A Report on the
STATE OF THE ISLANDS

Chapter 6: REPUBLIC OF PALAU

6.1 The Republic of Palau (Trust Territory)

Palau is a sovereign state associated with the United States through the Compact of Free Association. The three-hundred-mile-long archipelago, made up of more than two hundred islands, is located five hundred miles east of the southern Philippine Islands and eight hundred miles southwest of Guam. Palau's total land area is 196.10 square miles. The largest island - Babeldaob - accounts for one hundred fifty-one square miles of the total. The population in 1995 was estimated at 17,285 persons, concentrated in Koror (the nation's capital), Babeldaob and seven other inhabited islands. The population has grown from 15,122 in 1990 to 17,285 in 1995 or a growth of 14.30 percent in five years.

Palau has a constitutional government, modeled on the United States presidential form, with three coequal branches - executive, legislative and judicial. The head of state and head of government is an elected President, who serves a four-year term. The bicameral, national legislature, the Olbiil Era Kelulau, has a sixteen-member House of Delegates (one from each of Palau's states) and a fourteen-member Senate, elected on the basis of population. Members of both houses serve four-year terms. The judiciary is comprised of a Supreme Court, the National Court and the Court of Common Pleas. Judges are appointed by the President from a list of nominees recommended by the Judiciary Nominating Commission. All judges hold office for life. Palau has a federal system with a national government and sixteen state governments, each of which has a constitution, governmental structure and elected officials.

Prior to becoming a freely associated state, Palau was a district of the Trust Territory of the Pacific Islands (TTPI). Palau was the last TTPI district and was administered by the United States from July 18, 1947, until October 1, 1994. Until October 21-November 3, 1986, the TTPI included as well the Marshall Islands, the rest of the Caroline Islands (now the Federated States of Micronesia) and the Northern Mariana Islands (now a United States insular area). Following a November 9, 1993, plebiscite, Palau entered into the last phase of ending its status as the last TTPI district and emerged on October 1, 1994, into the community of nations as a sovereign state in free association with the United States.

6.2 Political Status Development and Federal Relations

The paramount issue in Palau's relations with the United States during a decade-long political status impasse was resolved democratically in 1994. Although the Government of Palau and that of the United States signed the Compact of Free Association on January 10, 1986, it could not take effect until approved by Palauan voters.

In eight separate referenda or plebiscites, the voters of Palau cast ballots on the implementation of the Compact of Free Association with the United States. As a consequence of the Constitution of Palau's nuclear ban and the U.S. Government's steadfast policy world-wide that it would neither confirm nor deny its use of nuclear-powered vessels, Article XIII, Section 6, of the Constitution of Palau (in effect from January 1, 1981) mandated a seventy-five percent approval of the Compact.

After six unsuccessful attempts to meet the three-quarters majority vote required for approving the Compact, a proposed amendment to the Constitution of Palau was offered to the voters under Article XIV, Section 2, of the Constitution. The amendment, which would lower the nuclear ban waiver requirement to a simple majority, was approved on November 4-5, 1992, in Palau's regular general election by greater than the required figures, that is, by more than a simple majority of the votes cast on the amendment and in more than three-quarters of Palau's sixteen states. On November 9, 1993, in the eighth plebiscite on the Compact (held pursuant to Palau Public Law No. 4-9), sixty-eight percent of those voting approved the Compact.

The current President of Palau is the Honorable Kuniwo Nakamura, who was elected in the 1992 general election. The Vice President is the Honorable Tommy E. Remengesau, Jr. The Nakamura Administration worked in 1994 with officials of the U.S. Department of the Interior's Office of Territorial and International Affairs and the U.S. Department of State on the political, financial and programmatic transition matters to implement the Compact. The Palauan representatives raised several concerns regarding Compact implementation. Officials of the U.S. Government noted their country's intention not to exercise military use rights during peacetime, to give Palau equivalent consideration regarding Federal programs as it has the Marshall Islands and the Federated States of Micronesia and made other assurances related to communications, civil aviation, road construction and nuclear provisions.

Representatives of the U.S. Government believed that Compact issues were best addressed within their context after the agreement took effect. The U.S. Government-Government of Palau transition group set a tentative goal of fiscal year 1994 for ending the trusteeship and establishing Palau as a sovereign state in free association with the United States.

Under the terms of the Compact, the United States will provide more than five hundred seventeen million dollars in mandatory, full-faith-and-credit financial assistance to the Government of Palau during fiscal years 1995-2009. The Government of Palau has delegated to the United States the responsibility for Palau's defense.

6.3 Current Economic Condition

Palau's economy remains dependent to a large extent upon the government sector but shows a steady private sector growth. The major source of the Government of Palau's revenues continues to be the annual grants from U.S. Government agencies, Compact of Free Association allocated funds and locally generated revenues. In fiscal year 1995, the Government of Palau reported a total revenue (actual expenditures) of $75,695,000, consisting of $16,447,000 granted by agencies of the U.S. Government (including the Office of Insular Affairs), $38,357,000 in Compact funds and $20,891,000 locally derived revenues.

Of the $4,700,000 in grants administered by the Office of Insular Affairs and actually expended in fiscal year 1995, $4,322,000 were used for capital improvement projects; $296,000 were spent on the Operations and Maintenance Improvement Program of the Office of Insular Affairs and $82,000 on technical assistance. In addition, the Government of Palau received direct Federal assistance grants from other U.S. Government agencies. Of these, the following were, in descending order, the larger amounts received from several Federal agencies and actually expended in fiscal year 1995: Department of Education - $5,283,000; Department of Health and Human Services - $2,306,000; Environmental Protection Agency - $1,430,000; Department of Agriculture- $1,245,000; other agencies - $1,483,000.

Of the total $38,357,000 Compact funds expended in fiscal year 1995, $36,214,000 were spent on Government of Palau operations, while $2,143,000 were spent on capital improvement projects.

The Government of Palau's fiscal year 1995 locally derived revenue of $20,891,000 represents an increase of 14.30 percent over the $18,283,000 collected as local revenue in fiscal year 1994. The four largest sources from which the major local revenues were derived and their corresponding amounts are as follows: Business Gross Revenue Tax - $5,025,000; Utility Collections (water, sewer and electricity) $4,069,000; Salary and Wages Tax - $3,822,000; and General Impart Tax $3,136,000. Although relatively much less in amount than the sources shown above, revenues from sources such as airport fees and charges, foreign labor permits and fees, traveler's head tax and licenses and fees show dramatic increases in fiscal year 1995 over fiscal year 1994. Increases in utility collections in fiscal year 1995 over fiscal year 1994 was 47.2 percent.

Growth in the overall economy is reflected in the increase of fiscal year 1995 total local revenue of $20,891,000 over the fiscal year 1994 local revenue collections of $18,283,000 an increase of 14.30 percent.

Tourism and an accompanying hotel/apartment construction industry are expected to lead Palau's economic growth over the next decade.

In 1995, Palau had 53,229 visitors, of whom 44,850 were tourists, a twenty-one percent increase in the number of visitors (twenty-eight percent increase in the number of tourists) over 1994. This increase in the number of visitors (tourists plus business-related visitors) caused a 15.5 percent increase in hotel occupancy tax in 1995 over 1994.

Visitor arrivals to Palau have been increasing at an average rate of about thirteen percent per year from a base of 32,846 in 1990. In 1995 Japan accounted for forty percent of the visitors; the Republic of China on Taiwan, twenty-one percent; the United States, eighteen percent; Europe, five percent; all others, sixteen percent. Tourist and business arrivals made up approximately eighty-eight percent of the total visitor arrivals. The remaining twelve percent of the visitor arrivals came for employment and other purposes. Visitor arrivals in 1995 by country of origin were: Japan - 21,052; the Republic of China on Taiwan - 11,163; the United States - 9848; the Philippines - 3199; Europe - 2508; the Republic of Korea - 1823; all others - 3636.

The tourist/business visitor's length of stay varies from a short of only three nights to a long of nine nights. The daily expenditures per visitor per day have been estimated at a low of one hundred twenty-nine dollars to a high of two hundred eighty-three dollars.

Considering only tourism and business-related arrivals, the peak season for 1994 was the first quarter; however, in 1995 the peak season was the fourth quarter. On the monthly basis, February is the peak month. In a recent survey, close to sixty percent of the respondents indicated that their main purpose for coming to Palau was scuba diving.

In 1995, there were approximately ninety-three tourism-related business, which comprised twenty hotels and inns, providing with six hundred ninety-nine rooms; twenty-seven restaurants, of which eleven were attached to hotels; eight car rental companies and thirty-eight tour companies, of which sixteen were involved in diving tours. The sector employed approximately one thousand individuals, of whom fifty-four percent were women and forty-six percent were men.

A recent survey conducted by the Palau Visitors Authority, entitled Tourism in Palau, estimates that visitors to Palau during the survey period (October 1994 to June 1995 with a sample size of eleven hundred seventy visitors) spent approximately thirty-seven percent of their total expenditures while in Palau on accommodations. From fiscal year 1995 local revenue records that some $826,000 were collected in hotel occupancy taxes. This amount represents ten percent of the total accommodation bill, which is calculated to be $8,260,000. As the subject survey estimates, this accommodation bill represents thirty-seven percent of the total amount spent by all visitors who came to Palau in fiscal year 1995. Therefore, it could be estimated that the visitors to Palau in fiscal year 1995 spent a total of $22,324,000 in the local economy.

Palau's work force in 1995 was made up of 7,611 employed persons (16 years and over). Approximately 65 percent (4,955 individuals) worked in the private sector as wage/salary employees and self-employed. The remaining 35 percent (2,656 individuals) worked for the government(s) and government organizations, including: Palau National Government- 1,765; 16 state governments- 496; and U.S. Government, other governments and semi-government organizations/agencies- 358.

The industries with the largest number of workers are: services; 2,487 (of whom 1,479 are Palauans, fisheries: 524 (of whom 131 are Palauan); retail/wholesale trades: 1,429 (613 Palauan). Of the total private sector work force of 4,189, Palauans accounted for 1,650 (39 percent) with non-Palauans, mostly alien workers, making up the rest.

6.4 Government Administration

With the transition from the status of a TTPI district to free association, the Government of Palau has found it necessary to undertake an intense review of all regulations and administrative procedures. Many documents, including statutes, still contain outdated references to "the Trust Territory Government" and "the High Commissioner" and must be updated.

The Government of Palau has initiated several projects to improve financial management and administrative systems. Currently there are ten "collecting agencies" of the national government. The emphasis is on more timely deposits of revenues into the National Treasury, while at the same time formulating cash forecasting and planning strategies to better monitor and control bank balance levels. The Division of Finance and Accounting is redesigning the documentation flow between the three divisions of the National Treasury and implementing procedures to better serve all users of the Bureau. Property and Supply functions are being carefully reviewed to improve accounting for fixed assets, with a revised/updated Property and Supply Manual nearing completion, including procedures for computerization of fixed assets records.

The Bureau of Program Budget and Management is developing a plan for performance based budgeting to be used throughout the national government. With the assistance of the Office of Insular Affairs-funded Pacific Island Training Initiative, under the direction of the U.S. Department of Agriculture Graduate School, the Government of Palau has received technical assistance in providing an orientation to the performance-based budgeting concept. Further training in this area through the Pacific Island Training Initiative is being explored for the coming year.

The national government has implemented an early retirement program allowing employees with a minimum of twenty-five years of service the option to retire regardless of age. Employees' taking early retirement will offer managers an opportunity to reevaluate their staffing requirements.

As a result of legislation transferring many functions of the National Civil Service Board to the Bureau of Public Service System, rules and regulations were developed and are in the process of being given public notice as required by the Administrative Procedures Act. With responsibility for performance evaluation and position classification now assigned to the Director of the Bureau of Public Service System, efforts are underway to develop a complete set of position classification standards to cover all occupations and classes of positions within the Public Service System. A system-wide reclassification effort is expected to result in recommendations for an improved pay scale tied to a merit-based performance evaluation system. At the same time, an employee handbook is being put together based on the new rules and regulations but apart from the more detailed Policies and Procedures Manual. Les Boggs will review and correct pages 7-11:

Water System

The Bureau of Public Works, within the Ministry of Resources and Development, is responsible for operations and maintenance of the Koror-Airai water system. The Koror-Airai water system serving Koror State, Palau's governmental, civic and commercial center of the country and the neighboring state of Airai, derives its water sources from Ngerimel Dam, with a storage capacity of 20 million gallons, the Ngerikiil River diversion dam and a few deep water wells located in Airai, Koror and Arakebesang. The most important source is the Ngerikiii River with an average daily flow of 20 million gallons, although during the drought of 1983, the river flow was down to slightly more than 800,000 gallons per 24-hour day.

The Koror-Airai water system consists of: i) two twelve-inch diameter, 3.2 mile long raw water transmission pipelines from the Ngerikiil diversion dam pump station to the Ngerimel Dam; ii) a 16-inch and a 12-inch diameter, 1.10 mile long raw water gravity pipelines (current mode of operation is such that by valving arrangement at the Ngerimel dam, the two raw water mains from Ngerikiii pump station transmits raw water directly through the 1 6-inch diameter gravity main to the Airai water treatment plant) from the dam to the Airai water treatment plant; iii) Airai water treatment plant; iv) a 12-inch diameter, 4.9 mile long potable transmission main from the Airai treatment plant to the Ngermid and Topside tanks, each with a million gallon capacity; v) an 8-inch diameter, 4.3 mile long potable water main from the 12-inch main at Topside to the Arakabesang half-million gallon reservoir; vi) an 8-inch diameter, 1.5 mile long potable water main from the Airai water treatment plant to the Airai one million gallon reservoir; vii) a half-million gallon reservoir at Malakal Island; viii) over 20 miles of 6-inch, 8-inch and 12-inch diameter distribution mains throughout Koror and Airai states and five storage tanks with a 4 million gallon storage capacity. There are three deep wells in operation in Koror State, contributing an insignificant amount of water into the system.

The Koror-Airai water system serves a population of about 13,800 persons at present. There are over 2,000 connections, of which over 1,700 are metered. Unmetered customers are charged a flat rate of ($17/month in Koror and $5/month in Airai). The water charge for metered customers is 85 cents/1000 gallons. Practically all water consumers in Koror and Airai are now on 24-hour water service.

A program of metering all unmetered customers and an aggressive leak detection program are urgently needed.

Due to the treatment process capability of the existing Airai water treatment plant being limited only to filtration and chlorination of the raw water, the quality of the water produced does not meet U.S. Public Health Service standards for public water systems. The nature of the available water source is such that the raw water must first pass through a chemical pretreatment process prior to filtering and chlorination, in order to meet U.S. Public Health Service standards for maximum turbidity allowance in public water system, prior to distribution to the consumers.

In 1994, a U.S. Government grant was received for the design and construction of a chemical pretreatment facility at the Airai water treatment plant. Design of the facility is completed and the property to site subject facility has recently been acquired and the project has been advertised for bids. Construction contract award is scheduled to be let by June 1996.

Approximately 800 of the 3,500 people living outside the Koror-Airai water system's service area are without public water supplies. The people in such areas without public water supplies must rely on rainwater caught in 55-gallon drums for their water needs. The remaining 2,000 people use several small village water systems which serve fewer than 100 households each. All of these village systems have surface water sources or shallow wells as their water sources. The best of the surface water systems provide only basic filtration and chlorination of the raw water before being pumped into the distribution system.

There are several small public water systems located in the states on the island of Babeldaob. Four systems were built by Japanese private companies in the states of Melekeok, Ngarchelong (two systems), and Ngaremlengui and serve approximately 800 people. Seven other small water systems were constructed under a U.S. rural water system construction grant in the late 1980's and early 1900's. These small public water systems are located as follows: Aimeiiik (2), Ngatpang (1), Ngaraard (2), Peleliu (1), and Angaur (1). These seven water systems serve about 1,900 people. Five villages, with a combined population of 800 people receive individual household rainwater catchment tanks which were constructed under this Federal grant.

Sewer System

The Koror Sewer System is a public utility operated by the Palau Bureau of Public Works. The existing system is comprised of over 20 miles of gravity collector sewers, 7.5 miles of sewer force mains, 445 sewer manholes, 3 major pump stations, 35 lift stations and a sewage treatment plant with a designed capacity of 1.0 mgd.

Due to the topography of the service area, the majority of the gravity sewers are arranged in 34 "satellite" or regional collection areas which empty into their own individual sewage pump stations. These satellite pump stations and the three major pump stations pump the collected wastewater into the main sewerline which then conveys the wastewater to the Malakal Sewage Treatment Plant (STP) where it is treated and the effluent goes out through a sewage outfall leading from the plant into 60-foot deep water in the Malakal Harbor.

The Malakal STP was designed as a secondary wastewater treatment facility employing the trickling biofilter treatment process. A monitoring report on the Malakal STP in 1992 indicated consistently higher level of BOD and somewhat higher levels of turbidity in the immediate vicinity of the sewage outfall. This indicates that the Malakal STP is not operating as a secondary treatment plant. This was verified by a consultant firm in 1993.

Wastewater flows received at the Malakal STP during the first three months of 1993 averaged about 1.30 million gallons per day which represents 130 percent of the plant design capacity. Flows received at the plant during prolonged periods of wet weather have already reached as high as 2.40 mgd. Wastewater flows are expected to continue to increase (a study conducted by a consultant firm indicates a potential average of 1.70 gpd by the year 2000) at the plant due to the continuing effort to connect new homes and other facilities to the system and taking into consideration further sewer collection system expansions presently planned.

To expand the treatment capacity of the Malakal STP, the U.S. Government in fiscal year 1994 granted funds for the expansion of the plant to double its present capacity. The design for expanding the plant is already completed; however, Koror State Government has intervened in the process for tendering the project for bid, arguing that the expansion of plant as designed is an inappropriate technology and is not a guarantee that the effluent from the plant will not have a detrimental impact on the environment. Koror State has not offered a concrete solution to the problem.

Although the wastewater system presently provides service to most of the hamlets in Koror State, additional satellite systems are needed to serve areas still unsewered. These unsewered areas are also presently experiencing rapid growth. New satellite sewer systems are needed for the hamlets of Echang, lower Ngermid, lower Ngerkesoaol, Ngerias, Diberdii, Ngesaol, and the developing commercial areas at Malakal. Short extensions to existing satellite systems are also needed in several places throughout Koror State.

During the past year, water quality sampling by the Palau Environmental Quality Protection Board has shown coastal waters to be contaminated by raw sewage near several of these areas. To ensure that homes, commercial and public facilities are connected to the central sewer system, funds were made available in the early 1 980's by the U.S. Environmental Protection Agency which enabled the House Sewer Connection Program to commence. This has been a very successful project. To date, some 1,700 homes, government facilities and commercial establishments have been connected to the sewer system. Unfortunately, funding for the program is no longer being made available.

To alleviate the improper disposal of human waste in the rural areas, in fiscal year 1991 and fiscal year 1992, the U.S. Environmental Protection Agency again provided funds to implement a Rural Sanitation Program CRSP). As a result of the fiscal year 1991 program, practically every household in Kayangel, Peleliu, Angaur, Hatohobei and Sonsorol was provided with a better designed latrine. The fiscal year 1992 program provided Airai residents with 125 septic tank/leaching field systems with 80 more systems installed during Phase 8 of the RSP. Practically all the households in Airai provided with septic tank/leaching field systems have installed western-style plumbing.

Solid Waste Disposal

The primary public dump site for solid waste for Koror and Airai states is on the access to M-Dock on the island of Koror. The site has reached its capacity, and the Government of Palau is contemplating expanding the landfill onto existing mangrove area. The existing landfill has encroached into the inner harbor waters. Pollution in the harbor is inevitable due to deterioration of organic matter and hazardous waste in the landfill. Minimal amounts of cover material become available only when excess earth material is excavated from construction sites elsewhere and brought to the public dump to be disposed.

The Bureau of Public Works is responsible for operations and maintenance of the public dump, while Koror State Government is responsible for collection of solid waste from individual households within Koror State. Household waste collection in Koror is often unscheduled, resulting uncollected rubbish from households throughout the neighborhood. Currently, there is no fee charge for this service, although a local ordinance requires property owners to maintain their properties clear of rubbish. The landfill operations at the public dump do not meet accepted criteria for placement of waste, compaction, cover, drainage control and proper security fencing. A consultant has been recently hired to make a feasibility study for closing the public dump at M-Dock and opening a new public dump somewhere in Babeldaob Island.

Power Generation and Distribution

Palau Public law No. 4-13 which was signed into law on February 16, 1994 and became effective on March 9, 1994, created the Palau Public Utility Corporation (PUC). PUC took over from the Bureau of Public Works, Ministry of Resources and Development, the operations and management of the Government owned electric power system.

There are two electric power generation sources, namely the Aimeiiik and Malakal power plants. The Aimeliik power plant has a rated (name plate)capacity of 12.8 mw from four 3.2 Crossly/Bush generator sets manufactured in England. Installation of a fifth set remains to be completed (engine foundation; alternator; exhaust, cooling, fuel, air, switch gear and electrical control systems are already in place, except the engine).

The Malakal power plant has currently in operation a complement of one 2,500 kw ALCO, two 1,250 kw ALCO and one 1,400 kw CATERPILLAR sets with a combined rated generating capacity (name plate) of 6,400 kw. However, due to old age and poor condition of all these power generating units, Malakal power plant can only generate at best approximately 5,000 kw. Due to the fact that spare parts are most difficult to obtain and the high cost of mechanical and electrical repairs, three other generating units with a combined rated generating capacity of 3,000 kw are currently out of service. The Malakal power plant remains in poor condition and should be upgraded.

A peak load of over 1,500 kw has been reached as recently as March 1 996. With the availability of a combined capacity of the two power plants of only 12,750 kw, including standby reserved capacity, it is highly likely that Palau may be rationing electric power later in 1996. PUC is presently attempting to procure additional power generating sets (self-contained) with funding from Palau National Congress.

The third and last phase of a $12,000,000 multi-phase, multi-year grant aid assistance from the Government of Japan for upgrading the existing power system and expansion of transmission/distribution system to certain areas in Babeldaob island has recently been completed. The first phase of this project, which was completed back in February 1995, extended the 34.5 kilovolt and 13.8 kilovolt power lines originating from the Airai substation to the Malakal power plant and a 10 mva, 34.5 kv/13.8 kv stepdown substation at Malakal power plant. This installation has made it possible to operate the Aimeiiik and Malakal power plants in a synchronized manner in addition to making the system more reliable.

The second phase of the project, which was completed in November 1995, extended a 34.5 kv transmission line from the Nekken area of Aimeliik State to the Kokusai area of Ngatpang State where the voltage is stepped down through a 750 kva substation, and a 13.8 kv circuit is extended to Ngchesar and Melekeok States, thus electrifying both states on a 24-hour service basis.

Republic of Palau Infrastructure (continued)
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