IMPROVING THE LIVING STANDARD

OF AN I-KIRIBATI

SOLAR ENERGY FOR OUTER ISLANDS - KIRIBATI

Solar Energy Company, Ltd

Corporate Plan Long term objectives for 2004-2014

Strategies and Actions for 2004-2007

April 2004

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Index 1. Name of PE and reference to law under which it is set up ____________________ 3 2. Mission, Vision and Values ____________________________________________ 3 2.1. Mission _______________________________________________________ 3 2.2. Vision _________________________________________________________ 3 2.3. Values ______________________________________________________ 3-4 3. Nature of business, Description of operations & Location of activities ___________ 4 3.1. Nature of business _______________________________________________ 4 3.2. Description of operations ________________________________________ 4-5 3.3. Description of activities ___________________________________________ 5 3.4. Location of activities _____________________________________________ 6 4. Governance structure, performance reporting & monitoring system in use _______ 6 4.1. Governance structure ____________________________________________ 6 4.1.1. Responsible ministry ___________________________________________ 6 4.1.2. Board of directors ______________________________________________ 5 4.2. Performance reporting ____________________________________________ 6 4.3 Monitoring System in Use ________________________________________ 6-7 5. Organisational structure, function of parts & three-year employment statement ___ 7 5.1. Organisational structure __________________________________________ 7 5.2. Function of parts ________________________________________________ 7 5.2.1. General Manager ____________________________________________ 7-8 5.2.2. Operations Manager ____________________________________________ 8 5.2.3. Financial manager __________________________________________ 9-10 5.2.4. Logistics manager ____________________________________________ 10 5.3. Three-year employment statement _________________________________ 11 5.3.1. Total staff ___________________________________________________ 11 5.3.2. Levels and payroll costs ________________________________________ 11 6. Relevant Key Policy Areas and Strategies, and how the SEC will contribute to

achieve the Government's desired outcomes _____________________________ 12 6.1. Economic Growth ______________________________________________ 12 6.2. Equitable distribution ____________________________________________ 12 6.3. Sustainable use of physical resources ___________________________ 12-13 6.4. Protection and use of financial reserves _____________________________ 13 7. Service Agreements with Government, scope of service covered, payments by

Government and verification arrangements on quantity and quality of services provided _________________________________________________________ 13

8. Business Plan for coming 3 years ______________________________________ 14 8.1. Objectives, strategies and actions __________________________________ 14 8.1.1. The first objective _____________________________________________ 14 8.1.2. The second objective _______________________________________ 17-18 8.1.3. The third objective ____________________________________________ 19 8.2. Financial implications ___________________________________________ 21 8.3. Expected results _______________________________________________ 24 8.3.1. Long term expected results (10 years) _____________________________ 24 8.3.2. Medium-term expected results (3 years) ___________________________ 24 8.3.3. Short-term expected results (1 year) ______________________________ 24

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1. Name of PE and reference to law under which it is set up The Solar Energy Company was set up under the rules of the companies ordinance Cap 10A. However its objectives, shares and detail administrative procedures and policies are guided by its own Articles of Association in which their interpretations or expressions bear the same meaning as in the companies ordinance Cap. 10A.

The Solar Energy Company Limited was originally formed as a private, limited liability company on 15 November, 1984 (registered No. 14) under the auspices of the Foundation for the Peoples of the South Pacific (FSP) based in Kiribati with FSP having a majority share holding of 498. Following the withdrawal of FSP in 1987, the company was restructured into a Government owned Liability Company with the majority share holding (500) being held by the Minister of Public Works and Utilities.

2. Vision, Mission and Values 2.1. Vision 40% of households in the rural area of Kiribati enjoying and benefiting from the use of renewable source of energy by 2007. 2.2. Mission To improve the living standards of the people in the outer islands through the provision of affordable and reliable solar photovoltaic (PV) energy. 2.3. Values 1. Respect for the environment (nature)

The Solar Energy Company will promote the use of clean energy starting with solar photovoltaic energy as it has been proven to be cost effective on the outer islands. Wind energy is not economically viable in Kiribati at present due to the low speed, inconsistent wind patterns. However, when the right time comes for wind and other clean energy sources, the SEC will examine the possibility of introducing them for the benefit of the more isolated communities of Kiribati.

. 2. Local empowerment (employees)

Since it was first established in 1984, the SEC has been employing local people. The success of the company will depend on people who feel pride and dedication to their work. The company will continue to invest its resources in the training of its staff to ensure that they possess the necessary skills and knowledge required of them.

3. Professionalism (customers)

The company will strive to make sure that its customers receive the best service whenever they need it. The field staff will continue to monitor and maintain the solar home systems and the head office staff will provide all the necessary support needed to efficiently operate the utility services on the outer islands.

4. Enhancing community life (culture)

The company will provide the basic electrical services on the outer islands to

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enhance family and community life. The services of the SEC will raise the living standards of the people in the outer islands by providing lighting not just for individual homes but in particular for the maneabas which play a significant role to the development of community life in each and every village.

5. Responsiveness (government)

The SEC is a public enterprise and was established to implement government policies when the need arose. The company's mandate is to focus on the expansion and extension of a solar-based rural electrification on the outer islands within the framework of the utility model already proven to be sustainable. By the end of 2005, the company will be able to electrify 20% of the rural households in the Kiribati atoll group. The success of the utility project in the Kiribati group will pave the way further expansion of the utility service not only in the existing and electrified islands but may as well create an opportunity to extend the project to the remaining islands not yet electrified remote communities in the Line and Phoenix group.

3. Nature of business, Description of operations & Location of activities 3.1. Nature of business The purpose for the formation of the company was, and remains, principally to provide the institutional, commercial and legal framework in which to develop the experience and skills necessary to successfully utilise the potential benefits and services available from the use of solar photovoltaic technology within Kiribati and, in particular, in the improvement of the social lives of outer island communities. This overall aim complies with the 2004 stated Kiribati Government National Development Strategies. 3.2. Description of operations During the early period of operation, 1984 to 1989, the SEC was solely a sale oriented commercial institution, which was proved to be unsustainable. In 1990, the company was changed from a sale to a service based commercial utility institution. This vital transition was made possible with the assistance of the Fiji based United Nation Pacific Energy Development Program (PEDP), and the South Pacific Institute for Renewable Energy (SPIRE) of French Polynesia. The Kiribati Rural Electrification Utility concept, which was approved by the SEC Board of Directors in 1990, has been successfully implemented in 1993, with the technical and financial assistance received by the Japanese Government. In order to test the utility concept beyond the pilot stage, the project was extended to a full-scale electrification through photovoltaic. This was made possible with the technical and financial assistance received from the European Union (EU). The first pilot project was implemented in North Tarawa in February 1993 in which, 55 solar home systems (SHS) and 1 solar system for maneaba were installed. One year later when the pilot study has been evaluated and proved successful, 250 new solar systems were installed with the assistance received from the E U. Of this number, 100 SHS were installed on North Tarawa to meet the high demand from those who have not got the chance to be connected under JICAs assistance, and the remaining 150 SHS were installed on Nonouti and Marakei, each receiving 75 solar home systems. The demand on these 3 islands still exceeded the allocated number of systems.

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This year 2004 the company is in the process of expanding its pilot project to full scale operation of approximately 2,100 homes and approximately 100 village maneabas under the EU funding and technical assistance. The overall objective of the project is to improve the living standards in the outer islands of Kiribati and reduce the migration to the main island (Tarawa). 3.3. Description of activities The main activities at SEC are:

Power utility: This is the main activity for the SEC and its principal source of income. As a power utility, (1) the company sells electricity to its customers who pay a monthly fee, (2) the company holds and owns the assets for the generation and distribution of the electricity, and (3) it is responsible for their maintenance. As a power utility based in photovoltaic, (1) the monthly fee is not proportional to the electricity consumed but to the generation capacity of the PV system installed, expressed in watts peak (Wp), and (2) the equipment for generating and distributing the electricity is located in the domicile of the customer.

Private maintenance: This second activity is similar to the previous one but with the main difference that the company does not hold the assets for the generation and distribution of electricity. Within this second activity the SEC acquires the responsibility to monitor and maintain a PV system in exchange of an annual fee (management fee). The fee indicates the cost associated to the technical maintenance of the PV system, without including the cost associated to the depreciation of components as the PV system is not the property of the SEC but is owned by the private customer.

Direct sales: Direct sales are the trading activity of the Solar Energy Company,

Ltd. The activity covers the buying and selling of parts and components to final customers.

Consultancy services: Becoming a commercially viable rural utility operator capable

of managing and maintaining over 2,000 PV systems, means the SEC will become the most successful PV operator in the Pacific region. The same skills that made the SEC successful locally can be devoted to advise other regional PV operators, ministries, energy planning bodies. At present the consulting services of the SEC has been limited to some spontaneous advice to the Government of Kiribati. In the future, the success of the previous three activities guarantees the potential for dispersing that knowledge on a regional level. This activity is especially interesting because it brings a net cash inflow to the Kiribatis economy. From a macroeconomic point of view, activities one and three affect the trade balance negatively because of the importing of components. This fourth activity means exporting technical advice, which affects the service balance positively.

Manufacturing: The design, assembly and commercialisation of components especially adapted to the local environment (climate, usage, etc.). This activity is distributed in four sub-activities, which are:

1. Market research: analysis of the local environment, study of the existing products, analysis of the untapped demand (market niches).

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2. R+D1: conceptualisation and development of new components adapted to the local environment, testing the prototypes, identifying suppliers of raw material.

3. Manufacturing: the provision of raw material and the assemblage of components according to current demand.

4. Commercialising: the distribution and sale of SECs own manufactured components.

3.4. Location of activities The headquarters of the SEC is located in Betio. Tarawa. To date, the company has installed solar home systems in the islands of Marakei, North Tarawa and Nonouti. As a result of completion of the European Commission project 8-KI-ACP-02 the company plans to have systems installed in all the islands of the Gilbert Atolls. The company also will be interested to expand and extend the project to the Line and Phoenix Group Atolls but this planned expansion of rural utility services to this remote part of Kiribati would depend on the success of the abovementioned project. 4. Governance structure, performance reporting & monitoring system in use 4.1. Governance structure The Solar Energy Company Limited is established within framework of the Ministry of Public Works and Utilities. As the sole shareholder of SEC, the Minister for Public Works and Utilities has the authorised full share capital of the company. The overall administrative tasks to manage the company fall under the responsibility of the Board of Directors who is responsible to the Minister. The day to day management of the company is however falls on the shoulder of the General Manager who is directly responsible to the Board of Directors. 4.1.1. Responsible ministry The responsible ministry is the Ministry of Public Works and Utilities (MPWU) 4.1.2. Board of directors The Minister appoints the Chairman and Directors of the SEC Board from time to time and in accordance to the companies ordinance. The Board of Directors appoint the General Manager and also endorses the appointment of all permanent staff of the SEC. The role and responsibilities of the Board of Directors are guided by the SECs Article of Association which has been published and prepared in line with the Companies Ordinance Cap. 10A. 4.2. Performance reporting The appointment of Chairman of SEC Board of Directors always vested in the Ministry of Public Works and Utilities, the responsible ministry to insure that the Minister is always informed on the companys progress and new developments undertaken by the company. 4.3 Monitoring System in Use 1 Research and development

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Through a regular management meeting the financial statements and the companys performance against the budget are discussed. The meeting usually held prior to meeting of the Board of Directors which normally held on a monthly basis. 5. Organisational structure, function of parts & three-year employment statement 5.1. Organisational structure The organisational structure of the company is shown in the following chart:

Board of Directors5

General Manager1

Logistics & SalesManager

1

Operations Manager1

Senior Technicians3

Manufacturing Supervisor

1

Island and Village

Technicians18

ManufacturingPersonnel

5

Store man&

Dispatchingofficer

1

AccountAssistants

2

Cleaner1

Personnel Assistance1

Handy Man/Driver

1

Ministry of Public Works &

Utilities

Financial Manager1

Registry Clerk1

Assistant Clerk1

Senior Accountant(vacant)

1

ProcurementOfficer

(vacant)1

5.2. Function of parts The SEC has one general manager and three managers and their role and responsibilities are described in the following paragraphs. 5.2.1. General Manager The general manager answers to the board in regards to the overall operations of the company. This includes: implementing and maintaining procedures and tasks as defined and approved in the

organisational structure devising, submitting for approval to the board and implementing objectives,

strategies and actions as outlined in the corporate plan create a competitive environment in the company by setting standards, monitoring

performance, publishing results and rewarding success identify, test and implement efficiency-enhancing changes in work practices. This

includes appointing, dismissing and employing staff members, with endorsement from the board and within the frame of the existing budget.

monitoring the financial statements, ratios of performance and accounts of the company to ensure its financial health and its accordance to the existing budget

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representing the company in Kiribati and overseas, this includes seminars, conferences and promotional events

preparing documents and reports as required by Cabinet, the ministry or the board Firing and recruiting staff below managers level without consent of the Board of

Directors. Firing and recruiting staff at the middle managers level would require the Board approval or endorsement.

5.2.2. Operations Manager The operations manager is responsible for four procedures:

UTS1. Monitoring & maintenance of PV systems This procedure will guarantee the proper monitoring and maintenance of the solar systems for both: utility service and private systems. Monitoring means the collection of data at regular intervals and entering it into the technical module. It is not restricted to technical monitoring it also includes user satisfaction. This means that the manager has to follow up and solve any problems that decrease user satisfaction. The term Maintenance refers to the actions that guarantee the uninterrupted supply of the service. The operations manager is responsible for guaranteeing the adequate monitoring and maintenance of all the solar systems. It is the managers responsibility to ensure that:

Island technicians are well trained in monitoring and maintaining a solar system.

The procedure UTS1 monitoring & maintenance of solar systems is followed.

UTS2. PV system troubleshooting & repairs

When a solar system has a technical problem, it has to be repaired. This procedure guarantees that defective solar systems are repaired in the shortest span of time and at the lowest cost. It is the managers responsibility to ensure that:

Both senior supervisors and island technicians are well trained and capable of responding to the most common problems a solar system may have.

The procedure UTS2 PV System troubleshooting & repairs is followed.

FIN1. Fee collection

Island technicians are in charge of collecting the fee and therefore the operations manager has to guarantee that (1) the fee is collected at monthly intervals, (2) sheets and cards are filled up according to the procedure and (3) sheets and payments are sent to the headquarters before the end of the month.

Once in the headquarters, the financial department will assist in (1) invoicing users, (2) entering payments into MyOB and (3) printing the new sheets. Then

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the operations manager has to guarantee that the new sheets are sent back to the outer islands and that they get there before the end of the month.

The operations manager must guarantee that arrears are kept to a minimum. This means regularly monitoring user arrears and taking steps to minimise these.

FIN2. The Activity Sheet

The operations manager has to ensure that: The disconnection/removal policy of the company is fully

implemented, The activity sheets are filled in by the island technicians every time

there is a variation on the fee or status of a system, according to the procedure FIN2 The Activity Sheet.

The activity sheets are sent to the headquarters in the next sheet delivery after the sheet is filled out.

All information from the technical module regarding the fee and status of the PV systems is kept up to date.

5.2.3. Financial manager The financial manager is responsible for four procedures:

FIN3. Entering sales into MyOB Promoting direct sales is a responsibility of the logistics department, but the financial department is responsible for entering them into MyOB. The procedure already explains how steps are distributed between the logistics and financial department.

The Financial Manager must make sure that:

Sales from the headquarters are recorded at the time the product leaves the warehouse and payments recorded when money is received.

Sales from the outer islands are recorded right after receiving the kanban sheets.

Money transferred from sales in the outer islands is audited to make sure that the headquarters receives full payment on the items sold.

FIN4. Adding or updating information into MyOB

This procedure relates to any information that needs to be updated in MyOB such as new customers, suppliers, employees or change in the current data that the company holds on them. The fact that the financial department is responsible for this procedure doesnt mean that any new information must be entered by them, but that they must supervise what is entered to guarantee consistency (e.g. correlative numbers properly assigned, field information correctly entered, etc.).

FIN5. Entering transactions into MyOB

Accounting transactions are directly entered by the financial department only. The other departments dont have access to neither the accounts nor the banking modules of MyOB. They can enter transactions indirectly (e.g., when the

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warehouse confirms that they have received a shipment, a transaction is automatically entered by MyOB crediting accounts receivable).

This procedure involved as well entering the annual budget into MyOB, and assigning all income and expenditure transactions to a cost centre or department.

FIN6. Monitoring accounting information & ratios

This procedure falls under the responsibility of the financial department without any other department getting involved. The Financial Manager will prepare all the reports and financial statements that inform management and the board of directors on the financial status of the company.

5.2.4. Logistics manager The logistics manager is responsible for three procedures:

LOG1. The Kanban The procedure starts when the island technician fills in the kanban sheet for ordering the delivery of items. Within this procedure, the logistics department offers a service to the utility department: the delivery of the required goods. It is the responsibility of the Logistics Manager to guarantee that (1) items are delivered on time and in the exact amounts as requested by the island technician, (2) the delivery has all the necessary authorisations according to the procedure LOG1. The kanban, (3) information from the kanban sheets is entered into MyOB.

LOG2. Monitoring Inventories

This procedure guarantees inventory reliability by monitoring stocks at monthly intervals. It is the responsibility of the Logistics Manager to guarantee stock reliability at all times.

DSS1. Purchases for direct sales

Purchases for direct sales are a responsibility of the logistics manager. This includes purchases of: (1) goods for direct sales, and (2) components to be incorporated as assets. In this second case, orders are placed in coordination with the operations manager. He or she is responsible for: (1) seeking out potential suppliers, (2) making sure that they meet the company standards, (3) negotiating supply contracts and prices, (4) authorising supplies according to the existing procedures, (5) keeping inventories at optimal level. For keeping inventories at optimal level, the logistics manager will need to analyse variables such as (1) days for repositioning stock, (2) cost and volume per unit, (3) cost of opportunity in a stock run out, (4) discounts on large purchases offered by the supplier, (5) his own experience, and (6) interest rate, among other variables.

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Purchase will be done following the steps enumerated in DSS1 Purchases for direct sales. It is the responsibility of the logistics manager to guarantee that the procedure is followed.

5.3. Three-year employment statement Management would strive to maintain cost as minimum as possible while explore opportunities to maximise output from its existing staff. In the existing structure some jobs are still vacant and there may be a possibility to increase the salary budget in the future as the company develop into a well established utility institution. The salaries of employees would also be increased each year to cater for the increase in cost of living. To this connection a 3% annual increase in salaries is anticipated. 5.3.1. Total staff The company employs 15 staff at its head office in Betio, Tarawa and 20 on the outer islands, hence 35 employees in total. Out of this number, all field staff on the outer islands are employed on contract basis. 5.3.2. Levels and Payroll costs In 2003, the company have spent nearly $106,000.00 just on salaries and wages. The budgeted salaries for 2004 are as follows:

POST HOLDER OF POST LEVEL SALARY KPF 7.5% Fortnightly Department

Post General Manager Terubentau Akura L3 $14,198.00 $1,064.85 $546.08 Administration Perm.

Financial Manager Louisa Bitamatang L10-1 $8,996.00 $674.70 $346.08 Financial Perm.

Logistics Manager Taewake McKenzy L10-1 $8,996.00 $674.70 $346.08 Logistics Temp.

Operations Manager Nabura Tekiata L10-1 $8,996.00 $674.70 $346.08 Operations Temp.

Clerical Officer Taeboa Tuakai 15-14(4) $5,592.00 $419.40 $215.08 Administration Perm.

Accounts Clerk Bebe Tebao 18-16(1) $3,902.00 $292.65 $150.08 Financial Perm.

Cleaner Tokanikai Tioneti L19-1 $3,772.00 $282.90 $145.08 Administration Perm.

Senior Technician Henry Garstang 10(1) $8,996.00 $674.70 $346.00 Operations Perm.

Assistant Technician Tebano Aukitino 14(1) $5,938.00 $445.35 $228.38 Operations Perm.

Senior Technician Teikona Toamannang L12 $7,594.00 $569.55 $292.08 Operations Perm.

North Tarawa Agent Raubeta Rakennang L19 old rate $1,922.00 $144.15 $73.92 Operations Perm.

North Tarawa Agent Naitiria Tamton L19 old rate $1,922.00 $144.15 $73.92 Operations Perm.

Marakei Agent Tarekawa L19 old rate $1922.00 $144.15 $73.92 Operations Perm.

Nonouti Agent Tairoa Taniera L19 old rate $1,922.00 $144.15 $73.92 Operations Perm.

Account Clerk Tita Kautabuki L18-16 $3,772.00 $282.90 $145.08 Fiancial Temp.

Storeman Teangirerei Itibaua L18-16 $3,772.00 $282.90 $145.08 Logistics Temp.

Temp. Registry Section $700.40 $52.53 $26.94 Administration Temp.

Temporary Cleaner $217.62 $16.32 $145.08 Administration Temp.

Assistant Manufacturing Kaete Binoka 18(1) $3772.00 $282.90 $145.08 Manfacturing Temp.

Temp. Nonouti island $184.80 $13.86 $73.92 Operations Temp.

Temp. Marakei island $184.80 $13.86 $73.92 Operations Temp.

Watchman (Supermum.) Buaba Itinbara Special rate $4,339.92 $325.49 $166.92 Maintenance Cont.

Watchman (Supermum.) Tioon Iakoba Special rate $4,339.92 $325.49 $166.92 Maintenance Cont.

Kainaba Agent Kauntunteata Karotu Special rate $333.00 $27.75 Operations Cont.

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6. Relevant Key Policy Areas and Strategies, and how the SEC will contribute to achieve the Government's desired outcomes The key policy areas that directly affect the SEC are: 6.1. Economic Growth

Issue 7: Publicly funded investment will be required in transport and utility infrastructure to enable private investment to proceed The strategy related to this issue to which the SEC can contribute are:

Ensure reliable power and water supplies in existing urban areas, eliminate subsidies to urban services and require PEs to meet performance standards

Management at SEC are defining the performance standards that will enable the company to operate without requiring an operating subsidy and maintain fees at a reasonable level at the same time. This performance standards are defined as strategies in the first long term objective of the company; which is to ensure that the company generates enough cash flow to finance the future replacement of components. These strategies may be summarised as follows:

Maintaining cash revenues at least at 90 per cent of the theoretical rental Increasing alternative sources of revenue such as direct sales and private

system maintenance by at least 10 per cent a year. Keeping annual increase in expenses below 5 per cent a year Maximising the life of the batteries to over 9 years.

6.2. Equitable distribution

Issue 1: Infrastructure, service and incomes on outer islands are inferior to those in urban areas.

The strategies related to this issue to which the SEC can contribute are:

Devise cost-effective maintenance methodology for outer islands infrastructure.

Identify most promising income-earning opportunities in outer islands and demonstrate commercial feasibility.

The SEC can contribute by devising cost-effective methodologies for the maintenance of solar home systems and maneaba systems. SEC is currently implementing a variable remuneration to island technicians based on performance that will contribute to this strategy. At the same time, electricity supply together with different services related to it and that the SEC plans to offer will contribute to increase the income-earning opportunities of the people in the outer islands. Electricity is a factor of development as it allows the creation of micro-enterprises and individual initiatives that would be not possible without it.

6.3. Sustainable use of physical resources

Issue: poor standards of asset maintenance in the public sector handicap service delivery and low morale and productivity

The strategies related to this issue to which the SEC can contribute are:

Minor maintenance to be contracted out by Ministries under procedural rules,

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major maintenance managed by MPWU

The SEC has proved in the past that it can effectively maintain assets. From the 309 solar home systems installed between 1992 and 1994, at present over 95 per cent of them are still operating. Batteries have lasted ten or more years, which is a complete success considering that the average life of batteries is 7 years. Nevertheless, the SEC knows that maintaining 2,100 is going to be a bigger challenge and this is why in action A111 the company plans to implement the manual for island technicians. This manual will assist in the implementation of the procedures that will ensure the correct maintenance of the batteries and remaining components.

6.4. Protection and use of financial reserves

Issue: how to make greater use of domestic credit in financing development

The strategies related to this issue to which the SEC can contribute are: Promote use of commercial loans for financially viable infrastructure projects Promote access of new and small business to DBK and BoK credit

The SEC in strategy S23 plans to apply for domestic credit from the DBK to assist existing users to expand the installed capacity of their solar home systems, therefore making a greater use of domestic credit for financing development.

7. Service Agreements with Government, scope of service covered, payments by Government and verification arrangements on quantity and quality of services provided The company will make agreements with government on the tariff structure of the utility service that shall be put into force after the commissioning of the EU funded solar project 8-KI-ACP-02 in March 2005. The tariff structure will be designed to enhance not only the efficiency and sustainability of the company in the long term but also it will be affordable to the rural population.

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8. Business Plan for coming 3 years 8.1. Objectives, strategies and actions The board of directors and management at the Solar Energy Company has defined three long-term objectives to be achieved during the period 2004 to 2014. For the successful attainment of these objectives, the company has outlined a set of strategies. The strategies have been quantified, in order to measure to what extent they have been carried out. For their successful implementation, the company plans to put in place a number of actions. These actions cover the period 2004-2007 and will be followed up and rolled over on a yearly basis. In this way the company puts the guidelines outlined by the Government of Kiribati for public companies into practice. The three long-term objectives are: O1 To ensure that the company gets enough cash flow to finance the future replacement of components O2 To continue the expansion of rural electrification until 75% of the rural households are electrified O3 To make the SEC the leading Renewable Energy Service Company (RESCO) in the Pacific 8.1.1. The first objective The strategies to ensure that the company gets enough cash flow to finance the future replacement of components (O1) are: S11 Maintaining cash revenues at least at 90 per cent of the theoretical

rental. Cash revenues are the total amount in cash collected during the year. Theoretical revenue is the amount the company would receive if all the systems were in operation and the users were invoiced for the service rendered. Any difference between both values is the result of (a) cost of exemption, (b) level of arrears, and (c) paid debt. The company's first strategy to guarantee enough cash flow for replacing components is to maintain cash revenues at least at the level of 90 per cent of the theoretical revenue. Actions The actions for the period 2004-2007 that will ensure at least 90 per cent of cash revenues are:

A111 To implement the administrative manual for Island technicians deadline: June 2005 The administrative manual for island technicians was written at the end of 2003 as a result of the collaboration between the management at SEC and the technical assistance. The manual outlines the main eight tasks to be performed by the island technicians on a monthly basis. The implementation of all the tasks described in the manual ensures that procedures are successfully implemented in the outer islands.

A112

Variable remuneration to island technicians deadline: May 2004 The best way of keeping island technicians motivated to complete all their

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monthly tasks is by making their salaries directly dependent on their outputs. If island technicians are made aware that their salaries constitute a percentage of the fee successfully collected, they will be more motivated to keep arrears at a minimum. This action is outlined at Appendix I.

A113 To designate a team of three senior supervisors trained to conduct regular visits to the outer islands for inspecting performance of island technicians. deadline: February 2005 A team of three senior supervisors needs to be appointed to ensure that island technicians (1) follow the company procedures, and (2) receive ongoing assistance from headquarters. This team will travel to each of the outer islands twice a year.

S12 Increasing alternative sources of revenue such as direct sales and

private system maintenance at least by 10 per cent a year. Alternative sources of income such as direct sales and private maintenance are essential to maintain the viability of the company. In 2003 the company made losses of $98,000 compared to the $127,000 in profits from the previous year. Almost eighty percent of this poor performance was due to a decrease in direct sales to half the volume achieved in 2002 and to a decrease in the mark-up from 27% to 15%. This is why the management at SEC is committed to achieving a sustainable increase in direct sales and private maintenance of at least 10 per cent a year. Actions The different actions that will make such increases possible are:

A121 To compile a catalogue of articles deadline: June 2006 A catalogue of articles is a list of PV products that can be successfully marketed in the outer islands. This will mean reliable, competitive and useful technology for the people of the outer islands. The company plans to compile this catalogue and distribute all the products into three groups: (1) those products that are stored by both, the island technicians and the headquarters, (2) those that are stored in the headquarters and delivered to the outer islands in less than two weeks, (3) those products that require a special order and that can be delivered in less than two months.

A122 To implement the kanban procedure deadline: June 2006 This is the procedure that will make it possible for the SEC to have a point of sale in all the islands. Without the successful implementation of this procedure, the company can expect only to sell directly to customers from the headquarters, reaching a smaller target group as most of the demand for PV products is on the outer islands.

A123 To promote the SEC's maintenance services in the outer islands deadline: June 2005 Before the end of 2005, the company plans to have a report stating the "Potential for private system maintenance in Kiribati". The report will compile information on the current solar systems that are privately owned and suggest specific actions to promote SEC's private maintenance services to its owners. At the same time, the company plans to launch a financial scheme for utility users wishing to increase the installed capacity (A124). The successful implementation of this scheme will increase the number of contracts for private maintenance.

A124 To offer bigger solar systems to meet the energy demand of users willing to increase the capacity of their solar systems deadline: December 2006

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Through this scheme, utility users can increase the capacity of their solar home systems. Typical customers are those who have higher income level and would like to use higher energy for video, water pumps, tools, etc. When having to maintain these systems, the company will define a special fee that takes into account those factors. This scheme plans to be in operation before December 2005 for solar systems purchased directly by the user and before December 2006 for those that the company plans to offer on lease terms financed by recognised financial institutions as described in S23

S13 Keeping annual increase in expenses below 5 per cent a year

To take full advantage of the economies of scale resulting from the expansion of the installed capacity from 310 to 2,100 solar home systems, it is recommended that the company keep its workforce at the headquarters to a minimum by eliminating unnecessary jobs and at the same time allowing productivity to increase five-fold. To achieve these economies of scale and the resulting expansion in productivity, the company plans to prevent expenses from increasing above 5 per cent a year. Actions The actions for the period 2004-2007 that will keep increases in expenses below 5 per cent are:

A131 Implement the new organisation chart and task definition deadline: June 2004 Since January 2004 the management at SEC has been implementing the new organisational chart and task definition, which will allow the company to manage 2,100 SHS without requiring employing more staff at the headquarters. Two new management positions were defined: operations manager and logistics manager. These two, together with the financial manager, are the backbone of the company, and will create a five-fold increase in staff productivity. This new organisational chart should be fully implemented before June 2004.

A132 To restructure salary levels according to the new organisational chart deadline: June 2004 The salary levels of the personnel need to be revised to adjust them to the newly acquired responsibilities, as described in the new organisational chart and task definition. Before June 2004 the company plans to have the new organisation chart, task definition and salary levels fully implemented.

A133 To train management in MYOB deadline: June 2005 MYOB is the best tool that senior management has to keep expenses under control. This is why it is so important to continue training them on accountancy, analysis of financial statements and MYOB. For this reason the company will continue the training that was started with TII on MYOB and accountancy.

S14 Maximising the life of the batteries to over 9 years.

The battery is the most sensitive component in a solar home system in terms of expected life, need for maintenance, and replacement cost. The expected life of a battery is between 6 to 10 years. Batteries require periodical maintenance, unlike the panels. And its replacement cost represents more than half the total replacement cost of the solar system. This is why maximising the life of the battery is essential to ensure enough accumulated cash flow for its future replacement. Actions The actions for the period 2004-2007 that will maximise the life of the batteries

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are: A141 To find a cost-efficient solution to the supply of battery water

deadline: February 2005 The battery water must be available at all times in sufficient quantities to ensure the batteries always maintain the required level of electrolyte. The company will provide each Island technician with everything needed for the collection and storage of battery water. At the headquarters, the company will install a water collection system for the battery water that will be used in the outer islands during long periods of drought and as a back up supply only.

A142 To implement the RESCO Manager deadline: December 2004 The RESCO manager is the application that monitors the solar home systems. Its successful implementation means that the company has been able to record at least 6 months data from over 90 per cent of the solar home systems installed. By December 2004 the company plans to achieve this milestone. The recorded data will allow the SEC to identify those batteries that are performing below the average in order to implement correcting measures.

A143 To designate a team of three senior supervisors trained to conduct regular visits to the outer islands for training island technicians and inspecting the state of the PV systems deadline: February 2005 This activity is linked to A113. The senior supervisors are responsible for procedure UTS1. Monitoring and maintenance, which will ensure that batteries are properly maintained and regular data collected and entered into the RESCO Manager. At the same time they are responsible for UTS2. Trouble shooting and repairs, procedure that includes analysing the data from the RESCO Manager and implementing the correcting measures when a battery is performing below the average. The team of senior supervisors will be made up of those people who performed best during the installation. This is why the company needs to wait until the installation is over before deciding on who will be appointed to the team.

8.1.2. The second objective The strategies to continue the expansion of rural electrification until 75% of the rural households are electrified (O2) are: S21 To continue relying on overseas donor assistance for financing the

expansion of installed capacity Actions The actions for the period 2004-2007 that will attract overseas donor assistance to the SEC are:

A211 To lobby for Cabinet support to prioritise rural electrification as the most important project to be financed by JICA second to the PUB power generation deadline: February 2005 Kiribati solar utility project was first studied in collaboration with the Japanese government. At the end of that study the project turned out to be a successful model and has attracted major donors' interest in the expansion of the project to more outer islands in the Kiribati group. The Japanese government through JICA appears to be keen to continue its assistance to the project and SEC along the line of major rural utility expansion not only in the Kiribati group but may well be in the Line and Phoenix group. The SEC will maintain close contact with Cabinet on the ongoing installation process of the project. Also it will keep Cabinet

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informed of the high demand of energy services on the outer islands and to request for Cabinet's support to place rural electrification as top priority next to PUB power generation project for JICA funding

A212 To seek EU approval for the utilisation of the remaining funds of the existing EU project for the procurement of new additional solar home systems deadline: May 2004 Management will request the National Authorising Officer for the utilisation of remaining funds not yet committed from Financing Agreement budget to be used for the procurement of additional solar home systems.

A213 To tap new funds from EU projects available for Kiribati deadline: December 2006 Riding on the success of the existing EU funded project, it may well be true that the EC, being the major stakeholder in the project, would authorise the use of its resources to finance the expansion of the project. The SEC will try its best to implement all the procedures which have been put in place and in which they have been designed to guarantee success on the project. By October 2004 and a month prior to the execution of the evaluation process of the project, all the existing solar home systems and newly installed solar systems shall be operational and the fee collection rate shall reach a highest performance of 90%.

A214 To contact regional organisations such as UNDP, SPREP etc., to ensure that SEC also receive benefits from regional projects concerned with the provision of hardware for new solar home systems deadline: December 2006 Besides projects received through bilateral agreements such as JICA and EC funded solar projects, it is obvious that there will be more donors that will be interested in giving financial support through multilateral agreements. The main regional institutions which can facilitate such programmes are UNDP, SPREP, SOPAC etc., It is therefore in the interest of SEC to maintain close contact with these institutions through specific government institutions and ministries.

S22 To seek government financial support for the provision of 100 new

solar home systems to be installed on the outer islands every year, instead of the implementation of a subsidy Actions The different actions that will assist SEC to seek government financial support for the slow increase in the installed capacity are:

A221 To analyse whether increasing the number of systems installed by 100 new units a year will enable the company to keep fees at the current level and avoid at the same time having to apply for a subsidy deadline: November 2004 This study will analyse if a moderate fee increase of $2 a month of the basic fee for the next ten year period plus the expansion of the installed capacity by 100 new units a year could avoid the need to apply for a subsidy from government. If possible, the SEC considers this option preferable to receiving an operational subsidy.

A222 To submit a formal request to Cabinet requesting the provision of 100 solar home systems every year deadline: May 2005 While the SEC will focus on major donors for big projects, it is important to request government assistance for the provision of small number of solar systems per year. In doing this, the SEC not only receives direct benefits but government will be able to take the credit for supporting a RESCO company.

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S23 To investigate the possibility of applying for long term loans from either the Development Bank of Kiribati or recognised international financial institutions The SEC plans to finance the installation of new solar systems with international aid, but the financing scheme to increase the installed capacity, as described in A124, could be financed by long-term loans from the Development Bank of Kiribati or internationally recognised financial institutions. This means defining a third category of customers that are neither utility users nor private customers. This new category will have a solar home system with the first 100Wp offered on utility terms and the additional installed capacity in very similar terms to a financial leasing contract, with the SEC acting as the leasing company. This means that (1) SEC applies for a loan from recognised financial institutions for the total amount of components to lease (e.g. $1 million), (2) gives the existing PV users the chance to expand their installed capacity, (3) supplies the extra components required to increase the installed capacity on leasing terms, (4) applies for a fee that pays for: the basic fee of the initial 100Wp (utility terms) the maintenance fee for the extra capacity installed (private maintenance

terms) the monthly quota for the repayment of the extra components required to

increase the original 100Wp (leasing terms) (5) after a certain period of time (e.g. 10 years) the user gains full ownership of the leased components. The original 100Wp remain always assets of SEC. This can be an interesting model to apply to those users from the utility with a good record of fee payment. It could be a good solution to increase the original installed capacity beyond the 100Wp that the utility scheme offers. This scheme could be offered with another institution such as the Development Bank of Kiribati acting as a leasing company. Actions The actions for the period 2004-2007 that will assist SEC to apply for long term loans to DBK and recognised international institutions are:

A231 To prepare a report explaining the financial scheme and quantifying the total requirements deadline: September 2005 This document will be written after completing the study "Potential for private system maintenance in Kiribati" as described in A123. This will assist SEC to quantify the total funds required, before approaching different financial institutions and to identify the best strategy such as: (1) SEC acting as a leasing company, (2) another institution holding the ownership of the extra components until full ownership is transferred to the user, etc.

A232 To approach at least three financial institutions deadline: December 2005 The company plans to approach at least three financial institutions before the end of 2005 and apply for funding for the "Capacity increase financial scheme". This will allow SEC to have the funds ready before the end of 2006, when the company plans to start offering the new scheme to users, as described in A124.

8.1.3. The third objective The strategies to make the SEC the leading RESCO in the Pacific (O3) are:

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S31 To improve the manufacturing capabilities, increasing both

production and range of products destined to the regional market Actions The actions for the period 2004-2007 that will make possible this strategy are:

A311 To find at least two new products that can be easily assembled by SEC deadline: December 2006 Management will investigate the possibility of manufacturing led lights, DC/AC inverters, solar batteries and DC power supply.

A312 To identify regional projects that could require products assembled by SEC and to bid for at least three potential contracts deadline: June 2007 For the identification of regional projects a report called "regional potential for SEC's assembled products" will be issued. The report will be ready before June 2007.

A313 To begin assembling the new range of products deadline: December 2007 Before the end of the present Corporate Plan 2004-2007 the SEC plans to start manufacturing at least two new products to add to the existing range of controllers and inverters, currently assembled by the company.

S32 To promote SEC consulting service regionally

SEC has over 12 years experience as a RESCO specialised in solar energy. This means the company has a competitive edge in terms of experience that could be utilised to offer regional consultancy services. By offering this kind of service, the SEC will increase its prestige as one of the most successful RESCOs in the Pacific, making the completion of the third objective possible. Actions The different actions that will promote the regional consultancy services of SEC are:

A321 To promote the SEC experience by making all the documentation from the project publicly available through the website www.sec.com.ki deadline: July 2005 If SEC wants to promote consulting services regionally, first it needs to prove that it has something to offer. By making all the relevant information publicly available from the project, SEC will demonstrate that the company has valuable experience to offer.

A322 To analyze the projects identified in A312 for which the SEC can offer expertise deadline: July 2007 Some of the projects identified in A312 could require regional expertise as well as SEC's own assembled components. With this activity SEC plans to identify which of these projects are in an initial stage of development and would benefit from the company's expertise.

S33 To attend and participate as speakers in regional energy summits

Actions The actions for the period 2004-2007 that will make possible for SEC to actively participate in regional energy meetings are:

A331 To train the General Manager and other Senior Staff in the art of "giving professional presentations" and the use of Power Points software:

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As Power Point is commonly used for presentations, the SEC will need to gain the necessary skills in order to gain confidence in the use of Power Point and how speeches should be delivered to audiences such as professionals and aid donors' representatives.

A332 To provide efficient management of the SEC and in particular, the SEC's solar utility project: The success of the utility project will pave the way to many opportunities for SEC. Regional organisers of energy meetings will be interested to hear about the SEC success stories, hence it is probable that SEC representatives will be invited to speak about its achievements.

8.2. Financial implications The cash flow projection for 2004-2014 is the following:

Statement of cash flow projection

-$ 1,000,000

-$ 500,000

$ 0

$ 500,000

$ 1,000,000

$ 1,500,000

$ 2,000,000

Net cash flow generated (year) $ 138,452 -$ 57,116 $ 150,796 $ 186,242 $ 225,727 $ 239,871 $ 241,445 $ 287,390 $ 143,205 -$ 471,042 -$ 191,817

Closing Balance $ 172,252 $ 115,136 $ 265,932 $ 452,174 $ 677,901 $ 917,772 $ 1,159,217 $ 1,446,607 $ 1,589,812 $ 1,118,770 $ 926,953

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

This cash flow statement is taking into account:

Installation of 100 new solar home systems per year financed by the government at the estimated total cost of $175,000

Annual increase in the fee of $1 until fee is $13 in year 2007 Maintaining cash revenues at least at 90 per cent of the theoretical revenue. Annual increase in expenses below 5%. Increasing alternative sources of revenue such as direct sales and private

system maintenance at least by 10 per cent a year. Maximising the life of the batteries to over 9 years.

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8.3. Expected results This corporate plan has been designed around three long-term objectives. Therefore, the expected long-term results are the accomplishment of the three objectives. For this purpose, a set of strategies and actions have been outlined. The strategies might slightly vary, depending on their proven effectiveness, but for the next three years they are fixed. New actions can be decided on a yearly basis, when the corporate plan is rolled over for a new reporting period. 8.3.1. Long term expected results (10 years) With this idea in mind, the long-term expected results are: 1. FINANCIAL VIABILITY: the financial viability of the company will guarantee that cash flow is enough for the replacement of components and especially the batteries 2. FULL ELECTRIFICATION: 75% of the rural households electrified 3. REGIONAL LEADERSHIP: SEC the leading RESCO in the Pacific 8.3.2. Medium-term expected results (3 years) The mid-term expected results are the fulfilment of the outlined strategies. These can be resumed as follows: 1. Maintaining cash revenues at least at 90 per cent of the theoretical revenue. 2. Increasing alternative sources of revenue such as direct sales and private system maintenance at least by 10 per cent a year. 3. Keeping annual increases in expenses below 5 per cent a year 4. Maximising the life of the batteries to over 9 years. 5. Getting new assistance from overseas donors for financing the expansion of installed capacity 6. An average of 100 new solar home systems installed on the outer islands every year, with assistance from the government. 7. The implementation of a scheme for increasing the capacity of the existing solar systems financed by the Development Bank of Kiribati or recognised international financial institutions 9. The improvement of the manufacturing capabilities, increasing both production and range of products destined to the regional market 10. SEC consulting service promoted regionally 11. SEC management attending and participating as speakers in regional energy summits 8.3.3. Short-term expected results (1 year) The short term expected results are the accomplishment of all those actions scheduled for the following 12 months.