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Samoa is a Pacific island country divided into the two main islands of Upolu and Savai'i and two minor outer islands, with a total population of 188,000 people. About 70% of the population lives on Upolu, the main island and location of the capital, Apia. Around 95% of households have access to grid electricity, while the remaining 5% are connected to small diesel generators or solar systems in urban and rural areas. Samoa had a total installed grid-connected power capacity in 2012 of about 42 megawatts (MW), composed of 30 MW diesel generators, 11 MW hydropower plants, one MW biofuel power plant, and small distributed solar plants in the few kilowatt range. Samoa's electricity consumption is about 90 gigawatt-hours (GWh) per year.

Samoa is heavily reliant on imported fossil fuels. In 2012, total fuel imports amounted to about 95 million liters, or 10% of Samoa's total gross domestic product (GDP). This heavy reliance is reflected in Samoa's electricity generation matrix, in which 60.0% is generated from diesel, 38.9% hydropower, 1.0% biofuel (coconut oil), and 0.1% solar. For EPC, Samoa's sole power utility, imported fuel is by far the single largest expense item, representing 74% of total generation costs and 51% of overall costs. The new and rehabilitated hydropower capacity to be provided by the project will save about 3.6 million liters of diesel per year.

Samoa is also vulnerable to natural disasters and the potential effects of climate change. Cyclone Evan made landfall in Upolu on 13 December 2012, seriously damaging the island's power generation and distribution systems. Following the government's request for support from development partners for a post-disaster needs assessment, ADB and other organizations fielded a joint mission in January 2013. The post-disaster needs assessment, completed in March 2013, included an inventory of damage to the power distribution grid and three hydropower plants. The Recovery Framework that emerged from the assessment was approved by the cabinet of Samoa in March 2013, prioritizing rehabilitation of the hydropower plants and recognizing the need to increase resilience.

The power sector in Samoa is well governed and managed. Operating responsibilities for managing the sector are vested in EPC, a wholly government-owned corporation and the sole utility in the power sector, with the main objective of operating as a commercial business. The Electricity Act, 2010 provides the legal framework for regulating the electricity sector, including the establishment of the Office of the Electricity Regulator to set and monitor electricity tariffs. The reliance on imported fuel is reflected in EPC's high average electricity tariff, which as of June 2013 was $0.41 per kilowatt-hour (kWh) (ST0.9877/kWh). Under the regulations, EPC can pass on fuel costs directly to consumers and charge an inflation-indexed non-fuel tariff. The tariff therefore consists of a base energy rate, or non-fuel component, of $0.31/kWh; and a variable fuel surcharge component, currently $0.10/kWh. The non-fuel component covers operational costs, overhead expenses, and depreciation of equipment.

Financing for the project will be partially through ADB's Disaster Response Facility (DRF). During the 10th replenishment of the Asian Development Fund (ADF XI), ADB and ADF donors agreed to pilot test the DRF in the ADF XI period, 2013 2016. The DRF policy provides that, in the event of a natural disaster, an ADF-only country can access up to 100% of its annual performance-based allocation from the DRF to respond to disasters. The government has sought ADB's assistance in rehabilitating the hydropower plants damaged by Evan, and requested access to ADB's DRF, which is justified given the severity of the cyclone that caused damage and loss equivalent to 28% of GDP. This project will be the first for which ADB is providing assistance from the DRF.

The proposed project will support the government's efforts to reduce Samoa's reliance on imported fossil fuels for power generation by providing a secure, sustainable, and clean source of electricity. The project will construct, install, and rehabilitate SHPs with an overall capacity of 5.50 MW on Upolu and Savai'i. The proposed project will enhance EPC's O&M programs through a capacity building and knowledge transfer program to last up to 2 years after SHP commissioning. Technical designs will ensure climate and disaster resilience.

ADB has solid experience in the power sector in Samoa. In 2007, with ADB's support, the government prepared the Power Sector Expansion Project (PSEP). The PSEP is improving the quality, reliability, and cost-effectiveness of power supply by supporting EPC's investment plan to meet growing demand, improving the financial performance and operational efficiency of EPC, and establishing effective regulation of the power sector. The PSEP also developed feasibility studies for a number of SHPs, some of which are part of the proposed project.

The government's Strategy for the Development of Samoa, 2012- 2016; its Energy Sector Plan, 2013- 2016; and EPC's corporate plan, 2013 -2015 all emphasize developing indigenous and renewable energy resources as a high development priority to reduce the economy's risk exposure to foreign exchange fluctuations and fuel price increases. The project is in line with ADB's country operations business plan, 2014 -2016 for Samoa, which makes energy a priority area of support and sets a primary goal of reducing the country's dependence on imported fossil fuels by generating power from its own renewable energy sources.