News Release

Office of the Minister of Finance Government of Tonga August 31, 2006

The Minister of Finance, Hon. Siosiua T.T. ‘Utoikamanu, has asked the Tonga Electric Power Board to conduct a thorough consultation with consumers before a final decision is made on recommended changes to the electricity tariff. In July, he had made an undertaking to Parliament that a full consultation process would be held before a decision was made.

A 3 seniti per kilowatt-hour tariff increase has been recommended to the Board to reflect the extra cost of generating electricity resulting from higher word prices for diesel fuel.

Over the last 12 months we have experienced a significant increase in price of fuel and as we all know – this is the major cost for power generation. The Board received an application from Shoreline, the operator of the electricity system, to increase the tariff because the price of fuel has increased.

In response, the Board commissioned an independent expert – Castalia - to undertake a thorough analysis of the impact of the fuel increase on power generation costs, and a fair tariff adjustment.

The report by Castalia was presented to the Board with recommendations based on their analysis of the electricity generation cost. The Board is committed to follow a transparent process by consulting with consumers and civil society before a final decision is made on the tariffs. People need to be given an opportunity to understand the causes of the tariff increase and to express their opinion.

Since the last tariff increase, the Government has subsidised Tongatapu consumers by 11 seniti per unit at a cost of 1.8 million paanga [US$882,000] annually. This year the cost is running nearly 13 percent ahead of the same time last year.

The government’s financial position means that it is impossible to provide another subsidy and tariffs must increase to recover the higher fuel prices. So, we must ensure that we consult with consumers about any proposed changes and the reasons behind those changes.

I will also be asking the Board to explain the independent report by Castalia which outlines the recommendations to the rate of electricity tariff.

I want to emphasise that I am committed to using a full and transparent process to ensure concerned citizens have their say and only after that will the Board be able to make a final decision.

September 1, 2006

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