information related to the Pacific Infrastructure Task Force (http://www.adb.org/projects/improving-delivery-infrastructure/team.asp, accessed 29 Jan 2007)

30. A regional agreement on the collection and sharing of key maritime sector data be negotiated and implemented through the Regional Maritime Programme.

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A. PACIFIC FORUM LINE

A.1. Overview and history Probably the best known and most frequently quoted examples of regional initiatives in transport, the Pacific Forum Line (PFL) has been held up as an example of how a regional approach to transport may succeed, where there have been notable failures in both the shipping and other sub-sectors, such as air transport. Established in 1977 after the formation of the South Pacific Forum, the line began operating in 1978. The rationale was for the line to be not only a shipping company but also an instrument for regional development. It was born out of the concern by Forum members that containerisation would soon impact on the largely tramping conventional services prevalent in the region, leaving the nations marginalised and without influence on the shipping that was their lifeblood. This concern underlies the responsibilities set out in the line’s charter: ƒ to ensure regular shipping services ƒ to offer a modern shipping service to encourage the economic development of the South Pacific Region ƒ to contain freight rates ƒ to operate a viable shipping service. Today PFL is viable. It strives to make a profit each year while keeping freight costs realistic. However, this has not always been so, and the Line came close to failing in its early days, due in part to under capitalization and, perhaps, to some unreasonable expectations of its ability to be all things to all people. To set the scene, this paper considers the Line’s history and its position today. The original MOU on establishment of the Line was carried out in Suva in June 1977 and entered into force in August 1978. At that time, of the sixteen countries of the Forum, seven countries ratified and acceded to the MOU. These were Cook Islands, Fiji, Kiribati (subsequently negotiated withdrawal), New Zealand, Papua New Guinea, Samoa and Tonga. In December 1996, the MOU was amended with the same countries, less Kiribati, invited to ratify the new agreement. Initial operations commenced with a number of vessels on short term charters but they tended to follow the normal trends of ship provision in the region—less than suitable vessels obtained more from expediency than to satisfy the requirements of the trade. However, by the early 1980s these had been replaced with three geared container vessels on long term charters, two built specifically for the trade. Although initially chartered, by 1990 the Line owned its vessels. The container fleet was also initially fully leased, but by 1983 two thirds was owned, a pattern that continues.

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The Line’s early financial history was not impressive, with a succession of losses incurred mainly through under-capitalization. Lease and charter costs were fixed in foreign currency, much in US dollars, and the drain on the Line was nearly terminal. Recapitalization and strong support from, particularly, the New Zealand Government, saw the Line start to make progress, announcing its first profit in 1985. One aspect of the Line’s services was the inability of the new dedicated container vessels to serve all ports. Whilst incurring some criticism, the ability to focus on higher volume routes has underpinned the Line’s continued ability to return profits. It has not had to seek funding from its shareholders.

A.1.1. Company structure PFL is a limited liability private company. Its twelve shareholders are the governments of: the Cook Island; Fiji; Marshall Islands; Nauru; New Zealand; Niue; Papua New Guinea; Solomon Islands; Tonga; Tuvalu and Samoa. Each shareholder has a varying financial stake in the share capital with ‘A’ shares only carrying voting rights, these being held in equal numbers by all shareholders. The company is registered in Apia, Samoa but has its operating arm, Pacific Forum Line (NZ) limited located in Auckland. It has several associated and subsidiary companies, joint ventures and operating divisions.

A.2. Pacific Forum Line fleet Today, PFL operates eight vessels, capable of carrying containerised and break bulk cargoes on a wide range of services. The following tables summarise current fleet and operations.

TABLE A-1: PACIFIC FORUM LINE CURRENT FLEET (NOVEMBER 2006)

Vessel Description Capacity Gross tonnes

Forum Fiji II Geared container ship 516TEU 5,025

Capitaine Tasman II Geared container ship 660TEU 7,091

Forum Samoa II Geared container ship 660TEU 7,091

Forum Rarotonga Geared container/general cargo vessel 135TEU 2,657

Kokopo Chief* Geared combination container ship 726TEU 7,914

Coral Chief* Geared combination container ship 726TEU 7,914

Papuan Chief* Geared combination container ship 726TEU 7,914

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Vessel Description Capacity Gross tonnes

Melanesian Chief* Geared combination container ship 424TEU 7,091

Source PFL website http://www.pflnz.co.nz * The four ‘Chief’ vessels are owned by Swire Group’s Chief Container Services, with which PFL has an agreement that gives the Line exclusive marketing rights, PFL providing all related services and controlling rates.

A.3. Pacific Forum Line scheduled services PFL offers services linking Australia, New Zealand, the Pacific Islands and Papua New Guinea. Container services, both FCL and LCL are offered, and vessels will also carry break bulk cargo. Using the direct call services, they also offer transhipment to other destinations through ships of other companies. TABLE A-2: PACIFIC FORUM LINE: CURRENT SERVICES (NOVEMBER 2006)

Service Ports Vessels Frequency

Australia/Pacific Brisbane, Sydney, Melbourne, Lautoka, Suva, Capitaine Tasman II; 14 days Islands Apia, Pago Pago, Nuku’alofa Forum Samoa II

NZ/Pacific Islands Lyttleton, Napier, Auckland, Lautoka, Suva, Forum Fiji 21 days Pago Pago, Nuku’alofa.

Auckland, Nuku’alofa, Pago Pago, Rarotonga Forum Rarotonga 21 days

NZ/PNG Tauranga, Napier, Nelson, (Auckland cargo Kokopo Chief, Coral Weekly (fixed centralised to Tauranga, South Island cargo to Chief, Papuan Chief, day) Nelson at PFL cost), Australia, Port Moresby, Melanesian Chief. Lae, Madang, Kimbe, Lihir, Rabaul.

Inter island Fiji, Samoa, American Samoa, Tonga, Capitaine Tasman II; Varying Rarotonga Forum Samoa II, Forum Fiji, Forum Rarotonga

A.4. Pacific Forum Line today: Success factors The establishment of the Pacific Forum Line grew out of Pacific leaders’ dissatisfaction with and concern for shipping serving its community during a time of challenging economic and maritime trading conditions.

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During the 1960s, shipping in the region became a high risk and high cost venture, with shipping companies counteracting falling revenue with increasing levels of freight and decreasing levels of service. The situation was further exacerbated by industrial intransigence and union domination in the sector in the major economies of Australasia, and an awakening play of political forces in the newly independent states of the region. This environment saw the birth of the South Pacific Forum, and shortly thereafter, the Pacific Forum Line was conceived. At the time, shipping services within the region were minimal and poorly structured and maintained. The geographic spread of the islands and the small population and freight base made services problematic financially and encouraged governments to continue to serve the smaller islands or subsidise services, at a time when most of the world was ideologically trending to less public sector involvement. Some countries in the region, such as Tonga, Nauru and Papua New Guinea established their own national shipping companies, but these fell by the wayside. Although there was some thought of establishing a regional line based on these fleets, studies proved conclusively that this would not be feasible. In this unsatisfactory maritime trading environment, the sector was dominated by a few major operators who used their significant presence to act as cartels, their equipment and service levels being very similar. Conditions and service were set with little apparent concern for the Pacific nations or their traders. Out of this, and despite the capital intensive nature of the business, PFL was launched. It faced torrid times early in its life, its inexperience and ignorance of market realities combining with under-capitalization to bring it close to extinction. The situation was further aggravated by internecine conflict at board level and resulting negative publicity. However, a combination of Pacific diplomacy and a solid commitment by the New Zealand government in particular, saw order reinstated and funds injected from both NZ and, somewhat less willingly, Australia. A study by Touche Ross found major weaknesses, under- capitalization, non viable and complex routing and scheduling. The line was trying to be all things to all its stakeholders, and sinking as a result. Restructuring financially, focusing on a few key, viable routes and hard-headed business approach by its executive, led by George Fulcher and subsequently, John McLennan, both schooled in the cut and thrust of international and trans-Tasman trading, saw the Line consolidate its position, develop niche markets and begin to trade out of difficulty. This recovery owed much to the efforts of a few visionary, committed and commercially oriented individuals. Their ability to learn lessons quickly, avoiding sentimental or politically driven directions, were critical elements in the recovery and subsequent success. Dan Tufui, now retired but Chairman of PFL for most of its 25 years, commented in Pacific Magazine in November 2003, that after the Forum agreed to establish the company in 1976:

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We went off with a great bang of expectation that because PFL belonged to the region that immediately the shippers of the region would turn their attention to us and desert our competitors. It didn't turn out that way. As we found out, the shippers were more practical. They wanted to see if we had a good track record, would meet their needs and so on, before they started giving us their support. Because of that expectation we thought great amounts of capital would not be required. We kicked off with a total capital of, I think, NZ$100,000 and expected cash flow to meet all the costs and lead to profitability. We learnt the hard way, that we had to prove ourselves before we could earn the trust and support of the region. When that didn't come, that put a great big hole in the operation of the line and great difficulties later on. His greatest regret? That the Line was not able to serve all of the Forum’s members. Quoting the same article: One of the things we've always aimed at was to try to serve all members of the Forum, as we did with the Micronesian Line servicing Tuvalu, Kiribati and RMI. There wasn't enough trade to make it commercially viable. It was subsidized by Australia and New Zealand for a number of years. But they pulled out and we couldn't hold it. It is still our aim to be able to gather enough resources to be able to service every member of the Forum Line. (In the way that) we have found a formula to be able to service the Cook Islands. Lessons to be learned from the success of PFL are summarised in the Pacific Islands Forum Secretariat 2004 Issues paper, Lessons from the Pacific Forum Line (PFL). This was mainly aimed at informing the debate on a regional airline development, but the lessons are relevant elsewhere. ƒ Meeting regional service needs: PFL was a solution designed to meet the regional needs. It then adapted by restructuring its ownership of hardware and focusing on key, viable routes, even if this meant not serving some shareholder nations (Kiribati, Marshall Islands, Nauru, Niue, Solomon Islands and Tuvalu). ƒ Setting clear objectives: PFL’s initial MOU included contradictory objectives. Not being able to serve all nations—be all things to all people—was immensely unpopular but inevitable. ƒ Using commercial principles: Focusing on routes that would pay, despite the political and internecine pressures, is one example of the need to operate on commercial principles in order to face competition on an even footing. ƒ Appropriate capitalization and financing: The transport industry is an expensive one to enter and PFL proved this—almost the hard way. Without timely injection of funds from the major regional economies and fast financial restructuring we would be viewing PFL as an example of failure, not success. ƒ Suitable hardware: Maintain a key fleet of suitable vessels and do not allow individual agendas to compromise this.

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ƒ Develop strategic alliances: Where competition can be replaced by operating synergies, make alliances (e.g., PFL/Swire Shipping—two companies with clear commitment to the region). PFL began operations 28 years ago, but has demonstrated a flexibility that has enabled it to undergo major change to remain viable. Its management has proved itself hard headed but dedicated, understanding its own operating and political environment, and making its decisions without fear or favour.

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B. INTERVIEWED PARTIES TABLE B-1: INTERVIEWED PARTIES IN FIJI

Organisation Interviewee’s Name Position Fiji Ports Authority Herbert Hazelman CEO Fiji Shipping Company Ltd Waqa Ledua CEO Campbell’s Shipping Agency Ian Campbell Managing Director Carpenters Shipping Manikam Narain General Manager Shipping Services (Fiji) Ltd Frances General Manager Bernard Hong-Tiy Chief Operating Officer Jane Koi Operations Officer Transport Planning Unit, and Sailasa Vatucawaqa Director General Ministry of Tourism and Transport Ministry of Public Enterprises & Jiutajia Daunivalu Senior Economist Public Sector Reform

TABLE B-2: INTERVIEWED PARTIES IN SOLOMON ISLANDS

Organisation Interviewee’s Name Position Solomon Islands Government: McKinnie P. Dentana Policy Analyst Economic Reform Unit: Department of Finance & Treasury, Ministry of Finance, National Reform & Planning Solomon Islands Port Authority Bill Barile General Manager Ngenomea Buaeda Kabui Papua New Guinea Maritime Richard Coleman Principal College Commodities Export Marketing Alfred David Ramo Commodities Development & Authority (CEMA) Extension Manager Papua New Guinea Department Robert Kaul Project Manager: Navigational Aids of Transport System & Community Water Transport Networks Tradco Shipping Ltd Gerald Stenzel Managing Director Solomon Islands College of Captain Starling Daefa Head of School: School of Marine Higher Education & Fisheries Studies Tideland Signal Pte Ltd Captain Brian Tuomi Managing Director Marine Division Captain Pasquel

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TABLE B-3: INTERVIEWED PARTIES IN FEDERATED STATES OF MICRONESIA

Organisation Interviewee’s Name Position Department of Economic Affairs Mr Berthold Edmund Dept of Transport Capt Weiner Hadley Communications and Infrastructure of Transport Communication and Capt Magnong, Dept Infrastructure Pohnpei Ports Authority Mr Zorro Donre, Acting Gen Manager Pohnpei Ports Authority Mr Renedgardo Merencillo Comptroller Pohnpei Ports Authority Mr Melson Darra Airport Manager Pohnpei Ports Authority Mr Bronson Sarra Acting Maintenance Manager. FSM Line Mr Joe Vitt President and Pohnpei Transport and and General Manager Storage Federated Shipping Company Ltd Mr Samual Pretrick General Manager

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C. REFERENCES

C.1. Documents Asian Development Bank Commonwealth Secretariat 2005, ‘Toward A New Pacific Regionalism: Retrospective Cost-Benefit Analyses of Air Pacific and Pacific Forum Line’, Pacific Studies Series, Vol.3, Working Paper 5, Suva, Fiji. Asian Development Bank 2006a, Nauru Country Note, downloaded from ADB website, http://www.adb.org, 17 December. ——2006b, Country Strategy and Program Update 2003-2005: Papua New Guinea, http://www.adb.org, downloaded 18 December. ——2006c, Country Information: Samoa, http://www.adb.org, downloaded 18 December. ——2006d, Country Information: Tonga, http://www.adb.org, downloaded 20 December. ——2006e, Country Information: Tuvalu, http://www.adb.org, downloaded 21 December. ——2002, Vanuatu: Economic Performance and Challenges Ahead, ADB, Manila. CIA World Fact Book online, https://www.cia.gov/cia/publications/factbook, viewed various dates. Cullen Grommitt and Roe 2002, Presentation on Port Asset Management Improvement Project Fiji, Asian Development Bank TA 3199, Suva, November, Department of Foreign Affairs and Trade Australia (DFAT) 2006, Republic of the Fiji Islands Country Brief, viewed July 2006, http://www.dfat.gov.au. ——2006, Federated States of Micronesia: Fact Sheet, viewed July 2006, http://www.dfat.gov.au. ——2006, Fiji Fact Sheet, viewed December 2006, http://www.dfat.gov.au. ——2006, Kingdom of Tonga: Country Brief, viewed December 2006, http://www.dfat.gov.au. ——2006, Palau: Country Brief, viewed December 2006, http://www.dfat.gov.au. ——2006, Solomon Islands: Country Brief, viewed October 2006, http://www.dfat.gov.au. —— (Economic Analytical Unit) 2005, Solomon Islands: Rebuilding an Island Economy, Commonwealth of Australia, ACT, viewed October 2006, http://www.dfat.gov.au. ——2004, Papua New Guinea: Country Brief, viewed October 2006, http://www.dfat.gov.au. CPS Transcom 2003, Papua New Guinea Maritime Restructuring Project, Final Report, ADB TA 3619, December 2003. Department of Transport and Civil Aviation Papua New Guinea 2003, Papua New Guinea Maritime Restructuring Project, Final Report, ADB TA 3619. Enterprise Research Institute 2003, Republic of the Marshall Islands: A Private Sector Assessment — Promoting Growth Through Reform, ADB, Manila. European Development Fund 1999, Solomon Islands Shipping and Marine Sector Study, Final Report, European Commission.

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——1999, Solomon Islands Shipping and Marine Sector Study: Route Costing Model – User Manual, European Commission. Federated States of Micronesia 2003, Infrastructure Development Plan, Maritime Transportation Sector. Federated States of Micronesia 2003, Micronesian Shipping Commission, Background and Function. Fiji Islands Government Gazette Supplement 2001, Tariff Regulations, No 18, 8 June. Filmer R 1999, Port Authority Projections for Port Moresby, 1999-2025, Working Paper, Applied Economic Solutions, May. Fiji Institute of Technology 2002, Project Dossier: Upgrading of the School of Maritime Studies to Cater for Regional Demands, January 2002. Fiji Shipping Corporation Limited, Annual Report 2005. GlobalWorks 2007, Inception Report, ADB TA 6257-REG: Improving the Provision of Infrastructure Services in Pacific Developing Member Countries. International Maritime Organization website, viewed 8 November 2006, http://www.imo.org. Independent Consumer and Competition Commission (ICCC) 2003, PNG Harbours Regulatory contract, ICCC, Port Moresby. Independent Consumer and Competition Commission (ICCC) 2006a, Review of PNG Coastal Shipping Industry: Draft Report, ICCC, Port Moresby. Independent Consumer and Competition Commission (ICCC) 2006b, Stevedoring and Handling Services Review: Draft Report, ICCC, Port Moresby. Japan International Cooperation Agency (JICA) 1997, Project Identification Sea Transport Development Oceania. Ledua, Waqa 2006. The shipping franchise scheme in Fiji, Paper presented to ADB/Solomon Islands workshop on inter-island shipping reforms, Honiara, 29 November. Lloyds List Daily Commercial News (various issues). Lloyd's List 2005, Ports of the World, Lloyds of London Press, London. Maritime and Ports Authority of the Fiji Islands, Annual Report (various years). Meyrick and Associates 2003, Feasibility Study, Government Shipping Corporation, Fiji, Final Report, Wollongong, Australia. Ministry of Infrastructure and Development, Solomon Islands 2006, National Transport Plan 2007-2026, Transport Planning and Policy Unit, Honiara. Ministry of Transport and Economic Management (MTEM) 2003, Government Business Enterprise Unit, Green Paper, Vanuatu Port Corporatisation, Vanuatu. MPC International Group et al 2006, Strengthening Disaster Management and Mitigation: Draft Final Report, Volume 2:Master Plan, ADB TA 4605-COO, November.

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Pacific Islands Forum Secretariat 2000, Review and Analysis of Forum Island Country Shipping Regulations, Draft, 2000. Pacific Islands Forum Secretariat 2004a, Pacific Regional Transport Study: Final Report, Suva. Pacific Islands Forum Secretariat 2004b, Issues Paper: Lessons from the Pacific Forum Line. Pacific Magazine 2003, ‘Finding the right formulae: The key to PFL’s success’, Pacific Magazine Issue November 2003, viewed December 2006, http://www.pacificislands.cc. Pacific Marine Management 2005, Improving the Delivery of Sea and Air Transport Services in the Marshall Islands: Final Report, ADB TA 4004-RMI. Pacific Plan Action Committee 2005a, An assessment of regional mechanisms and processes in the Pacific, downloaded from http://www.pacificplan.org, January 26 2007. Pacific Plan Action Committee 2005b, Maritime Sector, downloaded from http:/www.pacificplan.org, January 26 2007. Papua New Guinea Harbours Ltd. 2004, Briefing Paper on the Functions and Activities of Papua New Guinea Harbours Ltd. Papua New Guinea 2003, Protection of the Sea (Shipping Levy) Act 2003 (Marine Pollution Prevention Bill). Papua New Guinea 2003, National Maritime Safety Authority Act 2003. Papua New Guinea 2002, Independent Consumer and Competition Commission Act. Papua New Guinea 2000, National Maritime Safety Authority, Corporate Plan 2003-05. Ports Authority of Fiji, Ports Authority Handbook, 1997. Ports Authority Tonga, Annual Report, 2002-03. Prime Minister’s Office, Solomon Islands 2006, Infrastructure and Development Policy Statement, downloaded from website of the Office of Prime Minister and Cabinet, http://www.pmc.gov.sb, 1 December 2006. RMI Ports Authority 2006, Presentation to the 2006 Pacific Aviation Directors Workshop, Guam, April 4-6. Samoa Shipping Corporation, Annual Report (various years). Samoa Ports Authority, Annual Report (various years). Secretariat of the Pacific Community (SPC) 2004, Forum Principles for Regional Transport Services, downloaded from SPC website, http:/wwwforumsec.org, Jan 21 2007. ——2005, Regional Maritime Programme, 2003-05 Triennial Report, SPC, Suva. ——2006, Maritime & Fisheries Training Institutions in Pacific Island countries & territories, downloaded from SPC website, http://www.spc.org.nc, 9 December 2006. Solomon Islands Government/European Development Fund, Transport Sector Strategy, June 2002. Solomon Islands Port Authority 2004, Annual Report 2003.

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Solomon Islands Port Authority 2006, Untitled, Presentation to Cabinet, December. South Pacific Forum Secretariat 2000, Sharing Capacity: The Pacific Experience with Regional Cooperation and Integration, Suva. South Pacific Forum 1978, Communiqué Ninth South Pacific Forum 16-20 September. Tari, Peter 2006, Overview of the Vanuatu economic performance, Central Bank Articles and Speeches, Bank of International Settlements website, http://www.bis.org, downloaded 20 Dec 2006. Tavola, Kalipate et al 2006, Reforming the Pacific Regional Institutional Framework, Report to the Pacific Plan Action Committee, downloaded from PPAC website, http://www.pacificplan.org, 26 Jan 2006. TecnEcon 1995, Solomon Islands Shipping and Marine Sector Study, Policy Issues Paper, for Ministry of Transport Works and Utilities. Tongan Government Gazette Supplement, 7 June 1999, Ports Authority (Overseas Vessels Tariff Fees). Tonga, Ports Authority Act 1998. Tuomi, Capt Brian 2005, Diagnostic assessment of interisland transport in Solomon Islands, Draft final report of ADB TA 4257 (SOL). Tuomi, Capt Brian, et al 2006, Untitled presentation to the Solomon Islands Government/ADB workshop on Inter Island Shipping Reforms, Honiara, November 29-30. UNICEF 2006, At a glance: Papua New Guinea, http://www.unicef.org, downloaded 20 Dec 2006. United Nations Department of Economic and Social Affairs (UN ESA) 2006, Division of Sustainable Development, National Assessment Report, Palau. United Nations Economic Commission for Asia and the Pacific 1997, Study on Shipping and Port Capacities in the Island Developing Countries, New York. Vitusagavulu, Jesoni 2005, A retrospective cost-benefit analysis of Air Pacific and Pacfic Forum Line, Pacific Studies Series: Towards a New Regionalism, Working Paper No 5. Top Tier Management, Suva. World Bank 2006, The Pacific Infrastructure Challenge: A review of obstacles and opportunities for improving performance in the Pacific Islands, World Bank, East Asia and Pacific Region, Pacific Islands Country Management Unit, Washington. World Bank 1993a, Pacific Islands Transport Sector Study, Transport Issues – A Regional Perspective, Vol 1, Report No. 10543-EAP, March. ——1993b, Pacific Islands Transport Sector Study, Volume IV: Western Samoa – Transport Sector Survey, Report No. 10543-EAP. ——1993c, Pacific Islands Transport Sector Study, Volume VI, Tonga – Transport Sector Survey, Report No. 10543-EAP, March. ——1993d, Pacific Islands Transport Sector Study, Volume VII: Solomon Islands – Transport Sector Survey, Report No. 10543-EAP, March.

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C.2. Websites Asian Development Bank, viewed various dates, http://www.adb.org. Australia Asia Line, viewed various dates, http://www.aalpas.com. CI-Online, viewed various dates, http://www.ci-online.co.uk. Consort Express Line, viewed various dates, http://www.consort.com.pg. Fiji Government, viewed 1 November 2006, http://www.fiji.gov.fj. Greater Bali Hai, viewed http://www.greaterbalihai.com. PNG Maritime College, viewed various dates, http://www.pngmc.ac.pg. Regional Maritime Programme, http://www.spc.int/maritime Samoa Ports Authority, viewed various dates, http://www.spasamoa.ws. Secretariat of the Pacific Community, viewed various dates, http://www.spc.org.nc. Swire Shipping, viewed 25 October 2006, http://www.swireshipping.com Texas University, viewed 20 October 2006, http://www.lib.utexas.edu.

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Prepared for Asian Development Bank

Final Report Volume 2: Country Reviews March 2007 ADB TA-6166 (REG): Pacific Regional Transport Analysis

Copyright

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ADB TA-6166 (REG): Pacific Regional Transport Analysis

Table of Contents

LIST OF ABBREVIATIONS AND ACRONYMS ...... I EXCHANGE RATES...... IV 1. FIJI ISLANDS ...... 1 1.1 Introduction...... 1 1.1.1 Geography and economy...... 1 1.1.2 Major trading partners...... 2 1.2 Maritime administration ...... 2 1.2.1 Ministry of Transport and Tourism ...... 2 1.2.2 Fiji Shipping Corporation...... 3 1.2.3 Port administration ...... 3 1.2.4 Commentary...... 4 1.3 Shipping services ...... 4 1.3.1 International shipping services...... 4 1.3.2 Freight Rates...... 8 1.3.3 Domestic shipping services...... 8 1.3.4 Commentary...... 14 1.4 Ports sector ...... 20 1.4.1 Overview ...... 20 1.4.2 Port structure, administration and ownership...... 20 1.4.3 Port infrastructure...... 21 1.4.4 Port throughput ...... 23 1.4.5 Port charges...... 24 1.4.6 Stevedoring...... 26 1.4.7 Port facilities: strategic development...... 27 1.4.8 Commentary...... 28 1.5 Inland transport ...... 29 1.5.1 Congestion at Suva and Lautoka...... 29 1.5.2 Heavy vehicle mass limits...... 30 1.5.3 Freight rates...... 31 1.5.4 Logistics facilities ...... 31 1.5.5 Commentary...... 31 1.6 Maritime safety and security...... 32 1.7 Maritime training...... 32 2. FEDERATED STATES OF MICRONESIA ...... 34 2.1 Introduction...... 34 2.1.1 Geography and economy...... 34 2.1.2 Major trading partners...... 34 2.2 Shipping services ...... 34 2.2.1 International shipping services...... 34 2.2.2 Freight rates...... 37 2.2.3 Micronesian Shipping Commission...... 38 2.2.4 Commentary on international shipping services and Micronesian Shipping Commission ...... 40 2.2.5 Domestic shipping services...... 43 2.3 Ports sector ...... 45 2.3.1 Port ownership and administration...... 45 2.3.2 Port infrastructure...... 47 2.3.3 Port throughput ...... 48 2.3.4 Financial performance of Pohnpei Port Authority (PPA)...... 49 2.3.5 Performance...... 49 2.3.6 Port charges...... 50 2.3.7 Stevedoring...... 51 2.3.8 Commentary...... 52

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2.4 Inland transport ...... 53 2.5 Maritime safety and security...... 53 2.5.1 Responsibilities ...... 53 2.5.2 Channels and navaids...... 53 2.5.3 Maritime Security ...... 53 2.5.4 Commentary...... 54 2.6 Maritime training...... 54 3. SOLOMON ISLANDS...... 55 3.1 Introduction...... 55 3.1.1 Geography and economy...... 55 3.1.2 Major trading partners:...... 55 3.2 Maritime administration ...... 55 3.2.1 Department of Infrastructure and Development Marine Division ...... 56 3.2.2 Provincial governments...... 57 3.2.3 The Solomon Islands Port Authority...... 57 3.3 Shipping services ...... 58 3.3.1 International shipping services...... 58 3.3.2 Freight costs...... 60 3.3.3 Domestic shipping services...... 60 3.3.4 Commentary...... 63 3.4 Ports sector ...... 64 3.4.1 Port ownership and administration...... 64 3.4.2 Port infrastructure...... 66 3.4.3 Port throughput ...... 68 3.4.4 Noro ...... 69 3.4.5 Port development plans ...... 70 3.4.6 Port performance ...... 71 3.4.7 Port charges...... 72 3.4.8 Stevedoring...... 73 3.4.9 Commentary...... 73 3.5 Ship maintenance and repair ...... 74 3.6 Maritime safety and security...... 75 3.7 Maritime training...... 75 4. NON-CASE STUDY PACIFIC ISLAND COUNTRIES ...... 76 4.1 Cook Islands...... 76 4.1.1 Introduction ...... 76 4.1.2 Shipping services...... 77 4.1.3 Maritime infrastructure ...... 79 4.2 Kiribati ...... 80 4.2.1 Introduction ...... 80 4.2.2 Shipping services...... 80 4.2.3 Ports...... 82 4.3 Marshall Islands ...... 83 4.3.1 Introduction ...... 83 4.3.2 Maritime administration...... 84 4.3.3 Shipping services...... 85 4.3.4 Maritime training facilities...... 87 4.4 Nauru...... 87 4.4.1 Introduction ...... 87 4.4.2 Shipping services...... 89 4.4.3 Ports...... 90 4.5 Palau ...... 91 4.5.1 Introduction ...... 91 4.5.2 Shipping services...... 92 4.5.3 Maritime infrastructure ...... 93

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4.5.4 Maritime security...... 93 4.6 Papua New Guinea ...... 93 4.6.1 Introduction ...... 93 4.6.2 Structure of maritime administration ...... 94 4.6.3 Shipping services...... 95 4.6.4 Domestic shipping...... 98 4.6.5 Ports...... 101 4.6.6 Maritime safety...... 108 4.6.7 Maritime education...... 108 4.6.8 Maritime security...... 109 4.7 Timor-Leste ...... 109 4.7.1 Introduction ...... 109 4.7.2 Maritime and port administration...... 110 4.7.3 International shipping services...... 111 4.7.4 Ports...... 111 4.7.5 Maritime training...... 112 4.7.6 Maritime security...... 112 4.8 Tonga ...... 112 4.8.1 Introduction ...... 112 4.8.2 Maritime and port administration...... 113 4.8.3 Shipping services...... 114 4.8.4 Ports...... 117 4.8.5 Maritime training...... 120 4.8.6 Maritime security...... 121 4.9 Tuvalu...... 122 4.9.1 Introduction ...... 122 4.9.2 Shipping services...... 123 4.9.3 Maritime infrastructure and administration...... 126 4.10 Vanuatu...... 126 4.10.1 Introduction ...... 126 4.10.2 Maritime administration...... 127 4.10.3 Shipping services...... 129 4.10.4 Maritime infrastructure ...... 133 4.10.5 Maritime training...... 134 4.10.6 Maritime security...... 134 4.11 Western Samoa...... 134 4.11.1 Introduction ...... 134 4.11.2 Maritime administration...... 135 4.11.3 Shipping services...... 136 4.11.4 Ports...... 140 4.11.5 Maritime security...... 142 4.11.6 Maritime training...... 143

ADB TA-6166 (REG): Pacific Regional Transport Analysis

LIST OF ABBREVIATIONS AND ACRONYMS

Abbreviation Definition ADB Asian Development Bank APIMTIMA Association of Pacific Island Maritime Training Institutions and Maritime Administrations APP Association of Pacific Ports ASEAN Association of South East Asian Nations ANZ Australia and New Zealand BAF Bunker adjustment factor Break bulk Break bulk cargo is generally referred to as the opposite of containerised cargo BCPNG Business Council of Papua New Guinea CABAF Currency and bunker adjustment factor CAF Currency adjustment factor CEMA Solomon Islands Commodities Export Marketing Authority CFS Container freight station CIF Cost, insurance and freight CSO Community Service Obligations EEZ Exclusive Economic Zone DWT Deadweight tonnage FCL Full Container Load FEU Forty foot equivalent unit FIC Forum Island Countries FIMSA Fiji Islands Maritime Safety Administration FOB Free on Board FPCL Fiji Ports Corporation Limited FSM Federated States of Micronesia GDP Gross Domestic Product GPDLR General purpose discharge, land, restow: a shift from one bay to another GPMT General purpose empty container GPSOB General purpose shift on board: a shift within the same bay GRT Gross registered tonnage GSS The Fijian Government Shipping Services GST Goods and Services Tax GT Gross tonnage Handysize A relatively small bulk carrier 10,000–35,000 dwt ICCC Independent Consumer and Competition Commission IMO International Maritime Organization

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Abbreviation Definition ISPS International Ship and Port Facility Security code JICA Japan International Cooperation Agency LCL Less than Container Load LOA Length overall MARPOL International Convention for the Prevention of Pollution from Ships (1973) and (1978) MID Ministry for Infrastructure and Development (Solomon Islands) MOU Memorandum of Understanding MPAF Maritime and Ports Authority of Fiji MSC Micronesian Shipping Commission NTP National Transport Plan NVOCC Non-vessel operating common carrier ODG Out of gauge PacMA Pacific Islands Maritime Association PacWIMA Pacific Women in Maritime Association PAF Ports Authority of Fiji PDL Pacific Direct Line PDMCs Pacific Developing Member Countries PFL Pacific Forum Line PICs Pacific Island Countries PICTs Pacific Island Countries and Territories PIMLA Pacific International Maritime Law Association PPP Purchasing power parity PSC Port service charges PSV Public service vehicle PTL Ports Terminals Limited RAMSI Regional Assistance Mission to Solomon Islands RMI Republic of the Marshall Islands RMP The Secretariat of the Pacific Community’s Regional Maritime Programme Ro-ro Roll-on roll-off SIPA Solomon Islands Port Authority SOLAS International Convention for the Safety of Life at Sea (1974) SPA Samoa Ports Authority SPARTECA South Pacific and Regional Trade Agreement SPC Secretariat of the Pacific Community SSC Samoa Shipping Corporation

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Abbreviation Definition STCW International Conventions on Standards of Training, Certification and Watchkeeping for Seafarers (1978) and (1995) TEU Twenty foot equivalent unit THC Terminal handling charges TOR Terms of Reference VSA Vessel Sharing Agreement

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EXCHANGE RATES All quoted exchange rates are taken from http://www.xe.com as at December 2006.

Country Currency Conversion to United States Dollar (USD) Australia Australian Dollar (AUD) $0.79 Cook Islands New Zealand Dollar (NZD) $0.69 Fiji Islands Fiji Dollar (FJD) $0.60 Japan Japan Yen (JPY) $0.0084 Kiribati Australian Dollar (AUD) $0.79 Marshall Islands United States Dollar (USD) $1.00 Federated States of Micronesia United States Dollar (USD) $1.00 Nauru Australian Dollar (AUD) $0.79 Palau United States Dollar (USD) $1.00 Papua New Guinea Kina (PNK) $0.33 Samoa Western Samoa Tala (WST) $0.36 Singapore Singapore Dollar (SGD) $0.65 Solomon Islands Solomon Islands Dollar (SBD) $0.14 Timor-Leste United States Dollar (USD) $1.00 Tonga Tonga Pa’anga (TOP) $0.49 Tuvalu Australian Dollar (AUD) $0.79 Vanuatu Vanuatu Vatu (VUV) $0.0094

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1. FIJI ISLANDS

1.1 Introduction

1.1.1 Geography and economy The Fiji archipelago consists of some three hundred and thirty two islands, one third of which are inhabited. Fiji has a population of 840,000 (2006). Its per capita Gross Domestic Product (GDP) is approximately USD5,900. The political crisis of 2000 saw the Fiji economy contract by 2.8%. This contraction was accompanied by substantial job losses and out migration by skilled and professional workers. Since 2000, business confidence and private investment have picked up but are not sufficient to drive sustained growth (Australian Department of Foreign Affairs and Trade 2006, p.4). The economy recorded reasonable growth in the period 2001–04, driven by a resurgent tourist industry. Whilst sugar was the mainstay of the economy for most of the twentieth century, the industry has been in decline for a number of years. Much of Fiji’s sugar is exported to the European Union under the Cotonou Agreement, which provides prices for sugar imports from African–Caribbean–Pacific countries two to three times above the world market price. Years of neglect, disinvestment, uncertainty over the renewal of farm leases and high production costs have taken their toll. In September 2002, Prime Minister Qarase announced a five year restructuring plan which aims to make the sugar industry internationally competitive by 2007. In May 2003, due to a lack of stakeholder consensus on the nature of the reform package, the Prime Minister announced that the restructuring package had been postponed to allow for further consultation. Whilst sugar remains the major export crop, there have been significant increases in the production and export of other agricultural commodities as a result of planned diversification. Copra, ginger, and tropical fruits are now exported to Australia, New Zealand, Japan and the United States. Fiji has also established overseas markets for fish, particularly tuna, and other marine products, notably seaweed. Manufacturing has not fully recovered from its substantial 2000 decline. Earnings from garment exports in 2002 were 13% lower than in 2001 because of lower demand from major markets—the United States, Australia and New Zealand. The garment industry still has a workforce of approximately 13,000, down from the peak of 18,000. The industry relies heavily on exports under the South Pacific and Regional Trade Agreement (SPARTECA), which enables Fiji-produced goods to be sold in Australia and New Zealand duty free, and on a quota for the US market. Tourism is Fiji’s main foreign exchange earner and an important basis of Fiji’s economy, contributing around 20% of GDP. Tourism recovered well after a massive decline in 2000, with 395,000 arrivals in 2002, a 14% increase over 2001 and only 4% below 1999’s record. Australia has historically been the biggest source of tourists for Fiji, followed by New Zealand, the United States and Japan. Remittances from Fiji Islanders living in other countries have quadrupled since 1994 to amount to USD140 million in 2002. Remittances are Fiji’s fourth largest source of foreign exchange. The Government of Fiji adopted a national Competition Policy in 2004. This was aimed at: ƒ promoting the market system ƒ promoting contestability

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ƒ constraining market concentration ƒ promoting fair competition ƒ reducing direct government intervention in the economy. A Commerce Commission was established and given powers to enforce the Act. The Commission has recently (2006) brought down its final determinations in respect of electricity prices and the prices of telecommunications services. It is not yet clear whether the government intends to use the Act to regulate service provision in domestic or international shipping. Politically, Fiji continues to display some instability, illustrated by the recent military led coup. This continued unsettled state has some impact on major revenue from tourism, and on confidence by overseas investors. More particularly, it can impede the orderly progress of reform initiatives as changing government perspectives reverse, slow or modify policy and strategy development.

1.1.2 Major trading partners Fiji’s principal export markets (2005) were United States (19.1%), Australia (16.5%) and UK (11.9%). The principal sources of imports (2005) were Singapore (27.3%), Australia (23.5%) and New Zealand (18.5%). (Australian Department of Foreign Affairs and Trade, Fact Sheet: Fiji 2006)

1.2 Maritime administration

1.2.1 Ministry of Transport and Tourism The Ministry of Transport and Tourism has overall responsibility for maritime administration and maritime policy. Two departments of the Ministry are currently responsible for the delivery of regulatory and operational functions in the maritime sector: Fiji Islands Maritime Safety Administration; and the Government Shipping Service.

Fiji Islands Maritime Safety Administration (FIMSA) FIMSA is empowered under the Marine Act to regulate the shipping industry. FIMSA’s regulatory role covers surveys, inspections, classification and certification of vessels, port state control, monitoring of shipping within Fijian waters, and regulation of inter-island shipping. As of 14 March 2006, the Fiji Islands Maritime Safety Administration (FIMSA) is a Reorganised Enterprise under the Public Enterprises Act 1996. Re-organization of FIMSA was required as a result of reform of Fijian ports and the need to ensure that ports comply with the requirements of the ISPS code. As a result of the ports reorganization, FIMSA has taken over regulatory activities previously undertaken by Maritime and Ports Authority of Fiji (MPAF). Current expectations are that this process will result in the establishment of a statutory body responsible for the regulation of maritime safety and related matters and operating under its own legislation.

Government Shipping Services The Government Shipping Services (GSS) was formerly the Shipping Operations Section of the Marine Department. The Department included a Ship Repair and Regulatory branches.

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Vessels operated by the GSS vary in size from 28 to 237 tonnes. Most of the vessels are between twenty and thirty years old. The mandate of the GSS is to act as an in-house carrier for the government, carrying government consignments such as building materials and heavy equipment for public works, as well as the transfer of government personal. The GSS does not charge freight rates to government departments; instead its operational costs are allowed for in its operational budget. According to the GSS, the organization does not compete with commercial shipping. Funding for maintenance of the Government fleet has been erratic. The GSS maintenance budget was completely eliminated in 1997. It was restored in 2000, only to be removed again after the Coup. In 2004, GSS was granted a maintenance budget of USD300,000, although GSS had requested USD600,000 to enable it to catch up with its maintenance backlog.

1.2.2 Fiji Shipping Corporation The Fiji Shipping Corporation Limited (FSCL) was set up on 1 April 2004 to act as a ‘virtual’ shipping line, responsible for administering the shipping franchises for non-economic routes to the outer islands of Fiji—a role previously conducted by the Fiji Island Maritime Safety Authority. The concept of a shipping franchise scheme in Fiji was first discussed in 1993 and was approved by the Fijian Government in 1996. FSCL key objectives include to: ƒ Provide shipping services to uneconomical ports in order to provide regular and safe transportation ƒ Develop and encourage trade and economic activity on the islands to improve the viability of inter-island shipping to an extent where the Shipping Franchise Scheme is no longer necessary ƒ Improve the quality of standards of vessels in terms of safety and comfort for passengers (FSCL Annual Report 2005 p.5). FSCL does not own any vessels or engage in any trading routes.

1.2.3 Port administration Fiji Ports Corporation Limited (FPCL), a government corporation operating semi-autonomously under the Ministry of Transport, is responsible for the ‘major’ ports, declared as Suva, Lautoka, Labasa/Malau and Levuka. Other ports remain under ministerial control, with FIMSA continuing to provide navigational and safety overview. Ports Terminals Limited (PTL), previously a 100% Government owned operation, is now a 100% subsidiary of FPCL. The company is currently managed and operated by FPCL, and carries out stevedoring at all major ports.

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1.2.4 Commentary Restructuring of the port and maritime structure in Fiji has been proceeding for over a decade. A number of the operational functions performed by the government in the maritime sector have been delegated to specialised agencies which operate with a fairly high degree of autonomy. This process is continuing, albeit at an erratic pace. The views from both the Ministry for Public Enterprise and corporatised entities (FPCL, PTL and FSCL) is that this process has been beneficial, but has not gone far or fast enough.

1.3 Shipping services

1.3.1 International shipping services

Overview Export and import shipping services cater for bulk and general cargo, the latter mostly carried in containers. Generally the liner container services call at Suva, some at Lautoka and a few at both ports. Bulk and liquid bulk cargoes are also handled at Suva and at Lautoka, where the major volume is handled at the Vuda terminal near Nadi. Break bulk (including steel) is handled at both Suva and Lautoka, mainly as imports. Other bulk and break bulk cargo is handled for export at Labasa/Malau and at Levuka. This mainly comprises high volume dedicated cargo including sugar and forestry products (woodchips) and, in the case of Levuka, seafood landed and processed at the port for export in dedicated refrigerated vessels. Most vessels engaged in overseas trading are owned overseas, with container vessels operating either separate or rationalised services with multiple Pacific Islands call patterns, often combining calls at ports in South East Asia and Australasia. In general terms, vessels owned by overseas companies are relatively new and well maintained, increasing safety and security protocols, and the application of Port State Control in overseas ports, having encouraged ship replacement programs. This can be said also of the bulk carriers calling, and particularly so with liquid bulk vessels. Size of vessels is limited by available water depth at Suva and Lautoka, with most liner container vessels in the 500 to 1,500TEU range. Although future port development may allow larger vessels, the size of ships employed will also be driven by cargo volumes and the other ports served by the vessels. Potential for hubbing1 of cargo for other Pacific nations may see larger non-geared vessels eventually deployed in this trade, plus calls by smaller ‘round-the-world’ service vessels (e.g., 2,500 to 3,000 TEU), calling only at Suva with other cargo land-bridged2 (e.g., to Lautoka) or carried in feeder vessels.

1 A large port that is intended to attract transhipment cargo to and from smaller ports is termed a ‘hub’ port—because it effectively acts as a ‘hub’. Hubbing refers to this process. 2 Landbridging refers to the movement of cargo by land transport as a substitution for (former) movement by sea. For example, a container arrives by ship at Suva and then is sent by road to Lautoka.

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Export bulk cargoes include sugar and woodchips, and imports mainly petroleum products, cement and fertiliser. Bulk cargoes normally move in ships chartered on the spot market on time or voyage charters, with mainly dedicated vessels owned or managed by major oil companies in the liquid bulk trades. Bulk shipping is commonly arranged by cargo interests. Contestability is sustained in as much as the shipper typically uses brokers to identify ships and negotiate rates. Bulk vessels are also limited in size by available depths, but once again this can also be influenced by size of cargo parcels and other ports to which these vessels are required to call. Thus handysize bulk or liquid bulk carriers will continue to be the mainstay of this trade, except where they call at dedicated terminals or buoyed moorings.

Scheduled services to/from North America Hamburg-Sud, FANZL, Hapag-Lloyd and Maersk operate a VSA between Australia and North America. Some sailings by vessels employed in the VSA Pacific Coast Loop A call at Suva en route to North America. Service frequency is weekly—the vessels typically have a capacity of around 1,800TEU.

Scheduled services to/from Australia/NZ Pacific Forum Line (PFL) operates its Australia–Fiji service by means of a pool with Pacific Direct Line (PDL), Reef Shipping and Neptune Shipping Line. The lines offer a fortnightly service from Australia to Lautoka, Suva, Apia, Pago Pago and Nuku’alofa. The Australian service is operated by the Capitaine Tasman and the Forum Samoa II. Pacific Forum Line also operates a fortnightly NZ– Fiji–Samoas–Tonga–Cook Islands–NZ service utilizing the Forum Pacific and the Forum Fiji II. Neptune Shipping Line, a Fiji specialist, also carries break bulk goods to Fiji from New Zealand on the Capitaine Wallis, which operates outside the Australian pool. The North American VSA (see previous section) also provides a service between Australia/NZ and Fiji. The vessels employed are markedly larger than those used by Pacific Forum Line in its services between Australia/NZ and the Southwest Pacific. Chief Container Line calls outbound at Suva as part of a complex Pacific itinerary that extends from Melbourne as far as Majuro in RMI, while Pacific Direct Line calls at Suva en route to Tuvalu, Wallis and Futuna. The Australia–Fiji Discussion Agreement (AFDA), whose members are Hamburg Sud, Hapag-Lloyd, Neptune Shipping Line and Pacific Forum Line, operates in the trade. AFDA member lines adopt a non-binding consensus regarding terms and conditions of carriage in the trade. In a comparatively recent development, Maersk operates a feeder service to the key Pacific destinations of Noumea and Fiji from Auckland, where cargo is transhipped from Maersk’s Asian services.

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TABLE 1-1: INTERNATIONAL SHIPPING SERVICES TO AND FROM FIJI

Service Operator Frequency Vessels Service Employed Type Australia/New Zealand Melbourne / Sydney / Brisbane / Noumea Chief Container Line Every 33 days Kiribati Chief Container / Port Vila / Santo / Suva / Tarawa / (Swire) Majuro Atoll / Santo / Port Vila / Noumea / Melbourne Lyttelton / Napier/Auckland / Lautoka / Pacific Forum Line Fortnightly Forum Pacific Container Suva / Apia / Pago Pago / Nuku’alofa Matua Auckland Forum Fiji III

Suva / Lautoka / Tauranga / Auckland / Maersk Fortnightly Maersk Asia Container Noumea / Suva Decimo (834TEU capacity) Brisbane / Sydney / Melbourne / Lautoka Reef Shipping / Fortnightly Capt Tasman Container / Suva / Pago Pago / Apia / Nuku’alofa / Neptune Shipping Forum Samoa II Suva / Lautoka / Brisbane Line / Pacific Direct Line Ltd / Pacific Forum Line Tauranga/Auckland/Lautoka./Suva/ Neptune/PDL Fortnightly Capitaine Wallis Funafuti /Tauranga Auckland / Noumea / Vila/ Suva / Pacific Direct Line Every 20-25 Southern Moana Funafuti / Wallis / Futuna days NE Asia/SE Asia Kaohsiung / Hong Kong / Busan / Kobe / Greater Bali Hai Monthly Coral Islander, Ro-ro Nagoya / Yokohama / Majuro Atoll / (Kyowa/NYK/MOL) Kyowa Hibiscus, Tarawa / Port Vila / Noumea / Lautoka / Pacific Islander Suva / Apia / Pago Pago / Papeete / II, Nuku’alofa / Santo / Honiara / Kaohsiung Kyowa Cattleya

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Service Operator Frequency Vessels Service Employed Type Keelung / Taichung / Kaohsiung / Hong Tasman Orient Line Every 15 days Tasman Kong / Mawan / Ho Chi Minh / Sri Racha Pathfinder, / Singapore (PSA) / Noumea / Lautoka / Tasman Suva / Auckland / Taranaki / Wellington / Provider, Timaru / Bluff / Nelson / Tauranga / Tasman Trader, Auckland Tasman Endeavour etc

Tanjung Perak / Tanjung Priok / Port Tasman Orient Line Every 15 days Tasman Klang / Sri Racha / Singapore (PSA) / Challenger Noumea / Suva / Auckland / Tauranga / Tasman Wellington / Taranaki Commander Tasman Mariner North America Melbourne / Sydney/ Tauranga/ Suva/ Hamburg Sud- Weekly Cap Agulhas, Container Ensenada*/ Los Angeles FANZ-Hapag-Lloyd- Maersk 1700- Maersk Auckland, 1750 Maersk Hong TEU Kong,Hansa 18000 GT Flensburg, Hansa Rensburg, Hansa Sonderburg Europe Algeciras / Hamburg / Hull / Antwerp / Bank Line (Swire) Monthly Boularibank, Container Dunkirk / Le Havre / Papeete / Auckland / Gazellebank, and Noumea / Suva / Lautoka / Port Vila / Mahinabank, Breakbulk Santo / Lae / Madang / Kimbe / Rabaul / Tikeibank Jakarta / Singapore (PSA) / Algeciras

Sources: Lloyds List Daily Commercial News; New Zealand Shipping Gazette; shipping company sailing schedules; ci-online (www.ci-online.co.uk)

Scheduled services to/from Asia Direct services between Asian and Fijian ports are offered by Tasman Orient Line and Greater Bali Hai. Tasman Orient Line vessels link North and South East Asia with Fiji and New Zealand. Port rotation varies by voyage. A typical schedule includes calls at Keelung, Kaohsiung, Hong Kong, Ho Chin Minh City, Sri Racha (Thailand), Singapore, Noumea, Suva and Auckland. The service operates on a 15 day frequency.

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Greater Bali Hai offers a monthly service using ro-ro vessels linking Japan and Korea with ports in Micronesia, Melanesia and Polynesia. The line called at Suva and Lautoka.

Scheduled services to/from Europe Direct monthly sailings are provided by the Bank Line (Swire Group) from Suva and Lautoka, subject to inducement (a minimum volume of cargo to warrant a port call), to Northern European ports.

1.3.2 Freight Rates The scale of Fiji’s import and export trades attracts lines into the trade. In particular, competition from vessels employed on the Australia–North America trade has driven rates to levels that are much lower than rates to and from nearby PDMCs, such as Tonga and Samoa. Table 1-2 below shows indicative freight rates between Fiji and major international destinations. These rates are given on a commercial basis; a shipper moving a sizeable quantity of containers is likely to receive a discounted rate. TABLE 1-2: INDICATIVE FREIGHT RATES BETWEEN FIJI AND MAJOR INTERNATIONAL DESTINATIONS

Destination Cost Asia and Europe USD2,200-2,500 per TEU (dry container) Japan USD1,800-2,000 per TEU (dry container) USD2,500-2,600 per TEU (reefer container) US USD2,000-1,800 per TEU (dry container) Pacific Island Nations USD1,200-1,500 per TEU (dry container) Australia USD900 per TEU (dry container)

1.3.3 Domestic shipping services

Overview Domestic shipping comprises passenger/freight vessels ranging from pure passenger ferries, through combined passenger and ro-ro vessels, to small steel and even wooden vessels serving outer islands and smaller ports. Water depth restriction apply in the outer islands, where it is necessary to cater for transit reef passages and to operate in lagoons. Thus, most scheduled inter-island coastal vessels draw only 2.5 to 4 meters. In the domestic trades, the standard of the vessels is much lower than in the international trades. Vessels have often been acquired with little regard to any special attributes other than price and availability, and many of the vessels are old. The lowest level of domestic watercraft is the longboat or fibreglass open boat. Powered by high power outboards, these vessels are capable of inter-island work but generally the lack minimum safety to be seen as truly commercial transport. However, they certainly have a role in feeding small numbers of passengers and freight to meet scheduled vessels at nearby islands, and have an intra-island role where lagoon configuration allows village to village journeys.

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For scheduled services, the nature of the trade drives the configuration, with vessels on well frequented routes (e.g., Viti Levu to Vanua Levu) mainly of roll-on/roll-off configuration with significant passenger accommodation. On routes with significant tourism support, fast aluminium catamarans are employed but costs, not least for fuel, preclude more widespread use. In outer island routes, where the main freight task is transporting island residents and small volumes of cargo, construction materials and consumables, vessels vary in configuration. They are mainly small, displacement hull ships of steel construction, some converted from deep sea fishing vessels but some purpose built vessels often provided as part of overseas aid packages. Some wooden sail assisted vessels have been employed until recently on low volume routes but these are being phased out as age, lack of reliability and passenger comfort and safety issues take their toll. As with most island nations, there are several landing-craft type vessels with bow ramps suitable for beach landings on steeply shelving shores. These have significant value for moving heavy, wheeled loads (e.g., construction equipment etc.), but have other short comings that limit their value. They are not sea-kindly, the bow ramp limiting speed in anything but calm conditions, and the beach has to shelve quite steeply to allow landing of the ramp while the vessel’s propulsion and steering gear remain in deeper water. Thus they tend to be used for ‘one-off’ employment rather than in scheduled services. Domestic shipping services on some routes are operated on a purely commercial basis, and in the case of the Viti Levu–Vanua Levu route are subject to fierce competition. However, many of the above domestic inter-island routes are not commercially viable and services have in the past been provided by government. Wishing to withdraw from direct involvement, the Government of the Fiji Islands developed a ‘franchise’ shipping system, where services are provided by private sector operators under competitive tender, and the government makes a contribution to offset the losses that operators would incur as a result of providing a service at set frequency to outer islands. The franchise shipping services to the outer islands provide essential links for domestic freight and passenger services, with some involvement in feedering of export cargo (e.g., beche-de-mer) and a small but significant and growing tourist trade, particularly to the western island groups of the Mamanucas and Yasawas. Other domestic shipping services operate on a small scale from Lautoka and Denerau Marina, near Nadi, to these western districts groups.

Restrictions on entry into Coastal Shipping Fiji regulates its coastal shipping.3 The Marine Act 1986 prescribes two types of licences: ƒ a general coasting trade licence ƒ a special coasting trade licence.

3 See Pacific Islands Forum Secretariat, Review and Analysis of Pacific Island Country Shipping Regulations, Draft, 2000.

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The Minister may grant a general licence, with or without conditions, to a person to engage a particular vessel in coastal trade. The general licence entitles the holder to engage a vessel(s) in coastal trade. A special licence entitles the holder to engage in a specific shipping service as specified in the licence. A coasting trade licence can only be granted to the owner of a vessel providing the owner is “a Fiji person: or a Fiji person who is, either by himself or with some other persons each of whom is a Fiji person...” A “Fiji person” is defined in section 5 of the Act as a citizen of Fiji normally resident in Fiji. The Act gives the Minister power to grant a coasting trading licence to the owners rather than the charterers of a vessel. Where no Fiji person is able to offer an efficient and adequate service by registered vessels, the Minister may grant a coasting trade licence to a Fiji person(s) who has chartered an unregistered vessel to operate the service (s149(3)). Section 153 of the Act allows the Minister to grant a coasting trade permit to the owner or master of any vessel to operate a service where no vessel which has been granted a coasting trade licence is available to provide a particular shipping service or where the service provided by such a vessel is inadequate, inefficient, or unreasonably costly. Such a permit will only be granted for a specified vessel making a single voyage (s153(2)). The Minister is empowered under the Act to make regulations providing for efficient and orderly coastal shipping services and may introduce a scheme for the establishment and licensing of trade routes (s158). To date, no such regulations have been promulgated.

The service franchise scheme Services to outer islands with significant resident populations are an essential part of the transport infrastructure in Fiji. Often these islands have no air services, or they are infrequent. Few island residents could afford—or justify—the significant costs. Thus the shipping services are a critical element for both passengers and cargo. Recognising that regular and reliable transport was essential to the well-being of remote communities, and also that shipping services to outer islands were irregular and operated by time-expired vessels, the Transport Sector Institutional Strengthening Project (1996) recommended that the Government of Fiji adopt a franchise scheme for outer islands shipping. The scheme involved an open, two-stage public tendering process in which bidders would nominate the level of subsidy that they would require to provide a pre-defined frequency of service to specified destinations. The recommendations were accepted by the Cabinet in 1996 and contracts for three franchises (northern Lau, Southern Lau and Rotuma) were let in 1997. Franchises for Kadavu, the Yasawa Islands and Lomaitivi were negotiated in 1999. Under the scheme the Government determined those areas to which services are inadequate and defined the minimum acceptable level of service. Bidders nominated the subsidy that they would require to provide the proscribed level of service, taking into account the revenue expected to be earned from passengers and freight. A review of the franchise scheme, undertaken in 2000 by the Transport Planning Unit, acknowledged that the scheme had produced a number of positive outcomes, but recognised also a number of weaknesses: ƒ dissatisfaction with the levels of service received by some islands

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ƒ lack of flexibility in the contract agreements, inhibiting the ability of operators to adapt to meet weather conditions and/or fluctuations in demand ƒ inadequate performance ƒ contractual problems. Despite these weaknesses, the Transport Planning Unit noted that the scheme had widespread support. However, ongoing concerns about the level of service provided under the scheme led the Government to reconsider direct government participation in the provision of shipping services. In 2003, a feasibility study was undertaken to whether the establishment of a Government Shipping Corporation was the optimal way to improve Fiji’s domestic shipping service. The Report considered three different models of a Government Shipping Corporation: ƒ a revived Fiji Shipping Corporation Limited, which would have the additional function of providing shipping services on non-viable routes ƒ a special purpose Islands Shipping Corporation, with the sole function of providing service on non-viable routes ƒ a ‘virtual’ (non vessel operating) shipping corporation, which would deliver services through a system of contractual arrangements with private shipping companies. The Report opted for the latter alternative (Meyrick 2003). The recommendation was accepted by the Government and the Fiji Shipping Corporation Limited (FSCL) was established. In 2004, soon after its establishment, FSCL recalled tenders for existing franchised routes and for new routes to which the scheme was extended. Eight companies in total—two of which did not own a vessel—were granted tenders to operate on 11 franchise routes. The two companies that did not own any vessels were unable to procure vessels within a prescribed time limit; consequently, these two contracts were cancelled after five months. In 2005, FSCL received USD0.9 million in grants from the government. In 2006, this increased to $2.3M; however, in 2007, this will be reduced back to USD1 million. FSCL did not obtain the same level of funding in 2006 as 2005 because some of the franchise shipping routes are serviced on a temporary arrangement; and since 2005, four of the eight contracts have been cancelled.

Unsubsidised services TABLE 1-3: FIJI INTER-ISLAND SHIPPING SERVICES (NON-FRANCHISE)

Operator Route Vessel Name Gross Tons Vessel Type

Patterson Brothers Lautoka-Labasa (four times Ro-ro Shipping weekly) passenger/freight Suva-Labasa (bus/ferry, daily, except Sunday) Suva-Levuka (bus/ferry, daily except Sunday)

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Operator Route Vessel Name Gross Tons Vessel Type

Beachcomber Viti Levu (Nadi) to Vanua Levi Lagilagi Catamaran Cruises (twice weekly) Suva-Savusavu-Taveuni (three times weekly) Adi Savusavu Consort Shipping Suva-Koro-Savusavu-Taveuni Spirit of Fiji Ro-ro (twice weekly) Island passenger/freight

Grace Ferry Savusavu-Buca Bay-Taveuni Passenger Services (Bus/ferry. Three times weekly) Ba Provincial

Sources: Shipping company sailing schedules; file data; personal communication with shipping companies. Commercial coastal and inter-island shipping services are provided by a number of private sector operators (see Table 1-3). Several operators specialise in transport to and from resort islands. The former government-owned coastal shipping operator, Fiji Shipping Corporation Ltd., no longer exists but a new corporation, Fiji Shipping Corporation, has been formed to manage the franchised shipping services scheme. The existing government-owned shipping line, Government Shipping Services, provides services to government departments and does not, ostensibly, compete with private sector operators. However, provincial governments operate some inter-island shipping services. Services to remote areas are subsidised by means of a franchising scheme (see below).

‘Franchise’ shipping services In November 2006, there were nine subsided routes serviced by five shipping operators. This is shown below in Table 1-4.

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TABLE 1-4: FIJIAN SHIPPING FRANCHISE SCHEME ROUTES AND OPERATORS NOVEMBER 2006

FRANCHISE ROUTE OPERATORS FREQUENCY OF NATURE OF SERVICE CONTRACT Northern Lau Western Shipping One trip per operator per Contracted Salia Basaga month Contracted Upper Southern Lau Salia Basaga One trip per operator per Contracted Western Shipping month Contracted Seaview Shipping One trip per operator per Contracted Lower Southern Lau Seaview Shipping month Temporary Kadavu - Babaceva Seaview Shipping One trip per operator per Temporary Kadavu Shipping month Temporary Lomaiviti: East Gau / Patterson Brothers One trip per operator per Contracted Nairai / Batiki Seaview Shipping month Temporary Rotuma Western Shipping One trip per operator per Contracted Kadavu Shipping month Temporary Yasawa Malolo Western Shipping One trip per month Contracted NE Vanua Levu One trip per month Vacant Yasayasa Moala Western Shipping One trip per operator per Temporary Salia Basaga month Temporary Source: Fiji Shipping Corporation Limited, Presentation to ADB workshop November 2006 Notes: (1) FSCL has been unable to locate a suitable shipping company or vessel to operate the NE Vanua Levu route. (2) Temporary contracts are made for vessels to operate on routes without a formal contract. This is due to the shortage of adequate vessels in Fiji.

Table 1-5 and Table 1-6 show the passenger and cargo movements by shipping franchise in 2005. Overall, the figures show that the Northern Lau, Upper Southern Lau and Rotuma routes are the most heavily trafficked.

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TABLE 1-5: PASSENGER MOVEMENTS BY SHIPPING FRANCHISE 2005 (PERSONS)

Franchise Routes Apr May Jun Jul Aug Sep Oct Nov Dec Total Northern Lau 161 367 205 94 173 199 65 181 410 1855 Upper Southern Lau 41 101 41 99 190 91 69 200 372 1204 Low Southern Lau 0 7 5 1 0 0 10 56 144 223 Lomaiviti 8 0 15 51 56 230 124 104 183 771 Kadavu 70 0 0 0 0 43 40 39 257 449 Rotuma 0 45 98 76 147 127 82 192 280 1047 Yasawa/Mal 0 76 135 115 74 204 99 105 105 913 Total 280 596 499 436 640 894 489 877 1751 6462

Source: FSCL Annual Report 2005, p10 TABLE 1-6: CARGO MOVEMENT BY SHIPPING FRANCHISE 2005 (REVENUE TONNES)

Franchise Routes Apr May Jun Jul Aug Sep Oct Nov Dec Total Northern Lau 152 170 124 48 43 148 49 36 58 828 Upper Southern Lau 38 52 116 66 87 116 28 36 30 569 Low Southern Lau 0 1 1 4 0 0 16 18 15 55 Lomaiviti 0 0 16 63 37 41 32 8 41 238 Kadavu 65 0 0 0 0 66 7 21 17 176 Rotuma 0 50 80 130 58 95 95 80 70 658 Yasawa/Mal 0 24 24 97 88 63 102 39 35 472 Total 255 297 361 408 313 529 329 238 266 2996

Source: FSCL Annual Report 2005, p.10.

1.3.4 Commentary

International services Fiji is well served by international shipping lines. Direct services operate to Australia/NZ, United States, South East and North Asia, and Europe. Lines calling in Fiji include major operators such as Swire Shipping, Tasman Orient, Pacific Direct Line, Hamburg Sud and Neptune Shipping, who associate with Maersk, providing services within the region, to Asia and, by transhipment, to the USA and Europe. Pacific Forum Lines also offers a range of destinations within its sphere of operation. There is competition between these lines, each of whom has active and aggressive local agents. As would be expected, freight rates are usually fairly comparable between lines who offer very similar service levels. The container trade from Australia/NZ–Fiji is highly competitive: freight charges from Australia to Fiji in the late 1990s were approximately USD1,680 per TEU; they have since fallen to USD900 per TEU. Choice of line may well be driven more by the line calling at the right port for the cargo rather than pure price.

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A contentious issue (in Fiji as in many other places around the world) is the imposition of a ‘port service charge’, applied by all lines to varying degrees. Whilst historically this covered the movement of the cargo from the ship’s side to the wharf gate, it was generally absorbed as containerisation developed, PSC being swept up in new combined box rates. However, lines have taken to applying this charge in Fiji (or the similar THC or ‘terminal handling charge’ elsewhere) where they consider that the productivity or efficiency of the port incurs additional cost for the ship. This charge, levied on the cargo owner, is strongly disliked by the port operators as it represents a judgement on their efficiency, but even more by shippers/consignees who tend to see it as a charge applied unilaterally and without transparency.

Domestic services In common with many other PDMCs, Fiji has struggled to ensure the efficient provision of a socially and politically acceptable level of service to remote island communities. The franchise shipping scheme is aimed at transferring the delivery of shipping services to the private sector while retaining a degree of contestability in inter-island services within Fiji. Contestability is ensured by a competitive tendering system. The move from direct provision of uneconomical services by a government shipping operation to provision of services by the private sector under contractual arrangements has unquestionably saved the government a considerable amount of money. And service levels appear as good as or better than they were prior to the introduction of the franchising scheme in 1996. In general, the shipping franchise scheme is working to the extent that nearly all of the designated routes are serviced at least once per month—on most routes there are two vessel sailings per month. The Northern Lau, Upper Southern Lau and Rotuma routes show signs that they eventually could become finically viable without the aid of the shipping franchise scheme. There is some evidence of competitive forces at play on the routes. For example, on one of the routes, one of the shipping operators has higher passenger patronage than the other because food is included in the ticket price. However, it requires significant discipline to ensure that the franchising scheme works. To avoid undermining the commercial revenue base of the franchisee, the Government Shipping Service should refrain from accepting commercial cargoes and passengers on government-owned vessels, even when for other reasons they are in the franchise area. Contracting processes must be open and transparent, and contracting terms, once struck, adhered to. Service quality should be closely monitored to ensure that the service delivers what it is contracted to deliver. If, as is at present the case, subsidy levels are related to costs, the costs reported need to be accurately calculated and independently verified. The level of subsidy should be set to ensure that the losses are covered so that the operator has ability maintain the vessel and allow for suitable replacement or upgraded tonnage as required. But the structure of the subsidy needs to ensure that operator has the incentive to grow volumes and progressively reduce—and where possible eventually eliminate—dependence on the subsidy.

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Management of the scheme therefore requires experienced and focused personnel, and for the conditions and regulations to be applied consistently and transparently. In the early days of the scheme, management of the scheme was undertaken very much on a part-time base, by personnel inappropriately located with the Fiji Islands Maritime Safety Administration. The creation of FSCL was an attempt to address this problem. So far, it appears to have been very successful. With a clear mandate and focus, a corporate structure that provides some protection from the organisation from direct political intervention in day-to-day operations, and headed by a CEO recruited from the private sector, FSCL has introduced a level of professional into the contracting and monitoring of franchised services that did not previously exist. There is also greater transparency: in 2000, the TPU had to undertake considerable primary research to determine the status and performance of the franchised services; FSCL now systematically collects on services and traffic volumes and publishes them in its annual report. In 2004, FSCL adopted a two stage tendering process to attract shipping companies to participate in the Shipping Franchise Scheme. The first of these stages involved a pre-qualification tender—17 businesses applied for the pre-qualification tender process. These businesses were a mix of established shipping businesses and potential shipping businesses. The main tender was then called from the businesses which satisfied the requirements of the pre-qualification tender. The changes from year to year present numerous problems for FSCL: because of the uncertainty of funding it is particularly hard to plan large projects and provide a consistent and adequate subsidy to the shipping companies. Two key lessons were taken from this bidding process: many local shipping companies have poorly audited accounts and little management capability; and, it was extremely difficult for local shipping companies to obtain finance for a vessel. The latter is linked to the former lesson; however, it also stems from a generic problem that all Pacific Island countries face: a lender is hesitant to finance a vessel because of the inherent risks associated with inter-island domestic shipping. That is, there is a poor track record and there is a considerable risk that the vessel might sink or be severely damaged to a point where it is impossible for the financier to recover the value of the asset. The basis on which the level of subsidy is determined has changed from that envisaged in the original scheme. The original concept of determining the subsidy through the bidding process has been abandoned, largely because of the difficulty experienced in attracting sufficient bidders for each potential franchise. The result was only one or two bids for each franchise, seeking levels of subsidy well above budgeted levels. Ultimately, subsidies were set by negotiation between preferred tenderers and FSCL.

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The subsidy, or franchise rate, is derived from the calculated operational cost of a vessel on any particular route. The rates are reviewed annually; this is primarily to adjust for changes in fuel cost. At present, FSCL subsidies 42% of the shipping companies operational cost. The calculation takes into account the following: ƒ Total distance travelled and number of days for the round trip. ƒ Fuel consumption at full steam and idling at ports. ƒ Manning and maintenance costs ƒ Port charges and Statutory fees ƒ Victualling and ration costs ƒ Marine Service charges

Source: Internal Document Fiji Shipping Corporation Limited 2006. The original concept also envisaged only one operator on each franchised route. FSCL has adopted a policy of seeking two operators for each route. This may at first seem at odds with a strategy of seeking to achieve whatever economies of scale are possible on each route. However, the scale of operation is ultimately determined by the number of sailings, which on most routes has been set at two per month, rather than by the number of operators. In Fiji, it is possible to complete a full round trip on each route in less than two weeks, and on many in less than a week, whereas as franchised operator is required to provide only one sailing a month. This opens up the possibility, for instance, of two operators each providing one sailing per month on each of two franchised routes, with each operator using only a single vessel to serve both areas. Given the predetermined aggregate frequency of two sailings per month, this does not require any sacrifice of potential scale economies. It is still too early to determine whether better management if the scheme will result in increased traffic to and from the outer islands—FSCL only began compiling statistics on the current routes in 2005. However, early indications are that there has been a positive effect: the general trend for 2006 is for higher volumes for both passengers and cargo. FSCL reports that since April 2005, there has been a 62% increase in passengers using the services and an 80% increase in cargo (W. Ledua, CEO of FSCL, personal communication, 2006). To further encourage the development of trade to and from the outer islands, FSCL has recently appointed a Trade Development Officer. The Officer’s role is to work with island communities and franchised operators to identify export opportunities and to manage and co-ordinate inter-island trade. Looking forward, there are a number of issues which, if left unchecked, could undermine the ability of FSCL to effectively administer the shipping franchise scheme, and the ability of the scheme to deliver its objectives:

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ƒ There are too few of vessels available in Fiji to service all of the routes to the prescribed standard of two sailings per month. Also, the vessels that are currently deployed are not necessarily suitable for the routes they service. However, FSCL and the shipping operators have little choice in vessel-to-route selection because of the shortage of vessels that exists. Increasing the number of vessels available is made difficult the inability of many operators to secure debt finance for ships: this in turn due, at least in part, to generally poor management standards of shipping operators and a poor repayment history in the industry generally. ƒ The majority of shipping operators utilizing the franchise scheme rely on the subsidies to keep afloat: these shipping operators typically do not conduct any medium to long term business planning, which in turn leads to little or no vessel maintenance budgets and an inability to generate the surplus to purchase new vessels from retained earnings. Consequently, the vessels operating on these routes have a reduced life span and once they become inoperable, the shipping operators are unable to replace them. ƒ FSCL’s status as a non-vessel operating corporation, seen as critical to maintaining a managing role over the franchised services without being seen to compete, is subject to continual pressure, and may be modified shortly. There is some pressure currently from high levels in government for the FSCL to acquire a vessel or vessels because of the chronic shortage of suitable vessels. This may lead to inequalities in the market and act as a disincentive to the existing shipping operators if FSCL—or a shipping operator—is ‘given’ a vessel. ƒ Passengers utilizing the shipping franchise service have high expectations as to the standard of accommodation that should be offered—possibly benchmarking the services against the standards provided on the profitable, high density routes between Viti Levu and Vanua Levu. However, it is likely that there would be a reluctance and general inability to pay for these standards of passenger transport. These issues are not uncommon in other Pacific Island countries that provide some form of government assistance to domestic shipping services. There are a number of possible strategies that could be considered to ameliorate these issues. These include a review of the frequency of service required, how the subsidies are calculated and the level of subsidisation. For example, it may be may be more appropriate to calibrate the level of subsidy on more closely to the gap between operating costs and achievable commercial revenue. Training in business management for private shipping companies could also help to support the development of a more robust private sector. In Solomon Islands, the ADB has begun providing training assistance to domestic shipping operators. This assistance aims at providing basic accounting skills and developing medium term planning strategies.

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An obvious strategy for increasing the pool of potential service suppliers is opening up the scheme to non-Fijian vessels. This would require both the lifting of cabotage restrictions emanating from the Marine Act 1986 and a change the eligibility criteria for the franchising scheme. From an economic perspective, it is difficult to argue against such changes. But it is important to be realistic about the political and social difficulty that would be associated with such changes. The draft report of the recent ICCC review of cabotage in PNG (ICCC, 2006a) illustrates how powerful and persuasive fears of destabilising fragile services to vulnerable communities can be when the abolition of cabotage is contemplated. Few developed countries, and even fewer developing countries, have in fact removed or significantly liberalised cabotage limitations. The partial removal of cabotage with the EU took over a decade to negotiate and even longer to achieve. Faced with this reality, it is useful to ask the question of whether on removing cabotage restriction would in practice make a great deal of difference to the availability of vessels for domestic services. There are a number of reasons for believing that it would not: ƒ Most PDMCs face similar problems, with a scarcity of both suitable vessels and commercial maritime expertise. Within the PDMCs, there is no ready pool of potential entrants on which to draw. ƒ Shipping services to remote communities rely heavily on informal arrangements at the destination end for cargo loading/unloading, communicating information about sailings, cargo booking and other support. Familiarity with and connections in the communities served is a significant advantage to an operator. Conversely, the difficulty of establishing such arrangements in a foreign country poses an additional barrier to entry to non-Fijian operators. ƒ The provision of non-viable service dependent on subsidies from resource-strapped government is not likely to be a particularly attractive proposition to non-PDMC (attempts to attract interest from foreign operators to take part in a similar scheme in the RMI failed to attract a single external bidder). ƒ The most obvious gains from abolition or relaxation of cabotage restriction occur when international vessels can carry domestic cargo between two ports of call on an established itinerary (as, for instance, Asia-bound vessels carry cargo from the South Island to the North Island in New Zealand). The only such opportunity in Fiji is the carriage of cargo between Suva and Lautoka. This is of no relevance to the outer island services, and is in any case unlikely to be viable in the face of competition from land transport. Commitment to reform is a limited resource in most countries. In this currency, the abolition of cabotage carries a high price; in Fiji at least, there is room for doubt as to whether it would deliver commensurate value.

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1.4 Ports sector

1.4.1 Overview The ports network in the Fiji Islands comprises two major ports with international connectivity, several second tier ports with specialised functions and a large number of smaller ports ranging from regional ports supporting inter-island services down to ‘ports’ in the outer islands, some of which may provide simple wharf facilities but many of which are beach landings, with reef passages allowing the working of cargo and passengers by small boats. The ports with commercial significance, evaluated by value of goods handled, gross tonnage of ship calls and facilities are: Labasa, Lautoka, Levuka, Malau, Savusavu, Suva and Vuda. Labasa and Malau are on the north coast of Vanua Levu, and Savusavu is on its south coast. These ports specialise in domestic and specialised bulk services, and Savusavu is a major hub for inter-island services from Suva. Labasa and Malau specialise in exports of sugar and forestry products. Levuka is on the island of Ovalau, immediately to the east of the main island, Viti Levu. It specialises in fisheries exports. Suva, Lautoka and Vuda are on the island of Viti Levu. Vuda is an ‘ocean terminal’ for liquid bulk cargo, located at Vuda Point near Nadi international airport and some 40 km southeast of Lautoka. It specialises in oil products but also handles gas imports. The main ports involved in a broad band of international trades are Suva, on the south east coast of the main island, Viti Levu, and Lautoka in the west of Viti Levu. The Port of Suva handles the majority of export and import cargo and, given population distribution and economic activity, will experience the greatest future growth. It has significant constraints on storage space for container traffic and, with congestion already an issue, will face the greatest challenges as trade volumes increase. The space constraints are exacerbated by low productivity, with measures now under way to streamline ship to shore container and cargo movements. Lautoka has experienced similar problems but has greater room to expand. The minor ports provide only basic services for coastal traffic and are often weather and tide constrained. All coastal routes and the access channels to ports are generally poorly equipped with navigational aids, although some initiatives are in place to upgrade these. Safety and infrastructure at most of the smaller ports is rudimentary, ship operators taking their own measures to maintain operational safety. A further complicating factor is the accuracy of maritime charts, with the position of many islands and hazards, in fact the very existence of some, still unclear.

1.4.2 Port structure, administration and ownership Following recommendations by the Ports Commission of Inquiry, the Ports Authority of Fiji (PAF) was established under an Act of Parliament in 1975. Prior to the establishment of PAF, ports were run jointly by a number of Government departments, with stevedoring and cargo handling controlled by overseas shipping companies acting through their Fiji agents. Under PAF, port operations were integrated into a single autonomous body.

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In the late 1990s PAF was transformed into the Maritime and Ports Authority of the Fiji Islands (MPAF). Wholly government owned, MPAF controlled Fiji’s four major ports: Suva, Lautoka, Levuka and Malau. MPAF operated a ‘landlord’ port regime. In other words, MPAF contracted out a number of key services, including pilotage, towage, line handling and stevedoring. For example, stevedoring operations in Suva were provided under license by Ports Terminal Ltd, a 100% government-owned entity. The Government recently (2006) corporatised MPAF through the creation of a 100% government owned company operating under the Companies Act. As noted above, MPAF’s regulatory functions have been taken over by FIMSA. Given the small scale of Levuka and Malau’s port operations, MPAF has argued in the past that it is not feasible to create separate corporations to run the individual ports. The current situation is that the ‘major’ ports, declared as Suva, Lautoka, Labasa/Malau and Levuka, are administered by the Fiji Ports Corporation Limited (FPCL), a Government corporation operating semi-autonomously under the Ministry of Transport. Other ports remain under ministerial control, with FIMSA continuing to provide navigational and safety overview. Ports Terminals Limited (PTL), a 100% Government owned operation previously, is now a 100% subsidiary of FPCL. The company is currently managed and operated by FPCL, and carries out stevedoring at all major ports. However, under the terms of the recent ADB loan to FPCL to contribute to the upgrade and extension of port facilities in Suva and Lautoka, PTL is set to be privatised, at which time stevedoring would become contestable. Currently, other marine services comprising towage, launches and lines work are tendered on a three year basis, and pilotage is offered both by FPCL itself and a private operator.

1.4.3 Port infrastructure

Suva The main facility at Suva is the Kings Wharf precinct, comprising four to five berths: two to three on the main western face of the wharf (Kings) offering depths alongside of up to 11 meters; and two smaller berths at the north (Walu Bay) and south (Princes) offering only seven to nine meters depth. Container vessels generally work at the Kings Wharf berths, although the Walu Bay berth is also used for smaller vessels. Bulk vessels work at Kings, if it is available, or Walu Bay. Tankers discharge petroleum products at Kings Wharf, although some vessels discharge bitumen at the Rokobili Terminal, a buoyed mooring off Korovou in Suva Harbour. Domestic freight and passenger services work at the Walu Bay wharf precinct, to the north of the Kings complex. Built to cater for break bulk cargoes, and reconstructed following the 1953 hurricane and an earthquake in 1954, Kings Wharf required substantial alteration and strengthening to improve its efficiency in the container age. Cargo sheds built to shelter break bulk cargo inhibited the movement of containers from ship to stack. Major operational problems stemmed from the inability of the existing wharf apron to support the weight of 40’ containers and heavy lifting equipment. Containers needed to be lifted off the ship on to flat trucks and then transferred to fork lifts for positioning in the container stacks. Such operations were time consuming, contributing to the port’s reputation for poor productivity.

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Under the Fiji Port Development project, rehabilitation of Kings Wharf, as well as the extension of Lautoka (Queens) Wharf, was undertaken in 2004–05. The cost of the two projects was funded through a loan of USD16.8 million from the Asian Development Bank, FPCL meeting the remaining USD12 million from its reserves. The Australia and New Zealand Bank provided loan finance for the acquisition of sophisticated mobile harbour cranes at Suva (two units) and Lautoka (one unit). In a further attempt to increase productivity, FPCL has acquired several heavy duty fork lift trucks. However, maintenance problems and resulting downtime, exacerbated by poor management, has resulted in these resources having limited impact on productivity.

FIGURE 1-1: WESTERN FACE OF KINGS WHARF AT SUVA FIGURE 1-2: QUEENS WHARF AT LAUTOKA

Lautoka At Lautoka, the main wharf, Queens, is used by passenger, container and bulk vessels, car carriers and tankers discharging smaller volumes of bulk liquids such as petroleum products transferred by pipeline to the major oil companies’ storage tanks4. The largest export from Lautoka, in terms of volume is bottled water—accounting for approximately 300TEU containers per month. The shore side of Queens Wharf is used predominantly for regular quality passenger/domestic cruise vessels serving the tourism trade to the islands. Two dedicated ship-loaders are used to export sugar and woodchips, owned by the exporters and operating over the same shipper owned jetty. Marine services only are supplied by the port operator.

4 As noted previously, larger shipments are imported through Vuda.

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Other ports Labasa/Malau port complex is located on the north coast of Vanua Levu, in the northern districts. It comprises a small Government owned port (Labasa) and a larger, deepwater port at Malau where there are wharves operated by sugar and forestry products exporters. Levuka is a similarly specialised port on the island of Ovalau, its main business being the processing and export of seafood.

1.4.4 Port throughput Container throughput for the ports of Suva, Lautoka, Levuka and Malau is shown in the table below. This information is drawn from the Maritime and Ports Authority annual reports, and relate to all ports now under the control of FPCL. The figures suggest that: ƒ Fiji’s container trade is much better balanced than the trade of most Pacific nations. In 2004, the number of full containers imported was about 32,000TEU, whilst the number of full containers exported was 16,510TEU, or approximately 52% of imports. (It is interesting to note that this proportion has fallen from about 60% since 2002.) ƒ LCL traffic is relatively unimportant. ƒ While the use of 40’ containers for imports is limited, the rate of growth of traffic in 40’ containers is relatively high.

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TABLE 1-7: FIJI CONTAINER THROUGHPUT: FPCL PORTS, 2000-04

Type of 2000 2001 2002 2003 2004 Container Imports: 20’ FCL 21,437 25,817 21,488 22,599 23,436 20’ LCL 361 262 258 40’ FCL 1,682 2,457 3,048 4,211 4,565 40’ LCL 8 8 20 20’ Empties NA 304 498 861 40’ Empties NA 4 10 72

Exports: 20’ FCL 10,353 13,672 12,990 14,366 14,499 20’ LCL 163 70 110 40’ FCL 564 718 763 1,072 1,462 40’ LCL 2 0 1 20’ Empties NA 2,205 1,814 4,280 40’ Empties NA 82 81 253

Source: Maritime and Ports Authority of the Fiji Islands, Annual Reports

1.4.5 Port charges FPCL has the responsibility for setting port tariffs in Fiji for all ports under its control, while its subsidiary, PTL, negotiates and sets stevedoring rates with port users. (Stevedoring charges are incorporated in the port tariff). The Government sets a rate of return on assets, which FPCL must design its tariffs to meet. The review process, normally undertaken annually, is also monitored by the Commerce Commission. A new tariff is currently being finalised, with rates being restructured to take account of recent infrastructure investment and to link charges to asset and operating costs relating to each service. The paragraphs below describe the main items in the existing tariffs, which have been in place since 2001.

Port Authority dues Under the Ports Authority of Fiji (Tariffs) Regulations 1995 any vessel entering a port in Fiji is required to pay Port Authority dues. Such dues are based on the GRT of the vessel. For overseas vessels the dues are USD0.27 for each 100 tons or part thereof for each entry into port. An environment charge of USD2.40 per 100 tons (or part therefore) is also charge to all international vessels (domestic ships pay USD2.40 per ton per year).

Anchorage charges Anchorages charges are levied at the rate of USD2.70 each 100 tons or part thereof for each period of 30 days that the vessel remains in port.

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Dockage dues Vessels berthing at a wharf owned by FPCL are charged dockage dues. This charge is based on a vessel’s GRT and the number of hours alongside the wharf. The rate for overseas vessels is USD1.08 per 100 GT per hour. Rates for coastal vessels vary by vessel type, but are all considerably lower than international voyages.

Wharfage The wharfage charge is based on the tonnage of goods loaded or discharged. Owners of vessels pay part of this (65%), and the shipper or consignee pays the remainder. The main wharfage charges are summarised in Table 1-8 below. TABLE 1-8: WHARFAGE CHARGES, FIJI PORTS CORPORATION LTD

Cargo Type Charging Unit Charge USD Full Container Per TEU 30.00 Empty Container Per TEU 6.00 Transhipment Containers Per TEU 20.40

Break Bulk Per tonne 2.14 Bulk Per tonne 0.90

Source: Fiji Islands Government Gazette 2001

Towage charges Towage is provided by a private sector operator selected by a competitive tendering process. The port (FPCL) contracts with the service provider and charges the user. Towage charges ranged from USD180–USD900, depending on the GRT of the vessel. Generally, the master of the vessel makes the decision on use of tugs, although the pilot will strongly influence the decision. FPCL is considering stepping back from involvement, merely licensing towage operators and ensuring service quality and capability. The contract will then be between the tug and the vessel.

Pilotage Although pilotage is technically not compulsory in Fiji, FPCL insists that a vessel entering or leaving their facilities must use a pilot. The ports offer pilotage services but a private company offers competing services in Suva. Launch services are offered by another private contractor, allowing pilot services to enter the market without the large capital outlay of providing pilot cutters. The comparative chart shown in Volume 1 of this report (Figure 2-1) suggests that port charges in Suva were high compared to charges in a representative sample of Pacific ports. Only Noumea has higher port charges than Suva.

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1.4.6 Stevedoring Prior to the corporatisation of FPCL, the 100% Government owned Port Terminal Ltd (PTL) had a monopoly of stevedoring services in the ports of Suva and Lautoka. As stevedoring was a ‘regulated’ industry, maximum stevedoring charges were set by Government. Shipping agents were able to negotiate lower rates with PTL. According to shipping agents and freight forwarders, stevedoring productivity in Suva was low, six or seven lifts per hook hour typically being achieved, although rates as high as 14–15 lifts per hook hour were achieved on occasions—depending on the size the vessel and operational status of forklifts. The low levels of productivity was attributable both to the physical problems associated with Kings Wharf, especially the inadequate load bearing ability of the wharf apron and the consequent additional handling of containers, and the poor work practices of the stevedoring labour force. The Pacific Islands Forum study noted that: …stevedoring charges and hiring practices offered little incentive for stevedores to work more productively. We note that the labour force included both permanent and casual labourers. Casual labour, normally employed on the overnight ‘graveyard’ shift, had an incentive to prolong work, so as to be paid for two shifts rather than one. We note also that PTL has to pay labour for a whole shift, even when a vessel required labour for only a portion of the time. Hence PTL opted to commence stevedoring operations at the beginning of a shift, even where a vessel was ready to be worked some hours earlier. A further aspect was insufficient heavy lifting equipment, such as fork lifts and excessive downtime attributed to failure of equipment maintenance. Many of these issues have now been addressed, although it is a little early to say that they have been resolved. Upgrade and extension to wharves has allowed the operation of heavier plant, and there has been investment in new fork lifts, cranes and other plant in both Suva and Lautoka. However, crane rates have only recently started to improve although restructuring of wharf/stack management has also started to streamline processes. As at mid 2006, there are signs of a general improvement but the ‘jury is still out’ at this time. There is still anecdotal information from industry of particular ship calls only achieving six lifts per hour, but this may also have a great deal to do with stow issues, as discussed elsewhere. Multiple load/discharge ports often leave vessels serving island ports with less than optimum stows, with containers spread all over the vessel as compared to the convenient ‘stow to discharge port’ achieved in larger volume trades. Table 1-9, showing the major cargo handling charges in Suva, is an extract from the gazetted charges for the Fiji Ports Corporation (2001). (Stevedoring tariffs must be approved by the Government and gazetted). The full tariff also shows an equipment hire charge of USD22 per lift; however, our understanding is that, for a normal cargo movement, this is incorporated in the ‘Handling and removal charges’ shown in Table 1-9; it applies only to cargo movements additional to those normally required for cargo to clear the port. The comparative chart contained in Volume 1 of this report shows stevedoring charges in Suva are towards the top end of the range of prices charged by Pacific ports.

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TABLE 1-9: STEVEDORING TARIFFS IN SUVA

Containers Stevedoring USD 5.1.1 Containers Per TEU 48.00 5.1.2 Stuffing/ Unstuffing Per TEU 60.00 5.1.3 Shifting on board Per TEU 36.00 5.1.4 Overstowing Per TEU/movement 30.00

Handling and Removal Charges Per TEU 72.00 (Involves the loading of goods, removal to IFS and loading onto consignee's vehicle) Non-containerised Cargo Stevedoring Dry bulk Per tonne 3.00 Steel Per bundle 7.20 Motor Vehicles Ro-ro vehicle Per Unit 15.00 Lolo vehicle Per Unit 18.00 General cargo n.e.s. per tonne 9.00

Handling and Removal Charges Per tonne 9.00 (Involves the loading of goods, removal to IFS and loading onto consignee's vehicle)

Source: Fiji Islands Government Gazette 2001.

1.4.7 Port facilities: strategic development FPCL has long term plans to build a major new container and multi-purpose port facility at Rokobili, within Suva Bay but outside the present port limits, once operational space at Kings Wharf becomes restrictive. Estimating that this development will be needed within 10 to 12 years, FPCL has obtained development leases and carried out the initial environmental assessment. The proposal is for a 52- hectare port precinct with warehousing facilities and the possibility of ‘distriparks’. The facility will be designed to cater for vessels up 6,000TEU. FPCL has made plans to set aside approximately USD1.8m per year for land reclamation. A major international ports operator is said to be interested in entering an agreement to build and operate this facility. FIGURE 1-3: PROPOSED LOCATION OF THE ROKOBILI SITE

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1.4.8 Commentary Restructuring of the port sector in Fiji has been painfully slow, and is still incomplete, but the model is appropriate and in some respects significant progress has been made. Fiji Ports Corporation Ltd has an appropriate mandate, operates profitably and returns a dividend to its owner. Divestment of PTL and the introduction of competition is an essential next step, but will be a difficult one. Although Suva in particular is well-equipped by Pacific standards, cargo handling performance in the port is generally regarded by users as disappointing, and often falling short of the ‘Pacific standard’ of 10-12 lifts per crane per hour. But apart from the usual array of challenges that accompany such transitions, the fact that the operations of PTL contribute very significantly to the overall returns from FPCL adds a further obstacle. FPCL is already in the process of increasing its tariffs for basic infrastructure services—a step that is necessary to cover the recent significant increase in capital investment in facilities and equipment. This move is meeting stiff resistance from customers. If, as appears may be the case, PTL stevedoring activities currently cross-subsidise infrastructure provision in the port, divestment may require further increases in charges for port infrastructure. As these charges in Suva are already high relative to charges elsewhere in the Pacific (some of the possible reasons for this are discussed in Section 2, Volume 1 of this report), this is likely to provoke an extremely vigorous user reaction.

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Partly as a result of the failure to improve cargo handling performance in a timely fashion, and partly because of space limitations, hopes that Suva could become a regional mini-hub now appear to have faded. The role of transhipment in liner shipping services to the PDMCs has grown and matured in recent years, but two ports located on the fringes of the region appear to have emerged as dominant hubs: Apra (Guam) in the north, and Auckland (NZ) in the south. Because one of the principal competitive advantages of a transhipment hub is the range of services that can be accessed through it, first mover advantage is very hard to come in this area. Nevertheless, as demonstrated by the emergence of the Malaysian port of Tanjung Pelepas and (on a smaller scale) Jurong port under the shadow of PSA Corporations Singapore hub, it is possible to challenge established dominant transhipment hubs given the right facilities, performance and approach to service differentiation. The proposed new port at Rokobili, if it proceeds, would provide Fiji the first of these; the right development model for this—for example, a partnership with a major international terminal operating company—could provide the other two.

1.5 Inland transport Fiji is one of the few Pacific economies with a land transport system of any scale. Traffic between cities comprises freight services by truck and passenger/accompanied freight by buses, mini-buses and route taxis. Truck transport comprises bulk tipper vehicles (sand, gravel, bulk liquids etc.), flat bed and well-side vehicles and small to medium pantechnicons for break bulk and loose items, and flat bed and occasional skeletal trailers for containers. Generally, the truck fleet is old, mainly comprising vehicles imported second hand from overseas. There are few large fleet operators evident, with most vehicles appearing to be in individual or family ownership. There are a number of landside transportation impediments which have an effect on the general efficiency and overall costs of transportation: firstly, the area surrounding the port precinct in Suva is heavily congested; secondly; the general road conditions, including horizontal and vertical alignment, often impede transport efficiency; and thirdly, if heavy vehicle mass limits were rigidly enforced, a large proportion of heavy vehicles operating in Fiji would be contravening these laws.

1.5.1 Congestion at Suva and Lautoka Although at most times the traffic levels outside of Suva and Lautoka are moderately low, the density dramatically increases near the cities of Lautoka and particularly Suva. Kings Wharf in Suva is located near the centre of CBD. The wharf’s facilities are open Monday to Friday 8:30am to 5pm and by request on Saturdays. During these times, traffic is heavily congested in the areas surrounding the port. Kings Wharf experiences three main problems with its landside logistics: firstly, traffic coming into Suva from the west must first pass through the town centre before following a one way street and looping back into the port. This means that heavy vehicles must pass through the centre of the town and move at a very slow pace through the city.

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Secondly, there is a large market and bus terminal adjacent to the port facility, which further adds to the congestion in the port precinct. Thirdly, the road conditions and signalling systems appear to be of variable quality. In some places traffic signals are frequently ignored, while in other places large numbers of vehicles become banked up waiting at roundabouts and give- way signs. At Lautoka Port, the major landside constraint is the very slow moving trucks carrying sugar cane to the sugar plant opposite the main wharf. Typically, these trucks travel at 30–50kmph and any other freight-carrying trucks must trail behind them until appropriate passing opportunities present. However, from Nadi to Lautoka for example, there are only three or four dual lane passing opportunities and because of high numbers of trucks carrying cane, it is likely that once one of these trucks is overtaken another won’t be too far ahead. This essentially means that trucks carrying freight into Lautoka can be restricted to 30–50kmph. General road conditions Increasing peak loadings are occurring from the landbridging of containers between Suva and Lautoka. Some ship operators find it more economical to make a single call, usually at Suva, and landbridge Lautoka import and export cargo under bond. This entails both exports and imports, and as many as 200 containers may be involved in any one ship call. Customer preferences on delivery time and limits on free storage time in the ports drives operators to move all the containers in a short period, thus both increasing the load carried by the road and causing peak loadings. The most heavily trafficked route is the Suva/Nadi/Lautoka corridor, which is predominantly two lane bitumen pavement with small four lane divided sections close to the cities. Road surfaces are generally good but showing wear from what appears to be an increasing heavy vehicle load, particularly at the two terminal nodes. Open road limits (80kph) are enforced with visible police presence near village police posts. This road is quite tortuous in places and has many hills. Trucks and the small diesel taxis are very slow on hills and congestion occurs frequently. Near Nadi and Lautoka, wide loads of sugar cane on slow moving trucks add to congestion and road user frustration. Accident rates are high. The road transits the ‘Coral Coast’ where an increasing number of resorts and tourist developments, and many villages, result in a somewhat undesirable mix of tourist, local residential and heavy truck traffic. Within villages, speed humps further reduce average speed and increase transit times.

1.5.2 Heavy vehicle mass limits Current heavy vehicle mass limits cause problems for road transport operators. The Land Transport Act 1998 stipulates the maximum load limit for various heavy vehicles. Most trucks in Fiji carrying containers are ten-wheelers; the mass limit for these trucks under the Act is 32 tonne gross mass. This is insufficient to allow a typical ten-wheel truck to carry a container fully loaded with a dense cargo, such as water.

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Historically, enforcement of truck load limits has been lax, but this is changing. With improved enforcement, shippers will face the choice of either partly loading containers—which is clearly inefficient—or using larger trucks. However, a significant amount of investment would be needed to upgrade Fiji’s stock of ten-wheeler trucks to prime-movers and semi-trailers. FIGURE 1-4: A TEN WHEELER TRUCK ON THE HIGHWAY BETWEEN SUVA AND NADI/LAUTOKA

1.5.3 Freight rates An indicative road haulage cost between Suva and Lautoka provided by industry participants is USD270-300. The backhaul rate is USD50 or USD90 for a single empty container movement. However, these rates do not include forklift charges of USD18 at both ends; storage costs (USD36), or wharfage costs of USD18.

1.5.4 Logistics facilities There are few facilities that could be considered intermodal sites. At the ports there are the usual on- wharf container stacking areas and limited covered packing/unpacking facilities within the port precincts. Some private sector transport companies and shipping lines have off-wharf container depots providing some consolidation into containers. There are also some industry specific warehouse and distribution centres (e.g., Nestle products outside Suva) but little in the way of common user stores.

1.5.5 Commentary

Congestion in and around Kings Wharf Congestion in and round the Kings wharf facility is surprisingly severe for an urban centre the size of Suva, and there does not appear to be any clear plan for improving the situation. The inefficiencies associated with this congestion, combined with the lack of space for expansion, support the case for planning for a relocation of the main port facilities at Suva in the longer term.

East-West landbridging There are divergent views on whether, in the future, the relative importance of Lautoka as a general cargo port will decline and cargoes will be increasingly concentrated on Suva. Many trade participants view this as unlikely. However, it would be consistent with general developments in global liner shipping, and there has been some recent movement in this direction.

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If this does occur, efficient road transport of export and import cargoes between the West Coast of Viti Levu and Suva will be critically important. The current controversy over allowable truck loads arises from a conflict between two valid objectives: ƒ A desire on the part of the road provider to avoid unacceptable levels of damage to the road system ƒ A desire on the part of importers and exporters to load international shipping containers efficiently and to make good use of existing investment in transport equipment. It is possible that the conflict between these objectives is irreconcilable. However, in some other jurisdictions, including Australia, there is a movement to replace (at least in part) fixed limits on vehicle weights with a pricing solution: that is, allowing vehicles to travel at a gross vehicle mass in excess of the normal limit in return for a supplementary fee set to reflect best estimates of the incremental costs of road damage resulting from the additional role. This approach is generally most tractable where, as appears the case for inter-port movement of containers in Fiji, the need for additional mass is restricted to a few well-defined road segments. It is not clear that this option has been fully explored.

1.6 Maritime safety and security As a ‘Contracting Government’ Fiji is required to nominate a ‘Designated Authority’ to supervise maritime security and ensure ISPS compliance, as well as determine the Security Level (on a scale of 1–3) that is appropriate for the facility in question. That role has been given to FIMSA. Financial aid from Australia, New Zealand and the USA, coupled with a training program instituted by the Regional Maritime Program of the Secretariat of the Pacific Community, enabled Fiji to meet the July 2004 ISPS deadline. Suva and Lautoka have been audited under the Regional Maritime Program (Lloyds List Daily Commercial News, ‘Auditing boost for Pacific security’, 20 July 2006). Additional audits of smaller regional ports, including outports in the Fiji Islands were been carried out in 2006. In 2006, Fiji was fully compliant for all the major ports: Suva, Lautoka, Levuka and Malau by the deadline of July 2004 (Ministry of Finance and National Planning, Strategic Development Plan, 2007, p.60).

1.7 Maritime training According to Fiji Institute of Technology, certificates for Deck Officers have been issued by the Fiji Marine Board since 1881. Whilst a rudimentary training system existed in the inter war years, it is only in the past thirty years that training in Fiji has become more formalised and professional. This occurred under the twin impetus of the setting up of a School of Maritime Studies in Suva in the 1970s and the setting up in 1977 of an advisory committee of the South Pacific Regional Shipping Council to develop uniform maritime standards within the Pacific region. The committee’s deliberations led to the South Pacific Maritime Code (1986), embracing the resolutions contained in STCW ’78. Fiji acceded to STCW ’78 in 1991 and STCW ’95 in the late 1990s.

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The highest attainable maritime qualification at the School of Maritime Studies is Class 3 (Officer of the Watch).

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2. FEDERATED STATES OF MICRONESIA

2.1 Introduction

2.1.1 Geography and economy Four states—Chu’uk, Kosrae, Pohnpei and Yap—form the Federated States of Micronesia (FSM). FSM, formerly under US Trusteeship, is an independent country which has entered into a Compact of Free Association with the United States. Under the Compact, FSM has control over all aspects of domestic and foreign policy, with the exception of defence and security issues, for which the United States is responsible. The Compact also provides direct financial assistance to aid economic development. FSM comprises more than twenty islands of volcanic origin, lying within lagoons surrounded by reefs, and over forty smaller low-lying inhabited islands spread over seven degrees of latitude and ten degrees of longitude. The nation depends on maritime transport to link the islands into a single national economy. With a population of 108,004 (2006), FSM has a GDP per capita of around USD2,300. According to the (Australian) Department of Foreign Affairs and Trade, the post World War II economy of FSM has been dominated by the US Trusteeship and subsequently by the 1986 Compact of Free Association. This has created a government-led economy largely reliant on external grants (Australian Department of Foreign Affairs and Trade 2006 p.1). A second Compact, which came into force in 2004, provides funding of USD1.8 billion over twenty years. That amount includes contributions to a trust fund which will replace direct financial assistance in 2024. As well as financial assistance, the Compact grants FSM citizens access to US federal programs and favourable provisions for travelling to and working in the United States.

2.1.2 Major trading partners In common with other PDMCs, FSM is highly dependent on imports. Over 40% of FSM imports are sourced from the US. Other sources of imports include Australia (20%) and Japan (13%). FSM has few exports. Exports of marine products—mainly re-export of fish to Japan—account for almost 85% of export revenue. Shipping services to and from FSM suffer as a result of the trade imbalance.

2.2 Shipping services

2.2.1 International shipping services The range of international shipping services operating to and from the FSM is limited by the size of the market and by the restrictions on entry imposed by the MSC through the Entry Assurance system (see below). The current holders of Entry Assurances are shown in Table 2-1 below.

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TABLE 2-1: ENTRY ASSURANCE (EA) HOLDERS IN MAJOR TRADE LANES AS AT 31ST AUGUST 2006

Trade lane Carrier Destinations included in EA US West Coast to Micronesia Matson (fortnightly) Ebeye, Kwajalein, Majuro, Kosrae, Pohnpei, Yap, Palau US West Coast to Micronesia FSM Line (three weekly/six weekly) Chu’uk, Pohnpei, Kosrae US West Coast to Micronesia Horizon Line (three weekly/six weekly) Chu’uk, Pohnpei, Kosrae, Yap, Palau US West Coast to Micronesia Palau Shipping (weekly/fortnightly) Palau, Yap US West Coast to Micronesia Eurasia Line (weekly/fortnightly)* Palau, Yap US West Coast to Micronesia Ambyth (monthly)* Chu’uk, Pohnpei, Kosrae, Yap, Palau, Majuro US West Coast to Micronesia Western Pacific Shipping (weekly/fortnightly) Palau, Yap US West Coast to Micronesia BBB (monthly)* Chu’uk, Pohnpei, Kosrae, Yap, Palau, Majuro, Ebeye Japan/Asia to Micronesia FSM Lines (every 21days) Chu’uk, Pohnpei, Kosrae, Majuro Japan/Asia to Micronesia NYK (monthly)* Chu’uk, Pohnpei, Majuro, Yap, Palau Japan/Asia to Micronesia Eurasia Line (weekly/fortnightly) Palau, Yap Japan/Asia to Micronesia Palau Shipping (weekly/fortnightly) Palau, Yap Japan/Asia to Micronesia Western Pacific Shipping (weekly/fortnightly) Palau, Yap Japan/Asia to Micronesia KMI (six weekly) Chu’uk, Pohnpei, Kosrae, Majuro (fish only) Sth Pacific (inc ANZ) to Micronesia Chief Container Services (every 30 to 35 days) Majuro, Pohnpei, Chu’uk, Kosrae Sth Pacific (inc ANZ) to Micronesia FSM Line (monthly) Majuro, Pohnpei, Chu’uk, Kosrae Sth Pacific (inc ANZ) to Micronesia FSM Line (monthly) Majuro, Pohnpei, Chu’uk, Kosrae Sth Pacific (inc ANZ) to Micronesia Palau Shipping Palau, Yap

Source: Micronesian Shipping Commission (2006b)

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US West Coast Services Matson Matson is a long time operator in the trades to the MSC countries. Until recently it ran a barge service from Honolulu into Majuro and Kwajalein, but served the more westerly destinations out of Guam. The barge service has now been discontinued. Matson now serves all of the MSC countries by transhipment over Guam from the company’s major trans-Pacific service . From Guam it operates a single vessel (the Islander) on a multi-port itinerary around the MSC countries. The Islander is a vessel of 420’ LOA, 27’ draught, 7,361 GT, capable of 16.5 knots, and able to carry 658 TEU, which is considered very large for this trade. It has 90 reefer plugs. The Islander makes fortnightly calls at the eastern FSM and Marshall Islands: its itinerary is Guam– Kwajalein–Majuro–Kosrae–Pohnpei–Chu’uk. To serve Yap and Palau, Matson use Palau Shipping Company vessels (see below) for the movement from Yap to Guam, transhipping in Guam to Matson’s major trans-Pacific service. Horizon Line/FSM Line The service offered by Horizon Line is similar in structure to that offered by Matson, in that it relies (mainly) on transhipment over Guam and serves the eastern and western part of the MSC region differently. FSM Line, which is a joint venture company between local company Pohnpei Transport and Storage, and Kyowa Line, uses the same arrangements as Horizon to deliver West Coast US cargoes. To serve the eastern section (Chu’uk, Pohnpei, Kosrae), Horizon has a connecting carrier agreement with FSM line. FSM line effectively time charters Kyowa’s vessels operating between Asia through Guam to Micronesia for that part of their journey that extends beyond Guam. FSM serves Pohnpei, Kosrae and Chu’uk. Service to Majuro is provided by the Bali Hai service and also by transhipment over Guam from Horizon’s major trans-Pacific service. In the western section, Horizon uses two different services. One of these, offered by Western Pacific Shipping, is very similar to that used for the eastern section. Western Pacific Shipping is a joint venture between Kyowa and Palau Shipping and Transport, and effectively period charters Kyowa’s Asia–Guam–Micronesia service vessels for the part of their journey beyond Guam. (FSM Line does not serve Yap and Palau). The other service is offered by Eurasia Line. This is a paper company that uses Palau Shipping Company to delivery the service. Palau Shipping in turn charters its vessels from Saipan-based Mariana’s Express Line. As part of its Entry Assurance agreement, Horizon must use whichever of these two services departs first from Guam.

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Asia services FSM Line/Western Pacific Shipping FSM Line, through its relationship with Kyowa line, provides services from Asia via Guam to Majuro through the Greater Bali Hai service, in which Kyowa is a partner; to Pohnpei, Chu’uk and Kosrae (again, using Kyowa vessels). Western Pacific Shipping uses similar arrangements to deliver cargoes to Yap and Palau. In all cases, the vessels used are the same as those used to carry cargo transhipped at Guam from Horizon’s US West Coast service. Palau Shipping Palau shipping operates from Hong Kong via Guam to Palau and Yap. It also serves Majuro, Kwajalein, Pohnpei, Chu’uk and Kosrae by transhipment onto the Matson vessel Islander in Guam.

South Pacific services Chief Container Service Chief Container Service’s served a wide range of Micronesian ports immediately after its Entry Assurance was granted, but has since contracted its services to Majuro only. It is currently looking at transhipment over Majuro on to the Matson service to other destinations in eastern Micronesia, but this service is not yet in place. FSM Line Through its relationship with Kyowa, FSM Line offers a service from ANZ by transhipment over Busan. This cargo is then on-carried to FSM using the same arrangements by which it serves the Asian trades.

Summary There are in fact only three schedule shipping services actually making calls in FSM. The companies that operate the ships providing these services are Matson, Kyowa, and Palau Shipping (using vessels chartered from Mariana’s Express Lines). All of these services manage to serve cargo in several trades, using transhipment—principally over Guam. Commercially, the main carriers can be grouped into two loose alliances, each of which is able to provide comprehensive coverage of FSM ports (and Palau) and cover several trade lanes: ƒ The Matson / Palau Shipping / Eurasia Line Alliance ƒ The Horizon / Kyowa / FSM Line / Western Shipping Alliance.

2.2.2 Freight rates Inquiries of industry participants indicate that freight rates from US West Coast to Micronesia are typically around USD2,700 US for dry 20’ container, USD3,900 for a 40’. For a forty foot reefer the rate is USD7,600. There are some commodity rates, which vary slightly from port to port, but there does not appear to be much system to this variation.

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This is ocean freight rate only. In addition there are terminal handling charges (THCs) in Guam of around USD65/TEU and Bunker Adjustment Factor (BAF), which in the US trades is around 19.5%. Rates from Asia are reported to be similar. Rates charged by CCS from Australia are reported to be around USD2,000/ TEU. Again these rates exclude BAF/CAF and THCs.

2.2.3 Micronesian Shipping Commission5 Entry into the market for the provision of international shipping services to and from FSM is controlled by the Micronesian Shipping Commission. Commercial shipping within the former Trust Territory area was administered by the High Commissioner under Secretarial Order 2902. This Order was designed to encourage commercial shipping companies to provide services in a market characterised by thin cargo flows and vast distances by providing a designated carrier with protection against competition and dilution of the limited cargo available in the trade. By the mid 1970s, the volume of cargo had risen to a level which induced other carriers to enter the trade. To allow a degree of competition while encouraging the provision of stable services, an ‘Entry Assurance System’ was introduced, allowing controlled competition. Under this scheme selected carriers were allowed to provide liner service on specified routes. With the creation of independent states in the FSM, Palau and the Republic of the Marshall Islands (RMI) in 1979, decisions regarding shipping services were jointly made by FSM, Palau and RMI through an annual Micronesian Shipping Conference. Because of the commonality of shipping services and the perceived need for a united front in negotiating the terms and condition of services, the countries agreed to continue to co-ordinate decisions affecting international shipping services. In 1988, the three countries signed the Agreement on Regional Cooperation in Matters Affecting International Commercial Shipping in Micronesia. This agreement, subsequently ratified by the three governments, established the Micronesian Shipping Commission (MSC) to institutionalise regional consultation. Section 2 of the By-Laws of the Commission defines its purpose: In due recognition of the interdependence of shipping services and the need for and benefits of cooperation, the Micronesian Shipping Commission… adopts as its Mission Statement the general goal and main objective to encourage and promote an economical, reliable, safe and coordinated system that meets the demand for international commercial shipping throughout the three Micronesian island nations. (MSC 2006a)

5 This section draws on Micronesian Shipping Commission, Micronesin Shipping Commission: Background and Function.

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Voting rights in the Commission lie with the ‘senior representative duly appointed by each of the participating governments’—typically the responsible minister or the head of the relevant department. At the request of the FSM, each nation can have up to five representatives on the Commission. This was done to allow the inclusion of representatives of each constituent state of FSM, and it is common for states to send delegates to Commission meetings. However, each nation has only one voting entitlement, which is exercised by the senior representative. The Commission has continued the practice of controlling entry into the Micronesian trades through the Entry Assurance System. Issuance of an Entry Assurance is subject to a fee of USD5,000 per year, and holders of entry Assurance Certificates must lodge a performance bond of USD75,000 (for an NVOCC) and UDS1 million (for a vessel-operating carrier) (MSC 2006a, Article II). There is no regular calling for expressions of interest in obtaining Entry Assurance. Applications may be lodged and processed at any time. However, approval requires a meeting of the Commission, which is generally held annually. An applicant wishing to obtain an Entrance Assurance at any other time would need to pay the costs of an extraordinary meeting of the Commission. A carrier granted Entry Assurance is required to submit to the Commission an annual performance review. This is a confidential document. Carriers are also required to send management level delegates (that is, not just local agents) to attend the Commission meetings. Entry Assurance is valid for a period of up to five years, but assurances covering shorter periods can and have been issued by the Commission. All current Entry Assurances expired on 31 October 2006. It is possible for carriers to operate without Entry Assurance, but they must apply for permission to do so and this may not be granted; if granted, an ‘ad hoc’ permission attracts a fee of USD5,000 per call. According to the Manager, Marine Division, of DTCI, the current policy of the Commission has essentially been to maintain two authorised carriers on each trade route. As detailed in the previous section, a far greater number of carriers than this would imply have been grated Entry Assurance. The definition of a carrier for Entry Assurance purposes, appears to be somewhat flexible, as authorised carriers include several NVOCCs. Furthermore, cross-chartering of space between vessel-operating carriers also amplifies the number of Entry Assurances offered. If the number of physical shipping services operating is considered, rather than the number of entities holding Entry Assurances, then the ‘two per trade’ policy referred to by DTCI appears to be approximated. These services are summarised in Table 2-2 below.

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TABLE 2-2: VESSEL-OPERATING CARRIERS SERVING FSM

Trade lane Carrier US West Coast to Micronesia Matson (using own vessels from West Coast to Guam linking its own feeder vessels to serve eastern FSM, Palau Shipping vessels to serve Yap and Pohnpei) US West Coast to Micronesia FSM Line/Western Shipping (using Horizon Line vessels from West Coast to Guam then transhipping onto Kyowa vessels) Japan/Asia to Micronesia FSM Line/Western Shipping using vessels period chartered from Kyowa vessels Japan/Asia to Micronesia Palau shipping, using its own vessels chartered from Mariana Express Line for Palau and Yap, transhipping onto Matson vessels at Guam for eastern FSM and Marshall Islands Sth Pacific (including ANZ) to Chief Container Services (in practice operates only to Majuro, but Micronesia Entry Assurance covers other ports) Sth Pacific (including ANZ) to FSM Line/Western Shipping, using Kyowa vessels with Micronesia transhipment over Busan

Source: Assembled from interview notes and local advertised shipping schedules. Table 2-2 above shows that whilst there are several physical services, there are in fact only four scheduled shipping services actually making direct calls in FSM. The companies that operate the ships providing these services are Matson, FSM Line and Western Shipping (both using Kyowa vessels), and Palau Shipping (using vessels chartered from Mariana’s Express Lines). All of these services manage to serve cargo in several trades, using transhipment—principally over Guam. Although the establishment of a permanent secretariat for the Commission is clearly envisaged by the By-Laws (Article VII), and has from time to time been discussed, the Commission has so far operated without a formal secretariat. Technical and administrative support for the Commission is provided mainly through FSM’s Department of Transport Communications and Infrastructure (DTCI).

2.2.4 Commentary on international shipping services and Micronesian Shipping Commission

Consistency and Transparency of Commission Decisions Both the Government and the lines appear to remain strong supporters of the MSC concept. However, there is considerable disaffection with recent decisions of the Commission, and the Commission’s willingness to enforce the commitments that are given by lines seeking Entry Assurance. Attention in the decisions was drawn in particular to: ƒ Granting of entry assurance to Eurasia line, which has no ships or service capability, in trades in which there are already several carriers

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ƒ The failure to sanction Chief Container Services, which gained Entry Assurance on the basis of a service to a wide range of Micronesian destinations and for a while served these, but now has withdrawn to serve only Majuro. One interviewee attributed what he perceived as an erosion of consistency, to a loss of corporate knowledge as public servants experienced in the working of the system are replaced by ‘political appointees’. However this may be, it seems clear that the Commission has not had the capacity to assess applications for Entry Assurance under any consistent and transparent criteria. The By-Laws of the Commission require that ‘the number of carriers permitted to operate a common route shall be determined by the volume of cargo available and at the same time the carriers or Entry Assurance holders operating the same routes shall be limited to a manageable number so as to prevent over- competition’. However, there is no clear process for assessing applications for Entry Assurance against these criteria. The result is that, at best, Entry Assurance is awarded on the basis of a subjective and only partly informed impression of trade conditions; at worst, it could become dependent on political connections and an enticement to corruption.

Stability and quality of services The number and frequency of international shipping services calling at the FSM appear adequate to meet the needs of the country’s trade, and to this extent it could be said that the Commission is indeed achieving its primary objective. However, the extent to which this outcome is dependent on the activities of the Commission is not clear. Although it is difficult to devise a clear measure of the overall level of liner shipping services, on an informal appraisal, FSM do not appear to be served by any more frequent or more reliable services than the other Pacific Island nations. On the other hand, there is no evidence that there are carriers willing and able to offer services to the FSM that have been unable to secure Entry Assurance. Until quite recently, a case could perhaps be made for the Commission’s activities supporting stability in the provision of shipping services. However, the past few years have seen a fairly comprehensive transformation of international services to and from FSM. The major services as they stood around three years ago are summarised in Table 2-3 below.

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TABLE 2-3: INTERNATIONAL SHIPPING SERVICES TO/FROM THE FEDERATED STATES OF MICRONESIA–2004

Service Operator Frequency Vessels Employed Service Type Australia/New Zealand (1) Australia, Guam, FSM Chief Container Service Container/breakbulk (Swire) NE Asia/SE Asia Japan, Korea, Guam, Kyowa Line 30 days (8,000dwt, 115m Combination: Saipan, Chu’uk, Pohnpei. LOA, 8m draught) containers and break bulk West Coast US, Hawaii, Philippines, Micronesia 21 Days Three vessels Container/breakbulk Marshall Islands, FSM, & Orient Navigation (12,742dwt, 129m Palau, Philippines, Hong Company (PM&O) LOA, 8.2m Kong, Malaysia draught) USA/Hawaii West Coast US, Hawaii, Philippines, Micronesia Three vessels Container/breakbulk Marshall Islands, FSM, & Orient Navigation (12,742dwt, 129m Palau, Philippines, Hong Company (PM&O) LOA, 8.2m Kong, Malaysia. draught) Palau Yap – Palau Kambara Shipping/Yap Fortnightly Shipping

Sources: Federated States of Micronesia, Infrastructure Development Plan, Maritime Transportation Sector; Lloyd’s List Daily Commercial News; Shipping Company Sailing Lists It is clear that significant changes have taken place. Longstanding participant PM&O Line, historically the most significant single operator in the trade, has collapsed. Kambara Lin has withdrawn from the trade. Chief Container Services has withdrawn its service to FSM (though it continues to serve RMI and is reportedly considering recommencing services to FSM). Of the four major carriers shown in Table 2-3, only Kyowa remains active in the trade; and even in this case, commercial arrangements have been comprehensively overhauled, with Kyowa not operating exclusively through joint venture arrangements with local companies.

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2.2.5 Domestic shipping services FSM depends on maritime transport to link its many islands into a national economy. Yet, as the FSM, Infrastructure Development Plan notes, the ‘…inter-island transport system is poorly developed and is on the brink of unravelling...’ (Federated States of Micronesia, Infrastructure Development Plan, Maritime Transportation Sector, p.1). More importantly, the inter-island transportation system is comprised of five very old cargo vessels that are no longer safe or economical to operate, and one overworked new vessel. Domestic commercial shipping services within FSM are provided almost entirely by the public sector. The Federal Government has a constitutional responsibility to maintain shipping operations between the states, and it does so at present using an owned vessel operated by the Marine Department. This vessel typically operates between the main port of one state and remote locations in another. Cargo carried between the main ports in two states is usually carried by international services that call at both ports. Three of the four states (Yap, Chu’uk, and Pohnpei) operate shipping services that connect the main island of each state to the more remote islands. Kosrae, which does not have outer islands, does not operate a domestic shipping service. Vessels and the departments responsible for them are shown in Table 2-4 below. The Micro class vessels have been the mainstay of outer island services. They were built in 1977–78 and were given to FSM on the dissolution of the Pacific Trust Territories. In general, the vessels have been poorly maintained and are at the end of their economic lives, and are gradually being replaced. Two of these vessels that were operated by the Chu’uk Government have recently been withdrawn from service, and replacement of the Micro Spirit (operated by the Yap Government) is imminent. These vessels are being replaced by landing craft donated by the governments of Japan and China. None of the domestic services operates to a regular reliable schedule—services are generally demand driven.

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TABLE 2-4: MAIN DOMESTIC SHIPPING SERVICES WITHIN FSM

Jurisdiction Responsible Department Vessel Comment

Pohnpei Responsibility is shared Micro Glory The ‘Micro’ ships were built as between the Office of part of an aid project to develop a Public Affairs (concerned ‘Pacific standard ship’ in the late with vessel scheduling) 70s/early 1980s. and the Department of Transportation and Infrastructure (funding and operations)

Yap Department of Micro Spirit The Micro Spirit will soon be Transportation and replaced by a landing craft Infrastructure similar to that currently operated by Chu’uk. This craft is now under construction in Wuhan and is a gift of the Chinese Government.

Kosrae N.a.

Chu’uk Department of Ship Mailo (approx This is a landing craft that was Transportation and 400 tonnes cargo donated by the Government of Infrastructure capacity, 130 pax) China.

FSM Government Marine Transportation Caroline Voyager (a This vessel was a gift from the Branch, DTCI landing craft of Government of Japan. around 1350 GT; It carries less than full design cargo carrying load because the lifeboats capacity about 500t, required in pax-carrying role capable of carrying make the craft top-heavy, and she 150 pax) must permanently carry ballast to maintain stability.

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All domestic shipping services lose money. Rates and charges are not formally regulated by any party, but in practice Ministerial approval of fare changes in considered essential. Current rates are generally around USD40/ton for general cargo, USD0.16 per n.m. for passengers—this is well below the cost of operation, which was estimated in 2001 at USD586 per passenger trip for the Micro Spirit (FSM 2003). Although details of the current financial performance of individual services were not readily available, the Marine Department estimates that the Federal Government’s operation only recovers about 20% of its operating costs through charges to customers. (Operating costs exclude the capital cost of the vessel.) This estimate is broadly consistent with much earlier data provided in the Infrastructure Development Plan: Maritime Transportation Sector (FSM 2003, p.5). TABLE 2-5: FSM: OUTER ISLAND TRADES, OPERATING COSTS AND REVENUES, 2001 (USD)

Ship Operating Costs Operating Operating Dry-dock Costs Revenues Profit/(Loss) USD Caroline Voyager 414,083 28,012 (386,071) 363,000 (2000) Caroline Islands 357,514 NA NA 265,000 (2000) Micro Spirit 384,000 93,513 (290,487) 680.000 (1999)

Source: Federated States of Micronesia, Infrastructure Development Plan: Maritime Transportation Sector, p.5 As elsewhere in the Pacific, seasonality and random peaks in passenger demand (e.g. when churches have conventions at one island or another) are a major problem. Because of the lack of wharves or other harbour facilities in the outer islands (see Section C below), these vessels must discharge passengers and cargoes into skips and other boats either in a protected lagoon anchorage or in the open sea in the case of islands without lagoon anchorages.

2.3 Ports sector

2.3.1 Port ownership and administration Port administration in FSM is the responsibility of state governments. This responsibility is discharged differently in different states. The Report of the Infrastructure Development Plan notes that ports in FSM suffer operationally as a result of the number of separate agencies sharing control of their operations and management. The power to make commercial, operational and planning decisions is dispersed among different agencies or departments of the state governments. Current administrative arrangements are summarised in Table 2-6 below.

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TABLE 2-6: PORT ADMINISTRATION BY STATE

State Port Administration Arrangements Pohnpei There is a Pohnpei Port Authority (PPA). The Authority is responsible for ‘development management operations and maintenance of ports and facilities (PPA, Annual Report 2005, p.5) Chu’uk Ports in Chu’uk are managed by the State Department of Transportation and Public Works Kosrae According to Marine Dept, DTCI, there used to be a Kosrae Port Authority, but it has been disbanded and its powers and functions transferred to the State Department of Public Works Yap Ports in Yap are managed by the State Department of Transportation and Public Works

Source: DTCI, personal communication, 5 December 2006. The Report of the Infrastructure Development Plan cites cases in which an economic development or land leasing agency has leased space in a government owned port without consulting operational personnel as to the impact the lease will have on port efficiency. For example, land in Yap Port was leased by the state leasing agency to a company wishing to construct a refrigerated warehouse and bait storage facility for the fishing industry. Not only did this development severely disrupt container operations, to the point at which a new container terminal needed to be built, but the lessee soon abandoned the facility itself. The Pohnpei Port Authority, which controls the largest and most commercially important of FSM’s ports, illustrates an alternative approach to port administration.

Pohnpei Port Authority (PPA) PPA is an enterprise of the State Government, established under a Pohnpei State Law No 2L-224-91 in 1991. The Law establishes the Authority as a distinct legal entity, establishes PPA as the planning authority for the port area, defines the duties of PPA, and grants the Authority the powers to carry out those duties. The Mission Statement of the PPA is to plan, manage, operate profitably all publicly-owned port facilities in order to ensure the efficient, orderly and safe use of these facilities by the general public and guarantee the continued growth of this Authority and its employees. (PPA 2005) While PPA is expected to generate the revenue required to meet its own operating expenses, it is exempt from taxation and is not required to pay dividends to the State Government. Drawing on a model common in the USA, PPA is responsible both for the seaports of Pohnpei and for Pohnpei International Airport. These two functions are integrated. While there are separate operating divisions for the airport and the seaport, engineering, accounting and general administration services are provided by a common central resource (see Figure 2-1). The accounts of the Authority are consolidated—there are no separate profit and loss statements for the seaport and the airport.

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FIGURE 2-1: POHNPEI PORT AUTHORITY ORGANISATIONAL STRUCTURE

Board of Directors

General General Executive Counsel Manager Secretary

Airport Seaport Facilities & Administrative Finance Division Division Construction Services (5) (21) (18) (6) (8)

Source: Adapted from PPA 2005. The operating model adopted by PPA with respect to its seaport activities is essentially that of a landlord port. The main port cargo handling terminal is leased to a private operator, while the Authority focuses on the development and maintenance of infrastructure and regulation of port activities. The Authority also provides pilotage services within the port. (Tugs are not used within the port).

2.3.2 Port infrastructure In general, facilities at the main international ports—Chu’uk (Weno Port), Kosrae (Okat Port), Pohnpei and Yap—are able to handle the relatively limited container traffic at an acceptable level of efficiency. Conditions at the main ports are summarised in the PPA’s Strategic Plan: ƒ The port of Pohnpei has a 323m quay, which is in relatively good condition. The principal limitation of the port is the narrow and shallow entrance channel, which makes it necessary for larger vessels to weave when entering and leaving the port. ƒ At the port in Chu’uk, maritime access is better, with deep water ‘almost up to the shore’, and the quays are in good condition. But the port area is cluttered by derelict vehicles and uncollected cargo, to the extent that almost one-third of the port area is unusable, and two of the port's berths are ‘occupied for prolonged, indefinite periods by two vessels assigned to Chu’uk State for servicing the Outer Islands’.

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ƒ Kosrae has a 168m long quay with a 19m apron in good condition. The port entrance is narrow, but has good water depth. ƒ The condition of the wharf at Yap is mixed, with a relatively new section of 112m built during the 1990s combined with a 140m section that is much older and in indifferent condition. Entry to the port is made difficult by the narrow channel, swift currents and small turning basin. (PPA 2006) The Report of the Infrastructure Development Plan comments on problems with maintenance at the FSM ports. For example, the Report notes that, ‘Littered throughout the Weno Port is relatively new cargo handling equipment worth close to a million dollars when purchased, now beyond repair and in need of disposal.’ The Report cites three reasons such problems occur: ƒ the political establishment tends to view maintenance as an unnecessary extra cost and it is one of the first items to be cut from a proposed budget ƒ when money is appropriated (for maintenance) it tends to become a slush fund for financing elements of port operations unrelated to maintenance ƒ the dearth of qualified mechanics, electricians, plumbers…to carry out the work (FSM 2003) Properly developed and managed, planned maintenance should make a significant difference in reducing capital outlays and controlling operating costs. Outside of the major ports, infrastructure is extremely limited. In general, the thirty inhabited outer islands lack even the most primitive port facilities. None of the islands has wharves or quays that vessels can moor alongside or discharge onto directly. Nor do they have mooring buoys in a sheltered lagoon or in open sea anchorages. On most islands that have anchorages, the anchorages are a long way from shore and ships discharge into small boats. On the islands without protected anchorages, embarkation and disembarkation must take place while boats are drifting in the open ocean (FSM 2003).

2.3.3 Port throughput As with the other FSM ports, the cargo base of PPA is dominated by imports. Volumes are modest: total imports in 2005 amounted to 56,092 revenue tonnes. The majority of this cargo consisted of containerised commodities (1,613TEU) and imported used motor vehicles (578 TEU). This represented an increase of just 1% on cargo volumes recorded in 2004. Calls for container vessels declined markedly in 2005, from 46 calls to 35 calls, due largely to the demise of the PM&O Line service. Aside from fish transferred to mother ships in Pohnpei, exports through the port are negligible and not reported in the PPA’s annual report.

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2.3.4 Financial performance of Pohnpei Port Authority (PPA) PPA reported an operating surplus of USD377,000 in 2005, up from USD46,000 the previous year. The Five Year Strategic Plan recently prepared for the Authority envisages further rapid increase in operating surplus, with revenues increasing to USD6.2 million by 2011, at which time operating expenses will be USD1.8 million (PPA 2006). However, this result is premised on a year-by-year increase of 25% in seaport revenue over this period, driven mainly by continued expansion of the fishing industry. Even if the revenue forecasts of the plan are realised, however, the PPA will not be in a position to fund independently the required infrastructure expansion. The main wharf is congested and there are plans to extend it at an estimated cost of USD13.5 million. It is expected that this project will be funded by external assistance, probably through compact funding (PPA 2006). Although no detailed analysis has been undertaken, it is appears likely that there is an imbalance in revenue and expenditure between the seaport and airport divisions. Of the Authority’s total revenue in 2006 of USD1.6 million, approximately USD1 million was derived for seaport charges, compared to approximately USD0.3 was obtain from landing charges and departure fees. The remaining USD0.3 million was obtained from lease charges.

2.3.5 Performance There are problems in effectively working cargo due to limitations on cargo handling equipment. FSM Line reports that cargo handling rates in the port are commonly in the range of 4-6 lifts per hour per gang; this compares with what the company describes as the ‘Pacific standard’ of 10 lifts per hour. The company’s heavy lifting machinery is currently limited to 2 x 24t fork lifts. These are unsuitable for lifting 40’ containers. As a result 40’ containers have to be discharged direct to a chassis on the wharf under the crane. This costs time because: ƒ The crane must precisely align the box with the chassis , rather than simply placing on the wharf; this adds approximately 5 minutes to the cycle time ƒ Limited number of chassis are available – the ship may have to work around 40’ while waiting for chassis, further reducing handling rates FSC believes that what is needed is a high capacity toplifter (see Figure 2-2). This view appears to be supported by key customers. A new top-lifter would cost about USD0.5m; a decent second hand unit about half that. The company is not in a position to raise the capital to make this acquisition (Mr Pretrick, CEO of FSC, personal communication).

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FIGURE 2-2: TOPLIFTER WITH 40’ SPREADER

Source: http://www.fantuzzi.com Storage area in the terminal is limited and this is also becoming a problem. The total lease area is 2.02 ha. However, this is gross area, including warehouses, management building, wharf apron etc. The net area available for storage is approximately 50% of this. Given the low volume that is currently handled in Pohnpei, this area should be adequate for a pure cargo handling terminal. However, there is no other location available in Pohnpei for the storage of empty containers, and few importers have the capacity to store containers on their premises.

2.3.6 Port charges The principal seaport charges levied by PPA are summarised in Table 2-7 below. These charges do not appear to have been adjusted for over a decade: the regulations establishing the charges are dated 1995. TABLE 2-7: SUMMARY OF MAIN PORT CHARGES AT POHNPEI

Charge Rate

Entry Fee USD25 for vessels under 1000 GRT USD50 for vessels between 1000 and 2000 GRT For vessels over 2000 GRT, USD50 plus USD25 for every 2000 GRT (or part thereof) in excess of 2000 GRT

Dockage Fee USD0.06 per GRT per day (may be charged on a the basis of length)

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Charge Rate

Wharfage USD1.25 per revenue ton for inbound cargo, USD0.25 per revenue ton for outbound cargo (concessional rates are provided for fuel imports and bunkers)

Navigational Aids Fee USD10 per call

Source: PPA (1995)

2.3.7 Stevedoring Stevedoring services throughout the FSM are provided by the private sector. In Weno Port Chu’uk, the Department of Transportation has contracted with Truk Transportation Company to provide stevedoring services. In Kosrae, the Kosrae Terminal & Stevedoring Company provides stevedoring services as well as port security and maintenance services, while stevedoring services in Yap are provided by the Waab Stevedoring Company. In Pohnpei, the stevedoring operator is Federated Shipping Company (FSC). Two years ago, FSC’s lease on the terminal area expired, and PPA called for public bids for the lease. There were two bidders: the incumbent, FSC; and Pohnpei Trading and Storage (PTS). FSC was selected as preferred operator. The process of lease assignment has been criticised by PTS as lacking in transparency. According to PPA, the selection criteria were non-financial; the level of the lease payment was fixed in advance of the call for bids, and the bid did not include definition of a schedule of charges (there appears to have been a presumption that the charge schedule in force at the time bids were called would remain in force after the awarding of the new lease). The successful bidder was chosen on the basis of ‘ability to provide the service’. The outcome of the tender process is that FSC was granted a new lease for a term of 15 years.

Tariffs The terminal operator is required to maintain a public tariff. Changes to the tariff must be approved by the PPA. The last rate rise was in 1994, and FSC believes that current tariffs are not viable, and that revenues are insufficient to support needed investment in new capital equipment. FSC is currently seeking approval from PPA for a rate rise. The stevedoring tariff provides separate charges for stevedoring (that is, movement from ship to shore, which is charged to the ship) and for terminal services (storage in the terminal and outloading to truck, which is charged to the cargo owner). In the case of container cargoes, a separate charge is also made for transfer from the ship’s side to the container yard (this is also charged to the ship). Charges for container cargoes and the general rate for loose cargo are shown in Table 2-8 below (there are also a large number of special rates for specific cargoes).

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TABLE 2-8: SELECTED STEVEDORING CHARGES: POHNPEI

Service Charge USD Containers Ship to shore movement: 20’ Containers – Full 25.50 Ship to shore movement: 40’ Containers – Full 60.00 Ship to shore movement: 20’ Containers – MT 15.75 Ship to shore movement: 40’ Containers – MT 40.00 Movement from ship’s side to container yard – 20’ 10.00 Movement from ship’s hook to container yard – 40’ 40.00 From Container Yard to Truck – 20’ 8.00 From Container Yard to Truck – 40’ 13.50 Break bulk cargo Stevedoring services 6.00 per ton Terminal services 6.00 per ton

2.3.8 Commentary Stevedoring operations in the FSM are effectively local monopolies, with one company operating in each port. While, given the very small scale of cargo operations in each port, this may be inevitable, in the case of Pohnpei at least is reinforced by the practice of providing an exclusive lease over key cargo handling area. There does not appear to be anything in the PPA regulations that states that only one stevedore will operate in the port. However, as the lease covers the main cargo wharf, the lease- holder effectively has a monopoly on stevedoring operations by virtue of holding the lease. This is not a criticism, as a strong case can be made for providing an exclusive lease on the grounds of operating efficiency, cargo security and encouraging private investment in terminal facilities and equipment. But the decision to adopt this approach does increase barriers to entry. Under these circumstances, the adoption of clear and appropriate selection criteria in assessing bids terminal leases, and transparency of the allocation process, are particularly important. These criteria should include the capacity to invest in the equipment required to undertake efficient terminal operations. It may be appropriate under these conditions for the port authority to exercise control over the tariffs that can be charged by the terminal operator. Preferably, however, these would be clearly defined at the time of bid assessment, either ex ante by the Authority or as a parameter of the proponent’s bid (a case can be made for either of these approaches). In either case, where a long term concession or lease is involved, it is important to have a clearly defined process for assessing future applications for prices increases. This will both protect users from unjustifiable increases imposed by a monopoly operator, and provide a mechanism for ensuring that unavoidable cost increases do not erode the capacity of the operator to make necessary investments in terminal infrastructure and equipment.

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2.4 Inland transport Inland transport is not a major issue in FSM, as the vast majority of imports are carried only a short distance to the neighbouring towns (in the case of Pohnpei, to Kolonia). Landside access to the ports is reasonable, and roads are uncongested. Inland haulage costs are around USD50/TEU/trip for boxes moved from Pohnpei to Kolonia (USD100/ round trip).

2.5 Maritime safety and security

2.5.1 Responsibilities Primary responsibility lies for general maritime safety in FSM lies with the DTCI. However, the functions exercised directly by DTCI seem pretty limited: ƒ It maintains the national register of ships (very limited fleet) ƒ It is the certifying authority for ISPS Code ƒ Coordinating Authority for SAR All existing navigational aids lie in or close to ports, and responsibility for maintenance lies with the relevant port administration. DTCI does not fund the provision of navigational aids nor does it supervise the location, quality or adequacy of navigational aid provision. FSM is not a member of IMO and has signed very few international conventions.

2.5.2 Channels and navaids Kosrae, Pohnpei and Yap have serious approach channel problems, which hinder port operations and greatly limit their growth potential. The Report of the Infrastructure Development Project notes that the channels at Okat (Kosrae) and Pohnpei are less that 100m wide, limiting the size of vessel that can enter the port safely. The difficulties are exacerbated by the lack of navigation aids. The Report notes that funding proposals to install new systems or upgrade existing ones have either been rejected or, in cases where funding has been appropriated, funds have been siphoned off for other purposes. When navigation aids have been installed, they are sometimes vandalised (FSM 2003). Navigational aids are virtually non-existent in the outer islands, making it very difficult and dangerous to enter some of the narrow lagoon channels. The Report of the Infrastructure Development Project notes that, on some islands with narrow lagoon channels, the lack of navaids makes it necessary for passengers to be embarked or disembarked outside the reef, an inherently slow and dangerous process.

2.5.3 Maritime Security As a ‘Contracting Government’, the Government of FSM is required to nominate a ‘Designated Authority’ to supervise maritime security and ensure ISPS compliance, as well as determine the Security Level that is appropriate for the facility in question. This responsibility is exercised by the DTCS.

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With assistance from the USA, the main ports of each State have been certified as compliant with the ISPS Code. A recent audit of maritime security has been complete though the Regional Maritime Program of the Pacific Islands Forum. The audit found some deficiencies, but these are not considered major by DTCI and rectification measures are currently underway.

2.5.4 Commentary Institutional arrangements for the management of maritime safety in FSM are not ideal. There is room for concern about the conflicting roles that are currently performed by DTCI. The Department is currently a provider of shipping services, and the regulator of maritime safety. More broadly, there does not appear to be any clear assignment of responsibility and accountability for the provision of navigational aids and the general management of maritime safety outside port limits. The fact that FSM has yet to ratify many of the major international maritime conventions is also a cause for some concern. The FSM’s has taken the responsible position that is unwilling to commit to conventions that it does not have the capacity to enforce. But the fact that breaches of some of the Conventions to which FSM is not a signatory, such as MARPOL, may have serious cross-border consequences reinforces the case for capacity building in this area.

2.6 Maritime training Maritime training available within the FSM is very limited. Training is available at the College of Micronesia campus in Yap, but certification is available to Class 5. For higher level training, seafarers generally attend colleges in Philippines or the USA.

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3. SOLOMON ISLANDS

3.1 Introduction

3.1.1 Geography and economy Solomon Islands is an archipelagic nation made up of 992 islands, 347 of which are inhabited. Six main islands account for 80% of the total land area and population. The capital, Honiara, is located on Guadalcanal, roughly in the centre of the country. In 2000, the population was estimated to be around 420,000—some 50,000 of whom lived in Honiara. The population growth rate is estimated to be about 3.2% per year, one of the highest in the region. The economy experienced a severe contraction when the country was torn apart by ethnic strife in 1999-2001, followed by stagnation in 2002. By 2003, the country was close to bankruptcy and was almost totally dependent on foreign aid for its survival. Solomon Islands economy began to recover in 2003, partly as a result of the arrival of the Regional Assistance Mission to Solomon Islands (RAMSI) and partly as a result of an increase in the price of logs and other commodities. GDP (current prices) is estimated to be approximately USD322 million in 2006. Solomon Islands’ economy is estimated to have contracted by 14.3% in 2000, 9% in 2001 and a further 2.4% in 2002, primarily as a result of the closure of most major industries after June 2000. The Central Bank of Solomon Islands estimated in its 2004 Annual Report that the economy grew by 5.6% in 2003 and by 5.5% in 2004, the fastest rates of growth since the logging boom of the early 1990s. Given favourable political conditions, a growth rate of 4.0% was expected to be achieved in 2005 and 2006. Solomon Islands main natural resources are timber and fish. The export of logs is by far the largest foreign exchange earner, but the industry is not sustainable at the present rate of exploitation. Other important exports include: copra, cocoa and palm oil. There are economic deposits of bauxite, phosphates, gold, silver, copper, manganese and nickel, although none are being mined at the moment.

3.1.2 Major trading partners: Exports: China (39.7%), Republic of Korea (15.1%), and Thailand (6.7%). Imports: Australia (25.5%), Singapore (25%), and New Zealand (6.0%). The balance of trade in the 1990s showed either a small surplus or a small deficit. The current account balance has been negative for the past couple of years.

3.2 Maritime administration Maritime sector responsibilities in Solomon Islands are shared between the Marine Department, Provincial Governments, Solomon Islands Port Authority (SIPA), and provincial governments. (The Commodities Export Marketing Authority formerly played an important role in the provision of shipping services, but this is no longer the case).

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3.2.1 Department of Infrastructure and Development Marine Division Whilst the Government of Solomon Islands sold its shipping fleet in the mid-1990s, and the country relies on the private sector to provide domestic shipping services, the Government—through the Marine Division of the Department of Infrastructure and Development—retains an important regulatory, policy setting and sector leadership role (European Commission/European Development Fund 1999, p.ES-2). The Marine Division of the Department of Infrastructure and Development is the nation’s maritime regulator. Its regulatory activities include: ƒ provision and maintenance of navigation aids ƒ vessel safety and certification ƒ vessel registration ƒ officer and crew registration ƒ organization of search and rescue operations Solomon Islands, in common with the majority of PDMCs, practises cabotage: coastal and inter-island cargo is reserved for vessels flying the national flag except where a requirement for a particular type of vessel creates a need to employ a foreign flag vessel. We note that the opening up of coastal trades to international competition by abolishing or modifying cabotage rules has the potential to lower domestic transport costs and encourage innovation in the domestic shipping market. The Division’s regulatory activities are governed by the Shipping Act (1968) and the Shipping (Non- Conventional Vessel Safety) Regulations (2003). Solomon Islands is a signatory to a limited range of international maritime conventions. The Report of the Diagnostic Audit Diagnostic Assessment of Interisland Transport notes that: ..important IMO conventions have not been signed. Solomon Islands in fact has acceded to only 6 of 55 IMO conventions (Tuomi, 2005). Moreover, there are concerns about the extent to which Solomon Islands has fulfilled its obligations under those conventions to which it has acceded. The project team presentation reports that the regulations required to support many conventions have not been passed, and obligations to maintain navigational aids and accurate charts have not been fulfilled (Toumi et al 2006). The IMO Conventions to which Solomon Islands is a signatory are shown in Table 3-1 below. TABLE 3-1: INTERNATIONAL CONVENTIONS TO WHICH SOLOMON ISLANDS IS A SIGNATORY

Convention Name Status of Convention in Solomon Islands Load Lines Convention (1996) Acceded in the Shipping Act (1968) Collision Convention (1972) Unknown Tonnage Measurement Conventions (1969/1988) Acceded in the Shipping Act (1968) Prevention of Pollution from Ships (MARPOL)(1973/1978) Acceded in the Shipping Act (1968) Safety of Life at Sea (SOLAS)(1974/1978) Acceded in the Shipping Act (1968)

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Convention Name Status of Convention in Solomon Islands Standard of Training, Certification and Watch-keeping (STCW ’78 Implemented and STCW ‘95)

The European Commission/European Development Fund, Solomon Islands Shipping and Marine Sector Study: Final Report, 1999 (Shipping Sector Study 1999), argued that the Marine Department (now Division) had not been successful in its sector leadership role in recent years because of: ƒ a lack of sufficient financial and human resource capacity ƒ a lack of dynamism in policy formulation and a complete failure to develop an adequate information basis for consideration of policy initiatives ƒ failure to give a high enough priority to training ƒ failure to impart a sense of direction in the affairs of the sector or maintain a regular dialogue with representatives of shipping operators and provincial governments; ƒ failure to promote higher standards of safety and service in the shipping sector

(Source: European Commission/European Development Fund 1999, p.ES-8) The comments remained applicable in 2006. It is regrettable, but perhaps understandable in light of the turbulent recent history of Solomon Islands, that strengthening of maritime administration does not appear to have been a high priority for the government. For its part, the Marine Division has argued that it is experiencing difficulties in providing a leadership role and/or implementing the Conventions because of the lack of experience of its officers. The Division is experiencing serious staffing problems because many of its staff have attained, or are approaching, retirement age and the Division does not have suitably trained replacements.

3.2.2 Provincial governments Some provincial governments within Solomon Islands play a multiple role in the domestic shipping sector: ƒ some provinces continue to operate inter-island shipping services—this appears to be decreasing as more and more vessels become inoperable and are not being replaced ƒ provinces provide jetties and landings that are used by inter-island vessels ƒ some provincial governments apply ‘licence fees’ to operators wishing to provide services to the province (Solomon Islands Government, National Transport Plan 2007–2026, p.6).

3.2.3 The Solomon Islands Port Authority The Solomon Islands Port Authority (SIPA) is a State Owned Enterprise. It was established by an Act of Parliament in 1956 and is responsible to the Minister of Commerce, Industries and Employment. SIPA operates the two international ports in Solomon Islands: Honiara and Noro.

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The main functions of SIPA are: ƒ to regulate the use of the abovementioned ports through the efficient and safe service, timely discharge, and the receival and storage of cargo ƒ to provide pilotage and navigational aids ƒ the design and construction of appropriate infrastructure to respond to current and future needs of port operations (including wharves, jetties, container hardstand, warehouses and amenities ƒ facilitate government regulated services (Customs, Quarantine and Immigration)

(Solomon Islands Port Authority, Internal Document: Presentation to Caucus, 2006).

Commodities Export Marketing Authority (CEMA) The Commodities Export Marketing Authority (CEMA) is a statutory authority responsible to the Minister of Commerce, Industries and Employment. CEMA’s current role focuses on quality certification. It also provides regulatory advice and assistance for the following commodities: copra, cocoa, coconut oil, coconut and palm oil. In the past, CEMA provided shipping services for the movement of copra to export ports as well as operating the copra and coconut export port at Yandina—located on the Russell Islands. Nowadays, private agents organise shipping services; CEMA’s role is to inspect and grade the copra (and other commodities) at Honiara and Noro before the cargo is shipped internationally—or consumed domestically.

3.3 Shipping services

3.3.1 International shipping services Solomon Islands is currently served by Sofrana Unilines, Chief Container Service (Swire), Greater Bali Hai Service (Swire) and Bank Line (Swire). The export of logs is handled by logging companies through their logging wharves. Sawn timber is exported through Honiara by containers. Table 3-2 below shows the international shipping services to and from Solomon Islands.

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TABLE 3-2: INTERNATIONAL SHIPPING SERVICES TO AND FROM SOLOMON ISLANDS6

Service Operator Frequency Vessels Employed Service Type Australia / New Zealand Lyttelton / Napier / Tauranga Sofrana Unilines Every 18 days Sofrana Magellan Container / Auckland / Brisbane / Port Sofrana Kermadec Moresby / Lae / Rabaul / Lihir I / Honiara / Port Vila / Tauranga Sydney / Melbourne / Chief Container Fixed-day weekly Papuan Chief Container Brisbane / Port Moresby / Lae Service (Swire) (1) AotearoaChief / Honiara / Tauranga / Napier Lihir Chief / Nelson / Sydney Coral Chief

NE Asia/SE Asia Kaohsiung / Hong Kong / Greater Bali Hai Monthly Coral Islander II RO-RO Busan / Kobe / Nagoya / Service Kyowa Hibiscus Yokohama / Majuro Atoll / Pacific Islander II Tarawa / Port Vila / Noumea / Kyowa Cattleya Lautoka / Suva / Apia / Pago Pago / Papeete / Nukualofa / Santo / Honiara / Kaoshiung Europe Algeciras / Hamburg / Hull / Bank Line (Swire) Monthly Boularibank, Container Antwerp / Dunkirk / Le Havre Gazellebank, and / Papeete / Auckland / Mahinabank, Breakbulk Noumea / Suva / Lautoka / Tikeibank Port Vila / Santo / Lae / Madang / Kimbe / Rabaul / Jakarta / Singapore (PSA) / Algeciras

Source: Lloyds List Daily Commercial News, Shipping Line Schedules.

6 Australian service details as of October 2006. Asian and European services as of early 2004. North American service as of March 2005.

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3.3.2 Freight costs Indicative shipping freight costs to and from Solomon Islands are shown below in Table 3-3 However, these rates are likely to be cheaper for shippers moving a significant quantity of containers. TABLE 3-3: FREIGHT CHARGES FOR INTERNATIONAL VOYAGES TO AND FROM SOLOMON ISLANDS

Country Freight Charge Imports Australia USD2,350 per container (Inc. surcharges) South East Asia USD2,600-2,700 per container (Inc. surcharges) Japan/Korea USD2,370-2,750 per container (Inc. surcharges) Exports Asia USD1,400 per container (Inc. surcharges) Worldwide USD1,600 per container (Inc. surcharges)

Source: Estimates provided by Shipping Agencies during interview program

3.3.3 Domestic shipping services A population scattered across more than 300 islands makes it difficult to provide an economically viable transport network. Limited, irregular and costly shipping, poor air services and a sparse road network offer little incentive to rural producers. Following the sale of the government owned National Shipping Services Ltd in the mid-1990s, inter- island shipping services were operated by the private sector and by some Provincial Governments (Choiseul, Isabel, Makira, Malaita and Western). The role played by the private sector has progressively increased and private operators now play the dominant role. The small cargo and passenger boats connecting the various outlying islands tend to be slow and prone to delays. Motor canoes (fibreglass or aluminium-hulled work boats fitted with an outboard motor) are a common means of water transport. This type of boat supplies goods to stores all over Solomon Islands and offers a rudimentary passenger transport service. The Shipping Sector Study (1999) estimated the annual demand for domestic passenger and cargo transport in Solomon Islands. This can be seen below in Table 3-5 and Table 3-6 Although these estimates are somewhat dated, we have been unable to locate later estimates. The National Transport Plan calls attention to the lack of adequate data for transport planning and the Transport Planning and Policy Unit has been established with a mandate to remedy this deficiency. Table 3-4 below provides details of representative inter-island shipping services.

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TABLE 3-4: SOLOMON ISLANDS: REPRESENTATIVE INTER-ISLAND SHIPPING SERVICES

Operator Route Vessel Name Capacity Vessel Type (pax/cargo tonnes)

Provincial Governments Isabel Honiara – Santa Isabella 252/185 Pass/Cargo Isabel Makira Honiara-Makira Bulawa 83/224 Pass/cargo Western Province Honiara-Western Tomoko -/492 Cargo Private Sector Eastern Shipping Buta 82/224 Pass/Cargo Laura Shipping Lauru 1 118/343 Pass/Cargo Newco Baruku 83/244 Pass/Cargo Paul Harvey Neptune Gale n.a. Rendua Trading Elizabeth Ann 40/332 Pass/Cargo Elena 12/154 Pass/Cargo {Unnamed} 297 Cargo Sasape Marine Belama 199 Cargo Temotu Shipping Temotu 335/380 Pass/Cargo TJ Enterpises Hamakyo Maru -/168 Cargo Wings Shipping Yandina 27/276 Pass/Cargo Other CEMA Gracosa 27/276 Pass/Cargo Church of Southern Cross 86 Pass/Cargo Melanesia

Source: Based on interviews with Coastal shipping operators, taken from Pacific Regional Transport Study, 2004; updated using information from ADB Diagnostic Audit of Domestic Shipping 2005. However, economic growth and restructuring has been very limited since the date of the study and these volumes are likely to remain a reasonable indication of current cargo flows)

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TABLE 3-5: SECTORAL ANALYSIS DOMESTIC SHIPPING SECTOR 1999

Sector Volume Passenger Trips 231,000 tonnes General Cargo Shipments 96,000 tonnes Copra Shipments 25,000 tonnes Petroleum Products Shipments 185,000 drums

Source: European Commission/European Development Fund 1999, p.ES-10 Table 3-6 shows the estimated distribution of inter-island traffic by provincial groups. This data will be updated during the in-country program. TABLE 3-6: SOLOMON ISLANDS: INTER-ISLAND TRAFFIC BY PROVINCE, 1998

Province Passenger Trips General Cargo Copra (%) Petroleum in (%) (%) Drums (%) Western 25.3 17.0 20.9 24.1 Guadalcanal 9.4 7.4 8.1 7.8 Malaita 39.1 25.4 25.8 24.9 Other Inner Island Provinces 24.1 42.2 38.0 37.9 Outer Island Provinces 2.1 8.0 7.2 5.3 100.0 100.0 100.0 100.0

(Source: European Commission/European Development Fund 1999, pES-10) Generally speaking, shipping services to the inner islands are operated commercially. However, some routes are unlikely to provide a commercial return. The Diagnostic Assessment of Domestic Shipping reports that Destinations recommended by a consensus of opinion of shippers, the Ministry of Infrastructure and Development, the Marine Department and the consultant are recommended to be: • Santa Cruz outer Islands • Rennell and Bellona • Makira Outer Islands (Sikaiana) It has been demonstrated by experience that the financial return on trips to these destinations is consistently negative. Shipping companies have been submitting financial details of voyages previously undertaken and the Marine Department has been paying subsidies on a somewhat ad hoc basis. (ADB 2005) These routes serve islands with low populations, small scale economic activity, long sailing distances and, hence, high shipping costs.

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3.3.4 Commentary

International The limited cargo volumes into and out of Solomon Islands has affected the viability of international shipping services. As the 2004 Regional Transport Study Workshop noted ‘As long as the Solomon Islands economy remains small and depressed, demand for international sea freight services will remain limited thereby affecting the regularity of international shipping…’7 The range of services currently offered is in fact somewhat better than one might reasonably expects for the volume of cargo available in Solomon Islands; Solomon Islands appears to be benefiting from the ease of combining calls at Honiara (and, less commonly, Noro) with calls at the larger PNG ports.

Domestic The recently published National Transport Plan provides a succinct and persuasive diagnosis of the problems in the domestic shipping sector. It also provides a blueprint for addressing these issues. As the package developed in the NTP has relevance well beyond the Solomon Islands, it is worth reproducing in full: To assist in the development of regular, reliable and cost-effective shipping services throughout the country the Government will: • retain the system of the provision of shipping services by private operators • establish a system for providing financial assistance to private sector ship owners to operate regular, frequent and safe services to outer islands where commercial services are not commercially viable • establish special funding to assist private operators finance ship acquisition • seek donor assistance to provide training suitable small business management, planning and finance training to for shipping operators by [sic] • encourage improvements in the condition of vessels by amending relevant legislation and a more rigorous application of regulations relating to ship seaworthiness; and, • initiate a broadly based consultative process, run jointly by the MID and the Ministry of Finance and Treasury, to persuade provincial authorities to abandon the unnecessary and restrictive regulations and licensing arrangements (Ministry for Infrastructure and Development, 2006)

7 Regional Transport Study Workshop, Proceedings, Honiara, January 2004, p.9.

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One of the identified issues in Solomon Islands is the collection of passenger fares on the inter-island shipping services. As a result of generally poor management on behalf of the shipping operators, and from the methods employed to collect the fares —the crew collect the fares either at the dock, or on board the ship and it has been reported that the fare collection is not policed particularly well or honestly—there is a significant amount of fare evasion that takes place. It is essential to ensure that all commercial revenue rightfully due to the ship operator is collected if subsidies to inter-island shipping are to be kept to affordable levels. Determining precisely how this is best done is beyond the scope of the present study, but the absence of adequate revenue control system points once again to the need for training and support in commercial management for the private sector.

3.4 Ports sector

3.4.1 Port ownership and administration The Solomon Islands Port Authority (SIPA), established by the Ports Act 1956, is responsible for the operation and maintenance of the ‘declared’ ports of Honiara and Noro. SIPA has a broad range of responsibilities. As well as being responsible for the provision of basic port infrastructure and the regulation of port activity, SIPA is the sole stevedore in both Noro and Honiara, and the sole provider of pilotage services. It is the sole provider under-bond storage for import cargoes and provides other storage and warehousing facilities. It also provides housing and other social amenities for staff. Figure 3-1 outlines the organisational structure and staff complement of SIPA. FIGURE 3-1: SOLOMON ISLANDS PORT AUTHORITY– ORGANISATIONAL STRUCTURE

MINISTER OF MARINE INFRASTRUCTURE & DEVELOPMENT

BOARD OF DIRECTORS (9)

GENERAL MANAGER

NORO PORT OPERATION ENGINEERING FINANCE CORPORATE (28) DEPARTMENT DEPARTMENT DEPARTMENT SERVICES (93) (18) (13) (35)

SCALED DOWN HARBOURS INFRASTRUCTURE REVENUE HUMAN MIRROR IMAGE OF STEVEDORING EQUIPMENT DEBT SERVICING RESOURCES HONIARA PORT WAREHOUSING WORKSHOPS Source: SIPA 2006

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Under the Ports Act, SIPA is required to operate commercially and to be financially self-dependent: that is, to meet all commercial operating costs and generate a net operating surplus, plus achieve an annual rate of return on fixed assets. However, it is clear from Figure 3-2 that this objective has rarely if ever been achieved. During the last ten years, SIPA has been marginally profitably for five years and incurred actual losses in five years. Even in the good years, profits have not been sufficient to cover the true cost of capital, and accumulated losses over the decade amount to in excess of USD1.5 million.

FIGURE 3-2: SOLOMON ISLANDS PORT AUTHORITY, PROFIT SND LOSS 1996-2005

$4,000,000

$3,500,000

$3,000,000

$2,500,000

$2,000,000

$1,500,000

$1,000,000 US Dollars US $500,000

$-

-$500,000

-$1,000,000

-$1,500,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year

INCOME EXPENSES PROFIT

Source: SIPA 2006.

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3.4.2 Port infrastructure FIGURE 3-3: MAJOR PORTS WITHIN SOLOMON ISLANDS

(Source: Base map derived from Texas University website) Solomon Islands has three international ports—Honiara, Noro and Yandina. The Solomon Islands Ports Authority (SIPA) owns and operates the ‘declared’ ports of Honiara and Noro. Yandina is not at present used for international trade. Both Honiara and Noro operate bonded warehouse facilities. There are no barriers for private operators to enter into this market; however, presumably due to the small volumes of cargo entering the ports, it is not seen as economically viable for the private sector to become involved.

Honiara Honiara has a deep water international berth 120m long, with a maximum depth of 9.2m alongside. Vessels up to 200m long can be handled. In addition, SIPA operates an 85m wharf, with a depth of 3.4m alongside, and a barge ramp on the eastern side of Cruz Point. Whilst the coastal wharves are located adjacent to the international berth, they are not controlled by SIPA. Port authority labour works all overseas ships. Pilotage is not compulsory.

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FIGURE 3-4: HONIARA PORT FIGURE 3-5: NORO (CUTTER POINT)

Source: Solomon Islands Port Authority, 2006

Noro Noro (Cutter Point), on New Georgia Island, is the copra buying and export centre for the Western Solomons and the location of a cannery for fish—shipped to Northern Asia. The deep water berth, which attracts calls from international vessels, is 62m in length, with 14m depth alongside the wharf. Pilotage is compulsory for vessels exceeding 40m length.

Outer Islands Wharves and Jetties According to the Solomon Islands National Transport Plan 2007–2026, approximately 86 small wharves and jetties and 26 anchorages are located across the country (Ministry for Infrastructure and Development (MID), 2006). Most of the existing wharves and jetties are said to be in poor condition due to age and neglect of maintenance. Until recently, hardly any maintenance has been carried out over the past twenty years and cargo handling operations are inefficient and unsafe in many locations (Government of Solomon Islands/European Development Fund 2002, Section 7.2). According to the Transport Sector Strategy 2002, this was to a significant extent due to a confusion between Central and provincial governments as to who was responsible for the maintenance of wharves and jetties. The National Transport Plan notes that this responsibility was clarified by the Shipping Act 1998, which assigned responsibility for wharf development and maintenance to the (national) Department of Infrastructure Development (MID, 2006)8.

8 Reference to ‘Department of Infrastructure Development is taken verbatim from the NTP. However, the reference may be intended to be to the Ministry of Infrastructure and Dvelopment, which was responsible for developing the report.

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The Government, under the European Development Fund’s Marine Infrastructure Project, is to construct and/or rehabilitate fourteen wharves and jetties located throughout Solomon Islands. The construction phase of the project began in 2004 with work on Gizo Wharf. At present, seven projects have been completed and the remaining seven are underway.

3.4.3 Port throughput The two major ports, Honiara and Noro, account for over 80% of total port throughput (excluding logs) in Solomon Islands, with Honiara alone accounting for more than two-thirds of the total. Throughput at Honiara and Noro grew at over 15% per annum in the mid 1990s, resulting in the need for continual expansion of port area and development of facilities and cargo handling and storage practices to maintain service levels: ƒ total overseas trade through Honiara increased from 193,000 tonnes in 1991 to 326,000 tonnes in 1995, an annual average growth rate of 14% ƒ port throughput at Noro increased from 31,000 tonnes in 1991 to 67,000 tonnes in 1995 —an average annual growth rate of over 21%. However, volumes at both ports slumped dramatically during the disturbances of 2000-2002, and total volumes have not yet recovered their former levels.

Honiara Table 3-7 below shows both the slump in import and export volumes that occurred in 2001–2002, and the subsequent recovery. By 2005/6, throughput in Honiara had almost returned to the levels of the previous peak in 1998. There is a severe imbalance in imported and exported containers: the ratio of imported containers to exported containers is almost 9:1—the largest container export from Honiara is empty boxes. One surprising element of the total throughput is the significant, though very volatile level of transhipment traffic. Enquiries made during field research suggest that this consists primarily of empty containers from Papua New Guinea offloaded in Honiara for onward movement to Australia.

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TABLE 3-7: IMPORTS, EXPORTS AND TRANSHIPMENT THROUGH HONIARA PORT 1996-2006

Exports Imports Transhipment (Gross Revenue Tonnes) 1996 54,318 212,827 33,866 1997 55,195 242,105 39,940 1998 56,800 250,810 140,910 1999 32,824 185,090 30,880 2000 22,500 190,670 0 2001 11,440 146,610 0 2002 9,220 165,370 0 2003 17,070 162,970 0 2004 36,688 201,210 69,790 2005 45,391 193,930 2,680 2006 48,450 239,785 85,030

Source: Solomon Islands Port Authority, 2006

3.4.4 Noro Table 3-8 below shows a gradual decline in import and export volumes through the Port of Noro since 1999. In 2006, export volumes (10,182 gross revenue tonnes) were approximately half of the 1996 figures (22,874 gross revenue tonnes). Import volumes have been even more significantly affected; in 2006 (8,594 gross revenue tonnes) were only one-fifth of 1996 volumes (42,535 gross revenue tonnes).

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TABLE 3-8: IMPORTS AND EXPORTS THROUGH NORO PORT 1996-2006

Exports Imports (Gross Revenue Tonnes) 1996 22,874 42,535 1997 24,691 47,347 1998 23,692 38,261 1999 28,344 47,664 2000 22,112 7,607 2001 4,072 16,980 2002 7,390 17,820 2003 15,270 15,296 2004 34,623 10,341 2005 8,040 10,341 2006 10,182 8,594

Source: Solomon Islands Port Authority, 2006

3.4.5 Port development plans Under a 1989 Master Plan for Port Development in Solomon Islands, SIPA proposed upgrading Honiara port, further development of facilities at Noro, and recommended a feasibility study of a possible third international port at Bina on Malaita. Only the Honiara proposal was implemented. Noro had land constraints while the Bina proposal foundered because of a dispute over the purchase of land required for the proposed port. Since the completion of ADB-funded works at Honiara in 1991, SIPA has funded various capital works to relieve congestion of domestic shipping operations and improve the efficiency of ship handling and cargo storage. The port of Noro was expanded by reclamation to accommodate the increasing levels of canned tuna exported by Solomon Taiyo (tonnages trebled over the period 1990- 96). Continuing grant-in-aid assistance to the port was provided under the Japan International Cooperation Agency (JICA) Fisheries Infrastructure project. Based on passenger and cargo volumes and existing wharf condition, the Solomon Islands National Transport Plan 2007–2026 states the following locations are the highest priority for in an initial 10 year of wharf rehabilitation and construction. These are shown in Table 3-9 below.

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TABLE 3-9: HIGH PRIORITY LOCATIONS FOR THE CONSTRUCTION OF NEW WHARVES

Province: Location: Choiseul Taro, Katurasele, Posarae Western Munda Lambete, Ughele, Viru, Gasini, Bunikalo Isabel Kia, Tatamba, Susubono Central Taraonara, Siota Malaita Fanalai, Malu’u, Suava Bay, N’usi Guadalcanal Marau Makira-Ulawa Kirakira, Marou Bay, Hadja, Star Harbour Temotu Mohawk Bay

Source: Solomon Islands National Transport Plan 2007-2026, p7

3.4.6 Port performance Operational performance indicators Table 3-10 suggest that the number of ship arrivals in Honiara has declined over the period 1999-2002. This is part due to the ethnic tension and breakdown of law and order. However, the average tonnage handled per vessel has increased over the past five years, suggesting that the decline in ship numbers is also in part due to increased consolidation of services and the use of larger vessels. TABLE 3-10: HONIARA: OPERATIONAL PERFORMANCE INDICATORS

Statistics 1999 2000 2001 2002 2003 Arrivals 117 113 87 73 74 Waiting time (Hours) 510 285 71 63 131 Berth time (hours) 2122 1980 1449 1229 1617 Average Berth Time (Hours) 18.14 17.52 16.66 16.83 21.85 Turnaround Time 22.50 20.04 17.46 17.68 23.62 Average tonnage (ship) 1413 1342 1542 1647 1898 Hours ships worked 1176 1009 943 680 912 % Worked to Berth Hours 55.42 50.97 65.08 55.37 56.40 Tonnes/Berth Hour 77.93 76.61 92.57 97.83 86.84 Tonnes/Hours Worked 140.61 150.35 143.25 176.81 153.97

Source: Solomon Islands Port Authority, Annual Reports

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The port statistics suggest reasonably high levels of cargo handling productivity at the port, although because of inconsistencies in way in which stevedoring performance is measured it is prudent not to place too much weight on such statistics in comparing port performance. However, interviews during the field research confirmed that cargo handling performance in Honiara is generally good by Pacific standards. One agent indicated that Honiara Port is capable of loading and unloading up to 14 containers per hour on a 24 hour basis; and 20 containers per hour on a 16 hour basis (Gerald Stenzel, Managing Director, Tradco Shipping Ltd, personal communication, 1 December 2006). These figures are significantly higher than the ‘Pacific standard’ of 10-12 lifts per hour.

3.4.7 Port charges The Solomon Islands Ports Authority (SIPA) is authorised to levy rates and dues on every ship entering or leaving port, in respect of the passengers, animals and cargo carried on the ship. These are payable either: ƒ by the owner or master of the ship ƒ in respect of passengers, animals and cargo inwards/outwards, by the passengers themselves or by the consignee of the animals and cargo The regulations provide for the application of a ‘currency adjustment factor’, linked to the Central Bank’s basket of currencies, to be applied to all of the major charges imposed on overseas vessels under the tariff schedule. Ports dues, pilotage, berthage and tonnage dues are payable by the master of the vessel. Wharfage is payable by the cargo owner.

Port dues The gazetted rate for international vessels is USD0.71 per metre of overall length of the vessel. Port Dues are payable on first entry of the vessel into a either Honiara or Noro, but are valid for a three month period. For charging purposes, these periods are standardised, commence on the first day of January, April, July and October.

Pilotage Pilotage charges are levied once per call; that is, the cover both the inward and outward journey. Pilotage is not compulsory, and is levied only on overseas ships. The pilotage charge is USD1.20 per metre of length overall.

Berthage Berths is charged at a rate of USD0.24 per metre/hour for overseas vessels.

Tonnage Dues Tonnage dues levied by the Solomon Islands Port Authority on international cargoes are USD0.64 per tonne for incoming cargo and UDS0.32 per tonne for outgoing cargo. No tonnage dues are levied on transhipment cargo.

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Wharfage Wharfage is charges on international containerised cargoes at a rate of USD0.80 per tonne for cargo in twenty-foot units, and USD1.04 per tonne for cargo in forty-foot units. The comparisons of Section 2, Volume 1 of this report suggest that, overall, port charges at Honiara are relatively low.

3.4.8 Stevedoring SIPA provides all port, stevedoring and overseas cargo handling services at the declared ports of Honiara and Noro. Casual labourers are recruited as needed to help load and unload vessels, sort and stack cargo in the sheds, and stuff and unstuff containers. Stevedores in Honiara are available on two eight-hour shifts daily. In Noro stevedores are available between 0730 and 2300 hours. The charge for loading/unloading a container from a ship is USD25.20. This is the same for a twenty- foot container and a forty-foot container, and is applied to both full and empty units. It covers only the movement of container from the ship to the wharf. A separate charge is levied to cover the subsequent landside handling of the cargo. For full container load cargo, the charge is USD1.75 per revenue ton for cargo in twenty-foot containers, USD2.10 for incoming cargo and USD1.99 for outgoing cargo in forty-foot containers. The comparisons of Section 2, Volume 1 of this report suggest that stevedoring charges in Solomon Islands are higher than those in PNG and Samoa, but significantly lower than Suva, Vanuatu and Kiribati.

3.4.9 Commentary SIPA is established as a statutory authority and required to operate in accordance with commercial principles. However, actual financial performance of the port falls well short of this target. To some extent, recent poor financial performance can be attributed circumstances beyond the control of SIPA. Figure 3-2 shows that the drop in trade as a result of the tension led to a significant fall in port revenue. However, the figure also shows that expenses have been inflexible in the face of this crisis—somewhat surprisingly so, as SIPA’s use for casual labour for stevedoring operations might have been expected to increase the proportion of expenditure that would vary directly with cargo volumes. SIPA’s infrastructure charges are comparatively low, but it seems reasonable to infer that this is at least in part because they do not properly reflect the costs of providing port infrastructure and services. Even before the decline in cargo volumes, profits generated by the port were very small, and unlikely to represent an adequate return on capital invested. And despite a significant recovery in volumes, SIPA made a financial loss in the last reported financial year (2005).

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Revenue dilution is another issue for SIPA. Under the heading ‘Community Service Obligations’ the recent presentation to caucus notes, rather enigmatically, ‘Leniency of chargeable rates and dues’. Later, the presentation lists amongst the difficulties experienced by SIPA ‘Collection of Trade dues (Local Ships)’ (SIPA 2006). Discussions with SIPA management suggest that there are also structural problems with the port tariff. There is no systematic relationship between tariff levels and costs. Apart from creating problems in evaluating port investment, in guiding demand for port services, and in equitably apportioning the port costs between various user groups, this may (as has been the case in Fiji) pose an obstacle to structural reform if an attempt is made to introduce competitions in stevedoring. One rather surprising observation is the good cargo handling performance of SIPA. The structural conditions in SIPA ports, with an integrated, government-owned port organisation the monopoly provider of stevedoring services, would normally be expected to produce poor results in this area. The use of causal labour often exacerbates this problem, since employees have an incentive maximise income by extending their period of employment. However, the high productivity at Honiara was confirmed not only by port statistics and contacts in the Solomon Islands but also (as a contrast to productivity in Suva) by industry representative in Fiji. No convincing explanation of this apparent paradox was forthcomings from interviewees in the Solomon Island. Factors explaining comparative stevedoring performance may be worthy of more detailed analysis is a more focussed study.

3.5 Ship maintenance and repair Solomon Islands has four slipways for vessel repair and maintenance: ƒ Sasape Marina at Tulagi ƒ The Church of Melanesia’s facility at Taraoniara ƒ Markworth Shipping’s facility at Ave ƒ Liapari in Western Province. The Maritime Department of the Ministry of Infrastructure and Development has noted that domestic facilities can only accommodate vessels of up to 300 tonnes capacity. Vessels above the tonnage limit have to be maintained and/or repaired in overseas ship repair facilities. This remains a serious issue for Solomon Islands: to service all inter-island domestic shipping routes, shipping operators are likely to use vessels larger than 300 GRT (ADB 2006, p.25). This is due to the weather conditions associated with open water voyages.

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The ADB in 2006 concluded that: ƒ There are several 300-500 GRT ships out of service and anchored at Honiara for the reason that there is no haul out facility in country for them to meet their regulatory obligations. Their safety certificates are cancelled and the anchored vessels continue to deteriorate. ƒ This situation one of the most significant causes of the failure of the Solomon Islands shipping sector to provide the level of service needed. This is a most critical issue for advancement of the Solomon Islands shipping industry.

Source: ADB, Diagnostic Assessment of Interisland Transport p.26) Only one of the facilities (Sasape Marina) is government owned and is in need of urgent repairs and requires significant upgrading.

3.6 Maritime safety and security As a ‘Contracting Government’, the Government of Solomon Islands is required to nominate a ‘Designated Authority‘ to supervise maritime security and ensure ISPS compliance, as well as determine the Security Level that is appropriate for the facility in question. The Marine Division is the designated responsible authority under the ISPS Code. Financial aid from Australia, New Zealand and the US, coupled with a training program instituted by the Regional Maritime Program of the Secretariat of the Pacific Community, enabled Solomon Islands to meet the July 2004 ISPS deadline. The Suva-based Regional Maritime Program conducted an audit of Solomon Island’s principal international port, Honiara in 2006; only minor defects were found. Similar results are reported for the audit of Noro.

3.7 Maritime training The Solomon Islands College of Higher Education provides engine room training through the College of Industrial Development. It also provides deck training through the School of Marine and Fishery Studies. While there is a strong demand from people wishing to attend the College, it is currently only operating at around 50% capacity. This is primarily due to the inability of people to afford the course fees. An 18 week course with the College costs USD650.

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4. NON-CASE STUDY PACIFIC ISLAND COUNTRIES

4.1 Cook Islands

4.1.1 Introduction The Cook Islands lie between Samoa and French Polynesia. The nation consists of fifteen islands located in two groups, Northern and Southern, with a total land area of 237 sq km, spread over 2 million sq km of ocean. The population is 21,388 (2006). Rarotonga, the main island, is one of the Southern Group. Attaché, also in the Southern group, is the second most populated island. The isolated and less populated islands of the Northern Group—including Manihiki and Penrhyn—receive few visitors. The Cook Islands are a self-governing country in free association with New Zealand, an arrangement that dates back to 1965. Under the terms of its agreement with New Zealand, Cook islanders hold New Zealand citizenship and have the right of free access to New Zealand. The Australian Department of Foreign Affairs and Trade has noted9 that the Cook Islands economy faces many of the impediments to development experienced by other small island states in the Pacific: relatively limited natural resources, remoteness from major trade and industrial centres, and a diminishing labour force. The real growth rate of gross domestic product has varied considerably over the last six years, with negative growth being experienced in 1998 and very low growth rates being experienced in 1999 and 2002. Real GDP growth in 2003 is estimated at around 3.2 per cent.10 Tourism is the most important single industry, some 74,500 tourists visiting Rarotonga in 2001. The Government has accorded high priority to the further development of the tourist industry. We note that attempts to develop tourism have sometimes backfired. For example, a deal bankrolling a massive Sheraton-chain resort on Rarotonga’s south coast collapsed, leaving the Government about USD 700,000 in debt and with an unfinished ghost resort on its hands. The Government has also given priority to the development of marine resources contained within the Cook Islands Exclusive Economic Zone, including fishing and black pearl farming in the Northern group of islands. As is the case in other Pacific Island countries, imports significantly exceed exports. The Cook Islands imports a wide range of foodstuffs and manufactures. Almost 80% of imports are sourced from New Zealand. Imports are also sourced from Fiji, Australia, United States and Japan. Exports are dominated by the pearl industry, followed by citrus fruits, tropical fruits, vegetables and copra. Fish are exported live or chilled. Aromatic maire ‘ei (necklaces of aromatic maire leaves) are flown to Hawaii. The Cook Islands principal export destinations (2002) include Japan (44%),

9 (Australia) Department of Foreign Affairs and Trade, Cook Islands Country Brief, August 2003. 10 (Australia) Department of Foreign Affairs and Trade, Cook Islands Country Brief, August 2003, p.2.

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Australia (22%), New Zealand (14%) and United States (9%). The Department of Foreign Affairs and Trade has noted that despite attempts at economic diversification, development assistance from New Zealand and Australia as well as remittances from the large Cook Islands communities in New Zealand and Australia remain very important to the economy.11

4.1.2 Shipping services

International shipping services Two international shipping services operate to and from Rarotonga (New Zealand Shipping Gazette, 2 December 2006). The principal feature of each service are summarised in Table 4-1. Both of these services serve the Cook Islands out of the New Zealand port of Auckland. ƒ New Zealand Pacific Container Line operates a 21–day frequency service between Auckland and Rarotonga and Aitutaki using the Southern Express. ƒ The Pacific Forum Line operated a fortnightly service from New Zealand-Fiji-Cook Islands- New Zealand, with a transhipment service to Rarotonga over Apia. TABLE 4-1: INTERNATIONAL SHIPPING SERVICES TO/FROM COOK ISLANDS

Service Operator Frequency Vessels Service Type Employed Auckland / Rarotonga / Express Cook Every 21 days Southern Container/breakbulk Aitutaki / Alofi (Niue) Islands Line Express Auckland

Auckland / Suva/ Pacific Forum Line Every 21 days Matua Container/breakbulk /Rarotonga / Auckland

Source: Lloyds List DCN; NZ Shipping Gazette; ci-online. The Cook Islands Port Authority (www.ports.co.ck, accessed 17 December 2006) notes a third services operated by Mataroa International Shipping and Trading. This company, through subsidiary Mataroa International Line, did introduce a service to the Cook Islands in 2000 which was still extant at the time of the Pacific Regional Transport Study in 2003 (PIF 2004a). However, it is no longer listed in the Ports of Auckland listing of all services calling at that port (www.poal.co.nz, accessed 17 December 2006), nor has it been possible to identify any vessel operated by the company in the trade press. It is likely that the company has reverted to slot chartering on PFL or NZPCL vessels. The Draft Final Report of ADB TA 4605-COO reports that ‘Mataroa International used to provide a monthly service with breakbulk cargo’ (MPC Group, 2006—emphasis added).

11 (Australia) Department of Foreign Affairs and Trade, Cook Islands Country Brief, August 2003, p.2.

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Cargo to and from destinations other than New Zealand is served by transhipment over Auckland. Apart from the international container services, the major cargo through the ports is imported petroleum product, which is delivered by tanker on an approximately monthly basis.

Licensing of International shipping services The Cook Islands is the only South Pacific nation which sets out to regulate international shipping services by means of a licensing system/ (FSM, Palau and the Marshall Islands jointly regulate international liner shipping services via the Micronesian Shipping Commission). The entry control system dates back to 1970, when the Cook Island Government, in a 50:50 partnership with Julian Holdings of Auckland, set up the Cook Islands Shipping Company.12 The company initially chartered the reefer vessel Thallo. When the development of the port at Avatiu allowed larger vessels to be employed and freight volumes on the Thallo had increased, the Cook Islands Shipping Company purchased the Lorena, a Norwegian-built conventional freighter. This service competed with the New Zealand government owned cargo-passenger vessel Moana Roa. The licensing system was designed to protect the interest of the Cook Islands Shipping Company. Despite the system, both services lost money. In 1973 New Zealand provided a loan to allow the Cook Islands to purchase Julian Holdings interest in the Cook Islands Shipping Company. The Cook Islands Shipping Company was then wound up. In March 1974 a joint venture between the New Zealand Government and the newly-formed Cook Islands National Line, began a fortnightly service using two unitised vessels. When the New Zealand Government withdrew from the trade, the Cook Island National Line continued to operate the service until it went into bankruptcy. Freight rates to/from the Cook Islands were set by the Cook Islands Government.

Domestic shipping services Domestic shipping services were provided by Taio Shipping and Mataroa Shipping and Trading. All vessels carry general cargo and deck passengers. Services operate on irregular schedules to both Northern and Southern Groups of islands. Services to the Southern Group usually operated on a monthly basis. Travel throughout the Southern Group usually involved late afternoon or early evening sailings, with arrival at the next island early in the morning. Most of the Northern Group islands are accessible only by ship. Services operate approximately every two months (PIF 2004a). However, schedules are liable to disruption: weather, breakdowns, loading difficulties and unexpected demands could and often did affect sailings. Ships usually stay at each island for a few hours. Trips from Rarotonga to the Northern Group often take up to 10 days as several

12 See Tony Nightingale, The Pacific Forum Line: a commitment to regional shipping, pp.8-9.

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islands are visited. There were said to be more unprofitable than profitable routes. While shipping companies benefit from a tax exemption on marine diesel fuel, the operator does not receive a direct subsidy. The Government of the Cook Islands had a policy of ‘open competition’ and trade licenses were not restricted to nationals of the Cook Islands.

4.1.3 Maritime infrastructure

Port facilities The Port of Avatiu (Raratonga) is the principal port of the Cook Islands. The main characteristics of the port are given in Table 4-2. TABLE 4-2: PRINCIPAL CHARACTERISTICS OF AVATIU PORT

Draught: 6m Wharf length: 386m Storage area: Covered (3 sheds) 2,000m2 Uncovered 5,000m2 Equipment available: Forklifts: 3 x 3T, 1 x 18T, 1 x 25T, 1 x 35T

Port ownership and administration Following major public sector reform in the late 1990s, a corporatised port authority was established to manage the main ports of the Cook Islands in 1995. In line with the provisions of the Cook Islands Investment Corporation Act 1998, the Cook Islands Ports Authority is a subsidiary of the Cook Islands Investment Corporation. The Authority is responsible for the ports of Avatiu on Rarotonga, and Arutanga on Aitutaki. Its assets include buildings, wharves, port facilities, tugboats, plant and equipment, storage/transit sheds, open storage areas, and stacking areas for commercial purposes. It also maintains the channel, approach, berth depths, navigational aids, and wharves (piers, jetties).

Source: Cooks Islands Ports Authority website, http:// www.ports.co.ck, 17 December 2006. Stevedoring services at the port are privatised, but the Authority continues to provide ‘marshalling services for the movement of containerised, breakbulk and homogeneous cargoes through the ports’. It has also retained ownership of heavy cargo handling equipment used for containers and general cargo, and maintains a container cleaning service. There was substantial investment (USD2.1 million) in marine infrastructure (port repairs, maintenance facilities, tugs, security fencing etc) over the period 2001–03. Most of the expenditure was in Rarotonga. Only Rarotonga, Aitutaki and Penrhyn Atoll (Northern Group) have wharves: at other islands passengers/cargo are taken ashore by lighter vessels or barges. Outer island ports are owned by the government.

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This corporation had a Board of Directors with private sector representation and a staff of 16.

Maritime security Cook Islands has benefited from advice on security provided by the Regional Maritime Program and we have unconfirmed advice that the Cook Islands have a security plan that has been accepted as complying with IMO requirements.

4.2 Kiribati

4.2.1 Introduction The Republic of Kiribati is an independent country comprising of 33 atolls in three main groups running 4,000kms along the equator. The surface area is only 811 sq km. The capital is Tarawa. Kiribati is small in size, remote and geographically fragmented. It has a relatively harsh natural environment with infertile soils and limited exploitable resources. However, Kiribati does have abundant ocean resources: Kiribati’s EEZ is the largest in Micronesia and one of the largest in the Pacific. The country relies heavily on licence fees from foreign fishing fleets. In 1992, Kiribati’s per capita Gross National Income (GNI) stood at USD970, making Kiribati has one of the lowest income countries in the region. Its social indicators compare unfavourably with most other Pacific Island countries. Economic growth has been erratic— since 2000, it has ranged from a high of +4.4% in 2001 to a low of -4.0% in 2003. Growth in 2005 was a mere 0.3% (ADB, A Fact Sheet: Kiribati and ADB, www.adb.org, accessed 17 December 2006). Kiribati exports seaweed, live fish and copra. In 2002, Kiribati exports went principally to Japan (56.6%), Thailand (16.4%), Korea (16.3%), United States (3.4%), and Germany (2.3%). The principal sources of imports in 2002 were France (28.7%), Australia (26.3%), Fiji (12.5%), Japan (9.5%), and Latvia (5.4%). The country relies on remittances from Kiribati citizens employed abroad, mainly as seamen.

4.2.2 Shipping services

International shipping services Chief Container Service is currently the sole provider of international shipping services between Australia/NZ and Kiribati. Similarly, Greater Bali Hai is the only service that connects Northeast Asia with Kiribati. The Government was attempting to break the monopoly by opening up the trade to other lines. Table 4-3 below shows the international shipping services to and from Kiribati.

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TABLE 4-3: INTERNATIONAL SHIPPING SERVICES TO AND FROM KIRIBATI

Service Operator Frequency Vessels Employed Service Type Australia/New Zealand Melbourne / Sydney / Brisbane / Chief Container Every 33 days Kiribati Chief Container Noumea / Port Vila / Santo / Suva Line (Swire) / Tarawa / Majuro Atoll / Santo / Port Vila / Noumea / Melbourne NE Asia/SE Asia Kaohsiung / Hong Kong / Busan / Greater Bali Hai Monthly Coral Islander II, RO-RO Kobe / Nagoya / Yokohama / Service Kyowa Hibiscus, Majuro Atoll / Tarawa / Port Vila / Pacific Islander II, Noumea / Lautoka / Suva / Apia / Kyowa Cattleya Pago Pago / Papeete / Nuku’alofa / Santo / Honiara / Kaohsiung

Freight rates Freight rates to/from Kiribati appeared to be extremely high. The following rates were quoted by the Government in 2004: TABLE 4-4: TEU FREIGHT RATES TO AND FROM AUSTRALIA

Cargo Type Cost per TEU ($USD) General Cargo $2,652.00 Flour, salt, sugar & rise $2,047.50 Reefer $3,510.00 Beer $2,496.00 Australian Gov Aid $2,100.54 Stock feed, pig feed $2,047.50 Empty 44 gallon drums $1,404.00 Lube oil, aviation fuel $2,652.00

All the above had an additional CAF 27.47%, BAF USD143.02 and port service charges (Melbourne USD55.95, Sydney USD58.57, Brisbane USD61.62). All containers charged a documentation fee of USD23.40.

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TABLE 4-5: OTHER FREIGHT RATES

Commodity Cost per TEU ($USD) Cement (ex Suva) USD1,100 + BAF USD93.50 Cement ex Brisbane USD1,300 + BAF USD93.50 Cement ex Gladstone and Lae USD1,300 + BAF USD93.50

Domestic shipping services Cabotage In order to engage in a ‘near coastal voyage’, vessels are required to take out a license under s.8 of the Shipping Act 1998. Near coastal voyages are defined as ‘a voyage or trade or an operation of a vessel of any island in Kiribati within 200 nautical miles off the coast, or a voyage or trade or operation of a vessel within or between the Gilbert Group of islands, the Phoenix Group of islands, the Line Group of islands and Banaba, that comprise the Republic of Kiribati.’ (s.2) The license issued may be subject to a variety of terms and conditions and remains in force for 2 years. The Director of Marine has powers to revoke such a license where there are wilful breaches of its terms and conditions (s.19(2)). Inter-island shipping Inter-island shipping services were provided primarily by a government-owned company, Kiribati Shipping Services Ltd. Its fleet consists of four vessels, two of which were over 20 years old, which were procured with the help of Overseas Development Aid. They were said to be expensive to maintain (fleet maintenance exceeded USD585,000 a year). KSSL has been assessing whether inter-island shipping would be more economical if shallow draught landing craft were employed. In 2004, KSSL was reported to be in the process of buying a five year old landing craft at a cost of USD800,000 (KSSL, personal communication). KSSL were opting for a second-hand craft because a new one would take six months to build and the demand was pressing. Freight rates are controlled by Government, and KSSL plans for fleet replacement are contingent on increases in freight rates.

4.2.3 Ports

Port facilities The infrastructure at the main port of Kiribati, Betio (on the island of Tarawa) was substantially refurbished in the late 1990s under Betio Port Development Project, which was funded by the Government of Japan. The cost of the full project was in excess of USD45 million. The upgraded port facilities provide an alongside berth 170 meters in length which can now accommodate vessels and barges up to 6 meters draught. Anchorages are available outside the main port with depths of around 12 meters. There are also berths alongside the old finger pier which are principally used by local vessels.

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The port was badly damaged in a cyclone in 2002, and a rehabilitation project, again funded by the government of Japan, was announced in 2005.

The infrastructure at Betio Port in the Republic of Kiribati is set to improve after completion of the Japanese funded rehabilitation works. The construction works at the Betio Port will be funded through a grant of JP¥313 million (approx. US$3 million) provided by the Government of Japan under Japan’s General Grant Aid Programme to Kiribati. Japan’s assistance follows a request from the Government of the Republic of Kiribati for assistance in 2003 (Embassy of Japan in the Republic of the Fiji Islands website, http://www.fj.emb-japan.go.jp, accessed 17 December 2006) Most of the container traffic is discharged at anchorage using a crane barge, and then transferred to shore by lighter. Handling rates are reportedly quite good, with the capability to discharge 250 containers in 30 hours (South Pacific Regional Economic Program website, www.sprep.org, accessed 17 December 2006). The other major trade of Kiribati is the importation of refined petroleum products. These are carried by a small, 1,150 ton tanker which operates out of Fiji. (The vessel will usually deliver to several PDMCs on a single voyage). This vessel also discharges from an offshore mooring, via an. underwater pipeline. Kiribati receives 10–15 visits per year from this vessel. Port administration The Kiribati government passed the Kiribati Port Authority Act in 1990, but it was not until 2000 that the Kiribati Port Authority was finally established. Prior to that time, the government-owned shipping company Kiribati Shipping Services Ltd (KSSL) was responsible for the administration and management of both shipping services and port administration. There were a lot of inefficiencies experienced with such structure which prompted the government to separate the port division from the shipping division. The separation of the Port division, which is now established as KPA, was effective early 2000 (Ientaake, 2001).

Maritime Training Kiribati is a major Pacific source of maritime labour. Remittances from these seafarers inject an estimated $7 million per annum into the Kiribati economy (NZ Aid 2006). Seafarer training is undertaken at the Kiribati Marine Training Centre (MTC), which trains both deckhands and mechanic ratings.

4.3 Marshall Islands

4.3.1 Introduction The Marshall Islands lie to the east of the Federated States of Micronesia (FSM) and the north of Tarawa (Kiribati). They comprise 1,152 atolls and coral islands, stretching in two parallel chains across the Western Pacific. The land area is 11,854.3 sq km and the population is 60,422 (2006).

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Formerly a Trust Territory under the administration of the United States, the Republic of the Marshall Islands (RMI) became independent in 1979. The independent, self-governing RMI entered into a Compact of Free Association with the United States in 1982. Under the Compact, RMI has control over all aspects of domestic and foreign policy, with the exception of defence and security issues which are the responsibility of the United States. On 30 April 2003, after four years of negotiations, the Marshall Islands and the United States agreed to a package of amendments to the Compact and reaffirmed their special relationship. The renegotiated Compact included an agreement confirming long-term (63 years) US access to the Kwajalein Missile Range in return for a payment of USD2.3 billion. The US agreed to provide economic assistance over a 20 year period and contribute to a trust fund that will provide income to RMI after 2024 when grant assistance ends. Grant assistance and trust fund contributions over the 20 year period are valued at USD800 million.13 The Compact allows citizens of the RMI access to US federal programs. GDP growth has varied considerably over the past five years. Negative growth in 2000 was followed by a recovery, with growth of 4% being recorded in 2002. The RMI economy depends heavily on assistance provided under the Compact, with over 80 per cent of government revenue being derived (directly or indirectly) from US sources. Total revenues and grants grew by an estimated 13 per cent in fiscal year 2001, leading to a budget surplus. The Government commenced a reform program in 1996, taking steps to increase its return from tourism and fisheries, reduce the size of the public sector and eliminate or reduce subsidies (to utilities, Air Marshall Islands, and the copra industry). The government is the major employer, with the commercial and retail sectors also generating paid employment. Domestic production is limited, with fisheries, copra, handicrafts and subsistence agriculture being the most significant sectors.

4.3.2 Maritime administration Responsibility for maritime administration in RMI lies with the Department of Transportation, which oversees safety and environmental regulation as well as providing policy advice. Major ports are managed by separately constituted authorities.

13 (Australia) Department of Foreign Affairs and Trade, Republic of the Marshall Islands: Country Brief, p.2.

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4.3.3 Shipping services

International shipping services In common with Palau and FSM, the Republic of the Marshall Islands lies in close proximity to the major shipping lanes from the US West Coast to East and Southeast Asia (the trans-Pacific trades). In general, access to East-West shipping services is good. However, access to North-South shipping services is more limited, although the Marshall Islands receives calls from services such as Greater Bali Hai en route from Japan and Korea to the South Pacific. TABLE 4-6: INTERNATIONAL SHIPPING SERVICES TO/FROM THE MARSHALL ISLANDS, 2006

Service Operator Frequency Vessels Employed Service Type

Australia/New Zealand Melbourne / Sydney / Brisbane / Chief Container Every 33 days Kiribati Chief Container Noumea / Port Vila / Santo / Line (Swire) Suva / Tarawa / Majuro Atoll / Santo / Port Vila / Noumea / Melbourne NE Asia/SE Asia Kaohsiung / Hong Kong / Busan Greater Bali Monthly Coral Islander II, RO-RO / Kobe / Nagoya / Yokohama / Hai Service Kyowa Hibiscus, Majuro Atoll / Tarawa / Port Vila Pacific Islander II, / Noumea / Lautoka / Suva / Kyowa Cattleya Apia / Pago Pago / Papeete / Nukualofa / Santo / Honiara / Kaoshiung Guam/Ebeye/Kwajalein/Majuro/ Matson Fortnightly Islander Container Kosrae/ Pohnpei/ Chu’uk.

Source: Federated States of Micronesia, Infrastructure Development Plan, Maritime Transportation Sector; Lloyd’s List Daily Commercial News; Shipping Company Sailing Lists. The Greater Bali Hai Service (Swire Group) from Japan and Korea to the South Pacific calls at Majuro every two months. Also, Chief Container Service (Swire Group) operates a service linking Australia, Guam and FSM. Direct shipping services between the RMI and North America were previously offered by both Matson and PM&O Line. Matson has now discontinued its direct service in favour of transhipment over Guam. PM&O Line has ceased operating.

Micronesian Shipping Commission The Republic of the Marshall Islands is a member of the Micronesian Shipping Commission. For a discussion of the Commission and its activities, see Section 2.2.3.

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Domestic shipping services Domestic shipping services in the RMI have historically been delivered by a mix of public sector and public sector operations, with private operators tending to focus on services to nearby islands while the Government ‘field trip’ service, operated by the ministry of Transport and Communications (MoTC) served the remote communities. The field trip services combined retailing activities with freight services, purchasing many of the groceries carried to the outer islands and selling them to the island communities at a mark-up. Faced with increasing costs, deteriorating condition of Government vessels, and deterioration in service quality, in 1999 the Government of the Republic of the Marshall Islands introduced a scheme for franchising shipping services to certain remote island communities to private operators. An international call for tenders, however, attracted little interest, and eventually contracts for three routes were let to the sole bidders. Only one of the two operators (PII) was still in operation by 2001. In 2003, the subsidised franchise contract that was awarded to PII for operation of their ship, Mercy K, was renewed. During this period, the government continued to operate services through At that time, the Ministry of Transportation’s Sea Transport Division (STD). STD’s operated four ships: ƒ Litakbouki 167t cargo 16 cabin, 75 saloon and 50 deck passengers ƒ Landrik 185t cargo and 50 deck passengers ƒ Ribuuk Ae 104t cargo 100 passengers ƒ Bokeneb 50t cargo plus deck passengers, operated regular services. MOTC was also operating a small tanker, Jobake to distribute fuel to the outer islands. During 2004, the role of PII in providing services to the Outer Islands reduced. According to the Report of ADB TA 4004-RMI: The greatest part of the services is now provided by the STD, using its ships Aemman, Landrik, Ribuuk Ae and Boken-eb. Aemman is a new ship, delivered from its builders in April 2005. It is a replacement for Litakbouki, which has now been laid up and is about to be disposed of. During FY2004 Ribuuk Ae was out of service for most of the year. In FY 2004, PII operated its ship, Mercy K, under subsidy, but for only four voyages. In FY2005, two private sector operators received subsidies for provision of services. These were the owners of Angelina and Neidaga. PII was not directly involved in outer island services through the subsidy scheme, but it did operate one of its ship’s under charter to Tobolar, the copra purchasing agency, to transport copra from outer islands to Majuro. The Ministry of Public Works and Ministry of Resources and Development’s landing craft, YFU 82, YFU 77, LCM and Jejelat Ae, came under MOTC’s operational control during the inception phase of this TA, on 1

October 2003 (Pacific Marine Management, 2005) In FY2005 subsidised services for vessels less than 100 tons capacity were introduced for services to nearby outer islands. Concerns about a conflict of interest between the economic and safety regulatory function of the Ministry from the operation of the ships led to the passage of the Shipping Corporation Act 2005 in October of that year

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Facilities The principal international ports of the Republic of the Marshall Islands are Majuro and Ebeye (Kwajalein). Majuro is the principal port for general cargo imports (and the very limited quantity of exports exported from the RMI). The port of Kwajalein is used primarily for the import of supplies to the US military base located on that island. International shipping the Marshall Islands generally uses the so-called ‘New Commercial Dock’ in Delap. This is a deepwater facility, 305m in length, with an alongside depth of in excess of 16m. There is a 6 ha open storage yard in the vicinity of the dock, part of which is fenced and leased to a private operator.

Administration Two of the three ports of entry in the RMI—Majuro and Jaluit—are under the control of the Marshall Islands Ports Authority (MIPA). MIPA is a wholly owned and operated Government entity. The Board of Directors is comprised mostly of government officials and some private sector representatives. There have been substantial complaints regarding the very high salaries paid by the MIPA. MIPA was established in 1998 with the assistance of an ADB Transport Sector Institutional Strengthening TA (ADB TA No. 2756-RMI). The Port Authority operates under a landlord model: it is responsible for the provision of basic port infrastructure, regulation of activity within the port and the provision of pilotage services. Other port services, including stevedoring services, are provided by a private sector operator. TA No 2756-RMI also supported the creation of a Marshall Islands Airports Authority, which was responsible for the management of Majuro International Airport, and this recommendation was accepted an acted upon by government. However, responsibility for the airport has since been transferred to the Ports Authority (RMI Ports Authority, 2006).

4.3.4 Maritime training facilities

The Fisheries and Nautical Training Centre provides training for ratings to the level of Watchkeeper.

4.4 Nauru

4.4.1 Introduction Nauru is an island republic in the South Pacific Ocean, 40km south of the Equator. It lies south of the Marshall Islands and is nearly 4,000kms north-east of Sydney Australia. The island is 21 square kilometres in area and is one of the three great phosphatic rock islands in the Pacific. The island is surrounded by a coral reef which is exposed at low tide and dotted with pinnacles. Beyond the reef, the water depth increases rapidly. Coral cliffs surround the central plateau. The bulk of the 13,287 population lives on the coastal fringe, which varies between 100m and 300m in width. Agricultural land is in short supply, with an estimated 100 hectares available for food production. Nauru has limited fresh water resources and is dependent on household tanks, imports of water from Kosrae and an ageing desalination plant for the supply of water.

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Income from the export of phosphate has been the main source of revenue for Nauru since World War II. Phosphate mining by the Pacific Phosphate Company (a German-British consortium) began in 1907. The British Phosphate Company (owned jointly by the governments of United Kingdom, Australia and New Zealand) purchased the company in 1920 and continued to mine phosphate until control passed to the Nauru Phosphate Corporation (NPC) in 1970. Phosphate deposits are found on the island’s central plateau. Removal of a thin layer of top soil exposes the phosphate deposits. The existence of numerous pillars of rock (containing some dolomite) makes the task of mining more difficult and expensive. Many of the easier worked deposits have already been worked out. The areas remaining to be exploited tend to be more difficult to work. Some areas under roads remain to be exploited. Phosphate production has been in decline since 1989. Demand in Nauru’s traditional markets — Australia and New Zealand— has fallen because of the level of cadmium present in Nauru phosphate. Over the same period, the cost of extracting the diminishing phosphate supply has increased. Estimates of the volume of payable phosphate remaining vary widely—from 150,000 metric tonnes to over 2 million metric tonnes, depending on the assumptions made regarding payable reserves. The lower estimate appears more realistic. NPC operates with time-expired equipment. The phosphate is ‘mined’ using bulldozers. It is then conveyed by truck to the primary crushing plant. That plant has been in use for many years and has not had regular maintenance. The crushed rock is conveyed by a narrow gauge railway to the secondary crushers and drying plant located near to the port. The sleepers and the rail line itself are in poor condition, derailments being common. The locomotives are in equally poor condition and are capable of hauling six wagons at a time (versus 25 wagons when they were in better shape). There are six drying kilns, only one of which is currently operating (a second is said to be able to become operational with minimal work). NPC aims to raise production from the current level of 100,000 tonnes per annum to 500,000 tonnes per annum. To do so will require two operational kilns. Conveyor systems, used to transport phosphate between the various processing stages and between the kilns and the wharf, are in a poor state of repair. NPC’s phosphate sales have varied over but have recently been in what appears to be terminal decline. ADB notes that ‘Phosphate deposits are mostly exhausted, and production was negligible in 2004’ (ADB Nauru Country information, viewed 17 December 2006). Apart from phosphate, fishing licenses issued to China, Japan, Korea, Taiwan and the US are an important source of revenue for Nauru. While game fish are said to abound in Nauruan waters, Nauru has not been successful in exploiting the resource commercially. Most recently, the Nauru economy has benefited from the injection of funds associated with two asylum seeker processing centres set up on behalf of the Australian Government. Nauru is dependent on air and shipping services for the provision of food and other supplies, especially from Australia. The only commercial air service to and from Nauru is operated by Air Nauru. Its single Boeing 737-400 operates a horseshoe route linking Australian cities (Melbourne, Sydney and Brisbane) with Solomon Islands, Nauru, Kiribati and Fiji. The airline also operates a charter service between Sydney and Norfolk Island for Norfolk Jet Services.

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4.4.2 Shipping services

International shipping services TABLE 4-7: INTERNATIONAL SHIPPING SERVICES TO/FROM NAURU

Service Operator Frequency Vessels Employed Service Type

Sydney / Brisbane / Nauru / Sydney Neptune 35-42 days Capitaine La Semi-container Shipping Line Perouse (122 TEU)

Servicing Nauru efficiently and effectively poses a serious challenge to container shipping lines. The island nation is a long way from major trading nations and its trade suffers from a serious directional imbalance. Like other PDMCs, Nauru is predominantly an importer. The nation exports few products to fill outbound containers. Nauru operated its own shipping line, the Nauru Pacific Line, in the 1960s and 1970s. In April 1971, the line operated three conventional freighters and passenger-freight vessels, the Eigamoya, Rosie D, and Emma G, on the Australia–Nauru run. Phosphate-rich Nauru planned to purchase further ships and were said to be prepared to commit a considerable amount of capital into the development of the line.14 However, the Nauru Pacific Line lost money and income from phosphate exports declined, leading to the sale of vessels and the demise of the Nauru Pacific Line. There followed a period during which the country was served by the Pacific Forum Line and Chief Container Service (Swire Group). These lines no longer provide a service to Nauru. In 2004, a new service to Nauru was introduced by Vanuatu-based Neptune Shipping, which operated a chartered vessel, the Thor Swan (220TEU), on a 35 day schedule between Sydney, Brisbane and Nauru. The Thor Swan has subsequently been replaced by the Capitaine La Perouse. Neptune has decided to omit the traditional call at Melbourne in favour of centralising cargoes to Sydney. In early-mid 2004 Neptune Shipping records suggest that sailings carried 40-70 inbound containers per voyage. No more recent data is available, but given the downturn of the Nauruan economy, imports—and hence container numbers—are likely to have declined since that time. The reduction in services with the withdrawal of the CCS and PFL services has caused some difficulties. Some shippers noted that the Chief Container Service enabled them to access products manufactured in PNG, which offered lower prices than similar Australian manufactured products. For example, cement from PNG sold in Nauru for USD11.00–12.50 a bag, while Australian produced cement sells for USD15.60-17.00 a bag. Similarly, shippers noted that the quality and price of biscuits produced in PNG were more suitable for the Nauruan market than biscuits produced in Australia.

14 See Tony Nightingale, The Pacific Forum Line: a commitment to regional shipping, Christchurch, Clerestory Press, 1998, p.5.

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The high cost of serving Nauru is reflected in the freight rates charged by Neptune. The base rate for a 20’ container from Australian ports to Nauru is USD2,400. Additionals (CABAF) can account for as much as an additional 30%. It is not possible to handle 40’ containers at Nauru.

Domestic shipping services There are no coastal or inter-island shipping services in Nauru.

4.4.3 Ports

Port Facilities Consisting solely of anchorages and two cantilevered ship loaders, only one of which is operational, Nauru Port has no wharves or breakwaters. Whilst Nauru is surrounded by a relatively narrow coral reef, the depth of water increases very rapidly outside of the reef. The ship loaders are constructed so that bulk carriers loading cargoes are anchored in deep water beyond the reef. Cantilever No. 1, the more southerly of the two ship loaders, in no longer operational. Although suffering from lack of maintenance, the Cantilever No. 2 is reportedly capable of loading vessels at a rate of 3,000 tonnes per hour. Vessels employed in phosphate carriage vary from 15,000– 30,000dwt. Container vessels tie up to mooring buoys positioned close to Cantilever No. 2 and load/unload cargo by means of ship’s gear. Cargo is lifted on to barges or lighters which make a short journey into a small boat harbour constructed by removing part of the reef. The barges are old and poorly maintained. Swell often causes delays to loading/discharging in those months when winds blow from the West. Recognising the problem, Neptune allows six-eight days for discharging/loading at Nauru. The problems with loading/discharging at Nauru were a factor in Chief Container Service’s decision to cease calling at Nauru. A medium term solution to this problem may lie in the development of Anibare Bay (on the other side of the island) as a second or relief anchorage. However, this would involve transporting containers around the island by road.

Port Ownership and Administration Nauru’s port is operated by the Marine Department. The officer-in-charge is the Harbour Master. Senior officials include a Senior Assistant Harbour Master, a Marine Operations Officer and an Assistant Harbour Master with responsibility for pilotage. The Marine Department is responsible for stevedoring and barge operations, the operation of the container park, the shipping operations associated with Nauru Phosphate Corporation and tanker operations.

Port Charges Nauru port tariffs are high compared to those charged in many of the region’s ports. This difficult to justify given the limited infrastructure provided and the poor state of port facilities.

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4.5 Palau

4.5.1 Introduction Palau lies to the north of PNG and east of the Philippines. The population of Palau is approximately 20,579 (2006). Only nine of the 300 islands making up the Republic are inhabited. The land area of Palau is 458 sq km. The Republic of Palau, which became independent in 1980, entered into a Compact of Free Association with the United States in 1994. Under the Compact, Palau has control over all aspects of domestic and foreign policy, with the exception of defence and security issues which are the responsibility of the United States. The Compact provides direct financial assistance to aid economic development (see below). With a per capita GDP estimated at almost USD6,103 in 2003 (as measured by purchasing power parity), Palau has one of the highest standards of living of Pacific Island countries.15 However, according to the Australian Department of Foreign Affairs and Trade wealth and development are spread very unevenly throughout the country (DFAT 2006). Palau’s economy benefits from financing arrangements under the Compact. The US Government has agreed to pay approximately USD447 million over the first 15 years of the 50-year life of the Compact (i.e. 1994-2009). Under the Compact, USD70 million was set aside in a Trust Fund, said to have grown to.USD144 million, for use after Compact grants cease in 2009 (DFAT 2006). Palau also benefits from US funded infrastructure projects. The Palauan economy is said to have the potential for sustained growth.16 Tourism, the main source of income, declined after the Asian Financial Crisis, but has since expanded. Tourism infrastructure development is a priority area for the Government. However, the Government recognises the need to retain a balance between tourism and the maintenance of a pristine environment. Aside from financial aid and tourism, the Palauan economy depends on fishing and small-scale agriculture. In common with the FSM and the Marshall Islands, income from fishing is important to Palau. Chinese and Taiwanese long line fishing fleets fish in Palau’s Exclusive Economic Zone, with Japan as the major importer of tuna and mackerel. Growth in small-scale agriculture, originally driven by the expanding tourist trade, is continuing as a result of the construction boom. Almost all agricultural production is domestically consumed. In common with most Pacific Island States, the volume of Palau’s imports greatly exceeds the volume of its exports, creating problems for shipping companies. Palau’s principal sources of imports include the US (32.8% in 2000), Japan (15.4%) and Guam (14.1%).

15 (Australia) Department of Foreign Affairs and Trade, Palau: Country Brief, August 2003. 16 (Australia) Department of Foreign Affairs and Trade, Palau: Country Brief, August 2003, p.2.

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4.5.2 Shipping services

International shipping services Palau lies in close proximity to the major shipping lane from the US West Coast to East and Southeast Asia (trans-Pacific trade). The most important shipping links are those with the United States. Until recently, the Philippines, Micronesia and Orient Navigation Company (PM & O) offered a service linking United States West Coast with Hawaii, the Marshall Islands, the FSM ports of Kosrae, Yap, Pohnpei and Chu’uk, Palau, the Philippines, Hong Kong and Malaysia. PM&O withdrew from the trade in 2003/2004. TABLE 4-8: INTERNATIONAL SHIPPING SERVICES TO/FROM PALAU

Service Operator Frequency Vessels Service Type Employed Busan / Kobe / Nagoya / Kyowa Line Every 30 days Asian Ro-ro Yokohama / Saipan / Hibiscus/Kyowa Apra/ Yap /Koror/Chu’uk Salvia / Pohnpei Hong Kong, Palau, Yap, Palau Shipping/ Every 14 days Baffin Strait Container Hong Kong Mariana Express Lines

Kyowa Line operates a 30-day frequency service between Korea, Japan and Micronesia (including Guam, Palau, Saipan, and FSM). The line uses small container/break bulk vessels (averaging 8,000dwt, 115m LOA and 8m draught). Palau Shipping, using vessels chartered from Mariana Express Lines, started a fortnightly service between Hong Kong, Palau and Yap in July 2004. Australian cargoes are relayed over Busan and Hong Kong. Chief Container Service (Swire Group) operated a service linking Australia, Guam, Palau and FSM. This service ceased in 2003. The fortnightly service previously offered by Kambara Shipping from Palau to Yap (FSM) has also now been discontinued.. Containerised imports reportedly exceed containerised exports, leading to a problem of container repositioning. High value tuna exports are air freighted to Japan, and there is little by way of agricultural exports as almost all produce is domestically consumed. A relatively high proportion of Palau’s imports are transhipped via Guam, adding to delivery times and costs.

Freight rates We have not been able to obtain details of freight rates. Interviews with Government officials in 2004 suggested that the level of freight rates was not perceived to be a major problem, although the stressed that lower freight rates would always be welcomed. It was accepted that, as over 90 per cent of full

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containers are inbound, freight rates must necessarily reflect the cost of container repositioning.

Micronesian Shipping Commission17 The Republic of the Marshall Islands is a member of the Micronesian Shipping Commission. For a discussion of the Commission and its activities, see Section 2.2.3.

Domestic shipping services Domestic shipping is a minor activity in Palau. The Government sees the provision of shipping services as the responsibility of the private sector.

4.5.3 Maritime infrastructure

Port Facilities Port facilities at the capital, Koror, are limited, and efficiency gains would be possible if the port facilities were expanded and upgraded. Some cruise ship operators have expressed an interest in visiting Palau but they are deterred by the lack of appropriate berth space. There are two berths, each approximately 160m in length, with an alongside water depth of approximately 9m. Further development of the port is not listed amongst the 21 priority projects in the country’s Public Sector Investment Plan 2003-2007 (UN ESA 2006).

Port Administration The port of Koror is administered by the Division of Transportation, Ministry of Commerce and Trade.

4.5.4 Maritime security The cost of compliance with new US security requirements is of real concern to the Government of the Republic of Palau. While the US and some other donors are providing some financial assistance, the new measures are imposing a substantial financial burden on the Government.

4.6 Papua New Guinea

4.6.1 Introduction

Papua New Guinea (PNG) consists of the eastern half of the island of New Guinea together with many islands to the east, the largest being New Britain, New Ireland and Bougainville. With a population of just over five million, and a long-term population growth rate of 2.4%, PNG‘s population is growing more slowly than that of many PDMCs (UNICEF, 2006).

17 This section draws on Micronesian Shipping Commission, Micronesian Shipping Commission: Background and Function.

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Papua New Guinea’s economy is dualistic, with a traditional quasi-subsistence rural sector (agriculture provides a livelihood for some 85% of the population) co-existing with a modern mineral sector. Papua New Guinea is a resource rich country, with major deposits of gold, copper, nickel, petroleum and natural gas, tropical forests, extensive fishing areas and agricultural potential. The highlands coffee industry is capable of producing large quantities of world class coffee. Between 1990 and 1995 Papua New Guinea experienced rapid export-driven economic growth, based on the rapid expansion of the mining and petroleum industries. The country’s longer term prospects depend crucially on export performance. However, potential drawbacks include not only cyclones and drought but fluctuations in world commodity prices. As Filmer has noted18, economic management in PNG is primarily and exercise in coping with shocks, both external such as falls in world commodity prices and internal such as the Bougainville civil disorder that resulted in the closure of the Panguna copper and gold mine.19 Papua New Guinea’s recent economic performance has been disappointing, and reversing this trend will be difficult: Little overall growth has occurred in the last 5 years, and, in per capita terms, growth has been strongly negative. Medium-term prospects are somewhat better, assuming improved macroeconomic stability and continuing success in implementing the reform program. However, the longer-term prospects are more problematic. Oil and other mineral incomes are diminishing and need to be replaced by exploitation of natural-gas reserves and other mineral resources. (ADB is helping the Government refine its policy with respect to a potential gas pipeline to Australia.) (ADB 2006b)

4.6.2 Structure of maritime administration The Merchant Shipping Act 1980, the PNG Harbours Board Act 1976 the National Maritime Safety Authority Act 2003, provide the legal framework for maritime sector management. The Ministry of Transport, an umbrella organization including the Department of Transport (DOT), the Civil Aviation Authority (CAA), and the Policy and Planning Division, is responsible for maritime policy. The Maritime Transport Division has recently been reorganised as part of an ADB and AusAID funded Maritime Sector Restructuring Project (MSRP). The Final Report of the Papua New Guinea Maritime Restructuring Project argued that MTD’s administrative role suffers as a result of:

18 R. Filmer, ‘Port Activity Projections for Port Moresby, 1999-2025’, Applied Economic Solutions, May 19999. 19 Pre crisis, the Panguna mine had been responsible for about 35% of PNG exports by value and 15% of Government revenue.

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ƒ Inadequate and uncertain funding for essential operations and maintenance; ƒ Poor planning and bureaucratic ‘procedures-oriented’ rather than ‘results- oriented’ management; ƒ Lack of management accountability, commercial expertise and ‘customer focus’; ƒ Inefficient institutional structure and wasteful use of manpower; ƒ Lack of long-term plans and objectives for the maritime sector; and ƒ Lack of financial management and control capability, effective management information and inventory control systems (CPCS 2003). The overall purpose of the MSRP is to restore maritime navigational aids (q.v.) as part of a comprehensive improvement program encompassing the strengthening of policy and institutional frameworks. The cornerstone of the program is the creation of a National Maritime Safety Authority (NMSA).20 The aims of the NMSA, established under the National Maritime Safety Authority Act 2003, are to ‘raise standards of maritime safety in Papua New Guinea’s waters and to strengthen controls over marine pollution from ships.’21 The NMSA’s maritime responsibilities, administered by the Maritime Transport Division (MTD), include ship surveys, inspection and port state control, navigation aids, marine search and rescue, the monitoring and control of oil pollution, small boat safety awareness and education, and hydrographic surveys.

4.6.3 Shipping services

International shipping

PNG has a wide range of shipping links good shipping links with the region and beyond:

TABLE 4-9: INTERNATIONAL SHIPPING SERVICES TO/FROM PAPUA NEW GUINEA

Service Operator Frequency Vessels Service Employed Type Australia/New Zealand Lyttelton/Napier/Tauranga / Auckland / Brisbane Sofrana Every 18 Sofrana Magellan Container / Port Moresby / Lae / Rabaul / Lihir I / Honiara / Unilines days Sofrana Port Vila / Tauranga Kermadec

Brisbane / Port Moresby / Lae / Madang / ANL ‘APX Fixed-day ANL Kokoda Container Brisbane Service’ fortnightly

20 The National Maritime Safety Authority (NMSA) was formally approved by Parliament on 25 September 2003. 21 National Maritime Safety Authority, Corporate Plan 2003-2005, March 2003.

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Service Operator Frequency Vessels Service Employed Type Sydney / Melbourne / Brisbane / Port Moresby / Chief Fixed-day Papuan Chief Container Lae / Honiara / Tauranga / Napier / Nelson / Container weekly AotearoaChief Sydney Service Lihir Chief, (Swire)(1) Coral Chief Townsville-POM-Alotau-Lae-Townsville Consort Fixed-day Niu Ailan Coast Semi Express Lines weekly Madang Coast, Container Bougainville Coast Sepik Coast Townsville / Port Moresby / Lae / Townsville Coral Sea Bosavi Ro-ro Shipping Lines Pty Ltd SE Asia Port Klang / Singapore (PSA) / Tanjung Priok / Austral Asia Every 3 Cape Conway Semi- Port Moresby / Lae / Brisbane / Newcastle / Line BV weeks Cape Moreton container Melbourne /

Port Klang /Singapore/ Cebu/ Hong Kong / Lae / Australia Asia Monthly Cape Preston, Multi- Port Moresby / Alotau/Oro Line Cape York purpose Bay/Kavieng/Rabaul/ Port Klang Jeddah / Gizan / Mundra / Mumbai/ Singapore / Indotrans Monthly Pacific Makassar, Multi- Tanjung Priok / Kimbe / Lae/ Apia / Pago Pago Pacific Flores, purpose / Papeete New Orleans/Houston / Camden/ St Pacific Celebes, John Pacific Java

Shanghai / Busan /Chofu / Kobe / Nagoya / Kyowa Monthly Pacific Condor Ro-ro Yokohama / Chu’uk / Lae / Port Moresby / Shipping Co Pacific Falcon Townsville / Brisbane / Shanghai Europe Algeciras / Hamburg / Hull / Antwerp / Dunkirk Bank Line Monthly Boularibank, Container / Le Havre / Papeete / Auckland / Noumea / (Swire) Gazellebank, and Suva / Lautoka / Port Vila / Santo / Lae / Mahinabank, Breakbulk Madang / Kimbe / Rabaul / Jakarta / Singapore Tikeibank (PSA) / Algeciras

Notes: (1) Pacific Forum Line has slot chartering arrangements with CCS. CCS service connects with carriers to/from US (2) Cargo to/from Malaysia, Thailand, Vietnam, India, Philippines, South China transhipped over Singapore. Connects with carriers to/from Europe and US in Singapore.

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Major players in the Australia/NZ-PNG trade include: Chief Container Lines (Swire), Australian National Line (ANL), Sofrana Unilines and Consort Express Lines. The Swire Group, which has major investments in PNG, is strongly committed to the trade. In 2004 Swire’s Chief Container Service (CCS), which had operated in the Australia-PNG trade since 1952, offered a fixed-day weekly service between Melbourne, Sydney and Brisbane and Port Moresby and Lae. Vessels also called, on an alternating basis, at Rabaul, Madang, Kimbe and Lihir. CCS stepped up its service frequency and range of PNG port calls following ANL’s entry into the trade in 2001. Pacific Forum Line (PFL), which operated its own vessels in the NZ/Australia-PNG trade in the 1990s, had slot charter rights on the CCS service. Australian National Line entered the PNG trade in 2001. ANL centralised its Australian calls in Brisbane following Sofrana’s August 2001 decision to increase its frequency in the NZ/Australia-PNG trade. In 2004 Sofrana Unilines operated a fortnightly service NZ/Australia–PNG, centralising its Australian cargo in Brisbane. Northbound Sydney and Melbourne cargoes are feedered to Brisbane. PNG has direct links with South East Asia. General cargo carrier Indotrans offers two services, one carrying cargoes from Hong Kong, Southern China and SE Asia, with the other serving Shanghai in conjunction with Japan and Korea. The Swire Group’s New Guinea Pacific Line, which previously operated its own vessels from Asia to PNG, now slot charters on this service. Two direct services link PNG with N and NE Asia. The PAS service calls at Lae en route from North Asia to Australia. Port Moresby cargo is transhipped at Lae. Kyowa’s Paradise Service offers twice monthly sailings to/from Busan, Kobe, Nagoya and Yokohama. The Bank Line (Swire) offers a direct service to Europe. Indirect services are offered by a number of lines, with transhipment over Singapore, Hong Kong or Australia/NZ ports. There is no direct service between Papua New Guinea and North America. Transhipment services are offered via Singapore, Hong Kong and Australia/NZ ports.

Freight rates Indicative freight rates for general cargo (FAK rates) are: ƒ Sydney/Melbourne-Port Moresby/Lae: base rate USD2,200/TEU + BAF USD234/TEU + CAF 7.16% + PSC USD56.24 (Melbourne) or USD60.00 (Sydney) + HBS K65/TEU ƒ Brisbane-Port Moresby/Lae: base rate USD1,600/TEU + BAF USD234/TEU + CAF 7.16% + PSC USD63.00 + HBS K65/TEU. ƒ Singapore-Port Moresby/Lae: base rate USD1,550/TEU + BAF USD140/TEU + OTHC USD118/TEU + HBS K65/TEU ƒ Northern Europe-Port Moresby/Lae: base rate USD2,050/TEU + BAF USD214/TEU + OTHC USD202/TEU + HBS K 65/TEU ƒ West Coast US – Port Moresby/Lae: base rate USD2,750/TEU + BAF USD125/TEU + OTHC USD310/TEU + HBS K65/TEU.

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The rates shown are those that would be quoted to a relatively small and/or infrequent shipper. Commodity rates and rates charged to volume shippers would be lower than these figures. In general, the above rates approximate the rates charged to other PDMCs.

4.6.4 Domestic shipping

Coastal shipping services There are a total 14 coastal shipping operators operating in PNG. Coastal shipping services are operated by: Consort Express Lines (33% owned by Steamships [Swire Group], 33% owned by the Lutheran Church, 33% owned by Ariston Li); Laurabada Shipping Services (owned by Steamships, part of the Swire Group); Curtain Brothers; Concord Pacific; and various provincial governments. The PNG Government no longer owns ships engaged in coastal trading. In effect there are two levels or tiers of coastal shipping services. The first tier consists of companies such as Consort and Laurabada. These companies offer services between the major ports, concentrating the Port Moresby-Lae service as well as services along the North Coast. The second tier consists of a large number of shipping lines offering services to small, regional ports.

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TABLE 4-10: PNG COASTAL AND INTER-ISLAND SHIPPING SERVICES, 2004

Operator Route(s) Vessel Name Vessel Type Consort Express Lines Lae-Weewak-Madang (weekly) Papuan Coast Cargo (occasional calls at Vanimo) Consort Express Lines Lae-Rabaul-Buka-Kavieng- Madang Coast Cargo Rabaul Consort Express Lines Port Moresby – Lae – (Oro Gazelle Coast Bay)-(Rabaul Kimbe)-Lae-Port Moresby Consort Express Lines Lae-Alotau-Port Moresby Niugini (weekly) Larabada Shipping POM-Kumul-Kopi-Kunga Goada Chief Services (Swire) POM-Daru-Balimo-Awaba Hiri Chief POM-Kikori-Kerema Agutoi Chief Larabada Shipping POM-Kiunga Fly river (11 Kikori Chief Services (Swire) days) Larabada Shipping POM-Kikori-Balimo-Awaba(11 Agouri Chief Services (Swire) days) Larabada Shipping POM-Kopi-Daru (11 days) Goada Chief Services (Swire) Coastal Shipping Lae-New Britain Pass/Cargo Company, Rabaul, Rabaul-Kavieng (New Ireland Rabaul-Manus via Kavieng Cargo (monthly) Cargo Wuvulu-Ana Community Madang-Wuvalu-Aua, Manus- MV Thompson Cargo Wewak Manus Provincial Madang-Lorengau-Manus- Tawi Cargo Government Wuvalu

Coastal freight rates Coastal shipping services in Papua New Guinea were expensive for the distance travelled. (see Table 4-11). Comparisons were frequently made between coastal freight rates and the rates between Papua New Guinea and Singapore. For their part, the shipping lines argued that the comparison of coastal rates with rates to Singapore is invalid. Not only are the vessels employed in the Singapore trade larger than their coastal counterparts, but coastal companies incur relatively high PNG wharfage and handling charges at both ends of the voyage. Shipping companies argued too that coastal freight rates are determined by the PNG Government and have not changed in the past 10 years.

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TABLE 4-11: COASTAL FREIGHT RATES, EX PORT MORESBY (USD), 2004

Destination FCL 20’ FCL 40’ LCL (cu. M) Min. Rate Bill of Lading Lae 685.8 1,371.5 50.8 31.8 6.7 Madang 1,541.7 3,083.7 84.9 50.2 13.4 Wewak 1,559.7 2,977.6 89.3 56.9 13.4 Rabaul 1,017.7 2,035.3 57.1 50.2 13.4 Kimbe 1,109.2 2,218.3 59.2 50.2 13.4

Source: DHL

Note: Rates quoted include wharfage, BAF, CAF, Insurance and other shipping charges.

Regulation of Coastal Shipping PNG coastal shipping is reserved for PNG owned and registered vessels.22 The Merchant Shipping (Coasting Trade) Regulations, incorporated in the Merchant Shipping Act 1980, give the Minister the power to grant a licence to a person to engage in the coasting trade (s.222). The Minister may issue a general category or a special category licence, and may also exempt, by notice in the Gazette, the requirements to hold a coasting trade licence for a particular shipping service (s.225). A coasting trade licence in respect to a ship registered under the Act may only be granted to: ƒ The owner of the ship ƒ A qualified person(s) ƒ The charterer of the ship. Where a ship is not registered under the Act, a coasting trade licence will only be granted to qualified persons who are either owners or charterers of the vessel in question. Where no person is qualified, but where the Minister is satisfied that a particular shipping operator is able to offer an efficient and adequate service, the Minister may grant that shipping service a licence (s.266). Ships that are registered under the Act may be granted a licence for a period of eight years. In the case of ships that are not registered, a licence may be granted for up to five years. Where a Minister grants a licence for a shipping service, the term of that licence is not to exceed two years. Where no ship is available to provide a particular shipping service, or where a shipping service has been granted an appropriate coasting trade licence but the service provided is deemed inadequate, inefficient or unreasonably costly, and it is desirable in the public interest to do so, the Minister may issue a coasting trade permit to the master of a vessel.

22 The section on cabotage draws on Forum Secretariat, Review and Analysis of Forum Island Country Shipping Regulations, Draft Report, 2001.

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The Act establishes a Coasting Trade Committee. The function of the Committee is to advise the Minister on any matter relating to coasting trade A review of the coastal shipping sector is currently being undertaken by the Independent Consumer and Competition Commission (ICCC). At the time of writing, this review was well advanced and a Draft Report had been issued. The Draft Reports finds that PNG’s cabotage regime is not unduly restrictive and, although it may limit competitive pressures in the domestic industry, it acts to preserve stable services to remote communities through a pattern on implicit cross-subsidies. On balance, the Commission favours the retention of cabotage (ICCC, 2006, p14). The Commission also supported the retention of the current regulation of maximum coastal shipping freight rates. It notes the potential conflict of interest that the Coastal Trading Committee, which is largely comprised on existing coastal operators, may have in determining whether new licences should be issued, but argues that the consequences of this conflict are mitigated by the fact the CTC is purely an advisory body.

4.6.5 Ports

Infrastructure PNG has 17 operating commercial ports as well as many small wharves, jetties and beach landing sites. The ports serving the main centres of Port Moresby, Lae, Madang, Kimbe and Rabaul receive calls from international and coastal vessels and have the appropriate infrastructure, although the maintenance of wharves and cargo handling equipment has been badly neglected. Minor ports, including not only Wewak, Kavieng, Oro Bay and Alotau, but numerous local wharves, jetties and beach landings, are in poor physical condition and offer only basic services to coastal shipping. PNGHL faces a major maintenance backlog. The operational risk of wharf failure in Port Moresby and Lae is very high due to the state of disrepair, lack of integrity in wharf structures, and—in the case of Lae—the impact of seismic events due to the proximity of a fault line. PNGHL’s reconstruction and maintenance cost is conservatively estimated at USD31 million over a five year rolling program. Other estimates have suggested that the cost of rehabilitating Port Moresby alone will be USD27 million. The ICCC has summarised the condition of PNG’s port infrastructure in the following words: The Commission notes that based on preliminary estimates to hand, PNG Harbours has spent a considerable amount on maintenance and new facilities in the last five years. However, because of the need to address major funding failures in the past, much of this work appears to have been by way of catch-up, and even here the large part of this expenditure has occurred only in the last couple of years.

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As a consequence, with the continuing growth of the economy, the minerals boom, and the ever- changing nature of shipping technology, the PNG port system is straining under the present demands being placed upon it. Lae port in particular is suffering from severe limitations to its capacity both in terms of wharves and landing areas in addition to portside services such as storage and transhipment handling areas. While additional capital expenditure is projected for this port in particular as part of a significant expansion of the port, the current limitations are placing increasing strains on the international and coastal shipping sectors with consequential additional costs to the economy. As noted in some of the research that has been undertaken, these costs are effectively passed back in to the PNG economy as it is not possible to pass them on to overseas suppliers or buyers (ICCC 2006)

Administration PNG Harbours Board (1963-2002) Until 2002 the major ports in Papua New Guinea were owned and operated by the Papua New Guinea Harbours Board. Established in 1963, the Harbours Board was a ‘self-financing’ Commercial Statutory Authority (CSA) owned by the PNG Government. Its functions were to provide wharf infrastructure and related facilities to service overseas and coastal shipping and facilitate the handling of cargoes throughout Papua New Guinea. The Harbours Board was responsible for the operation of 21 designated ports, 17 of which were operational. The Harbours Board consistently lost money. In an attempt to disguise the losses, the Board neglected essential maintenance and ignored the need for capital spending to improve aged infrastructure.23 Reportedly, the Harbours Board lacked management skills and business acumen. PNG Harbours Limited The Papua New Guinea Harbours Board was corporatised in 2002, the new entity being known as PNG Harbours Ltd (PNGHL). The functions of PNGHL are laid down in the Harbours Board (Amendment) Act 2002. The legislation gives PNGHL responsibility for: ƒ The regulation, management, operation and control of Declared Ports; ƒ The movement of shipping in Declared Ports; and ƒ The provision and maintenance of lightships, buoys, piers, jetties, landing stages, slips, landing ramps and platforms in such ports (as well as the provision and maintenance of) machinery, equipment and installations used in connection with the operation of Declared Ports.

23 Papua New Guinea Harbours Limited, Briefing Paper on the Functions and Activities of Papua New Guinea Harbours Limited, February 2004.

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There are 22 Declared Ports in PNG. PNGHL operates 16 of these ports. The six remaining Declared Ports are either operated by commercial interests (e.g. Bialla, Lihir) or are non-operational (e.g. Kerema, Kupiano). Only two of the 16 PNGHL ports, Port Moresby and Lae, are commercially viable. Three ports operate manage to break-even, and the remaining 11 ports—including Wewak—are cross- subsidised. These ports are classified as social (feeder) ports. The shares in PNGHL are held in trust for government by PNG’s Independent Public Business Corporation (IPBC). IPBC’s role was defined as to ‘bring businesses up to scratch before privatisation’. However, the privatisation project now appears to have been shelved (ICCC 2006a). In its place, a significant port service reform program is planned. As part of this process the Commission and PNG Harbours entered into a Regulatory Contract which, amongst other things, regulates the prices that PNG Harbours may charge for the supply of Essential Port Services and arrangements for Stevedoring Access. The regulatory contract also contains commitments from PNGHL on service levels and future capital investment.

Port services Stevedoring PNGHL does not undertake stevedoring in its own right, but issues licenses to private companies to carry out stevedoring at those ports where stevedoring is compulsory. It is compulsory to use stevedoring services at Port Moresby and Lae, as well as at a number of the smaller ports (Madang, Wewak, Oro Bay, Alotau, Kimbe, Rabaul and Kavieng). Stevedoring services are provided by private companies operating under licenses originally conferred by the Harbours Board. The Harbours Board issued private companies rights to engage in stevedoring for a period of five years (later two years), with reviews every 12 months. In Port Moresby, PNGHL maintains a pool of casual labour. Stevedoring companies are required to draw their requirements from this pool. Labourers in the pool who are not required to work in a given week are paid a minimum wage, funded from a cargo levy administered by PNGHL. The ICCC has recently (14th December 2006) issued its Draft Report on the stevedoring and handling industry in PNG (ICCC 2006b). The Commission comments that, over the last two decades, the structure and composition of the industry has remained unchanged with only one or two players dominating the market which are mainly co-owned. The current list of licensed stevedores is provided in Table 4-12.

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TABLE 4-12: LICENSED STEVEDORES IIN PNG

Source: ICCC 2006b. The Commission notes the following key features of the industry. • Currently, all the ports with the exception of Lae, Port Moresby and Kimbe are predominantly serviced by one major stevedoring operator. In Port Moresby, one stevedoring company handles all overseas vessels and another company handles all coastal shipping. In Lae, there are three operators who share the total market and two are engaged in servicing both coastal and overseas shipping; • There is a high degree of vertical integration between the ownership of the stevedoring companies and the shipping lines that they service; The degree of vertical integration, cross ownership and economies of scale in the industry act as a barrier to entry, despite the “low” capital and associated set up costs for a new entrant and this has limited entry of potential new operators in the industry;

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• Some new entry into the industry has been evident in certain locations, but usually as part of a special arrangement to service particular shipping customers, and often under the incentive of needing to establish links with local landowner groups • Countervailing power held by the shipping lines is limited to the point of being non existent as a consequence of the vertical integration in the industry; • There is very little competition coming from alternate industries to threaten the overseas and coastal shipping markets and therefore threaten stevedores. (ICCC 2006b) The Commission concludes that there is little contestable behaviour in the industry with no likely indication of new entrant to enter the market, and that therefore some form of regulation is required. In Port Moresby, PNGHL maintains a pool of casual labour. Stevedoring companies are required to draw their requirements from this pool. Labourers in the pool who are not required to work in a given week are paid a minimum wage, funded from a cargo levy administered by PNGHL. Background papers prepared for the Pacific Regional Transport Study suggest that the relatively poorly paid stevedoring workforce has deeply entrenched attitudinal problems. Stevedores’ wage rates increased by 12% in 2003 and 12% in 2004, but that the agreement between Port Services Ltd and the stevedoring union contained clauses reserving the right of the employer to cease hiring when no ships were on berth. We further understand that when Port Service Ltd acted on this clause, industrial disputation occurred on the wharves and the matter ended up in court. The comparisons of Section 2 of Volume 1 of this report suggest that stevedoring charges in PNG ports are relatively low when compared with rates applying in other PIC ports. Other services Under Part VIII of the Merchant Shipping Act, PNGHL is the authority responsible for the provision of pilotage. Other functions, which are undertaken by PNGHL in competitive markets, do not require licences, although some are subject to regulatory oversight.

Port traffic In general, the pattern of international trade in PNG is one in which the Northern ports handle an excess of exports over imports and the Islands and Southern ports usually handle more imports than exports. More than 90% of all overseas ships serving PNG are handled by PNGHL ports. The volume of composition of port traffic through PNGHL ports is shown in Figure 4-1 below. FIGURE 4-1: VOLUME AND COMPOSITION OF CARGO THROUGH PNG PORTS

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Source: ICCC 2006b, based on PNGHL data Coastal containerised cargo volumes have grown consistently and strongly in recent years, and in 2005, after several years of virtual stagnation, international container volumes also grew strongly. As a result the total container volumes through PNGHL ports rose to almost 250,000 (see Figure 4-2). FIGURE 4-2: TREND IN CONTAINERISED TRAFFIC THROUGH PNG PORTS

Source: ICCC 2006b, based on PNGHL data PNG’s trade is imbalanced. For the combined years 2001 and 2002, a total of 3.6 million revenue tonnes of cargo was imported, whilst only 1.7 million revenue tonnes was exported. In other words, in tonnage terms exports amounted to only 52% of imports. The extent of the imbalance is much lower in the case of PNG than in most PDMCs.

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Port charges Regulated port charges at PNG ports are shown in the tables below. TABLE 4-13: WHARFAGE RATES IN PNG PORTS

Cargo Unit Overseas cargo Coastal cargo

Inward Outward Inward Outward Horse, cattle, dogs, sheep, goats, pigs Each animal 1.06 1.06 1.06 1.06

Oils (in bulk), Petroleum (in bulk) kilolitres 1.06 1.06 0.53 0.53 Palm Oil kilolitres n.a. 0.96 0.53 0.53 Boats, Iron Tanks (Empty) Metre length 5.31 5.31 1.33 1.33 Charcoal, Coal Coke, Road Metal, Sand soil, Mass tonne 2.54 1.54 0.77 0.77 cement, returned empties Copra, cocoa, coffee, bagged agriculture produce Mass tonne 2.54 1.06 0.59 0.59

Goods not enumerated above Tonne or cu.m. 2.54 1.54 0.77 0.77

Containers Container (empty or 9.74 9.74 n.a. n.a. full)

TABLE 4-14: BERTH RESERVATIPN CHARGES

Type of vessel Berth reservation

Overseas cargo and passenger vessels: Port Moresby, Lae, Rabaul and Madang USD97.26 per call

Overseas cargo and passenger vessels - at other ports USD48.63 per call Overseas tankers – large USD146.21 per call Overseas tankers – small USD73.11 per call Overseas vessel of any type or at any port- each alteration to arrival time USD24.48 per call

Coastal vessels – POM, Lae, Rabaul, and Madang USD48.63 per call Coastal vessels – at other ports USD24.48 per call Coastal vessels – any, port each alteration to arrival time USD9.74 per call

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TABLE 4-15: BERTHAGE CHARGES AT PNG PORTS

Type of vessel Berthage Schedule of rates

Overseas vessels (including cargo, passenger and tankers) USD0.31 /metre LOA / hour alongside

Coastal vessels – under 20 meters (or part thereof) USD0.05 / metre LOA / hour alongside

Coastal vessels – 20 meters

Coastal vessels – 49

Source: ICCC 2006b.

4.6.6 Maritime safety Following the restructuring of maritime in PNG, maritime safety will be the responsibility of the National Maritime Safety Authority (NMSA).24 The aims of the NMSA, established under the National Maritime Safety Authority Act 2003, are to ‘raise standards of maritime safety in Papua New Guinea’s waters and to strengthen controls over marine pollution from ships.’25 Its functions will include ship surveys, inspection and port state control, navigation aids, marine search and rescue, the monitoring and control of oil pollution, small boat safety awareness and education, and hydrographic surveys. The NMSA will be financially self-sufficient, funded by levies on shipowners.

4.6.7 Maritime education The PNG Maritime College, located in Madang on the north coast, offers the highest level of maritime training available in the PDMCs. ƒ The Faculty of Nautical Studies is made up of eight permanent staff members, five PNG staff and three expatriates. The Faculty offers streams and short courses from the basic Deck Rating up to Master 1. ƒ The Faculty of Marine Engineering is made up of eight permanent staff members, three PNG staff and five expatriates. The Faculty offers streams and short courses from the basic Engine Room Rating up to Second/Chief Engineer Grade 1. PNG Maritime College courses and systems are audited by AMSA to the same standards as Australian Maritime College and PNG has attained IMO 'white listing'—international recognition of the quality of its courses.

24 The NMSA was formally approved by Parliament on 25 September 2003. 25 National Maritime Safety Authority, Corporate Plan 2003-2005, March 2003.

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With generous donor support over an extended period, the College has developed extensive infrastructure, including ‘boats, power boats, sextants, chronometers, outboard motors, petrol engines, fire fighting equipment, a twelve meter motor launch and a 29m training vessel fitted with radar, echo sounder, and two radio transmitters and receivers, a fully equipped GMDSS lab, which covers all sea areas, satellite navigation system, life rafts, and computer radar simulator’ (PNG Maritime College website, http://www.pngmc.ac.pg, accessed 19 December 2006).

4.6.8 Maritime security All major PNG ports have been certified as complying with the ISPS Code requirements. However, concerns still remain about port security standards. The Business Council of Papua New Guinea (BCPNG) comments: There is considerable evidence from BCPNG members in the logistics industry that, although Papua New Guinea Ports has been certified as compliant with the International Ship and Port Security (ISPS) Code, many security deficiencies in Papua New Guinea ports remain. These deficiencies raise concerns relevant to strategic security, as well as to business arising from poor security for consignments shipped either from or to these ports. We have requested that relevant Australian agencies engage with their PNG counterparts to bring about an improvement in this situation. We have also raised our concerns with PNG Harbours Limited (BCPNG website, http://www.bcpng.org.pg, accessed 20 December 2006).

4.7 Timor-Leste

4.7.1 Introduction Timor-Leste gained its independence on May 20, 2002 after a United Nations supervised referendum was held in 1999. The islands of Timor-Leste are south-eastern fringes of the Indonesia archipelago of islands, and are comprised of: the eastern section of the island of Timor, the Oecussi region located on the north-west section island of Timor, and the islands of Pulau Atauro and Pualu Jaco. The combined land mass of these islands is approximately 15,000 square kilometres. The population as at 2006 was estimated to be 1,062,777. In 2004 and 2005, GDP grew at 1.8% and 2.5%, respectively. By comparison with other Pacific Island countries, Timor-Leste is one of the poorest nations in terms of GDP per capita —second only to Solomon Islands. However, Timor-Leste’s economy is expected to grow at a reasonably high rate in the medium-term on the basis of oil and gas resources in the Timor Sea. Timor-Leste’s major trading partners are Indonesia, Australia, Singapore and Japan; its major export commodities include coffee and timber. Agriculture is the main source of income for more than 80 per cent of rural households. The main agricultural outputs include rice, maize and livestock.

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4.7.2 Maritime and port administration The Maritime Division of the Ministry of Transport & Communication is responsible for maritime and port administration policy matters in Timor-Leste. There are a number of divisions headed by the Ministry of Transport & Communications including Civil Aviation, Land Transportation and Information Technology —Figure 4-3 below shows these divisions. FIGURE 4-3: DIVISIONS WITHIN THE MINISTRY OF TRANSPORT & COMMUNICATION

Source: Timor-Leste Government Website, http://www.timor-leste.gov.tl Formerly, the Division of Sea Transportation, operating under the Department of Communication and Transport, was the administrative authority for port, dockside and waterway development in Timor- Leste. In 2002, the Division has a number of goals including to: ƒ establish a registry of shipping by 2003 ƒ create a modern system of port taxes and tariffs ƒ create a plan and policy for regulation of national coastal traffic ƒ improve container handling by 50 per cent at the Port of Dili by 2005 ƒ develop a code of commercial maritime law ƒ establish a public passenger sea transport service between Dili and Atauro, and Dili and Oecussi by 2003.

Source: East Timor National Development Plan, 2002, p.292. To date, a number of these goals have been achieved, such as the establishment of a registry of shipping, and public passenger sea transport service.

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4.7.3 International shipping services Regular international shipping services, provided by Perkins Shipping Group, link Timor-Leste to Singapore and Australia. Perkins operates a once weekly service using geared multi-purpose general cargo and container vessels. Also, Meratus Line operates a once every ten day service between Surabaya and Dili using multi-purpose general cargo and container vessels. There are also smaller vessels, mainly originating from Indonesia calling to Timor-Leste on inducement—that is, one-off calls when there is a sufficient volume of cargo to warrant a port calling. TABLE 4-16: INTERNATIONAL SHIPPING SERVICES TO/FROM THE TIMOR-LESTE, 2006

Service Operator Frequency Vessels Employed Service Type

Darwin / Dili / Singapore / Dili / Perkins Once Weekly MV Arafura Multi-purpose Darwin Shipping Endeavour, vessel MV CEC Venture Surabaya / Dili / Surabaya Meratus Line Once every ten Mentaya River Mult-purpose days Mentaya MAS Vessels

Sources: Perkins Shipping Group Website http://www.perkins.com.au, Meratus Line Website http://www.meratusline.com.

Domestic shipping services The domestic shipping service sector in Timor Leste is serviced by private parties under contract to the Timorese Government. The Government of Germany subsidises the cost of the services— approximately US$0.6 million per year. Sea transport is the only formal transportation linkage between Oecussi and Atauro (World Bank 2005, p.vii). The service operates between Dili and Oecussi on a twice weekly basis and between Dili and Atauro on a once weekly basis. The services use vessel capable of carrying 300 passengers and ten motor vehicles. In 2004, the Government of Germany funded a new vessel that is leased to a private operator (World Bank 2004, p.5). Also, there are a number of small wharfs and jetties located at Hera, Tibar, Com, Caravela, Oecussi and Atauro.

Freight Rates In 2005, Trucking costs between Dili and the major districts range from USD70 for a 1.5 hour trip to the districts of Aileu and Manatuto (two districts surrounding the district of Dili), up to USD170 for a 7 hour journey to the districts of Cova Lima (bordering Indonesia in the south-west of Timor-Leste) (United Nations World Food Programme 2006, p.37).

4.7.4 Ports The Port of Dili is the only port servicing international shipping in Timor-Leste. The wharf is approximately 300 meters long and has a draught of 7.2 meters. During the recent period of destruction, all of the equipment at the Port was destroyed (ADB 2004, p 25). However, recently, improvement works have been funded by the EIRP and bilateral assistance from the Government of Japan.

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The Port is located in the centre of Dili and may have its operations affected by traffic congestion in the future because of a conflict between the need for heavy vehicle access to the facility and increasing urban traffic. Also, the Port of Dili is likely to face capacity constraints in the future if no expansion takes place. The port currently operates a financial surplus on operating activities based (World Bank 2004, p.vii). On the south coast the only coastal access is through barges and landing-craft as there are no other developed port facilities. In 2005, a project began to provide technical assistance to construct a slipway for vessel maintenance at Hera Port that has the potential to be financed by the Government of Germany (World Bank 2005, p.23). There is a severe imbalance between imports and exports at the Port of Dili. In 2002, imports accounted for approximately 85% of the 300,000 tonnes of freight that passed through the port (ADB 2002, p.61). Further, in 2003, 95% of imported containers were exported as empty (World Bank 2005, p.1).

4.7.5 Maritime training There are currently no maritime training facilities in Timor-Leste. However, the government has plans to train and develop domestic maritime workers in special maritime studies abroad (World Bank 2005, p.4).

4.7.6 Maritime security Timor-Leste became a member of the IMO in 2005; however, the 1974 SOLAS convention including the ISPS Code are not in force in Timor-Leste (IMO Website, 2007).

4.8 Tonga

4.8.1 Introduction Lying to the south-east of Fiji and south of Samoa, the Kingdom of Tonga comprises 170 islands, only 36 of which are inhabited. The nation consists of three main island groups: Tongatapu, Ha’apai and Vava’u, plus Niuafo’ou and Niuatoputapu in the far north, the island of Ata in the south and the Minerva Reefs in the far south-west. The land area of the country totals approximately 748 sq kms. The capital, Nuku’alofa, is situated on Tongatapu in the southern Tongatapu group. The population of Tonga is approximately 101,800, approximately 73% of whom live on Tongatapu. Tonga is a lower-middle income country. Recent growth performance has been uneven: The Tongan economy averaged moderate growth during the last half of the 1990s. Growth spiked sharply upward in the Millennium year, but has since stagnated. Inflation accelerated to over 10% beginning in 2001, but moderated slightly in 2004. (ADB 2006d ) Agriculture and services dominate Tonga’s economy:

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ƒ .agriculture accounts for almost 40% of GDP, more than 75% of export earnings and around 50% of employment. Major locally marketed agricultural products are root crops, coconuts and vegetables ƒ services account for more than 50% of GDP, of which more than half is government activity; ƒ manufacturing accounts for about 5% of GDP and is mostly related to the processing of coconut products and small scale enterprises. Tonga’s major trading partners are: ƒ for exports: Japan, United States, New Zealand and Australia ƒ for imports: New Zealand, Australia, Japan, United States and Fiji. Major exports are squash pumpkins (overwhelmingly to Japan), vanilla beans, and fish Exports of squash have been depressed since 2001. Imports exceeded exports by a factor of over four in the mid 1990s, resulting in substantial merchandise trade deficits. In 2000–01, imports exceeded exports by about USD83 million. Tourism generates significant income, but Tonga only gets around 36,500 tourists a year, compared to some 400,000 in neighbouring Fiji. Tonga is highly dependent on remittances from Tongans living overseas. Remittances amount to USD40 million each year, although the flow of funds has declined over time.

4.8.2 Maritime and port administration

Ministry of Marine and Ports The Ministry of Marine and Ports is responsible for: ƒ Implementation and enforcement of maritime laws ƒ Policy and planning advice to the Minister and Government on maritime issues ƒ Legislation and regulations ƒ Vessel and port safety and environmental services ƒ Provision and operation of port and wharf facilities ƒ Provision and maintenance of navigation facilities ƒ Administration of shipping and seamen ƒ Examination and certification of marine training.

Ports Authority Tonga The Ports Authority Tonga is a statutory body established under the Ports Authority Act 1998. According to the Act, the principal purposes of the Ports Authority are to ‘establish, improve, maintain, operate and manage ports, services and facilities.’ The Port of Nuku’alofa is the only port designated and declared by the Minister of Marine and Ports to be a port within the meaning of the Act. Other ports—including Neiafu (Vava’u)—are administered by the Ministry of Marine and Ports.

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The Shipping Company of Polynesia The Shipping Company of Polynesia, formerly 60% owned by the Government of Tonga and 40% owned by Columbus Line of Germany, is now wholly owned by the Government of Tonga and registered under the Companies Act 1995. The Shipping Company of Polynesia manages the container vessel Fua Kavenga, which is on long term charter to the Pacific Forum Line, and operates the inter-island RO-RO ferry MV Olavaha and the landing barge Out Tonga. The Corporation receives subsidies (USD65,000 in 2002–03 and 2003–04) for providing services to the outlying islands Niuafo’ou and Niuatoputapu. In 2006, the Government approved the merging of the Ministries of Marine and Ports (sea), Civil Aviation (air) and part of Works (land) into a new Ministry of Transport. This is due to commence on 1 January, 2007. The establishment of the Ministry of Transport is an attempt to produce integrated transportation policies that are more efficient and effective than the current situation. For example, better integration of existing roads, and more effective new road linkages, to wharf areas (Ministry of Marine and Ports, correspondence with Study Team, 2006).

4.8.3 Shipping services

International shipping Table 4-17 lists the international shipping services calling at Tonga. TABLE 4-17: INTERNATIONAL SHIPPING SERVICES TO/FROM TONGA

Service Operator Frequency Vessels Service Employed Type Australia/New Zealand Brisbane / Sydney / Melbourne / Reef Shipping / Neptune Fortnightly Capt Tasman Container Lautoka / Suva / Pago Pago / Apia Shipping Line / Pacific / Nuku’alofa / Suva / Lautoka / Direct Line Ltd / Pacific Forum Samoa II Brisbane Forum Line Lyttelton/Napier/Auckland / Pacific Forum Line Fortnightly Forum Pacific Container Lautoka/Suva / Apia / Pago Pago Matua /Nuku’alofa Auckland Forum Fiji III

Lyttelton/ Whangarei/ Auckland/ Pacific Direct Line 21 days Southern Pearl Container Nuku’alofa/ Papeete Auckland-Nuku’alofa-Apia-Pago Reef Shipping, PDL, Every 14 Southern Cross Container Pago-Auckland Sofrana days NE Asia/SE Asia Kaohsiung / Hong Kong / Busan / Greater Bali Hai Service Monthly Coral Islander RO-RO Kobe / Nagoya / Yokohama / II,

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Service Operator Frequency Vessels Service Employed Type Majuro Atoll / Tarawa / Port Vila / Kyowa Hibiscus, Noumea / Lautoka / Suva / Apia / Pago Pago / Papeete / Nuku’alofa / Pacific Islander Santo / Honiara / Kaohsiung II,

Kyowa Cattleya

Source: Lloyd’s List DCN, NZ Shipping Gazette, ci-online, shipping line websites Tonga has several shipping services linking the Kingdom to Australia/NZ, Fiji and Asia. Tongan cargoes may be shipped directly to Australia, New Zealand and certain Asian ports. Other destinations are served by transhipment services over Apia, Auckland and Fiji. In 2004, Tongan freight forwarders and shippers said that they were satisfied with current shipping services. The services provided by Pacific Forum Line, Sofrana and Greater Bali Hai were considered to be reliable and of a satisfactory quality. Service frequency was considered reasonable given the volume of cargo. Lines maintained shipping schedules with rare exceptions (Keith Trace, personal communication, 14 December 2006). Freight rates in both directions between Australia and New Zealand and Tonga were relatively high. There appeared to be a sharp increase in freight rates in the ‘beyond Fiji’ trades. Whereas the market freight rates for general cargo shipped from Australia-Fiji is of the order of USD1,100-1,200, rates to/from Australia and New Zealand and Tonga were considerably higher.

Freight rates Market freight rate for general cargo from Australia and New Zealand were: Australia-Tonga: base rate of USD1,900- USD2,200 + additionals (BAF, CAF etc) amounting to 26% of the base rate = USD2,500- USD2,800 New Zealand-Tonga: base rate of USD1,700+ additionals (BAF, CAF etc) amounting to 34.15% of the base rate = c USD2,300. Commodity rates were somewhat lower than these figures.

Domestic Shipping The Shipping Act (1973) regulates ships engaged in coastal trades, defined as trade within the Tongatapu (including ‘Eua), Ha’apai, Vava’u or Niuatoputapu group of islands. The Act authorises ships licensed by the Minister of Marine to engage in coastal trade in the territorial waters of Tonga. A license granted under the Shipping Act (1973) may either be a general license, a license for the whole or any part of the coastal trades, or a license for a specified period of time or number of voyages.

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The Shipping Corporation of Polynesia operated a weekly service to Ha’apai (Lifuka and Ha’aafeva) and Vava’u (Neiafu), using the MV Olovah, as well as occasional subsidised services (approximately six to eight times a year) to Nivafo’ou and Niuatoputapu, the Northern Islands of the Tongan Group (which are closer to Apia that Nuku’alofa). The subsidy is advertised at the end of every year. There is a fixed daily rate in an agreed timeline for the subsidy. The shipping company is entitled for compensation, through negotiation with Government, if its vessel is held up in the Niuas due to bad weather or other reasons beyond their control. The Shipping Corporation also operated the landing barge Out Tonga. UATA Shipping operated a weekly service from Nuku’alofa to Ha’apai and Vava’u using the MV Pulapaki, and a daily service from Nuku’alofa to ‘Eua using the MVIkale. The MV Tautaki, formerly employed on the Ha’apai and Vava’u service, was used as a standby vessel. Certain international vessels make fortnightly calls at both Nuku’alofa and Vava’u (Neiafu) and are allowed carrying cargo between these ports. Coastal shipping services in Tonga are summarised in Table 4-18 below. TABLE 4-18: TONGA: COASTAL AND INTER-ISLAND SHIPPING SERVICES, 2006

Operator Ownership Islands/Ports Serviced Frequency Shipping Corporation of Government Nuku’alofa to Ha’apai (ports of Weekly Polynesia Ltd Ha’afeva and Pangai), Vava’u (port of Neiafu) and return on same route (ferry). Niuatoputapu and Niuafo’ou (Niuas) approximately subsidised by Government after open every 6 weeks tender process in the beginning of every year Uata Shipping Private Nuku’alofa to Ha’apai (ports of Weekly Ha’afeva and Pangai), Vava’u (port of Neiafu) and return on same route (ferry). Nuku’alofa to Nafanua Harbour, 3 times a week ‘Eua (ferry). Ramsey Shipping Private Nuku’alofa to Nafanua Harbour, 3 times a week ‘Eua (ferry). Motorised barge for chartering purposes.

Vete Holdings Private Tug and dumb barge for sand mining in Nuku’alofa and available for charter.

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Operator Ownership Islands/Ports Serviced Frequency Church of Tonga Private Nuku’alofa to Nomuka Island and Weekly other adjacent islands in the south Ha’apai Group

Ports Authority Government Tugboat and dredger available for hire if they are not engaged in port operations.

Source: Ministry of Marine and Ports, correspondence with Study Team, 2006. Outlying islands are served by smaller vessels. Local services within the outer-island groups are operated by the private sector on an informal basis, generally using vessels less than 15 meters in length and of varying degrees of seaworthiness. Most of these operations are said to be within the Ha’apai Group.

4.8.4 Ports There are two principal ports for international traffic—Nuku’alofa (Queen Salote Wharf) and Vava’u (Queen Halaevalu Mata’aho Wharf, Neiafu). There are also two minor international ports handling the export of agricultural products.

Infrastructure Nuku’alofa is the major international port, as well as the main port for inter-island shipping and the deep-sea fishing fleet. The facilities at Nuku’alofa, notably those at Queen Salote Wharf, have been upgraded over the past two decades. Queen Salote Wharf was extended in 1985 at a cost of USD3.9m, with funding provided by Australia. In the same year, Australia provided a further grant of USD0.34m for cargo handling equipment. JICA’s 1997 Report notes the implementation of an ADB funded Transport Infrastructure Development Project, including the reconstruction of Berth No. 1 at Queen Salote Wharf (USD1.22m) and the construction of a new office building and equipment at Queen Salote Wharf for the Ministry of Marine and Ports (USD0.38m).

Following port reconstruction, Queen Salote Wharf has two berths available for international traffic.

Trade

The volume of international cargo shipped into and out of Nuku’alofa (Queen Salote Wharf) is shown in Table 4-19. The following trends are observable:

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ƒ there was a modest increase in the total tonnage of international cargo discharged (from 127,000 tonnes in 1999–00 to 154,000 tonnes in 2002–03), as well as in the tonnage of containerised cargo discharged (89,000 tonnes 1999–00 to 100,000 tonnes in 2002–03) ƒ there appears to be a tendency for the volume of imports handled as break bulk cargo to decline over time ƒ the port is handling an increased numbers of 40’ containers, although the growth is from a very low base ƒ the tonnage of international cargo loaded in Nuku’alofa is very much smaller than the tonnage discharged ƒ the tonnage of exports using dry containers fell between 2000 and 2003, presumably as a result of the crisis in the agricultural sector ƒ a relatively large numbers of empty containers are exported from Nuku’alofa.

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TABLE 4-19: INTERNATIONAL CARGO MOVEMENTS, NUKU’ALOFA, 1998-99-2002-03

1998-99 (4.5 1999-00 2000-01 2001-02 2002-03 months) Ship Visits (number) Total Time in Port (hours) 1485 2357 1912 1813 1850 Total Working Time (hours) 1117 1506 1268 1340 1377 Total Idle Time (hours) 184 757 644 447 382 Tonnage Discharged: TEU’s – Dry (tonnes) 28025 89483 91210 103634 100019 TEU’s – Reefer (tonnes) 2743 10413 10493 11202 12048 FEU’s – Dry (tonnes) 1315 6 2289 5617 8594 Break Bulk (tonnes) 3184 12857 15953 11696 11933 Motor vehicles (tonnes) 6112 14251 23748 23369 21320 Total Tonnage Discharged 41379 127010 143693 155519 153914 Number of Containers Discharged TEU’s – Dry 1469 4651 4777 5069 4465 TEU’s – Reefer 0 0 (a) (a) 541 FEU’s 0 0 84 148 210 Total Number of Containers Discharged 1469 4651 4861 5217 5216 Number of Motor Vehicles Discharged 0 0 1860 1998 1821 Tonnage Loaded: TEU’s – Dry (tonnes) 1723 8445 8858 6981 5826 TEU’s – Reefer (tonnes) 669 4339 5246 6554 5655 FEU’s – Dry (tonnes) 0 0 0 76 18 Break Bulk (tonnes) 353 15555 13147 12943 15607 Motor Vehicles (tonnes) 64 204 306 964 341 Total Tonnage Loaded 2809 28543 27554 27517 27446 Number of Containers Loaded TEU’s – Reefer (Full) 0 0 (a) (a) 306 TEU’s – Reefer (Empty) 0 0 (a) (a) 224 TEU’s – Dry (Full) 147 825 811 789 388 TEU’s – Dry (Empty) 1218 3560 3666 3987 3785 FEU’s – Full 0 38 3 4 1 FEU’s – Empty 0 0 58 128 165 Total Units Loaded 1365 4423 4538 4908 4869 Number of Motor Vehicles Loaded 0 0 16 37 29

Source: Port Services Ltd. Neiafu (Vava’u): According to JICA, Neiafu received about one-fifth as many calls by international ships as Nuku’alofa, although its cargo throughput was only 6% of that of Nuku’alofa.

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TABLE 4-20: VAVA’U: IMPORTS AND EXPORTS, 1999-2002 (TONNES)

1999 2000 2001 2002 Imports: Dry Cargo 12,249 5,407 10,393 9,832 Liquid Cargo (Fuel Oil) 3,055 3,322 3,207 3,841 Liquid Cargo (LP Gas) 169 137 236 164 Frozen Cargo 418 850 916 572 Cement 1,201 796 3,373 2,551 Timber 179 425 572 2,096 Total 17,271 10,937 18,696 19,057

Exports Dry Cargo 336 901 1,020 200 Frozen Cargo 298 522 403 403 Other 343 0 0 0 Total 977 1,423 1,423 603

Source: MMP Annual Reports (various) Other Ports: Small wharves, jetties and landings exist on the smaller islands, often accessed by channels blasted through fringing reefs, particularly in the remote islands of the Ha’apai and Vava’u Groups.

Stevedoring In Nuku’alofa, private stevedoring firms load and unload vessels employed in international trades. Four stevedoring companies operate in the port. Labour is available on a 24-hour basis. Most users considered stevedoring productivity to be reasonable. Nuku’alofa stevedoring charges are relatively low by comparison with other Pacific Island ports: the stevedoring charge averages USD25 per 20’ container to load or unload cargo. Port Services Ltd. has been given a 10-year exclusive contract for the handling of cargo between wharfside and wharfgate. The company has invested in cargo handling equipment, including forklifts. Port Services charges a handling fee based on volume. Currently, this fee averages USD40 per 20’ container, plus an equipment hire charge of USD12. Port Services charges are regulated by the Ports Authority.

4.8.5 Maritime training The Tonga Maritime Polytechnic Institute (TMPI), attached to the Ministry of Education, provides training in maritime services; it is the only STCW95 approved maritime training institute in Tonga. The TMPI was set up in 1985 with assistance from the German government and the Hamburg-Sud Line.

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Master Class 4 and Engineer Class 4 are the highest qualification available in Tonga; however, the Ministry of Marine and Ports has stated its intention to train to Class 3 Master and Engineer Class 3 in the near future (Ministry of Marine and Ports, correspondence with Study Team, 2006). According to the Principal, TPMI offers the following courses: Basic Training: ƒ Pre-Sea Course: 50–60 students per year. Concentrates on basic training in seamanship ƒ Experienced Seafarers Course: 10–20 students per year. Designed for experienced seafarers wishing to obtain watch-keeper training. Officer Training: ƒ Master/Engineer, Class 6: 10 students per year. Training for fishing and small trading vessels ƒ Master/Engineer, Class 5: 20 students per year. Designed for seafarers wishing to obtain employment in outer island vessels ƒ Master/Engineer, Class 4: 20 students per year. Total budget is approximately USD300,000 per year. Department of Education pays salaries of lecturing staff.

4.8.6 Maritime security Tonga was one of the first pacific countries to have complied with the mandatory five year follow-up audits under the STCW95 provisions (February 2004). The following ports have been certified as complying with ISPS code arrangements in Tonga: TABLE 4-21: PORTS AND FACILITIES IN TONGA CERTIFIED AS COMPLIANT WITH THE ISPS CODE

Port Name Details Nuku’alofa No.1 and 2 Queen Salote Wharf; tanker mooring at Touliki. Neiafu, Vava’u Queen Halaevalu Wharf; tanker mooring at Umana. Pangai, Ha’apai Taufa’ahau Wharf Nafanua, ‘Eua Nafanua Harbour Wharf; tanker mooring.

Source: Tonga Ministry of Marine and Ports, correspondence with Study Team, 2006 A lack of funds and human resources make it difficult for Tonga to fulfil and implement its obligations under the various maritime conventions to which it is signatory to. The Ministry of Marine and Ports stated that: Lower pay within the Ministry for skilled human resources, compared with sea-going jobs, makes it difficult to attract qualified seafarers. (Ministry of Marine and Ports, correspondence with Study Team, 2006)

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4.9 Tuvalu

4.9.1 Introduction Tuvalu consists of five atolls and four islands. The country’s total land area is only 26sq km. Each of Tuvalu’s eight inhabited atolls and islands is based around a single settlement. The capital, Fongafale, is on Funafuti Atoll. Nukufetau Atoll (population 750) is 100km to the northwest of Funafuti. Vaitupu Island (pop. 1,200), north of Nukufetau, has the largest land area. Nui (pop 600), Nanumaga (pop 650), Niutao (pop 750) and Nanumea (pop 820) atolls lie north west of Nukufetau Atoll. Nukulaelae Atoll and Niulakita Island lie south of Funafuti. Funafuti is about 1,100km north of Fiji and the northern islands are about 250km south of Kiribati. The most recent estimate suggests that the population of Tuvalu is approximately 10,000. The Tuvaluan economy is small, isolated and vulnerable to external influences, including the weather. Most of the population relies on subsistence farming and fishing. Each island has a fusi (cooperative store). Apart from coconuts and pandanus, Tuvalu produces few crops. However, the economy is becoming increasingly monetised as people become more reliant on imported foodstuffs, petroleum, building materials and manufactured goods, mostly from Australia and Fiji. Most formal, paid jobs are generated by the government. The four major contributors to Tuvalu’s economy are remittances, licenses, investments and ‘dot tv’: ƒ Remittances: A large contingent of Tuvaluans work as seamen on cargo ships and remit most of their salaries back home. Apart from seamen, small numbers of Tuvaluans work in first- world countries and as phosphate miners on Nauru. ƒ Licenses: License fees from foreign ships fishing in Tuvalu’s extensive territorial waters bring in another large chunk of income. ƒ Investments: Earnings from the Tuvalu Trust Fund are a major contributor to government revenue.26 The fund was set up in 1987 to provide a safety net against fluctuations in government income. In addition to the Government of Tuvalu, Australia, New Zealand and the U.K. were major contributors. The fund, with contributions amounting to USD21 million at its inception, is reported to have performed well. Revenue from the fund has enabled the government to undertake various development programs, including the upgrading of outer island schools and fisheries centres. ƒ ‘Dot tv’: Tuvalu has been able to capitalise on its good fortune of being allocated the internet domain suffix ‘tv’. According to DFAT, Tuvalu sold the right to the suffix to a U.S. company, Idealab, in 1998, while retaining a 20% share in ‘.tv’ Corporation International.27 During the period 1999-2002 the Government of Tuvalu received USD38 million for the sale of .tv domain rights.

26 (Australia) Department of Foreign Affairs and Trade, Country Brief: Tuvalu, November 2003, p. 2. 27 (Australia) Department of Foreign Affairs and Trade, Country Brief: Tuvalu, November 2003, p. 2.

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Tuvalu is remote and air fares are expensive, so that there is very little tourism. Most overseas visitors are aid workers, consultants and government employees. Real GDP growth was strong during the 2000–2004 period, but this was driven largely by expansion of the public sector. GDP growth has subsequently dropped to 1–2%. By 2002, windfall revenue funded most of the growth that supported the public sector expansion in public construction and public business activities (notably those in transport, communication and finance) which contribute to 39% of GDP, with the remaining growth from the expansion in government ministries which added to another 30% of GDP. Currently, the drop in windfall revenues and existing fiscal deficit has caused the economic growth to decline. (ADB 2006e) External aid, mainly from Australia, NZ, the European Union, Taiwan and Japan, is a major source of income. Australian aid of USD1.9m to USD2.3 million is mostly in education and training. Taiwan is intending to fund the proposed USD5.5 million, multi-storey government buildings in Vaiaku (Fongafele).

Maritime administration The Department of Transport is responsible for all aspects of the administration of maritime affairs.

4.9.2 Shipping services

International shipping services TABLE 4-22: SHIPPING SERVICES TO/FROM TUVALU, 2006

Service Operator Frequency Vessels Service Employed Type Auckland / Noumea / Vila/ Suva / Pacific Direct Line Every 20-25 Southern Funafuti / Wallis/Futuna days Moana

Tauranga/Auckland/Lautoka./Suva/ Neptune/PDL Fortnightly Captaine Funafuti /Tauranga Wallis

Source: Lloyd’s List DCN, NZ Shipping Gazette, ci-online, shipping line websites Table 4-22 shows that Tuvalu’s two regular liner shipping services was operated on a commercial basis by Pacific Direct Line (PDL) and Neptune Line. The Southern Moana provided a three weekly service from New Zealand via Fiji and Noumea to Funafuti Atoll, Wallis and Futuna. The Capitaine Wallis provides a more direct service via Fiji. The frequency of service is reasonable given the volume of cargo shipped to and from Tuvalu. The reliability of the service is said to have improved significantly in late 2003 and early 2004.

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The freight rates charged by PDL (see Table 4-23) are considered to be high, but PDL faced a major backloading problem, imports greatly exceeding exports. As is the case with other Pacific island nations, trade to and from Tuvalu is poorly balanced. Typically, the Southern Moana carries between forty and sixty full 20’ containers consigned to Tuvalu. Export cargoes are virtually non-existent, being confined to personal effects and occasional cargoes of scrap metal. The vast majority of containers leave Tuvalu empty. (PDL, personal communication, 15 November 2006). TABLE 4-23: FREIGHT RATES, FIJI TO TUVALU (FUNAFUTI)

Commodity FCL (USD) LCL (rate per Notes Revenue Tonne) (USD) Cement 1,729 General Cargo 2,122 118 Hazardous Class 2-9 2,358 157 Building Products 1,965 Reefer (General) 3,144 314 LCL subject to minimum of 4 cu.m. per shipment Rice, Flour, Sugar, Stockfeed 1,729 Steel 0 102 Car 1,572 94 Timber 0 102 Transhipment General 1,729 102 Transhipment Reefer 2,358 Includes MT return to AKL.

Notes: The base rates quoted above do not include: Currency Adjustment Factor (currently + 15%), Bunker Adjustment Factor (+14.6%), and Port Service Charges in Fiji (USD60/20’ container for Fijian exports). No Port Service Charge is levied in Funafuti.

Source: Moana Nui/PDL Tariff Rules, Discounts and Surcharges: Fiji Islands to Funafuti. The possibility of Pacific Forum Line including Funafuti on its schedule in order to create more competition has been canvassed. However, given the poor financial results from PFL’s earlier feeder service linking Kiribati, Tuvalu and Fiji, as well as the limited scale of cargoes to and from Tuvalu, the probability of PFL operating such a service would appear to be very low (Keith Trace, personal communication, 1 December 2006). The Government of Tuvalu is currently investigating a proposal for a joint fishing venture with PDL. The proposal aims to reduce the backloading problem through the export of chilled or frozen fish. The government owned passenger-cargo vessel MV Nivaga II sails to Suva approximately every three months. In addition, the MV Nivaga II operates occasional sailings to Tokalau via Samoa. The high cost of fuel is a cause of some concern. BP has a monopoly on fuel supply in Tuvalu. Fuel is imported from Fiji by product tanker, which calls at Tuvalu monthly. Government vessels make an occasional voyage to Fiji to load fuel in an attempt to minimise the impact of high fuel costs.

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Domestic shipping services Cabotage Section 8(2) of the Merchant Shipping Act 1987 allowed for owners of ships engaged in near coastal trade or Pacific region trade, other than ships exempt under s.8(4) of the Act, to seek registration. This provision was repealed by s.3 of the Merchant Shipping (Amendment) Act 1991. The effect of this amendment is that ships engaged in the near coastal and Pacific regions trades are not allowed to be registered under the Act. Ships exempt from registration under s.8(4)(d) of the Merchant Shipping Act 1987 include ships that are ‘engaged in any class of navigation or trading, or used for any purpose, that is prescribed.’ Despite the repeal of s.8(2) of the Merchant Shipping Act, which specifically allowed the registration of ships engaged in the near coastal trade, Section 8(4)(d) allows ships engaged in “trading” be exempt from registration. Inter-Island Shipping Services All inter-island transport is by sea. Inter-island shipping services are operated by the Government. Two ferries provide passenger and freight services: the MV Nivaga II, built in 1988 is the older and larger of the vessels, with the younger vessel being built in 2002. The vessels operate separate voyages to the Southern Atolls and Islands and the Northern Atolls and Islands. Each of the outlying islands is visited every three-four weeks. TABLE 4-24 TUVALU: INTER-ISLAND SHIPPING SERVICES:

Operator Route Vessel Name GRT Vessel Type Tuvalu Government Southern Islands (trip takes c 3-4 MV Nivaga II,+ one RO-RO Ferry days. Ship visits each of the other vessel RO-RO Ferry islands every three-four weeks) Northern Islands (trip takes c 1 week. Ship visits each of the islands once every 3-4 weeks)

The inter-island fares and freight rate schedule lists ‘non-economic’ fares and freight rates, applying to Tuvaluans, and ‘full economic’ fares and freight rates, applying to non-Tuvaluans. The freight rate charged to private Tuvaluan citizens is generally lower that the rate applicable to government and private organizations. Representative fares and freight rates are shown in Table 4-25. TABLE 4-25: TUVALU: INTER-ISLAND SHIPPING, REPRESENTATIVE FARES AND FREIGHT RATES FROM FUNAFUTI, ($USD)

Fares/Freight Rates Funafuti to/from Fares: Nanumea Nanumaga Nui Vaitopa Non-economic $ 15.70 $ 14.10 $ 11.00 $ 5.50 Economic $ 19.70 $ 17.30 $ 13.40 $ 11.00 Freight Rates (private citizen): $ - $ - $ - $ - Copra (ton) $ 23.60 $ 22.80 $ 20.40 $ 11.00

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Fares/Freight Rates Funafuti to/from Coconuts (Bag) $ 1.20 $ 1.20 $ 1.20 $ 1.20 Chickens (Crate) $ 1.20 $ 1.20 $ 1.20 $ 1.20 Thatch (10 pieces) $ 2.00 $ 1.80 $ 1.20 $ 0.60

Source: Nivaga II Fare and Freight Table. The rates shown exclude wharfage ($8.50 per ton/cubic metre) The MV Nivaga II is in a very poor state of repair, only just managing to pass her last Lloyd’s Survey. Reportedly, the vessel has suffered from a lack of maintenance and poor management. The recent expenditure of USD709,000 on repairs in 2003/4 was designed to keep the vessel operating for another two years. Replacement of the vessel has been discussed, with opinion favouring a landing craft type of vessel.

4.9.3 Maritime infrastructure and administration

Port facilities Only Funafuti and Nukufetau have reef passages large enough for ships to enter their lagoons, and only Funafuti has a real dock. At other islands, ships must load and unload into a small boat, an operation that can be hazardous in rough seas. Funafuti Wharf was built in 1981. It has a single berth, used by international and coastal vessels. The limited number of sailings means that there is no congestion. Facilities at the wharf are limited. Paving of the container storage areas is in poor condition. Maintenance of the wharf and container storage areas. PDL have offered to help with wharf maintenance.

Administration The ports of Tuvalu are managed by the Department of Transport.

4.10 Vanuatu

4.10.1 Introduction Vanuatu consists of a Y-shaped chain of some 83 islands, extending almost 1200km in a north-south direction between the equator and the tropic of Capricorn. The major islands include Efate, Espiritu Santo, Erromango, Malakula, Tanna, Shepherd Islands and Pentecost Island. Vanuatu’s nearest neighbour, the Solomon Islands, lie about 200 km to the north. New Caledonia is 230km to the south- east and Fiji is 800 km to the east. The total area of Vanuatu is approximately 860,000 sq km, of which only 12,200 sq km is land. Twelve of the islands are significant in terms of population and economic life. The capital, Port Vila, is located on Efate. Formerly known as the New Hebrides, Vanuatu was governed by both British and French administrations in a Condominium arrangement. Vanuatu gained its independence in 1980, with Father Walter Lini becoming the nation’s first Prime Minister.

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Vanuatu’s economy is narrowly based, relying heavily on agriculture, tourism and financial services. The majority of the rural population are subsistence farmers. Vanuatu’s main exports are kava, copra, timber, beef and cocoa. Apart from kava, none of these exports have grown significantly in recent years. World prices for copra and other rural products have declined significantly in recent years making agricultural production less profitable. Recent economic performance has been erratic: After two successive years of contraction in 2001 and 2002, real GDP rebounded in 2003 and has since been recording positive growth. Growth in 2003 and 2004 ranged from 4-5% and has been driven by Agriculture and Services sectors. Positive real GDP growth continued in 2005 but at lower magnitude compared the preceding two years. In 2005, the services and industry sectors continue to grow therefore more than offset a negative contribution from the Agriculture sector (Tari 2006). As the ADB has noted, transport costs in Vanuatu are higher than in neighbouring countries due to the lack of infrastructure, high fuel costs, long distances and low demand.28 In turn, high transport costs, a major components of the cost of primary production, impact on export earnings and disposable income, particularly in the outer islands.

4.10.2 Maritime administration Three main agencies are involved in the maritime sector29 : ƒ The Ports and Marine Department within the ministry of Public Works operates the major ports and oversees channels and lights as well as providing policy advice on maritime matters ƒ Vanuatu Maritime Authority regulates the shipping sector ƒ Vanuatu Maritime College trains seafarers. Provincial Councils are responsible for the provision of local infrastructure.

Vanuatu Maritime Authority Prior to the creation of the Vanuatu Maritime Authority (VMA), the Department of Ports and Harbours fulfilled the dual function of operator and regulator. The creation of the VMA in 1998 led to an immediate tightening up of the safety regulations relating to coastal shipping. The ADB has noted that maritime regulation generates income, including income from the International Shipping Register, managed by a contractor reporting to the VMA; as well as income from the regulation of domestic vessels. The ADB reports that the net income generated from the international shipping register is approximately Vt50 million per annum. The revenue generated by domestic shipping is approximately Vt18 million per annum.

28 Asian Development Bank, Vanuatu: Economic Performance and Challenges Ahead, Manila: 2002, p.249 261. 29 Statistical Yearbook of Vanuatu, 2002.

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Comprehensive reform program and the corporatisation of major ports In June 1997 the Government of Vanuatu approved a Comprehensive Reform Program designed to address a number of structural problems within the economy. Phase II of the program included the preparation of a long term master plan for transport infrastructure to ensure economic development is not constrained by inadequate infrastructure (ADB, 2002). The ADB notes that the Maritime Sector program included maintenance of ports and wharves, the establishment of a ports authority for ports at Port Vila and Luganville, the encouragement of foreign vessels and operators on inter-island routes and improved maritime safety through improved regional cooperation. In 2004 the government considered whether to corporatise the ports of Vila and Santo. A Green Paper prepared by the Government Business Enterprise Unit (GBEU) of the Ministry of Finance and Economic Management, was released in June 2003 (MTEM 2003). The GBEU notes that in developed and most developing economies efficiency will most likely be achieved when participants are subject to competition. In such environments, port reform focuses on maximizing competitive pressures on providers of port services by removing barriers to entry and competition. However, the Green Paper also notes that the market for port services in Vanuatu is not large enough to achieve efficiency through competition. The GBEU recommended: ƒ Establishment of a single Maritime and Ports Authority; ƒ Incorporation of the present Ports and Harbours Department activities with Vanuatu Maritime Authority; ƒ Continuation of the present Combined Revenue Entitlements from the combined body; ƒ Continuation of the present Combined Budgetary Support to the combined body. The proposal would see the combined body will again function as both operator and regulator. At the time of writing the proposal does not appear to have been implemented: various sources consulted all gave the Ports and Marine Department as the body responsible for port administration in Vanuatu. The proposal does not address the present financial condition of the ports.30

30 The Government Business Enterprise Unit focuses on possible losses to government revenue as a result of corporatization rather than under-financing of the port sector. For example, the GBEU notes that ‘the past models of corporatizations and privatizations have financially impacted Vanuatu Government and any gains from such reforms have not translated into any financial gains to VanGov), p.5.

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4.10.3 Shipping services

International shipping Vanuatu relies heavily on maritime transport for its international and inter-island trades. Whilst imports sourced from Asia are growing rapidly, Australia and New Zealand remain Vanuatu’s dominant trading partners. Port Vila is the major import port, while Luganville is the major export port. Table 4-26 lists the international shipping services currently operating to/from Vanuatu.

Australia and New Zealand Chief Container Service (CCS) (Swire Group) operates a monthly service from Australia to Melanesia and Micronesia, calling at both Port Vila and Luganville (Espiritu Santo). Port Vila’s import and export trades are poorly balanced. Imports average about 175 TEU a month, while exports account for only 5-10 TEU per month, implying the export of around 170 empty containers monthly. In contrast, CCS discharges 55–60 containers monthly in Santo, while loading up to 150 containers a month. Sofrana Unilines offer sailings every two to three weeks, using the Sofrana Magellan. According to freight forwarders, the service is not as reliable as that of CCS (Keith Trace, personal communication, 1 December 2006). Moana Shipping, a joint venture between PDL/Reef and Moana Shipping, offered a 21 day service linking Vila with Noumea and Fiji, using the Southern Moana. The service handles around 30–50 TEU bound for to Vila on each voyage.

Asia: Greater Bali Hai service (Swire Group) provides a monthly service linking Japan and Korea with ports in Micronesia, Melanesia and Polynesia. The line calls at Vila and Santo.

Europe: Direct monthly sailings between Northern European ports and Santo and Port Vila are provided by the Bank Line (Swire Group). There is no direct service to North America. Cargo to and from the US and Canada are transhipped over Auckland, Fiji or Australian ports. Scheduled shipping services to Vanuatu are summarised in Table 4-26 below.

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TABLE 4-26: INTERNATIONAL SHIPPING SERVICES TO/FROM VANUATU, 2006

Service Operator Frequency Vessels Employed Service Type

Australia/New Zealand Lyttelton/Napier/Tauranga / Sofrana Unilines Approx Sofrana Magellan Container Auckland / Brisbane / Port every 18 Sofrana Kermadec Moresby / Lae / Rabaul / Lihir I / days Honiara / Port Vila / Tauranga Melbourne / Sydney / Brisbane / Chief Container Line Every 33 Kiribati Chief Container Noumea / Port Vila / Santo / Suva (Swire) days / Tarawa / Majuro Atoll / Santo / Port Vila / Noumea / Melbourne Auckland / Noumea / Port Vila / Moana Shipping Every 21 Southern Moana Container Suva / Funafuti / Wallis / Futuna / (joint venture days Auckland between PDL/Reef and Moana Shipping) NE Asia/SE Asia Kaohsiung / Hong Kong / Busan / Greater Bali Hai Monthly Coral Islander II, RO-RO Kobe / Nagoya / Yokohama / Service Kyowa Hibiscus, Majuro Atoll / Tarawa / Port Vila / Pacific Islander II, Noumea / Lautoka / Suva / Apia / Kyowa Cattleya Pago Pago / Papeete / Nuku’alofa / Santo / Honiara / Kaohsiung Europe Algeciras / Hamburg / Hull / Bank Line (Swire) Monthly Boularibank, Container and Antwerp / Dunkirk / Le Havre / Gazellebank, Breakbulk Papeete / Auckland / Noumea / Mahinabank, Suva / Lautoka / Port Vila / Santo / Tikeibank Lae / Madang / Kimbe / Rabaul / Jakarta / Singapore (PSA) / Algeciras

Vila is also an important cruise ship port, with some 60 calls a year.

Freight rates A comparative analysis undertaken by the ADB suggests that shipping rates to and from Vanuatu are considerably higher than rates to and from Fiji and marginally higher than the rates to and from the Solomon Islands (ADB 2002). Discussions undertaken with freight forwarders during 2004 support this finding (Keith Trade, personal communication, 1 December 2006).

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Domestic shipping Sea transport is the main mode of transport for crops and produce from the outer islands to the main markets of Port Vila and Luganville (Espiritu Santo). Prior to 1999 coastal shipping was reserved for vessels owned and registered in Vanuatu. In 1999 the Coastal Trading Act was abolished and foreign ownership of trading vessels permitted. The ADB notes that there are few legislative constraints to competition in the domestic shipping market (ADB 2002) International vessels can compete with domestically owned vessels between eight ports of entry and foreign-owned vessels can—and do—operate domestically. The entry of foreign owned vessels is said to have placed some small ni-Vanuatu operators under financial pressure. Approximately 30 coastal cargo vessels provide shipping services from Vila and Luganville to ports in the various island groups that form Vanuatu. Few of these vessels exceed 80 tonnes. The major operators of coastal shipping services include Ifira Shipping Agencies, Toara Coastal Shipping and Dinh Shipping (see Table 4-27). No vessels owned by the Government of Vanuatu and few vessels owned by provincial governments operate in the coastal trades. In general, coastal shipping routes divide into a southern circuit (including Tanna and Erromanga) and a northern circuit (including Epi, Paama, Ambryn, Pentecost, Ambae and Santo). Services to outer island groups (e.g. Banks Islands) were said to be irregular and unreliable in 2004. Ships that service outer island groups tend to fill their holds with produce from the first ports of call, by-passing later ports on the rotation which are unable to get their produce to market. The problems posed by unreliable and irregular coastal shipping services are best illustrated by the trade in copra. The mill on Espiritu Santo has the capacity to process 40,000 tonnes of copra a year. However, it is unable to obtain enough copra to operate at capacity. Traders, operating small vessels, provide reliable mini-feeder services capable of carrying 20–30 tonnes of copra per voyage. However, the larger coastal vessels frequently by-pass copra loading ports, leading to disenchantment of villages and failure to collect copra for shipment on subsequent voyages.

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TABLE 4-27: VANUATU: MAJOR INTER-ISLAND SHIPPING SERVICES, 2006

Operator Ownership Islands/Ports Serviced Frequency

Southern Islands Shipping & Cooperative Private All island ports except the Torba province 2 trips/month Society Ltd Northern Islands Shipping Services Ltd Private All island ports except the Torba province 2 trips/month

Marine Consultancy Ltd Private All island ports except the Torba and 4 trips/month Tafea provinces

Makila II Shipping Ltd Private All island ports except the Torba and 4 trips/month Tafea provinces

Ifira Island Shipping Agencies Ltd Private All island ports except the Torba province 2 trips/month

Sea Road Services Ltd Private All island ports except the Torba province 2 trips/month Source: Vanuatu Maritime Authority, correspondence with Study Team, 2006 Coastal freight rates appear high, although we understand that they have fallen over the past five years. The ADB noted that coastal shipping rates, which varied from USD32 to USD42 per m3 for general cargo, compared unfavourably with those prevailing in PNG (ADB 2002). However, coastal freight rates were substantially higher prior to the deregulation of coastal trades. Rates from Vila to Santo or Epi were said to be cVT10,000 prior to deregulation, compared to cVT6,500 in 2004. The Department of Trade’s estimates of coastal rates are shown in Table 4-28. TABLE 4-28: VANUATU, INTER-ISLAND FREIGHT RATES: VILA TO ESPIRITU SANTO AND EPI, 20004 (USD)

Commodity Freight Rate USD Copra 66 per metric tonne Cocoa 66 per metric tonne Coffee 66 per metric tonne Taro 66 per metric tonne Other Agricultural Commodities 66 per metric tonne

Source: Department of Trade, 2004.

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4.10.4 Maritime infrastructure According to the ADB, there are a total of 22 public ports and wharves in Vanuatu, by far the most important ports being located in Port Vila and Luganville.31 Freight consigned to outlying islands is loaded and unloaded via beach landings, ramps or lighters.

Vila The main international wharf at Vila (212m long, 9m wide) is constructed of steel piles with concrete decking. Depth of water at the wharf is 10.7m. Five bridges connect the wharf to the shore. The underside of the wharf was strengthened in 2002 using ADB Urban Infrastructure Project funds. The wharf handles container vessels, cruise ships and gas tankers. Coastal vessels use the privately owned Arammadi Wharf. This wharf is 55m long. Depth of water alongside is 8.2m. There are two small wharves located on the town waterfront. Pilotage is compulsory for all vessels over 60m in length. One 14 ton bollard pull tug is available for berthing and unberthing. Although over 80% of the cargo handled is containerised, Vila has poor container handling facilities. The relatively narrow wharf causes operational problems for the stevedore. The godown, built to cater for breakbulk cargoes, is too large for today’s cargo mix. Some part of the space occupied by the godown might be more profitably used as a container storage area. The steeply rising ground at the rear of the port rules out inland expansion.

Luganville (Espiritu Santo) The old section of Luganville wharf, built during World War II, is in need of basic maintenance. The wharf has been extended to provide additional berthing space. There is adequate storage space for containers adjacent to the wharf.

Outer Islands The condition of the smaller wharves and jetties is generally poor, due to inappropriate positioning or design, poor construction techniques and damage from cyclones.

Port ownership and administration The ports of Port Vila and Santo are controlled by the Department of Ports and Harbours, which owns and manages channels and navigation aids, port infrastructure and superstructure, and land access infrastructure. The Department also provides berthing services (pilotage, towage, and line services). Stevedoring (cargo handling), consignee related services and ancillary services (repairs, cleaning, refuse collection etc) are provided by the private sector.

31 Asian Development Bank, Vanuatu: Economic Performance and Challenges Ahead, Manila: 2002, p.250.

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The two main wharves at Port Vila and Luganville generate an income amounting to around Vt200 million annually. This sum is paid into the Government of Vanuatu Consolidated Revenue. To meet expenses, the Department of Ports and Harbours receives a budgetary allocation, totalling some Vt42 million in 2003. The Department argues that this sum is insufficient to meet its operating expenses, including repairs and maintenance of existing infrastructure.

Port charges Port charges at Vila and Santo are relatively more expensive than most of the Pacific Island countries. However, the port tariff at Vila has not been revised since 1992.

Stevedoring Stevedoring in Vila is provided by Ifira Wharf & Stevedoring 1994 Ltd. under a long term contract with the Government. Interviews conducted with freight forwarders and shippers in Vila suggested that stevedoring productivity is relatively poor while stevedoring charges are extremely high (Keith Traces, personal communication, 1 December 2006).

4.10.5 Maritime training The Vanuatu Maritime College is responsible for the training of seafarers in accordance with the STCW95. The highest qualification is Master of vessels up to 500 gross tonnes (Master Class 4) and Engineer of vessels propelled with engines producing an output of up to 500kW (Engineer Class 3).

4.10.6 Maritime security Two port facilities have been certified as complying with the ISPS code in Vanuatu: the Main Wharves at Port Vila and Luganville.

4.11 Western Samoa

4.11.1 Introduction Geographically, the Samoan archipelago consists of thirteen islands. Politically, eight of the islands constitute the independent state of Samoa, whilst the five islands to the east are a US territory, known as American Samoa. The people all speak the same language and share the same customs. Samoa consists of two main islands—Upolo and Savai’i—and a number of smaller islands. The capital, Apia, is located on the central north coast of Upolo. The population (2005) is 186,000, about 35,000 of whom live in Apia. Population growth is estimated to be 1.1% p.a (ADB 2006c). Samoa experiences substantial emigration, mainly to New Zealand, Australia and the United States. Since independence, Samoa has concentrated on developing a modern economy based on traditional village agriculture and primary products. Subsistence agriculture still supports c75% of the population, the primary sector employs more than half the workforce and accounts for 50% of GDP and approximately 80% of export earnings. The major cash crops are taro, coconut and cocoa.

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Imports exceeded exports by a substantial factor in the 1990s, resulting in large merchandise trade deficits. Although manufacturing accounts for only 11% of GDP, food processing and light manufacturing provide a high proportion of private sector employment. In recent years, the government has promoted the development of light manufacturing industry. Tourism is an emerging sector, accounting for more than 12% of GDP. The Government’s economic strategy for 2002–04 identified tourism as a key strategic area as far as the future development of the Samoan economy is concerned. In 2002 the government outlined a vision of more focused tourist sector that would support the further development of sustainable tourism and respect for the Samoan way of life (fa’a Samoa). The economy of Samoa continues to depend heavily on remittances and foreign aid. Workers’ remittances, grant aid and loans help offset the merchandise trade deficit. Gross ODA flows in the mid 1990s, USD50–60 million annually, accounted for around one-third of Samoa’s total revenue. Approximately 30% of the workforce is employed by the Government.

4.11.2 Maritime administration Responsibility for maritime administration in Samoa is divided between the following agencies: Ministry of Transport: ƒ Policy and planning ƒ Regulation and safety ƒ Provision and operation of port facilities ƒ Provision and maintenance of navigation facilities ƒ Organization of marine training Samoa Shipping Corporation (SSC): ƒ 100% owned by the Government of Samoa ƒ Operates ferry services between Upolo and Savai’i and between Apia and Pago Pago (American Samoa) ƒ Charters vessels Samoa Shipping Services ƒ Owned on a 50:50 basis by Government of Samoa and Samoa Shipping Corporation ƒ Manages RO-RO container vessel Forum Samoa, which is on long term charter to Pacific Forum Line Samoa Port Authority ƒ Port administration ƒ Pilotage ƒ Towage.

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4.11.3 Shipping services

International shipping Samoan cargoes were shipped directly to/from Australia, New Zealand and certain Asian ports (Table 4-29). Other destinations were served by transhipment services over Auckland Fiji, and/or Australian ports. TABLE 4-29: INTERNATIONAL SHIPPING SERVICES TO/FROM SAMOA

Service Operator Frequency Vessels Employed Service Type

Australia/New Zealand Brisbane / Sydney / Melbourne Reef Shipping / Neptune Fortnightly Capt Tasman Container / Lautoka / Suva / Pago Pago / Shipping Line / Pacific Forum Samoa II Apia / Nukualofa / Suva / Direct Line Ltd / Pacific Lautoka / Brisbane Forum Line

Lyttelton/Napier/Auckland / Pacific Forum Line Fortnightly Forum Pacifc Container Lautoka/Suva / Apia / Pago Matua Pago /Nuku’alofa Auckland Forum Fiji III

Auckland-Nuku’alofa-Apia- Reef Shipping, PDL, Every 14 days Southern Cross Container Pago Pago-Auckland Sofrana NE Asia/SE Asia Kaohsiung / Hong Kong / Greater Bali Hai Service Monthly Coral Islander II, RO-RO Busan / Kobe / Nagoya / Kyowa Hibiscus, Yokohama / Majuro Atoll / Pacific Islander II, Tarawa / Port Vila / Noumea / Kyowa Cattleya Lautoka / Suva / Apia / Pago Pago / Papeete / Nuku’alofa / Santo / Honiara / Kaohsiung

Jeddah / Gizan / Mundra / Indotrans Every 30 days Pacific Makassar, Multi- Mumbai/ Singapore / Tanjung Pacific Flores, purpose Priok / Kimbe / Lae/ Apia / Pacific Celebes, Pago Pago / Papeete New Pacific Java Orleans/Houston / Camden/ St John USA/Hawaii Long Beach / Oakland / Polynesia Line Fortnightly Cap Matatula Papeete / Apia / Pago Pago / (Hamburg-Sud) Long Beach Polynesia

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In general, interviews conducted with Samoan shippers and freight forwarders in 2004 suggested that they were satisfied with the availability of shipping space and the frequency of current shipping services. The services provided by Pacific Forum Line, Polynesia Line, Sofrana, Greater Bali Hai and other lines were considered reliable and of a satisfactory quality. A freight forwarder reported problems with space availability to the US and complained that Samoan cargo bound for the US via Fiji had been left on the wharf on several occasions. (Keith Trace, personal communication, 1 December 2006) The Greater Bali Hai service to Japan is indirect. Imports and exports being on the water for up to two months. Samoa’s imports and exports are somewhat better balanced than those of other PDMCs, primarily because of the export of motor harnesses to Australia. Forty to 60 containers of fabricated motor vehicle harnesses are shipped from Apia to Melbourne each month on PFL and/or Sofrana vessels.

Freight rates Indicative freight rates for general cargo (2004) are as follows:

Australia–Samoa: base rate of USD2,200-2,500/TEU + additionals (BAF, CAF etc) amounting to 26% of the base rate = USD2,800- USD3,200.

New Zealand–Samoa: base rate of USD1,700-1,800/TEU + additionals (BAF, CAF etc) amounting to 34.15% of the base rate = c USD2,300-2,400

US–Samoa: USD2,500/TEU + Terminal Handling Charge USD420/TEU + Emergency Fuel Adjustment Factor USD100 per TEU = USD3,020

Korea–Samoa32: Twenty Foot (TEU) 20’ container = USD2,800 + BAF of USD150/TEU.= USD2,950

. Forty foot high cube container = USD5,200 + BAF of USD260/TEU = USD5,460.

Outward freight rates are lower than inward rates and were generally viewed as ‘backhaul rates’:

Samoa–Australia: USD2,100/TEU + additionals (26%) = USD2,600

Samoa–New Zealand: USD1,200/TEU + additionals (34.15%) = USD1,700

Samoa–Fiji: USD660/TEU33

32 Using PIL ex Korea, with transshipment in Auckland.

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Samoa–US: USD1,800 + Emergency Fuel Adjustment Factor USD100 = USD1,900

The above rates are those that would be charged by a relatively small shipper. Commodity rates and rates charged to volume shippers would be lower then these figures.

Domestic shipping Table 4-30 lists regional and inter-island shipping service operating in Samoa. TABLE 4-30: SAMOA: REGIONAL AND INTER-ISLAND SHIPPING SERVICES

Operator Route Vessel Name Gross Tons Vessel Type Samoa Shipping Samoa-American Samoa Lady Naomi 993 Car ferry Corporation Samoa Shipping Mulifanua Wharf (Upolo)- Lady Samoa II, 867 Car ferry Corporation Salelologa (Savai’i)(six sailings Tausala Salafai 122 Vehicle and weekly) Pasenger Ferry Inter-island Express Mulifanua Wharf-Salelologa Tausala Cedar Passenger Ferry Services (no cars) Nauer Shipping Upolo-Savai’i Car/passenger Services American Samoa Pago Pago-Manu’a Islands Manu’a Cargo vessel Inter-Island (weekly) with limited Shipping Company, passenger Pago Pago, accommodation American Samoa (Tel: 258 7333)

Inter-island shipping services, including the ferry service between Apia and Pago Pago (American Samoa), are operated on a commercial basis by government-owned Samoa Shipping Corporation (SSC). SSC was set up by the Government of Samoa in December 1974 to operate as a Limited Liability Entity. It was established under the NZ Companies Act 1955 and in accordance with the provisions of the Samoa Ordinance 1935. Its primary objective was to operate a vehicular and passenger ferry between Samoa and its neighbouring Islands.

33 We were told of incentive rates as low as USD450/TEU.

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Whilst SSC does not have a legislative monopoly, its established position and the small scale of the market have tended to discourage new entrants. However, in recent times this appears to have changed to some extent, with two commercial operators operating ferry services to from Mulifanua Wharf to Savai’i in competition with SSC.

Samoa Shipping Corporation The Government of Samoa established the Samoa Shipping Corporation (SSC) in December 1974 with the objective of operating a vehicular and passenger ferry service between the main Samoan islands. Lady Samoa II and the Tausala Salafai operated daily passenger-cargo ferry services between the two main islands, Upolo and Savai’i, in competition with the privately owned Tausala Cedar. The Lady Naomi operated a weekly passenger-cargo ferry service between Apia and Pago Pago (American Samoa). SSC vessels were available for charter services. The cargo barge Fotu-O-Samoa undertook charter work to the neighbouring islands, Pago Pago, Manua Islands, and the Tokelau Islands. The passenger Upolo-Savai’i passenger ferry was provided through Japanese aid, while the Apia-Pago Pago ferry was funded by the Australian Government (UN, 1997). The Lady Samoa II is expensive to operate and will be replaced. Table 4-31 below shows the vessels operated by SSC: TABLE 4-31: VESSELS OPERATED BY THE SAMOA SHIPPING CORPORATION

Lady Naomi Lady Samoa II Fotu-O-Samoa Tausala Salafai Type of Vessel Passenger- Passenger- Cargo barge Passenger- vehicle ferry vehicle ferry vehicle ferry Classification Lloyd’s Register Lloyd’s Register MOT-Samoa MOT- Samoa Built Japan, 1998 Japan, 1988 Singapore, 1979 Australia, 1969 Length Overall 46.5m 43.3m 36m 28.5m Beam 11.4m 11.5m 9.0m 7.5m Draught 2.4m 2.35m 2.75m 1.34m Tonnages 993gt/298nt 867gt/261nt 272gt/124nt 122gt/47nt Capacity 220 passengers 480 passengers 289 tons 200 passengers Crew 16 13 - 9 Service Speed 11 knots 11 knots - 9 knots

Recent accounts for SSC were not available to the study team. However, the SSC has been profitable: it achieved pre-tax profit of USD757,000 in fiscal year 2000. Whilst the Corporation paid USD90,000 dividend to the Government out of 1999 profits, no dividend was paid in 2000 because of forward commitments and because of the continued increase in operating costs. SSC has established a fund for vessel replacement.

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4.11.4 Ports

Infrastructure The overwhelming majority of international cargo movements are handled through the Port of Apia, which also handles the ferry service to Western Samoa. Development of infrastructure in the Port of Apia has relied heavily on overseas funding. The Japanese Government and the ADB funded port development and rehabilitation works over the period 1992–97. The following were implemented: ƒ Equipment supply for the Domestic Transport Strengthening Project (1985)( USD7m) ƒ Development of Apia Port (1988-89)(USD13.6m) ƒ Rehabilitation of Cyclone-Damaged Ports (1990-91)(USD10m) ƒ Rehabilitation and Improvement of Cyclone-Damaged Ports and Foreshore Protection (1992)(USD7.8m). Japanese aid also provided funding for investment in port facilities outside of Apia, including: ƒ Provision of ferry terminals and navigation aids at Mulifanua (Upolo) and Salelologa (Savai’i) and the deepening of the Mulifanua channel ƒ Rehabilitation works at the minor ports of Asau (Savai’i) and Aleipata (Upolo), used for fuel deliveries, by the Ministry of Transport. In July 2001, Samoa Ports Authority took delivery of a new tugboat for Apia, MV Atafa. This vessel was funded with a grant from the Government of Japan (through Treasury) at a total project cost of USD4.5 million. A second container berth, funded by the Government of Japan, was opened in Apia in September/October 2003. SPA aspires to develop Apia into a regional hub port. To do so, it recognises that infrastructure needs to be upgraded. The opening of the second international berth in September 2003 virtually doubled Apia’s cargo handling capacity, eliminating delays in berthing. It is expected to accommodate the growth in demand for the foreseeable future. With container throughput growing relatively rapidly, SPA aims to enlarge container storage area adjacent to the wharf to cater for 2,000 containers.

Port ownership and administration The Samoa Ports Authority (SPA) is responsible for the provision and operation of port facilities throughout Samoa, including the international container port in Apia. The Samoan Ports Authority Act was passed in 1998 and the Authority began operations in July 1999. Under the Act, SPA acquired all port assets in Apia and at Mulifanua, Saleloga and Asau. Samoa has two ports catering for international trade: Apia handles container and breakbulk cargoes and fuel shipments, whilst Asau is a port of call for small cruise liners as well as an import port for fuel. As a corporatised body, SPA is required to act commercially, while at the same time ensuring that the port and maritime needs of the nation are met ‘in an effective and timely manner.’ The mission of the authority is:

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To develop and maintain the port infrastructure that will meet Samoa’s economic and social requirements and will provide safe, efficient, reliable and profitable port services for Apia, Mulifanua, Salelologa and Asau Ports (SPA 2006). SPA itself operates a number of port services, including pilotage and towage services. Stevedoring is provided privately (see Table 4-32), with four privately owned firms competing to provide stevedoring services in Apia. TABLE 4-32: SAMOA PORTS AUTHORITY KEY RESULTS, 2000-2004

Year Through put:(TEU) Vessels Revenue USD NPAT Net assets 2000 15,454 273 4,352,219 559,487 36,726,308 2001 17,644 339 6,457,981 1,473,600 37,735,366 2002 18,931 313 6,297,104 283,406 51,558,659 2003 19,060 290 6,944,453 298,913 56,131,386 2004 20,088 296 9,085,430 63,000 121,060,183

Source: Samoa Ports Authority website, accessed 20 December2006. The Samoa Ports Authority’s net profit for the financial year to June 2002 was USD144,000, a decline from the record net profit of USD533,000 recorded in 2000–01. The Authority notes that the result reflects the commitment that prices would remain stable for the year despite rising costs.

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Port charges The main components of the port tariff, as it applies to international shipping, are shown in Table 4-33. TABLE 4-33: PORT TARIFF, SAMOA PORT AUTHORITY

Basis Rate USD IMPORTS Wharfage Port Service Charge 10' container per unit 15.48 27.00 20' container per unit 30.60 54.00 40' container per unit 66.60 93.60 Break Cargo per rev ton 1.44 2.52 Transhipment per ton 0.90 EXPORTS Basis Wharfage Port Service Charge 10' container per unit 0.72 2.70 20' container per unit 0.72 7.92 40' container per unit 0.72 39.60 Break Cargo per rev ton 0.72 2.52

Light Dues visit 36.00 Port Dues per GRT 0.03 Cargo Dues per ton 0.04 Pilotage per GRT 0.06 Dockage per GRT per day 0.02

Source: Samoa Ports Authority website, http://www.spasoma.ws, accessed 20 December 2006.

Stevedoring In Apia, stevedoring is provided by private firms. Four stevedoring firms compete for the right to handle container and breakbulk cargoes. Stevedoring productivity is relatively high, although there is a considerable discrepancy between the performance of the better stevedores (achieving hook rates of 20+ movements an hour) and that of the under-achievers (achieving hook rates of 7–10 movements an hour). Stevedoring charges in Apia are amongst the lowest in the region.

4.11.5 Maritime security Samoa Ports Authority implemented the IMO/ISPS code in July 2004, and was as one of the first Ports in the region to comply with these requirements. Prior to the establishment of the Port Authority, the handling of small consignments had been costly and inefficient, was known to be of significant damage, loss and theft. SPA reports that:

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The Authority implemented a system of “off-wharf” container handling at warehousing operated by private enterprises. This system resulted in greatly improved security for importers and at the same time it lowered cost for bond and storage. (SPA website, www.spasamoa.ws, accessed 20 December 2006).

4.11.6 Maritime training Maritime training in Samoa is carried out at the Samoa Polytechnic School of Maritime Training. The school trains both deck and engine crew, to Watchkeeper rating Class 5. It has nine lecturers and a student capacity of sixty (SPC 2006).

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