Despite some positive achievements in Palau’s development, government, business, culture and community life, the changes in institutions, laws and capacity in the infrastructure sector have been inadequate to serve the national strategy of reduced government subsidies and involvement in the water supply and sanitation sector.1 Government of Palau (GOP) revenue covers about 60 percent of total recurrent expenditure, but almost none of capital works costs.2
The extremely limited GOP revenue in turn means that there is no local funding for GOP investment and little prospect of any over the medium term. So there is a need to develop alternative commercial arrangements for utilities. The general need is for governance and regulatory arrangements that will lead to improved commercial performance of public enterprises and an improved enabling environment for the private sector.
Generous Official Development Assistance has nullified or weakened market forces and market-sensitive decisions in infrastructure and other sectors. Assets to the value of approximately $300 million have been built within the last 15 years. Older assets constructed when Palau was a Trust Territory of the US and earlier when Palau was under Japanese colonial rule are estimated to have a replacement value of about $1 billion.
Assets constructed within the past 15 years are generally in good condition while older assets are generally in poor condition.