Federated States of Micronesia

FACTSHEET: SUSTAINABLE PUBLIC PROCUREMENT

Introduction

This Factsheet outlines the current progress in advancing Sustainable Public Procurement (SusPP) in the Federated States of Micronesia based on a desk review. The review applies an analytical framework of six Pillars (or "building blocks") of SusPP systems.

The Framework is designed to make clear that countries do not need to follow a linear step-by-step path to build effective GPP systems. Rather it is important to examine local contexts and prioritize the Pillars with the most potential in the country. No matter where a country starts, a balanced approach to implementation calls for progress on all Pillars to some degree.

This Factsheet is organized as follows:

"Country Overview" section with executive summary, indicative maturity rating, key achievements, potential pathways forward and timeline of key events related to advancing sustainable public procurement.
"State of Play & Forward Looking Analysis" section that summarizes the research findings from the desk review for each Pillar theme.
"Key Stakeholders Driving the Agenda" explores opportunities for ADB teams to open discussions with country counterparts and add value to the work of partners.

The Factsheet is intended to be a living document to promote knowledge sharing and support training activities at ADB. It will be revised and improved as new information is uncovered and advances are made. If you have new information, please contact ychu@adb.org.

Country Overview

The public sector in the Federated States of Micronesia (FSM) plates a central role in the national economy. The government is the largest employer in the country, creating jobs for over half the working population. The provision of government services accounts for more than 40% of national GDP. The government budget is primarily funded through financial assistance from the U.S. Government through the U.S.-FSM Compact of Free Association, recently renewed in May 2023.

The Public Contracts Act 2014 requires contracts to be awarded to the “lowest responsible bidder” based on price. The Act encourages procuring entities to apply domestic preferences. The Financial Management Regulations 2021 recognize “value for money” as a core procurement principle and continues to promote domestic preferences. The Regulations set out two different procurement procedures for low vs. high value procurements. Low-value procurements are less regulated and can be awarded to higher value quotations, potentially opening the door for sustainable procurements. For high value procurements, the main award criteria remains price. However, an alternate procurement procedure “procurement proposals” offers a more flexible approach that allows award to the “most advantageous” proposal that can consider factors beyond price. However, neither the Act or Regulations specifically recognize or promote the use of environmental sustainability criteria.

Sustainable procurement can help overcome the challenges faced by the FSM Government due to its geographic isolation by reducing its import dependency and building a more resilient local supply chain. International donor-funded projects are underway to pilot the installation of energy efficient air conditioning, lighting and water heating in government buildings. Infrastructure development will be important for the country to withstand the increasing impacts of climate change on this small island developing state. ADB is active in the country with projects to promote private sector development and renewable generation, in projects that can be expanded to integrate sustainable procurement practices.

>> Visual snapshot of Sustainable Procurement Maturity Level

Maturity Level:

Very Early Stage

Official Procurement Portal:

https://dofa.gov.fm/budget-economic-management/

Key Achievements

Installation of 19 hybrid solar air conditions in six government buildings in Pohnpei with international donor financing
4th country globally and 1st Pacific Island country to develop and endorse a national Green Climate Fund Program with a green growth vision

Ongoing work

Ongoing project to install further energy-efficient air conditioning, lighting and water heating systems in government buildings (UNDP project)
Development of policies and institutional framework to promote energy efficiency in building codes and guidelines
Creation of a directory of technology suppliers with energy efficiency solutions underway

Potential pathways forward

Procurement law reform to recognize value for money and explicitly promote sustainable procurement
Identify state actors (national, state or specific agencies) interested in conducting pilot sustainable procurements
Expand the “Whole-of-Life” Costs concept in the Infrastructure Development Plan 2016-2025 to include broader environmental costs
Conduct sustainable procurements for catering from local suppliers with sustainable aquaculture or agricultural practices, especially coconut products
Private sector development to improve capacity to respond to government tenders and deliver environmentally-friendly goods and services.

>> Timeline of Implementation of Sustainable Procurement Activities

2004

2012

2014

2016

2018

2021

2022

Timeline Vector with Three Connected Circular Touchpoints

Energy Policy and Action Plans sets a target of 50% improvement in energy efficiency by 2020

Financial Management Regulations 2021 recognizes “value for money” for procurements

Micronesia Public Sector Buildings Energy Efficiency (MPSBEE) project launched

Becomes signatory to the Global Methane Pledge

Strategic Development Plan 2004-2023 prioritises domestic businesses and products

19 hybrid solar air conditioners installed in six public buildings (SPC Project)

Updated Nationally Determined Contribution sets out climate and environmental targets

Strategic Climate-Oriented Road Enhancements (SCORE) Project launched

Public Contracts Act 2014 sets award criteria to “lowest responsible bidder” and encourages domestic preferences

Infrastructure Development Plan 2016 - 2025 encourages “whole-of-life” approach

National Gender Policy contains commitment to equal opportunity for all

State of Play & Forward Looking Analysis

of SusPP in Public Procurement System

Pillar 1: Government Vision & Awareness of SusPP

Governments that establish a clear policy vision on SusPP can accelerate the shift from procurement as an adminstrative to strategic function, making clear how SusPP can deliver on important national social and environmental goals.

No specific policy or action plan has been developed to promote sustainable public procurement.

The Constitution of the Federated States of Micronesia states that “We affirm our common wish to live together in peace and harmony, to preserve the heritage of the past, and to protect the promise of the future. To become the proud guardian of our own islands, now and forever”. As such, the concept of “sustainability” is embedded as an integral part of the Micronesian culture.

The country’s Strategic Development Plan (SDP) 2004-2023 set out a Strategic Goal to “mainstream environmental considerations, including climate change, in national policy and planning as well as in all economic development activities (SDP, section 7.2.1). The FSM developed a “green growth development pathway” through a year-long stakeholder consultation process that resulted in the “FSM-Green Climate Fund (GCF) Strategic Framework. The Framework transforms the SDP’s “sustained growth” approach and to a “sustainable growth” approach where economic-centred growth is balanced with social inclusivity and environmental sustainability (Updated Nationally Determined Contribution, p. 9). FSM was “the fourth country globally and the first country in the Pacific to have developed and endorsed a national Green Climate Fund Country Program”.

Private Sector Development

The SDP calls for giving priority to Micronesian products, Micronesian owned businesses and Micronesian labor in government procurement and public contracting, especially in maintenance and infrastructure development projects.

Climate Change

FSM submitted its first Intended Nationally Determined Contribution (NDC) in 2015 with a target to reduce emissions by 35% by 2025, focusing mainly on electricity generation and transport. In 2022, FSM submitted an Updated NDC that outlines a comprehensive policy vision to drive climate mitigation and adaptation actions across several key sectors. While sustainable procurement is not specifically mentioned, the NDC sets several goals that sustainable procurements can be designed to contribute towards, including:

By 2030, increase electricity generation from renewable energy to more than 70% of total generation
By 2030, reduce carbon dioxide emissions from electricity generation by more than 65% below 2000 levels
By 2030, reduce black carbon and methane emissions related to diesel electric generation by more than 65% below 2000 levels
By 2030, improve market access for farmers by facilitating development of commercial agreements with local purchasers
By 2030, increase annual production of coconuts and coconut-based products to improve resilience of the food system to climate change impacts
By 2023, achieve full tuna fishery transparency, through electronic monitoring of all FSM-flagged longline fishing vessels

Energy Efficiency

Improving energy efficiency is a national priority, The FSM National and State Energy Policy set a target of 50% improvement in energy efficiency by 2020. Doing so is expected to generate both financial and environmental benefits. The country is dependent on costly petroleum fuel imports for electricity generation and transportation, spending USD 30-40 million or approximately 10-15% of national GDP (NDC 2022). The combustion of these fuels contributes nearly 80% of the FSM’s total carbon emissions. However, the 2020 target was not met.

In 2021, the Federated States of Micronesia Public Sector Building Efficiency Project was launched with a goal to achieve the nation’s 50% improvement in energy efficiency within three years by October 2024. The Project focuses first on government buildings since the largest source of electricity use in the FSM is for air conditioning mainly in government buildings followed by lighting and hot water supply. Recommendations for policies and guidance on energy conservation and energy efficiency are expected for release by 2024 latest.

Renewable Energy

The updated NDC (p. 12) sets a target for 80% reduction in the use of diesel for electricity generation over the next two decades. This will be achieved by meeting its target to increase electricity generation from renewable energy to more than 70% of total generation. The shift to renewables is considered of primary importance to make the island nation more climate resilient in the face of fuel price volatility and supply chain disruptions.

HFCs and Methane

The FSM has a long-standing history of commitment to reducing short-lived climate pollutants, including HFCs used in air conditioning and refrigeration units. In 2009, the FSM was the first country to formally propose an international initiative to tackle the issue. That same year together with

Mauritius, it proposed an amendment to the Montreal Protocol to phase down the production and consumption of HFCs. The country is a signatory to the Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants and Kigali Amendment to the Montreal Protocol. It signed the Global Methane Pledge in October 2021 and is conducting a national methane inventory.

Gender & Vulnerable Groups

The FSM adopted a National Gender Policy (NGP) in 2018, signalling its commitment to support equal opportunity for all people. It has ratified the Pacific Leaders Gender Equality Declaration and the Convention on the Rights of Persons with Disability. The fourth goal of the NGP is to “address barriers facing women in the workforce”. In the energy sector, the FSM has set a goal to increase the number of women in senior positions in climate projects.

Food security

Shifting to sustainable agriculture and aquaculture practices is of key importance in the country. A GCF project has been launched, “Climate resilient food security for farming households across the Federated States of Micronesia,” to strengthen climate-resilient value chains and market linkages across the agricultural sector. In particular, the country’s Coconut National Export Strategy (CocoNES) aims to connect local coconut farmers to broader national and international markets, and create added-value jobs within FSM linked to production of coconut-based products. Coconut oil and agricultural waste by-products are potential feedstocks for biofuels, so advancements in this sector can contribute to achieving the FSM’s climate goals.

Water

The FSM launched a project, Access to Water through Renewable Energy Project (AW-REP) that aims to make all water solutions carbon neutral or negative and powered by 100% renewable energy.

Transportation

The FSM is exploring the feasibility of using battery-powered land, sea and air transportation powered by renewable energy. A comprehensive Transport Action Plan is planned for development, which aims to kickstart the transition to electric-powered transport in the next 5-10 years across the country. The FSM Strategic Climate-Oriented Road Enhancements (SCORE) Project was launched in August 2022 with financing from the World Bank as part of the President’s Pave the Nation Program. The SCORE Project aims to address the issue of discarded vehicles and improve the quality of road construction works, focusing first on twelve (12) miles of secondary roads across the FSM.

Infrastructure

The FSM’s Infrastructure Development Plan 2016 - 2025 sets as an objective: To promote the sustainable social and economic development of FSM through the provision and utilization of cost-effective, safe, reliable and sustainable infrastructure. Section 1.4 Environmental and Climate offers additional detail on actions needed to achieve this vision. In particular, the Plan focuses on the opportunity to build modern and efficient facilities for Government Administrative Buildings (Section 2.3.10) that considers “Whole of Life Costs” (Section 6.1).

Pillar 2: Legal & Regulatory Framework

Procurement law reform can be key to clear obstacles to implementation by establishing "value for money", not "lowest price", as a core procurement objective, and authorizing procurement approaches suited to SusPP.

Public Procurement

Public procurement in Kiribati is regulated by the Public Contracts Act 2014. All contracts are to be awarded to the “lowest responsible bidder” (Article 413) based on price. The Financial Management Regulations 2021 recognize “value for money” as a basic procurement principle in the country and set out different procurement rules for low and high value procurements (contracts for construction projects >$50,000 and purchase of personal property >$100,000). For low value procurements, contracting officers can request quotes directly from suppliers while for high value procurements, formal advertising is normally required.

Sustainable Procurement - low value procurements

The 2021 Regulations prioritise efficiency for low value procurements, allowing flexible procurement approaches aimed at procuring from “on-island” suppliers. All purchases are guided by the principle of value for money, defined as the best possible price relative to the product/service specifications (Article 5.2.7). Value for money is obtained by obtaining three competitive quotations, except for very low value procurements that require only one quotation. Contracting officers are allowed to select a higher value quotation by providing a justification. This clause could be leveraged to integrate sustainability criteria, however the Regulations do not specify this.

The Secretary of Finance and Administration, through the Supply Unit, can encourage sharing of existing supplies and personal property across Government Agencies, thus avoiding the need for new purchases (Article 5.2.2.9c). The Supply Unit can also organise centralized procurements to consolidate purchases of common supplies needed by several Government Agencies, in an effort to streamline the procurement process and negotiate a discounted rate. Such centralized procurement methods can be useful to motivate the market to provide sustainable products at cost-effective prices.

Sustainable Procurement - high value procurements

For high value procurements, open bidding is the default procurement method. The criteria for contract award is lowest price including any freight and clearance costs. No allowance is made to consider other non-price criteria.

However, the 2021 Regulations specify an alternative procurement method, “procurement by competitive proposals” that may be used when conditions are not appropriate for the use of sealed bids in open bidding (Article 6.1.10b). Under this method, procuring entities can solicit proposals directly from at least two bidders without formal advertising. Contracts are awarded to the “proposal most advantageous to the program, with price and other factors considered (as determined by the Contracting Officer).” This latter procurement method appears to allow the use of non-price criteria that could potentially be extended to environmental and social criteria. In addition, Article 419 creates an exemption for civil works projects linked to the country’s Infrastructure Development Plan, allowing the President to establish separate procurement procedures aligned with international standards and that protect resident workers and the public interest. This exception offers another potential entry point for sustainable procurement practices in high value procurements.

Domestic Preference

Domestic preference is allowed for high value procurements under Articles 404-405 of the 2014 Act and Articles 6.2.10-6.2.11 of the 2021 Regulations. “Citizen-bidders” receive a price reduction varying from 5-15%, specifically 15% for small contracts (<$500,000), 10% for mid-sized contracts (<%1.5 million) and 5% for large contracts (<10 million). No domestic preference is allowed for very small contracts (construction projects involving at least $50,000 and purchases of personal property of at least $100,000) nor for very large contracts worth more than $10 million. To qualify for the domestic preference in construction projects, citizen bidders must commit that at least 25% of its workers are citizens of the Trust Territory of the Pacific Islands and that at least 25% of all materials and supplies utilised in the construction project are purchased from within the Federated states of Micronesia.

Pillar 3: Institutions & Capacity

Implementing SusPP requires assigning clear roles and responsibilities to agencies across government and actors across society, equipping them with the strategic knowledge and technical skills needed for success.

The Budget and Economic Management Unit of the Department of Finance and Administration is responsible for execution of the budget process for the national government. However, no specific responsibility for promoting sustainable public procurement has been assigned to any FSM agency to date.

Other key institutions with responsibilities may contribute to sustainable procurement include:

Department of Resources and Development, responsible for encouraging economic growth in Pohnpei, including private sector development and energy transition
Department of Environment, Climate Change and Emergency Management

No specific government agencies were identified with responsibility for standard-setting (e.g. ecolabels, certifications) or building codes. No interministerial bodies or fora were found that address sustainability issues. Under the Federated States of Micronesia Public Sector Building Efficiency Project, work is underway to adopt an institutional framework for the enhancement of energy conservation and efficiency policies and programs in public sector buildings.

Four state governments exist - Chuuk, Kosrae, Pohnpei and Yap - each with their own constitutions, local customs and traditions. Given the decentralised governance structure in Micronesia, sustainable procurement could be piloted with specific state governments or agencies to start, expanding to other agencies with time.

Regional partnerships and organisations are important to advance climate action in the FSM, including partners like the Pacific Regional NDC Hub and The Pacific Community. The FSM participates in activities organised by the Guam Green Growth Initiative, a Pacific Island initiative to develop tangible solutions to sustainability challenges and contribute to a green economy for the island region.

No specific procurement training or professionalisation programs were identified in this research.

Pillar 4: Market Practices

Market dialogue throughout the procurement process helps procuring entities to choose realistic sustainability criteria and ensure suppliers succeed in delivering on sustainability commitments over the contract duration.

The Procurement Act and Regulations clearly promote the use of domestic preferences in government procurement to engage local suppliers. However, little data is available on the participation of domestic suppliers in the FSM in government contracts as well as their readiness to respond to sustainability criteria.

The FSM Association of the Chamber of Commerce is a member of the Pacific Islands Private Sector Organization *(PIPSO), the premier private sector representative body in the Pacific Islands region. PIPSO works with national bodies like the FSM Chamber of Commerce on private sector development that is inclusive of small and medium enterprises (SMEs) and women in business. The Pacific Business Resilience Network (PBRN) is a multi-stakeholder initiative across the Pacific Islands that aims to engage the private sector in the delivery of climate and disaster resilience commitments including the Paris Agreement. The Network aims to connect businesses to the government to match needs before, during and after emergencies.

Energy efficiency upgrades and installation of renewable energy systems, especially solar, are high priorities in the FSM. A directory of technology suppliers with energy efficiency solutions is being developed under the

Federated States of Micronesia Public Sector Building Efficiency Project. The directory will include the profiles of the technology developers and suppliers including their contact details, as well as the technical specifications and prices of the required hardware and software for each technology application. It will be managed by the Department of Resources and Development.

Several market sectors have good potential for engaging domestic suppliers, and promoting sustainable practices. The two main sectors of the FSM economy are fisheries and agriculture with almost half of employed persons working as subsistence fishers or farmers. Tourism and manufacturing of goods are the next biggest sectors. The public sector employs over 45% of all workers in the FSM (NDC p. 8). Agriculture, fisheries, and tourism are considered the most promising sectors for future economic growth.

Pillar 5: Procurement Operations

Various tools and procurement approaches can be employed to help procurers more easily identify environmentally friendly goods and services and attract a competitive market response.

No specific tools or criteria to support sustainable procurements were identified. Under the Federated States of Micronesia Public Sector Building Efficiency Project, energy efficiency guidelines are being developed with specifications for the design, construction, retrofit and operation of new and existing public sector buildings. Currently, new buildings constructed with donor financing are normally built to the specification of the applicable bilateral or multilateral donor.

In 2022, 19 hybrid solar air conditioners were procured and installed in six public buildings in Pohnpei installed with the support of the Pacific Community (SPC). The air conditioners are environmentally friendly, battery-free and controlled through a smart system to optimise energy consumption. The Federated States of Micronesia Public Sector Building Efficiency Project plans to expand on this pilot project by expanding energy efficient procurements in government buildings for ventilation, cooling, lighting and hot water supply.

A key challenge is to overcome the culture of taking a build-operate-replace approach to facilities and equipment in the FSM, and shift towards a culture of maintenance. The FSM’s Infrastructure Development Plan 2016 - 2025 emphasises a shift to contemporary “whole-of-life” asset management that minimises the life-cycle cost of infrastructure assets (Part 6). For now, this concept encourages consideration of repair and maintenance costs over the facility lifetime. In the future, this may be expanded to consider other factors such as energy efficiency and end of life disposal costs.

Pillar 6: Monitoring & Impact Measurement

Monitoring systems are essential to gather the information needed to keep SusPP implementation on course and communicate on the benefits achieved for the country.

No information was found on monitoring requirements or systems on government spending.

However, within the framework recognizes that monitoring is a critical component of building the business case for more energy efficient practices. The installation of 19 hybrid solar air conditions in Pohnpei (in the project supported by the SPC), is estimated to save approximately 29,000 kg CO2 annually and USD 24,000 annually - with a payback period of 3.5 years.

Comprehensive monitoring is planned for the Federated States of Micronesia Public Sector Building Efficiency Project, including the development of a web-based tool to enable online reporting of energy supply, demand and consumption in public sector buildings in the country. Based on the collected data, annual reports will be issued.

Key Stakeholders Driving the Sustainable Procurement Agenda

Resources

Projects Supported by ADB

Other Initiatives supported by National/International Agencies

ADB’s programming in the country seeks to reduce costs by increasing the supply of renewable energy; manage risks by improving disaster risk financing and public financial management; and create value by delivering safe water and sanitation services, strengthening human capacity, and supporting private sector development.

ADB’s Pacific Approach, 2021–2025, serves as the country partnership strategy for the FSM, and focuses on building resilience against economic shocks, delivering sustainable services, and promoting inclusive and sustainable growth. It introduces new priorities such as a more programmatic approach to climate change solutions; longer-term capacity support, including posting of international experts on a long-term basis; greater flexibility in procurement and contracting; and a greater emphasis on gender equality. Recognizing the need for capacity support to complement physical infrastructure, ADB is helping improve utility and public sector performance alongside infrastructure works.

The ADB is financing investment in renewable energy generation facilities in the FSM states of Kosrae and Yap bolstering energy security and reducing reliance on fossil fuels for power generation in these states.

Pacific Community with EU financing, Renewable Energy and Energy Efficiency in the Federated States of Micronesia project (November 2019-March 2024, €11.6 million). This project aims to improve access to affordable, reliant, and environmentally sound energy services into the future. This includes boosting private sector partnerships and investment to drive longer-term solutions for energy supply into the future.

UNDP with GEF Financing “Federated States of Micronesia Public Sector Building Efficiency Project, October 2020-October 2023, $1,766,484. Implemented with the FSM Dept. Of Resources and DevThe MPSBEE project will improve the application of energy conserving and energy efficient (EC&EE) techniques and practices in the design, retrofit, and ongoing operation and maintenance (O&M) of public sector buildings in FSM.

European Union - The ongoing EU- ACSE project administered by SPC also involve the promotion and application of EE appliance and equipment in buildings in the national capital complex in Pohnpei. Included in this project is the conduct of energy audits and EE upgrades for some schools.

European Union - Access to Water through Renewable Energy Project (AW-REP) that aims to make all water solutions carbon neutral or negative and powered by 100% renewable energy. The project also contains a component to develop comprehensive national Transport Master Plan and State Action Plans. The Plans aim to kickstart the transition to electric-powered transport across the Federation within the next 5-10 years.