August 7, 2007

U.S. Department of the Interior Office of Insular Affairs

Remarks of David B. Cohen,
Deputy Assistant Secretary of the Interior for Insular Affairs
before the Annual Meeting of the Pacific Power Association
Majuro, Republic of the Marshall Islands

August 7, 2007

Yokwe, ladies and gentlemen.  It's an honor to be invited to speak at this year's meeting of the Pacific Power Association.  Thank you for inviting me to be here with you today.  It's great to be back here in Majuro.  We were here about eight weeks ago with Secretary of the Interior Dirk Kempthorne, and we very much appreciate President Note, the Marshall Islands government and the people of the Marshall Islands for having provided us with a very productive and educational visit.

I believe that most of you are familiar with the U.S. Department of the Interior's role in the Pacific and with our other island communities.  For those of you who don't know, the Secretary of the Interior generally administers the U.S. Government's relationship with its territories, specifically Guam, American Samoa, the U.S. Virgin Islands and the Commonwealth of the Northern Mariana Islands.  He also administers the financial assistance we provide to the nations in free association with the U.S., namely the Marshall Islands, the Federated States of Micronesia and Palau, under the Compacts of Free Association.  Those duties are delegated to me and the office that I run, the Office of Insular Affairs.  OIA has an annual budget of $430 million, most of which is provided to the Pacific in the form of grants.  Much of those grants go to support infrastructure projects, including power.

Secretary Kempthorne had quite a trip throughout the Pacific.  We stopped in Midway, Saipan, Guam, Palau, Pohnpei, Kwajalein, Ebeye, Majuro and American Samoa.  We listened to the concerns of local leaders everywhere we went, and everywhere we went, the high cost of energy was near the top of the agenda.

With some analysts predicting that the price of oil may reach $100 per barrel in the not-to-distant future, energy costs are a worldwide concern.  I can't think of anywhere, however, where the impact of energy prices is greater than it is in the islands.  Because the islands depend on the ability to have relatively small quantities of fuel transported great distances, it is almost impossible for the islands to purchase fuel on favorable terms.  This is compounded by the fact that the generating equipment that the fuel is used for is, in the islands, typically out of date and inefficient.  The islands therefore have to pay more for fuel and have to buy more of it to produce a given amount of electricity than is the case, say, in almost every stateside community.  That is why some island utilities have to charge more than 30 cents per kilowatt hour.  The cost of electricity in the islands is a significant competitive disadvantage when it comes to trying to attract and retain business investment, which makes it even harder for the islands to develop the economies of scale necessary to avoid astronomically high energy costs.  The economies of most of our island communities are depressed as it is, and the economics of energy are a massive burden that weighs them down as they try to improve their standards of living and quality of life.

None of this is news to anyone here.  Many of you have already had to face your governor, your president, and your legislature and explain why you had to double—or more—power rates to customers.  And why that would just barely allow you to buy enough fuel to keep your generators turning—and not enable you to buy the new equipment you desperately need, or perform the preventative maintenance and conduct the training that Tony is always harassing you about.  Rising energy prices have sparked public protests in some island communities.

Throughout the world, people are talking about the need to reduce dependence on oil.  Nowhere is this a greater imperative than in the Pacific.  There are, of course, both environmental and economic reasons for the need to reduce dependence on oil.  If oil and other carbon-based fuels indeed contribute to global warming, then the low-lying islands of the Pacific will be the first casualties of the world's failure to reduce its collective carbon footprint.  It is fitting that we are holding this conference in Majuro, a place that some scientists have predicted could one day be underwater.  We all hope and pray that those predictions will not come true, but the people who live here have no choice but to take them seriously.  I've been to Majuro many times, but never cease to be amazed at the view of this atoll from the airplane as you fly in.  Majuro, and the other low-lying atolls of the Marshall Islands, are such thin, fragile necklaces of land in the middle of a world's largest ocean.  From the airplane, you wonder how people can live on what looks like such an isolated, precarious sliver of land.  That feeling is in no way abated as you drive in from the airport.  Throughout your entire ride, the lagoon is immediately to your left and the mighty Pacific Ocean is immediately to your right.  And as many of you know, that tiny little bridge that you cross on the way in from the airport—the one that rises maybe about seven feet off the ground—when you're at the top of that bridge, you're at the highest point in Majuro.

That is why island communities have to lead the way to a future of alternative energy.  In addition to the environmental concern, there is, as I noted earlier, a compelling economic incentive for the islands to reduce their dependence on oil.

It would be a great boon for the islands if they could produce energy from the elements that they have in abundance—sun, water, wind…and even coconuts.  For many years, we've heard talk about the ability to Ocean Thermal Energy Conversion, or OTEC, technology to produce electricity and fresh water for many island communities.  We should all be following with great interest the projects that are moving forward in Diego Garcia and right here in the Marshall Islands, in Kwajalein.  If it can work there, it can hopefully work in other island communities where the ocean depth grows steeply from the shore.  Solar power and wind power have been in commercial operation for a longer period of time, and we need to aggressively find ways to harness these technologies in ways that make economical and technological sense for small island communities. 

I've heard of other possibilities as well.  Some have suggested, for example, that the geothermal resource in places like the Northern Mariana Islands can be harnessed for cost-effective energy production.   I've also read promising literature on wave energy technology, although the feasibility of this technology for many of the tropical island communities represented here has not yet been established.

We need to find out which alternative energy solutions are right for the islands.  Some of these technologies may not work in the islands or may not work period, but they should be thoroughly explored. 

The economic advantage of all of these renewable energy technologies is that their operating costs are not affected by the price of oil.  The economic disadvantage is that they tend to have higher capital costs than more conventional technologies.  These higher capital costs can be made up over a lifecycle of lower operating costs, but the challenge then is to amass the capital needed to build these renewal energy facilities in the first place.  This strains a resource that is even scarcer in the islands than oil:  cash.

I have to believe, however, that where there's a will, there's a way.  For one thing, multilateral institutions have shown a willingness to provide financial support for alternative energy projects in the region.  These initiatives are promising, and perhaps those of us in the donor community could do a better job of coordinating our efforts to help the islands fund alternative energy projects.  We also have to find ways to involve the private sector and private investors.  Many of you may not know this, but I haven't always been a government bureaucrat.  Until five years ago, I actually had to work for a living and be a contributing member of society.  I was an attorney—OK, I realize that it may be a stretch to call an attorney a "contributing member of society."  But when I was a private sector attorney my main specialty was project finance, primarily financing energy projects through bank loans, other private investment, bonds and public-private partnerships.  I believe that there is an opportunity to finance alternative energy projects in the islands through these means as well, although some projects may need some support from the donor community in order to make them financeable.  But if we rely on government and the donor community alone, we're never going to make sufficient progress.

I understand that many island communities have some degree of wariness about public-private partnerships, which in some contexts is synonymous with privatization.  Some island communities, such as the CNMI and Guam, have been willing to involve the private sector in energy functions that the islands have traditionally handled through the public sector.  Public-private partnerships can be attractive ways to access capital for energy systems and improve their management.  I have a theory about why public-private partnerships, which have been successful around the world, have traditionally been a harder sell in the islands.  It's true that collective ownership is engrained in Pacific cultures.  But also, local government employees tend to be the group that is most suspicious of public-private partnerships, because they see it as a threat to their jobs or an indictment of their performance.  I believe that the concerns of public employees can be assuaged on both counts, but these perceptions persist.  In the islands, at least in the U.S.-affiliated insular areas, local government employees tend to make up a vastly disproportionate percentage of the electorate.  That in itself, I believe, is a serious structural problem for the economies of the U.S.-affiliated insular areas, and one of the many negative effects of this structural imbalance is that it makes it politically more difficult to consider public-private partnership solutions that could benefit the community.

We should continue to explore the feasibility of larger scale power generation facilities that use alternative energy technologies.  However, there is much that can be done on a smaller, more localized scale to enable the islands to harness the benefits of alternative energy.

Many of you here are already working on establishing alternatives in photovoltaic or solar energy in your communities.  I commend these efforts, especially right here in the Marshall Islands.  This is a promising source of energy for many island communities, especially those that aren't competing to set the world's record for the most rainfall.

Another interesting development has been the use of biofuel from coconuts which can be used to fuel lamps and even diesel vehicles.  I know some vehicles in the North Pacific are already using coconut oil diesel fuel, including right here in the Marshall Islands.  I was quite pleased to learn that all of the U.S. Peace Corps vehicles driving around the island of Pohnpei are fueled by coconut oil, and leave in their wake the pleasant smell of coconut as they drive by.

The way to get these projects moving is for innovative private sector companies to see them as business opportunities in your island communities.  Once again, the Department of the Interior will provide an excellent forum for these opportunities to be explored.  Our fourth Conference on Business Opportunities in the Islands will be held on Guam on October 8 and 9.  As in past years, alternative energy and other infrastructure will be among the topics addressed.  The major headline will be the Guam military buildup, which will entail a government investment of approximately $16 billion.  That public sector investment will spur a great deal of commercial opportunity for many businesses, not just those companies that are fortunate enough to get direct contracts with the Department of Defense.  Consider that the Guam buildup will result in Guam's population increasing by 35,000-40,000 people, or over 20 percent.  Those people will need places to live, places to shop, places to eat.  They will need products and services to buy.  And they will most certainly need energy.

There are plenty of opportunities in the other island communities as well.  Almost all of the island communities are looking for ways to address their energy needs.  Some business opportunities can be supported by financial assistance from the Office of Insular Affairs, the U.S. Department of Agriculture, multilateral institutions and others to support infrastructure development, engineering, consulting, feasibility studies and other activities.  Other opportunities will be viable without public financial support.

The Conference on Business Opportunities in the Islands is one-stop shopping for opportunities in all of the U.S.-affiliated island communities.  Last year's conference in Honolulu was hosted by Secretary of the Interior Dirk Kempthorne, and was attended by President Note of the Marshall Islands, President Remengesau of Palau, then-President Urusemal of the FSM, the Governors of the territories, high-ranking U.S. government officials, officials of multilateral institutions such as the Asian Development Bank, high ranking officials from all of the island communities, potential local business partners from all of the island communities, and businesses from all over the U.S. and the world.  It's the one venue where you learn about opportunities in the islands and actually meet the government officials and potential local partners that you'll need to meet to pursue these opportunities.  I encourage all of you to attend, especially the private sector representatives that are here today.  You can register online at www.businessopportunitiesconference.com.  Space is limited, and we always fill up quickly.

I thank you all for listening to my infomercial, and to my musings on the great need in the islands to develop alternative energy.  We all know the saying that the definition of insanity is doing the same thing over and over again and expecting a different result.  Continuing to rely on the same old energy solutions will yield the same old result:  Excessively high electricity prices, arrested economic development, living standards that don't improve.  We're going to have to find a better way.  I look forward to working with all of you to help find that better way, so that all of our island communities can enjoy a strong and prosperous future.

Thank you and Kommol Tata.