Pacific fuel crisis cost region nearly $1 billion in six months, NZ briefings reveal

Officials say the fuel crisis triggered in late February due to the war between Iran and the United States has cost the Pacific region nearly a billion dollars in its first six months.

Briefings to New Zealand Foreign Minister Winston Peters ahead of the Pacific Islands Forum (PIF) leaders' summit in Palau in September, released under the Official Information Act, advised that additional fuel costs from the start of the crisis to the end of July amounted to NZ$935 million.

"Even if supply returns to a normal level in the short-term, the economic and social cost of the crisis will be significant," the briefings read.

"There is no obvious single regional solution to the fuel crisis."

It further noted that, up to that point, responses by governments had often been "too broad, and poorly targeted".

"The only option that would benefit all members is to reduce demand for imported fuels through increased renewable generation and improved energy efficiency measures.

"New Zealand has worked closely with Australia, World Bank and Asian Development Bank (ADB) to provide initial crisis support. Discussions are now moving towards medium-term support to reduce reliance on imported fuels."

Fuel price caps in the South Pacific have, based on monthly changes, risen sharply before plateauing at an unsustainably high rate. On average across each country, it is running at a five-month high.

Prices in Viti Levu (Fiji's main island), Samoa and Rarotonga (Cook Islands) have risen to levels not reached since June, and prices in Tongatapu (Tonga) are higher now than ever before.

Papua New Guinea, having removed a government subsidy, is at its highest diesel price since April. Solomon Islands has maintained price levels at NZ$0.80 cents higher than at the beginning of the year, while Vanuatu increased its cap in October after a drop in September.

Nauru and Niue, benefiting from small populations and surface areas, have maintained their June prices. Tuvalu and Kiribati lack publicly available price data.

The crisis prompted PIF member countries to invoke the Biketawa Declaration - reserved for region-wide emergencies - in May.

ADB still doling out cash

Last month, the ADB made direct payments to Tonga, Tuvalu and Kiribati in budgetary support, out of an emergency grant fund that it had thus far never used.

ADB's regional boss Emma Veve told RNZ Pacific the funding bypassed typical approval checks.

"They can use the funding once it's released to allow for retroactive financing of things," she said.

"It can be used to pay future bills as they come in. We can make payments on those, or already-paid bills that qualify - we can refund the value of those to the governments."

Veve said it was clear that these countries had the greatest need, given their remoteness and openness to shocks.

"Tonga is certainly feeling the impacts of the high prices. They've trying to run diesel generators in large parts, including in some of their outer islands, and looking at increased fuel prices for aviation fuel as well."

"What's different about this is the extended period of the shock, and so that requires some careful planning."

The ADB has promised to "change [its] approach" when it comes to Pacific funding, saying it ought to be geared towards long-term outcomes.

"Sometimes the way we work, our products, our rules around how we provide support, need to be adjusted to meet the needs of the Pacific countries," Veve said.

"There also needs to be greater support in areas like capacity building, where we're dealing with very small populations, very small governments who still need to do all the things governments in much larger countries do, but with far [fewer] people."

Fiji 'central' to supporting Pacific economies

Fiji sources fuel from Singapore, South Korea and Malaysia, which it re-exports to Tonga, Tuvalu, the Cook Islands and parts of the French Pacific. Samoa receives fuel directly from Singapore, which it re-exports to Tokelau.

It means that Fiji has cemented its place as a fuel hub, and as a result, has seen most of the multilateral cash.

ADB loans to Fiji run at around US$200m, on top of large sums from Australia and New Zealand. It was identified by officials as early as April that this could pose a risk should it decide to restrict re-exports, "should Fiji become constrained in meeting its domestic demand."

"Fiji has continued to play that role through the crisis," Veve said.

"I think Pacific regionalism has worked well for it during this crisis, in that the countries have regularly come together in different forums ... to keep supporting each other, as Fiji is certainly doing."

The country's monthly trade statistics paint a staggering picture of the impact on its re-export dependants. In June, total re-exports rose 105 percent year on year for Tonga, and 4107 percent for the Cook Islands.

The month prior, they rose 529 percent for Tuvalu, and 400 percent for Wallis and Futuna.

Asked whether Fiji was profiting off from this at all, Veve said it was unlikely.

"My understanding is that the supply chain is moving over time as fuel becomes available from different sources. So it may well just be that the chain is coming through Fiji more frequently than directly from Singapore.

"The opportunities to actually charge for that are relatively limited; they're not taxing the the fuel as it comes through."