Outer Island Renewable Energy Project (RRP TON 43452) SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY Country: Kingdom of Tonga Project Title: Outer Island Renewable Energy Project Lending/Financing Energy Project Department/ Pacific Department Modality: Division: Transport, Energy, and Natural Resources I. POVERTY AND SOCIAL ANALYSIS AND STRATEGY Targeting classification: General Intervention A. Links to the National Poverty Reduction and Inclusive Growth Strategy and Country Partnership Strategy Tonga’s Strategic Development Framework, 2011–2014 aims to develop and promote a just and progressive society. This is to be achieved by improving the living standards of all Tongans through equitable access to and distribution of resources. ADB’s Pacific Approach 2010–2014 complements this effort through its goal of sustained, resilient, and improved standards of living. The project will contribute directly to poverty reduction by providing an alternative, less expensive, cost-effective means of providing electricity. ADB's country partnership strategy for Tonga for 2007–2012 prioritizes poverty reduction by addressing binding constraints on growth through (i) pro-poor, environmentally sustainable integrated urban infrastructure development; (ii) the financing of pro-poor policies through effective, prudent macroeconomic and fiscal management; and (iii) private sector development. The project will contribute to poverty reduction by reducing the country’s reliance on imported fossil fuels for power generation and its vulnerability to the high, volatile prices of this source of energy. This will also improve Tonga’s balance of payments, reduce its fiscal deficits, and make its government debt more sustainable. B. Results from the Poverty and Social Analysis during PPTA or Due Diligence 1. Key poverty and social issues. According to a household income and expenditure survey conducted by the Statistics Department of Tonga in 2009, 23% of Tongan households had incomes below a basic needs poverty line of T$1,466 ($880) per head per year, or T$4 ($2.40) daily. This indicated that these households experienced periodic difficulties in meeting their daily costs of living for food and other essentials. Household expenditure levels for such items as food and fossil fuels continue to increase in the rural parts of Tongatapu, but with higher emphasis in the project areas: the outer islands of Ha’apai, ‘Eua, and Vava’u; the four outer islands of Ha’apai (Namuka, Ha’afeva, Uiha, and Ha’ano); and most remote Niua islands (Niuatoputapu and Niuafou). Average household per capita expenditure rose by about 42% in 2011, while the income in the poorest households (about 30% of the total) increased by about 38% in the same year. Thus the poorest households in 2011 became steadily worse as of in 2009. Private remittances from up to 100,000 Tongans living abroad alleviate some of the hardship experienced by residents of the nine project outer islands. In 2004, remittances amounted to 42.5% of gross domestic product, and 91% of households received remittances. This contributed to sustained consumption and investment in education and assets. Nonetheless, economic growth is constrained by the country’s small population, high cost of transportation due to its geographic fragmentation, and Tonga’s remoteness from major markets. Agriculture, fishery, and tourism are the main economic sectors. A lack of infrastructure and high costs for essential services are obstacles to private sector development. Unemployment, especially among the youth, is contributing to social problems, such as urban crime. During 2001–2009, Tonga’s levels of hardship and poverty remained relatively constant only in Nuku’alofa, the country’s capital, where formal employment and most economic activities are concentrated. Based on the household income and expenditure survey and gross domestic product data, the standard of living of households and individuals everywhere else in the kingdom declined. The drop was particularly severe on the project outer islands. 2. Beneficiaries. The primary beneficiaries are the people of the outer islands of Tonga who will benefit from stable power tariff, including low income households relying on existing life-line electricity tariffs. Private sector will also benefit from a reliable supply and relatively stable power tariff. Local communities in the project site will benefit from the project through provision of unskilled and semi-skilled labor work during project implementation. TPL, TERM-IU, EPU, ECOs, and beneficiary households will benefit from capacity building and training in the efficient use of energy and in budgeting for electricity usage conducted by a team of project management consultants who will provide in addition efficient and effective project management and operation and maintenance for a period of at least 5 years after project commissioning. 3. Impact channels. About 10-15% of the monthly income goes towards paying for household’s electricity bills, with remaining income spent on other small family expenses. According to sample interviews, the household’s monthly income could cover the cost of monthly power bills. However, during times for paying for school fees and the household as church or family obligations (funeral, wedding, etc) households will prioritize those expenses, before 2 paying the cost of power. This would often result in arrears in electricity bills that often result to disconnection. In addition, local businesses and households in the project sites are highly dependent on consistent supply of power for their businesses. Businesses are dependent on reliable power supply to deliver timely services and goods. Meanwhile access to reliable and longer power supply allows women to have option of working at night to complete their mats for earlier sales and improve family cash flow. On the microeconomic level, the project will directly contribute to poverty reduction by providing alternative, cheap and cost-effective means of power. On the macroeconomic level, the project will contribute to poverty reduction by reducing the country’s reliance on volatile and costly imported fossil fuels for power generation. At the macro-economic level, this will improve Tonga’s balance of payments, reduce fiscal deficits, and improve Government debt sustainability 4. Design features. Through construction of solar power plants the project will provide a reliable power supply and stable power tariffs to commercial and domestic power consumers in Tonga including low-income households, allowing business and households to plan better monthly expenditures for electricity services. The project documents include pro-poor or poverty reduction measures to address poverty issues. The project's measures include provision unskilled and semi-skilled work for local people in the project area. Contractor(s) will be encouraged to employ local men and women in project activities. Low-income households including landowners will be engaged in unskilled/labor- based construction work. The project will support development of local private sector through training for project maintenance contracts. The social development and gender indicators of the DMF include (i) number of staff of implementing agencies provided with training on gender issues, (ii) number of women trained and involved in income generation activities as business managers, (iii) number of local persons trained for solar construction contracts (including 30% women), and (iv) number of women trained on project management and included in decision making at management level within the utility and community electric societies. II. PARTICIPATION AND EMPOWERING THE POOR 1. Summarize the participatory approaches and the proposed project activities that strengthen inclusiveness and empowerment of the poor and vulnerable in project implementation. Consultations were held at all proposed nine sites and at national level. In particular, consultations were held at island and household level, involving government, private sector, civil society organizations, community groups, non- governmental organizations. and individuals from beneficiary households. Consultations were conducted through sample surveys, key informant interviews, and focus group discussions particularly among community leaders including district and town officers, church leaders, government officers assigned on the islands, women’s groups including village women’s associations, and representatives from disconnected households. At national level, consultations were conducted with representatives from the Ministry of Finance, Office of Prime Minister, TERM-IU, Ministry of Lands, TPL, local government officials including outer island administrations, development partners such as World Bank, European Union, United nations Development Program, and representatives of the governments of Australia and New Zealand. 2. Explain how the project ensures adequate participation of civil society organizations in project implementation. The project design process has included stakeholder consultation with civil society organizations. Civil society organizations will be included in ongoing consultation during design finalization and project implementation. 3. What forms of civil society organization participation is envisaged during project implementation? Information gathering and sharing Consultation Collaboration Partnership 4. Will a project level participation plan be prepared to strengthen participation of civil society as interest holders for affected