Background Timor-Leste has a small and fragmented power system. A 19MW diesel power plant in Dili serves 26,500 Dili customers. District and sub-district capitals are served by some 60 isolated small power sub-systems mainly administered by communities and with a total generation capacity (mainly using diesel) of about 16 MW. The Dili power system is not linked to smaller sub-systems in district capitals and rural areas. Large consumers have captive diesel generation of another 10 MW. Since 1999, rehabilitation has been the priority for the power sector. Timor-Leste’s power systems were owned and operated by Indonesia’s national power corporation, PLN, before 1999. The area that is Timor-Leste today had one of the lowest electrification rates among Indonesian provinces and power was highly subsidized. During the country’s birth, much of the power system, especially outside Dili, was severely damaged. Most of PLN technical staff and management departed. By the time Electricidade de Timor-Leste (EDTL) gained the right to charge Dili consumers for electricity (August 2001), a culture of non-payment had developed. In addition to significant rehabilitation supported by donors since 1999, the Government has made progress by: Enacting basic power sector legislation; Developing a Power Sector Development Plan (PSDP) covering a 20-year period; Identifying priority investments for the short and medium term; Employing a management contractor to operate EDTL with a focus on training; Improving electricity bill collections through the politically savvy installation of 24,000 pre-payment meters among EDTL’s Dili customers; Re-establishing 24 hour power supply in Dili.
Key Sector Issues and Government Strategy  The biggest challenge is low human capacity and lack of institutional structure. The major concerns are the limited capability (a) of the Government to regulate and supervise the development and operation of power sector, and to develop the associated institutions; (b) of EDTL to operate the main power system on a commercial basis; and (c) of communities to operate small community-based power systems. 34 out of 39 new generators installed in sub-district capitals are no longer functioning because there is no capacity for maintenance and for funding the replenishment of diesel stock.
Only 32 percent of households have access to electricity and over 90 percent of the population uses firewood for cooking. The household electrification rate in Dili is estimated at about 85 percent while in the district capitals and rural areas, it is only 18 percent and 5 percent, respectively. Most of the households use firewood for cooking and extensive use of firewood is considered a thread to Timor-Leste’s wooded areas. The high cost and low quality of electricity is retarding economic activity. Nearly all of Timor-Leste’s electricity is generated by imported diesel fuel causing Timorese businesses and households to pay among the highest electricity prices in Asia (18 to 20 cents per kilowatt-hour). The quality of electricity is uneven, particularly outside Dili where supply is typically restricted to six hours a day, if there is access at all. The power sector is currently not viable without Government budget support. Diesel imports are a grave fiscal burden (over US$ 10 million annually) and a very regressive subsidy. The engagement of a professional management contractor for EDTL in FY04 has made significant progress against the four-year culture of non-payment. Collections rose dramatically from US$ 3.4 million in FY03-04 to US$ 6.05 million in FY04-05. The Government has created a new Ministry of Natural Resources, Minerals and Energy Policy. The Government’s strategy to develop the power sector has four goals: Establishment of a sound administrative, legal, and regulatory framework; Electricity access to the vast majority of the population; Replacement of imported diesel fuel with domestic sources of energy; Cost recovery from consumers (though some may require targeted subsidies).
World Bank Program We are a latecomer to the power sector. Our support strategy is directly aligned with the Government’s. Institutional and capacity building cut across all World Bank activities: The Power Sector Priority Investments Project (FY05) is helping reduce the use of imported diesel fuel by installing a new generator in Dili, rehabilitating Dili’s distribution system, and distributing free energy efficient lamps to consumers.
 Two ongoing studies are developing recommendations for (i) sector structure, private participation and regulation, and (ii) for electrification of rural areas.
 The Gas Seep Harvesting project (FY06) will demonstrate the power generation potential and environmental benefits of harvesting the more than 30 gas seeps along Timor-Leste’s southern coast. The project will demonstrate harvesting of the Aliambata seep with GEF support, prepare other sites, and market associated carbon credits (pending Timor-Leste’s ratification of the United Nations Framework Convention on Climate Change - UNFCCC).
 The Energy Services Delivery project (FY07) will advance the Government’s strategy by (i) improving the operational performance and financial viability of EDTL through further commercialization and rehabilitation, and (ii) expanding sustainable electricity supply in district capitals and rural communities. The project will harness the use of gas seeps and renewable sources for energy production thus realizing real environmental benefits. It will also explore ways of interventions for sustainable woodfuel use and alternative fuels for cooking.
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