EU EDF 8 – SOPAC Project Report 71b

Reducing Vulnerability of Pacific ACP States

KIRIBATI TECHNICAL SUMMARY

REPORT OF ECONOMIC ANALYSIS OF AGGREGATE
MINING ON TARAWA

March 2007
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Prepared and submitted by:

Greer Consulting Services

March 2007

PACIFIC ISLANDS APPLIED GEOSCIENCE COMMISSION

SOPAC Secretariat
Private Mail Bag, GPO, Suva
FIJI ISLANDS
http://www.sopac.org
Phone: +679 338 1377
Fax: +679 337 0040
www.sopac.org
director@sopac.org

IMPORTANT NOTICE

This report has been produced with the financial assistance of the European Community; however, the
views expressed herein do not reflect the official opinion of the European Community.

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TABLE OF CONTENTS
Page

INTRODUCTION AND OVERVIEW .....................................................................................................5

CURRENT AGGREGATE ACTIVITIES ON TARAWA .......................................................................5

Demand for aggregate on Tarawa...............................................................................................6
Supply of aggregate for Tarawa...................................................................................................6
Future supply and demand for aggregate ...................................................................................7

DATA ............................................................................................................................................8
Comparative aggregate costs ......................................................................................................8
Impacts of coastal mining on Tarawa ..........................................................................................9
Losses to Infrastructure and Property................................................................................9
Public utilities ................................................................................................................... 10
Protective works .............................................................................................................. 10
Impact on agriculture....................................................................................................... 10
Impact on public health ................................................................................................... 10

FINANCIAL AND ECONOMIC ANALYSIS....................................................................................... 11

Financial analysis ...................................................................................................................... 11
Introduction and assumptions ......................................................................................... 11
Annual dredge costs........................................................................................................ 12
Annual dredge revenue................................................................................................... 12
Commercial profitability of the KAC ................................................................................ 13
Viability of the dredge ...................................................................................................... 13
Economic analysis..................................................................................................................... 14
Results of the economic analysis.................................................................................... 14
Not quantified benefits and social costs.......................................................................... 14

RECOMMENDATIONS AND POLICY IMPLICATIONS................................................................... 15

Public interest concerns ............................................................................................................ 15
Environmental monitoring................................................................................................ 15
Cost sharing/Subsidisation.............................................................................................. 15
Governance issues.......................................................................................................... 16
Education and public awareness .................................................................................... 16
Dredge operational aspects ...................................................................................................... 16
Recommendations for further action......................................................................................... 17

CITED WORKS AND REFERENCES ............................................................................................... 18

List of Tables

Table 1: Estimated current demand for aggregate per year................................................................... 7

Table 2: Estimated future demand for aggregate per year..................................................................... 8
Table 3: Comparative costs of aggregate ............................................................................................... 8
Table 4: Summary of social and environmental impacts ..................................................................... 11
Table 5: Dredge Aggregate Extraction and Processing Costs............................................................. 13

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ABBREVIATIONS

BCA Benefit Cost Analysis

EDF European Development Fund
EIA Environmental Impact Assessment
ESA Environmentally Safe Aggregates Project
EU European Union
FSP Foundation for Peoples of the South Pacific
KAC Kiribati Aggregate Company
SOPAC Pacific Islands Applied Geoscience Commission
TSKL Telecom Services Kiribati Limited

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INTRODUCTION AND OVERVIEW

Kiribati, a small and developing country in the central Pacific is currently experiencing a construction
boom on its main atoll of Tarawa. This is a result of increasing population as people from the outer
islands move to Tarawa for work and opportunities, but also reflects increased development, supported
substantially by the international community, through numerous development and infrastructure
projects. Recent and planned development and infrastructure projects include a new sports stadium at
Betio, upgrading Betio port, upgrading roads on South Tarawa and building health infrastructure.

Construction uses gravel and rocks (‘aggregates’). The government, businesses, families and donor-
funded projects require aggregates to build homes, renovate buildings, construct seawalls and reclaim
land. The majority of the aggregates needed to supply these needs are excavated, either by hand or
using machinery, from the beaches and coastal flats around Tarawa.

Although this ‘coastal mining’ is a cheap and effective way to supply aggregates on Tarawa, there are
some problems. First, the supply of locally sourced aggregates is often insufficient to meet local
demand. The gap in aggregate demand is currently met using imports, which are expensive. Second
and critically, the Government of Kiribati is concerned that continued extraction of aggregates from the
coastal area, particularly South Tarawa where extraction is most concentrated, will subject Tarawa to
an increased risk of flooding and erosion and damage to infrastructure.

The Government already regulates coastal mining by limiting aggregate extraction to designated areas
and by operating a permit system. However, it is also keen to further reduce the risks of coastal mining.
It is therefore considering:
• removing the current ‘designated area’ management system and banning aggregate extraction
across South Tarawa; and
• establishing a commercial government body to dredge aggregate from the lagoon to meet local
demands that way instead.

This report summarises the findings of an economic analysis of the feasibility of this package of
measures. For details, see (Greer, 2007). This report discusses:

• aggregate activities on Tarawa;

• the competitiveness of using coastal sources of aggregate on Tarawa compared to lagoon or
imported supplies; and
• policy implications.

CURRENT AGGREGATE ACTIVITIES ON TARAWA

Aggregates are used on Tarawa by the government and businesses for construction, road building,
making cement building blocks, seawall protection and reclamation. In addition families use sand,
gravel and shells for home construction, reclamation and seawall construction, landscaping, covering
graves, covering the floors of pig pens, fencing boundaries and for sale (Pelesikoti, in prep.). Some
development agencies also use locally sourced aggregates in their development or infrastructure
projects, such as the airport runway extension project on South Tarawa and the recent maneaba
construction project. These large and occasional projects require significant amounts of aggregate from
time to time.

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Demand for aggregate on Tarawa

At present, the total amount of aggregate needed to meet government, commercial, family and donor
needs on Tarawa is not known. There is only sporadic information of use by different user groups. For
instance, the Ministry of Public Works is estimated to use a minimum of 5-10 cubic metres of gravel
aggregate per day for regular road maintenance and small work projects (pers. comm. Metai, Ministry
of Works). This is equivalent to 25-50 cubic metres per week or 1,300-2,600 cubic metres per year.
Bigger projects require much more aggregate material. For instance, the Public Works Department
used around 125,000 cubic metres of aggregates for the airport runway extension project during 1993-
1995 (Biribo & Smith 1994). However, the Public Works do not generally keep records of the amount of
aggregate used for their larger projects. Consequently, total demand for aggregates by the
Government of Kiribati is not known. Likewise, the total amount of aggregate used by international
agencies for their development projects is not known with certainty, although it is known how much
aggregate has been used on some individual projects. For instance, the upgrading of Betio port by the
Japanese required 600 containers of aggregate imported from Fiji.

Finally, there is no collection of data by the government on the demand for aggregates by families on
Tarawa.

Supply of aggregate for Tarawa

Most of the aggregate needs for Tarawa are sourced locally from the beaches and sand flats. These
are mainly obtained from around South Tarawa where the population and demand for aggregates is
highest. Other aggregates are obtained from imports.

On Tarawa, locally sourced aggregate is obtained by two means:

• Government and businesses who extract from the beaches and sand flats using machinery; and
• Households who extract aggregate from the beaches by hand.

The total amount of aggregate actually supplied locally is not known, as records of mining by the
government and businesses are incomplete and unreliable, while no records of extraction by families
exist.

At the government level, what is known is that Public Works sources its 1,300-2,600 cubic metres of
aggregate for regular road maintenance and small work projects per year by excavating on the inter-
tidal lagoon flats and in borrow pits. However, as there are no records of the amount of aggregate it
uses for bigger activities the total supply per year by the government is not known.

The amount of aggregate extracted by commercial businesses is also uncertain, but in a normal year is
expected to be at least 2,500 cubic metres, and much more when there are large construction and
reclamation projects.

There are no official records of the amount of aggregates supplied locally to donor-funded projects.

Until 2006, there were no records of the amount of aggregate extraction by households on Tarawa.
However, in early 2006, the Pacific Islands Applied Geoscience Commission (SOPAC), in collaboration
with the Government of Kiribati, conducted a household survey of aggregate extraction in South
Tarawa of aggregate extraction. This study was funded under SOPAC’s EDF Project on Reducing
Vulnerabilities of Pacific ACP States, which has already conducted surveys on Tarawa of the damage
to coastlines caused by the removal of aggregates.

According to the survey (Pelesikoti, in prep.), 73 percent of households across South Tarawa mined
aggregate (sand, gravel, rock and shell) and of the households that were mining a third mined more

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than once a week. Data analysis indicates that as much as 70,000 cubic metres of aggregate is
currently being mined by families each year in South Tarawa alone. The amount of coastal mining
conducted by households around North Tarawa is unknown but is considered to be limited.

Some aggregates for use on Tarawa are sourced from overseas. This is because:

• the quantity of aggregates from local sources is not always sufficient to meet the demand from
occasional donor-funded construction projects;

• donor organisations sometimes require access to aggregate of a superior quality to that locally
available; and

• some donors are required to use imports for environmental reasons.

Consequently, there is a history of importing aggregate for donor-funded and private construction
projects. For example, over the last two years the Japanese have imported 600 containers of
aggregate from Fiji for the Betio port upgrade project, and previously they imported aggregate for the
power station and water supply project.

A summary of current demand for aggregate is shown in the following table. This total amount of locally
and internationally sourced does not include any aggregate removed by households around North
Tarawa. More importantly, it does not include the use of aggregate for occasional large-scale
infrastructure or development projects. This estimate of supply from Tarawa is therefore highly
conservative.

Table 1: Estimated current demand for aggregate per year.

Source of aggregate Current demand (m3) Data source/comment

Household sector 70,000 Pelesikoti 2006 (does not include North Tarawa)
Ministry of Public Works and Utilities 5,000 Consultant estimate, allowing for maintenance and small
maintenance/small projects projects

Imports 5,000 Consultant estimate, based on recent imports

Commercial sector 2,500 Consultant estimate, based on maintenance needs,
excluding large projects

Total 82,500 Minimum total not allowing for occasional large

infrastructure projects.

Future supply and demand for aggregate

The total demand for aggregate on Tarawa is likely to increase in the future:
• as the population increases (especially from inward migration from the outer islands) demanding
more housing; and
• when several planned large infrastructure projects which need for large quantities of aggregate are
executed (such as the Japanese-funded road upgrade project estimated to require around 20,000
cubic metres of material).

At the same time, demand for aggregate from businesses and families is likely to increase slowly as
the population on Tarawa increases and housing is upgraded. The importation of aggregate is

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expected to increase at a higher rate than the other sectors because of the stricter enforcement of
mining controls and growing awareness of the negative environmental effects of mining, especially by
the donor community.

A summary of the estimated future demand for aggregate is shown in the following table. Again, this
total amount of locally and internationally sourced does not include the use of aggregate for occasional
large-scale infrastructure or development projects that may arise in the future. This estimate is
therefore a conservative estimate.

Table 2: Estimated future demand for aggregate per year.

Source of aggregate Current demand (m3) Future increase per year

Household sector 70,000 +5% per year

MPWU maintenance/projects 5,000 +5% “ “

Imports 5,000 +7% “ “

Commercial sector 2,500 +5% “ “
Total (not allowing for occasional large infrastructure 82,500
projects)

DATA
Comparative aggregate costs

The comparative costs of accessing aggregate from four sources – hand mining by households,
mechanical mining by businesses and the government, the proposed dredging operations by the
government and from importing – were analysed based on information obtained during fieldwork in
Kiribati and other reports and information. Details are available in the full technical report. Information
on the cost of imported aggregate material was taken from imports of aggregate from Fiji.

A summary of financial costs is given in Table 3.

Table 3: Comparative costs of aggregate.

Source of aggregate Cost per m3 Comment

Manual mining by household sector A$50 Inferior and variable quality
Mechanical excavation & screening A$60 From inter-tidal zone
Imports A$104 Superior material
Dredge material plus screening A$58-60 Similar or better quality to mechanical mining
Source: Consultants estimates

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Impacts of coastal mining on Tarawa

Numerous studies in Kiribati and elsewhere have highlighted the causal link between coastal mining of
aggregate and increased threat of coastal communities to erosion and flooding (Webb 2005; Forbes &
Hosoi, 1995; Howorth 1982, 1983). The removal of aggregate material from the foreshore reduces the
buffering effect and exposes the coastline to increased wave energy.

Coastal mining can therefore increase the risk on Tarawa of flooding and land erosion. This can have a
number of negative consequences such as losses to:

• infrastructure and property;

• public utilities (water and sewerage, electricity and phone lines);
• protective works;
• agriculture; and
• public health.

To estimate any losses associated with these sectors, it would be necessary to:

• determine the physical losses of land and amenities arising from flooding and erosion on Tarawa
generally;
• determine the proportion of those losses that are directly attributable to coastal mining; and
• convert those amounts into monetary values.

Unfortunately, it is not possible to do this for most of the sectors. The main problems in determining
impacts are that (i) coastal processes are natural and dynamic and it is difficult to distinguish between
those events that would occur naturally and those that occur because excessive aggregate removal
has ‘tipped the balance’; and (ii) coastal processes not only result in erosion of land in some areas but
also accrete land in others. This makes determining the overall impact of coastal mining difficult to
assess. Certainly, those areas of Tarawa that are clearly experiencing erosion are frequently the most
densely populated, or close to important infrastructure such as the Tungaru Hospital. Add the impact of
global warming and increased coastal pressures from rising sea levels on Tarawa and it is clear that
the threats to Tarawa from coastal mining are significant but it is not known by how much and when.
Nevertheless, because of the difficulties in assessing the actual losses attributable to coastal mining
specifically, it is only possible to describe many of these losses and evaluate losses in money terms for
only one or two.

Losses to Infrastructure and Property

Losses of land are definitely occurring on Tarawa and much of this has been attributed to coastal
mining (Webb 2005). Significantly, some locations that are losing sand are those that are the most
valuable because they are most densely populated, or close to important infrastructure such as the
Tungaru Hospital.

On the other hand, coastal accretion, erosion and longshore transport of sand is a dynamic process
affected by both natural weather patterns and man-induced processes through reclamation and
building causeways, so that over time a beach may in turn build up or wash away (Howorth 1983).

Consequently, it is not possible to determine with certainty the total area of land that has been lost to
coastal erosion in recent years, let alone the proportion that is due to coastal aggregate mining alone. It
is also not possible to predict what the likely land losses will be in the future. While the area is not large,
its proportionate loss in comparison to total land area may yet be significant.

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Public Utilities

Coastal erosion and flooding is a serious threat to public utilities because most of the electrical and
telephone cables are buried underground, as are water supply and sewerage works. Buried cables,
particularly those flanking the causeways are very susceptible to erosion and the state telecom
company Telecom Services Kiribati Limited had allowed for the replacement of the cables that were
threatened by coastal erosion along the Bairiki Causeway, before the Ministry of Works built a new
sandbag seawall to protect the causeway. Electricity cables face a similar risk and therefore similar
costs. The piped water supply system is also buried underground and erosion and seawater
contamination is a threat to that infrastructure. However no accurate estimate of the future cost of this
threat is available.

Protective works

The Ministry of Works is responsible for the maintenance and protection of government buildings,
including the Betio Hospital and the main Tungaru Hospital, roads, government housing and the
gabion protection at the ocean end of the airport. An asset register compiled in 1999 lists 22 sea walls
and coastal protection structures on South Tarawa with a total length of 2.7 kilometres, although this
list does not include the more recent causeway and protective walls that had been built. Taking into
account protective works belonging to the private sector and non-government organisations, the
amount of coastal protection is likely to be considerably more. The cost of a sandbag seawall is
between A$100-A$200 per metre while concrete sea walls such as that along the Betio Causeway can
cost A$5,000 per metre. The capital cost of the protective works that have been built is likely to be in
the order of several million dollars, which implies an annual maintenance and replacement cost of over
A$100,000 per year. In the future the impact of coastal mining of sand and gravel coupled with global
warming is expected to increase the threat of coastal erosion requiring an increased investment in
maintenance and additional protective works, possibly requiring investment of tens of millions of
dollars.

Impact on agriculture

An increase in severity and incidence of coastal erosion and flooding could be expected to adversely
affect agricultural production in the future. However data on the quantity and value of agricultural and
livestock production on South Tarawa is not available, and there is no information on the collective
impact of coastal erosion flooding and salt water intrusion apart from anecdotal evidence and isolated
examples. Most households have access to breadfruit and coconuts and also raise pigs. In terms of
the impact of coastal erosion the current annual cost is likely to be relatively minor.

Impact on public health

Water supply and sanitation and their associated illnesses are a major issue for the densely populated
communities on South Tarawa. Increased flooding potentially could have serious impact. Although the
main urban centres have a piped water supply other communities and settlements rely on well water
from the fragile freshwater lens. The main cause of mortality and sickness amongst the under-five age
group is diarrhoea and pneumonia; the former is closely connected with poor water supply and
sanitation. An increase in flooding and saltwater intrusion arising from aggregate-related erosion could
contaminate the groundwater and impact sanitation to result in a lower quality of life through
inconvenience and an increase in disease. Although the Ministry of Health are not able to pinpoint any
examples where seawater flooding has been associated with an outbreak of diarrhoea or disease,
there are pockets of waterborne disease outbreaks that had been clearly associated with a broken

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water main or a lack of chlorination in the water supply, so it is likely that it would have an effect.
However it is not possible to realistically estimate the future impact of this risk.

Table 4: Summary of social and environmental impacts.

Sector Economic impact from coastal mining

Infrastructure and property Loss, not determined

Public utilities
Water and sewerage Not determined
Electricity Not determined
Phone lines Not determined
Protective works Maintenance cost A$100,000 per year
Agriculture Losses to breadfruit and coconut production, not determined
Public health Degradation of freshwater supplies (saltwater intrusion into groundwater) and
impact of poor sanitation to sickness, not quantified

FINANCIAL AND ECONOMIC ANALYSIS

The proposed government dredging operations are planned to be done by a commercially sustainable
enterprise called the Kiribati Aggregate Mining Company (KAC).

The specifications for the KAC were originally expressed in its first feasibility assessment (Cruickshank
et al. 1998) and are being used as the basis for the proposal for EU funding for its implementation.
Accordingly these specifics are used as the basis for the financial and economic feasibility
assessments that follow. Details are available in the technical report (Greer, 2007).

Financial analysis

Introduction and assumptions

The purpose of the financial analysis in this study is to determine the commercial feasibility and
sustainability of the proposed KAC.

For the financial analysis it is assumed that:

• KAC will receive a grant up to €2.2 million to fund the purchase of the dredge and equipment and
Technical Assistance costs for an initial three-year period.

• The dredge will be based at Betio port and operate for 230 days per year (46 weeks on a five-day
week basis) allowing for six weeks downtime per year because of maintenance needs, delays in
obtaining essential spare parts from overseas, rough weather and public holidays.

• The suction dredge is able to load and unload aggregate at the rate of 70 cubic metres per hour
and the barge has a capacity of 200 cubic metres. Total annual production is assumed to be
46,000 cubic metres.

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• The Betio aggregate screening and crushing plant can handle 1000 cubic metres of aggregate a
week.

• Two Technical Assistance Advisors funded by the EU would be attached to KAC (a Project
Manager and a Dredge Master) for an initial period of three years.

• KAC would be required to meet its variable operating costs from its revenue which include costs of
I-Kiribati staff, fuel, oil and essential repairs and maintenance. Depreciation charges and interest
on capital are not included as the capital costs would be met from the EU grant.

• There are no major infrastructure projects underway in a ‘normal’ year.

Details on the assumptions used for the analysis are given in the technical report (Greer, 2006).
Critically, assumptions about work rates and the capacity of the crushing plant are approximate and
could have a wide margin of error.

Annual dredge costs

Total operating costs for the dredge and for transport and processing aggregate material based on an
annual excavated volume of 46,000 cubic metres are estimated to be in the region of A$2.6 million per
year (Table 5).

Table 5: Dredge Aggregate Extraction and Processing Costs.

Operation Cost per m3 Total annual cost Percent of

total
Dredge variable operating costs A$9.64 A$443,440 17%
Excavation from the stockpile (borrow pit) and transport to A$3.14 A$144,440 6%
MPWU depot
Processing and screening at MPWU depot A$44.24 A$2,035,040 77%
Total A$57.00 A$2,622,920
Source: Consultants estimates

The majority (77 percent) of the costs are estimated to be incurred as a result of processing and
screening material at the depot.

Annual dredge revenue

For the construction sector there is more demand for gravel than for sand, most likely by a factor of at
least two or three of gravel to one of sand.1

The Vinstra Shoal deposit, where the dredge would work, has been assessed as being able to provide
35-50 percent gravel. Taking the mid point of this range of 42.5 percent gravel means that dredging
46,000 cubic metres per year would produce 19,550 cubic metres of gravel and 26,450 cubic metres of
sand.

1The SOPAC report of 1995 (Biribo & Smith, 1995) assessed that there is a greater demand for gravel than sand by a ratio of almost 7:1. While by comparison the SOPAC 2006
household mining survey assessed that the volume of gravel sold was greater than sand by a ratio of 2.6:1.

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Gravel commands a higher price than sand because it has to be processed and screened, and
particularly where local gravel can substitute for more expensive imported material. Sand is cheaper to
produce, and may have to compete with beach sand mined by families for a share of the market when
demand is low. To maximise its revenue it is likely that KAC would have to sell its gravel at a higher
price than the actual cost of production and sell sand at a discounted price because of competition
from householders. The gravel price would need to be less than the cost of imported aggregate to
compete, and the sand price would need to be competitive compared to the price of coastal sand
mined by households. If for example the company sold gravel for A$90 per cubic metres and sand for
A$35, annual revenue would be:

Gravel income 19,550 m3 @ A$90 = A$1,759,500

Sand income 26,450 m3 @ A$35 = A$925,750
Total 46,000 m3 A$58.38 A$2,685,250

Commercial profitability of the KAC

This would theoretically be sufficient to meet the annual operating costs and return a small profit as
shown in the following summary.

Production 46,000 m3 per year A$

Total revenue 2,685,250
Total costs 2,622,920
Total profits 62,330

However the profitability of the dredge’s operation is sensitive to changes in the level of costs and
income. A 10 percent increase in costs would eliminate any profit and produce a loss of A$200,000 per
year, while a 10% decrease in costs would increase the profit to A$325,000 per year. Similarly a 10
percent reduction in the price of sand and gravel would result in a loss of over A$200,000 per year,
while if only 75 percent of the production of sand was able to be sold there would be an annual loss of
A$169,000 per year.

Viability of the dredge

There are several issues that affect the ability of the company to make this potential profit (operational
viability):

1. The actual dredge operating costs are only part of the total cost of producing screened sand and
gravel of a uniform quality. In fact, the on-shore cost for processing and screening aggregate costs
are estimated to be more than the cost of operating the dredge.

2. The demand for aggregate material for infrastructure or development projects funded by the
government or donors is ‘lumpy’ and not the same from year to year. In some years, there may be
more major projects, which increase the demand for aggregate, and therefore increase the
profitability of the KAC. In other years when there are no large-scale projects, the commercial
demand for KAC’s aggregate may be less than its production. In this case, a large part of the
dredge’s production may have to be sold to the domestic private market at a lower price. However,
families that sell hand-mined aggregate are likely to be able to undercut the dredge aggregate
(although the quality may not be as high) creating competition and lowering prices. In this case
selling excess dredge material to households will depend on the government being able to enforce
its proposed island-wide ban on coastal mining

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3. The dredge operation would receive full time support of EU-funded advisors for the first three to
five years of its operation while being supported by the EU grant, so it could be expected that the
operation would work. However the long-term viability of the dredge will depend on local expertise
and capacity to maintain the operation. It will be important to respond to breakdowns quickly to
ensure that the dredge is not out of action for too long a period so that customers do not lose
confidence in the operation and resort to alternative sources and importation. The long-term
operational viability after the end of EU support is therefore a critical issue which the government
and the EU (funding the exercise) would need to address to ensure continuity.
4. The life of the dredge equipment is expected to be 10 years at the end of which new equipment is
needed. (The barge and hull is expected to last 20 years). Therefore a plan for capital
replacement needs to be incorporated into company operations. Failure to do so would mean the
cessation of dredge activities and a return to coastal mining. In fact, a detailed business plan for
KAC should be developed well in advance of the commencement of operations.

Economic analysis

The purpose of the economic analysis is to assess the viability of the project from a national
perspective taking into account economic, social and environmental factors. The methodology used is
the application of Benefit Cost Analysis (BCA). In this approach the costs and benefits of KAC over
time are compared to calculate the “Economic Internal Rate of Return”’ (EIRR). This is equivalent to a
financial rate of return on an investment but represents the wider impact on society and national
interests. Details of the assumptions and methodology used for the economic analysis are given in the
technical report (Greer, 2006).

The key assumptions for the economic analysis are:

• It allows for a period of 50 years to reflect the long-term and inter-generational nature of coastal
mining impact.
• Comparative economic mining costs are expressed in constant 2006 prices adjusted for a shadow
value of labour and long run un-taxed fuel costs.
• The opportunity cost of capital (discount rate) is assumed to be 10 percent.
• The costs of the €2.2 million EU grant for the capital cost of the dredge and equipment and
Technical Assistance are included.
• The future demand for aggregate is assumed to increase at 5 percent per year for a period of 10
years then to stabilise.
• Imported aggregate is assumed to increase at a rate of 7 percent per year for 10 years and then to
stabilise.
• In “future with” situation there is a residual production of 1,500 cubic metres per year of
mechanical excavation allowing for rocks and large aggregate material that could not be supplied
by the suction dredge.
• There are no major infrastructure or development projects at work in a normal year.

Results of the economic analysis

The EIRR is 16 percent, which is an attractive return for this type of project. (This is the equivalent to
the return on a financial investment). The majority of the economic benefits come from cost savings as
a result of replacing imports of aggregate with locally sourced dredge aggregate.

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However, the results are very sensitive to the relative cost of the aggregate from different sources and
the underlying assumptions about the cost of operating the dredge and processing the dredged
material. A 3 percent increase in the average cost per cubic metre of the dredge material reduces the
EIRR to 10 percent; which means that the project would only ‘break even’ from an economic
perspective. The economic return is also sensitive to the cost of the manually mined materials, and the
growth in future demand for aggregate. The estimate is based on the assumption that the there are no
major infrastructure projects under way. However, if there were, the EIRR – the payoff from the KAC
and the ban – would be expected to be still higher.

Not quantified benefits and social costs

The EIRR underestimates the economic value of the KAC and the ban because it does not include all
the benefits to Kiribati of environmental changes brought about by reduced coastal mining of
aggregate. Although very difficult to predict, these values may be highly significant. For instance, the
benefits of preventing further loss of land, infrastructure and utilities may be extremely high.

On the other hand, the social impact on the people of South Tarawa of relocating mining to the offshore
lagoon area and banning coastal mining cannot be overlooked. The recent SOPAC study on
household mining of coastal aggregates estimated that around 1200 households around South Tarawa
alone get extra income from mining activities and that approximately 150 households, mostly in the
villages of South Tarawa Temaiku and Bonriki, the main gravel mining areas, rely entirely on selling
aggregates for their livelihood. The introduction of the dredge will reduce the scope for such
households to supply aggregate legally and will therefore reduce income to the families. It will be
important to provide assistance to help these families develop alternative income generating and
livelihoods, such as providing assistance related to agriculture and fishing. This is also critical to the
success of the KAC, which relies on the mining ban to ensure a market for its aggregate.

RECOMMENDATIONS & POLICY IMPLICATIONS

Public interest concerns

Environmental monitoring

There will be a need to closely monitor the environmental impact of the operation of the dredge with
respect to any disturbance of the marine environment at the Vinstra shoal where the sand and gravel
would be extracted, and also for the area where the material is offloaded into the old borrow pit on the
inter-tidal flat at Betio.

As there is likely to be lively public concern and interest in the effect that the dredge may have on the
marine environment and fishing resources, close monitoring and transparent disclosure about the
impact will be necessary to avoid negative and possibly un-informed public opinion.

Closer monitoring and recording of the household mining sector is also required to build up a time
series of data on mining, usage and public attitudes to management and control of coastal mining by
government.

Cost sharing/Subsidisation

As an incentive to reduce the dependence on coastal mining by households for domestic use of
aggregate, the feasibility of selling them with dredge material at a basic cost, or at a subsidised price

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EU EDF-SOPAC Reducing Vulnerability of Pacific ACP States Kiribati – Summary Aggregate Mining Economic Report – 16

should be looked into. The supply of dredge material to donor-funded construction projects as a
substitute for imports should allow for a reasonable profit margin, which could then allow the cost of
aggregate that is distributed for household use to be subsidised. Dredge material could be transported
free of charge to other parts of Tarawa to reduce transport costs for consumers and supplied to small
retailers or on-sellers at minimum cost.

Compliance with the ban on beach mining will be crucial for KAC’s viability and long-term survival to
ensure a sufficient cash flow after the end of EU assistance.

Governance issues

The operation of the proposed State-owned KAC aggregate mining company that has a monopolistic
position will require careful control and good management to ensure that it operates efficiently and
generates sufficient return to meet its overheads and operating costs. The performance of some
publicly owned enterprises in Kiribati that are supposed to be self-supporting have not been so
successful, and the dredge’s operation will require good governance to ensure that it operates
profitably and achieves long-term viability.

Education and public awareness

The control of coastal mining cannot be achieved without the full co-operation and involvement of local
communities. Further education and public awareness is required to change people's attitudes to the
use of what is regarded as a common resource, and to reduce the mining of coastal aggregate,
particularly for non-economic landscaping use. Without the backing of the local community
enforcement of the regulations will be very difficult, if not virtually impossible.

Dredge operational aspects

Some aspects of the proposed dredge’s operation required clarification and more investigation. The
following comments are put forward to highlight issues that need more investigation:

1. The dredge should be registered in Kiribati, rather than an overseas country, to avoid the
necessity to travel to Fiji (or elsewhere) for the annual survey and renewal of registration.

2. The practicality of the proposal to discharge the material into the borrow pit needs to be confirmed.
Coordinating activities around the tides will be crucial to the efficient operation as the dredge will
only be able to discharge into the borrow pit at high water needing three to four hours, and the
material can, in turn, only be transported to land at low tide during a three to four hour window. A
dredge with bottom-opening doors would be able to discharge more quickly than by using a sand
pump. This option should be considered to allow more flexibility to the operation. The
disadvantage of this discharge method is that sufficient draught of water under the dredge is
needed for the material to disperse which may reduce the operating window at high tide for
discharge. Another alternative is to have a permanent pump and discharge pipe at the discharge
location and transport material directly from the dredge to the stockpile at the Ministry of Works
depot reducing the time and cost of discharge at transport to dry land. An anchoring pole should
also be installed at the discharge site to facilitate the positioning and mooring of the dredge for
unloading the material.

3. The capacity of the borrow pits to hold the material is not known and there may be some loss of
material as it is discharged into the pit if there is strong tidal flow. The original dredge proposal in

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1995 considered that the dredge would discharge to the Public Works quay site at Bonriki.
Discharging at the main Betio wharf is another possibility, but the port is already overcrowded and
trucking the material from the port to the aggregate depot would add to road congestion and cause
more wear and tear on the roads. Nevertheless using stockpiling dumps and processing sites at
more than one location may make sense and other alternatives should also be investigated more
fully.

4. Public Work’s aggregate storage and processing depot at Betio may have to be expanded to cope
with the increased amount of material and more machinery will be required to cope with
transporting material off the beach and screening it through the gravel crusher and screen. (It is
not confirmed whether the current equipment is capable of dealing with the anticipated 1,000 cubic
metres of material a week produced by the dredge).

5. The suction dredge will produce a mixture of sand and gravel material with a greater proportion of
sand. It is not known what will be the proportion in the dredge material between sand and gravel
and whether the production of gravel from the dredge will be sufficient to meet the future needs for
gravel aggregate from government and donor-funded projects.

6. As the dredge will not be able to produce large-sized aggregate and cobbles because of the size
of the suction pipe the need for large aggregate and rocks will still have to be obtained from
coastal mining.

7. A business plan for the operation of KAC should be prepared at the start of the project.

Recommendations for further action

Information on the supply and demand of aggregate in Tarawa is incomplete, and it is not possible to
compile a comprehensive record of the volume extracted over time, prices, nor the use of aggregate.
The 2006 SOPAC mining survey has provided very useful information on the extent of mining activities
by the household sector and the use of aggregate material. It has highlighted how widespread mining
is and how important mining is to the domestic economy. There is a need for further monitoring of the
mining sector to gain more information and to help with ensuring compliance with the regulations
concerning mining.

The price of the aggregate that is mined by the dredge will be important to developing a market for
material as an alternative to coastal mining.

More research must be conducted by those designing and implementing the Kiribati Government’s
programme on the use, demand, cost of supply of aggregate and markets and prices. This information
should also be monitored regularly.

The following recommendations are put forward for further consideration:

1. The Ministry of Public Works should be legally required to no longer conduct coastal mining from
the inter-tidal flats and as far as in practical to obtain all its supply of aggregate from the dredge
material.

2. A comprehensive monitoring system should be established to monitor coastal mining and to

establish a database of key suppliers and consumers.

3. The current system of relying on voluntary reporting of the quantities mined by permit holders for
the purpose of estimating the royalty that is payable to the landowners should be changed to a
more exacting recording system through regular monitoring of activities.

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EU EDF-SOPAC Reducing Vulnerability of Pacific ACP States Kiribati – Summary Aggregate Mining Economic Report – 18

4. Coastal erosion hotspots and areas prone to flooding should be well documented and a zero
tolerance approach used against illegal miners. The local community should be encouraged to
take a more active role in policing illegal mining by public relations and community awareness
programmes and through providing appropriate recognition to those villages and communities that
respect the mining regulations.

5. The Government’s intention to impose an absolute ban on coastal mining (initially for South
Tarawa and, possibly, eventually elsewhere) is likely to be impractical and un-enforceable. It would
undermine attempts to develop community cooperation for reducing the negative effects of coastal
mining and could encourage disrespect for law and order. As a compromise, in recognition of the
common practice in obtaining domestic supplies of aggregate, a certain amount of mining for
household use from less high-risk areas should be tolerated with enforcement concentrated on
stopping mining for sale from non-mining designated areas and all mining in crucial erosion-prone
areas. Viability rests with public support, which needs to be supported and promoted by strategic
publicity.

6. A public awareness campaign should be conducted when the dredge starts to generate support
for the programme and to educate the public. An organisation such as the Foundation for the
Peoples of the South Pacific (FSP) could be used to mobilise public support and raise awareness.
They think that the radio and visual means such as drama shows are the most effective medium
for this purpose.

CITED WORKS & REFERENCES

Cited Works

Biribo, Naomi and Smith, Robert. Sand and Gravel Usage South Tarawa, Kiribati 1989-1993. Ministry
of Environment & Natural Resources, Kiribati SOPAC Secretariat, Preliminary Report 75,
December 1994.
Cruickshank, Michael J. & Morgan, Charles L. Economic Feasibility and Environmental Impact
Assessment for Extraction of Sand Offshore Tarawa. Report prepared for Ministry of Natural
Resources Development, Kiribati by M.J. Cruickshank & C.L. Morgan Consultants, October 1998.

Darrock, Neil. Kiribati Land Ownership and Land Valuation. Darrock Valuations, Auckland, 1996.

Government of Kiribati, 2005. Adapting to Climate Change – KAP II: Kiribati Adaptation Program,
Phase 2: Building Participation and Capacity, Project Implementation Plan. Office of Te Beretitenti,
Bairiki, Tarawa, Republic of Kiribati, December 2005.

Greer Consulting Services, 2007. Kiribati Technical Report – Economic analysis of aggregate mining
on Tarawa. EU-SOPAC Project Report 71. 110 p. SOPAC Secretariat, Suva.

Hajkowicz, Stefan & Okotai, Petero. An Economic Valuation of Watershed Pollution in Rarotonga, the
Cook Islands. CSIRO Sustainable Ecosystems. Brisbane, Australia. April 2005.

Howorth, Russell. Report on Coastal Erosion in Kiribati; Visit to South Tarawa 23 August – 8
September 1983. SOPAC Technical Report 31. Suva, Fiji. November 1983.

Pelesikoti, Netatua (in prep.) Kiribati Technical Report – Extent of Household Aggregates Mining in
Kiribati and Proposed Integrated Monitoring Framework for Tarawa Lagoon. EU-SOPAC Project
Report 72 (in prep.). Fiji, June 2006.

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EU EDF-SOPAC Reducing Vulnerability of Pacific ACP States Kiribati – Summary Aggregate Mining Economic Report – 19

Toyo Pumps, Canada and Blue Water Craft, Fiji. Suction Dredge Specifications and Costs. SOPAC,
Suva, December 2005.

WBGU. The Future Oceans – Warming Up, Rising High, Turning Sour- Summary for Policy Makers.
German Advisory Council on Global Change (WBGU). Berlin, 2006.

Webb, Arthur. An assessment of coastal processes, impacts, erosion mitigation options and beach
mining – South Tarawa. EU-SOPAC Project Report 46. Fiji. 2005.

Personal Communications

Biribo-Atauea, Naomi. Senior Minerals Development Officer, Ministry of Fisheries and marine
Resources, South Tarawa, Kiribati. Personal Communication September 2006.

Kabaua, Tiaon. Civil Engineer, Ministry of Public Works and Utilities. Personal Communication. Kiribati
mission July 2006.

Kinaai, Kairo, Ms. Director of Agriculture. Ministry of Environment, Lands & Agricultural Development.
Personal Communication. Kiribati mission July 2006.

Lin, Kuo-Tai. Project Manager, Overseas Engineering & Construction Ltd. Personal Communication.
Kiribati mission July 2006.

Metai, Eita. Engineer, Ministry of Public Works and Utilities. Personal Communication. Kiribati mission
July 2006.

Nonogaki, Masahiro. Manager, Dai Nippon Construction. Personal Communication. Kiribati mission
July 2006.

Taaeta, Maman, Permanent Secretary, Ministry of Finance. Personal Communication. Kiribati mission
July 2006.

Takeke, Rikiana, Deputy Secretary, Ministry of Environment. Personal Communication, Kiribati mission
July 2006.

Tiiban, Dr Kabwea. Director, Ministry of Health. Personal Communication. Kiribati mission July 2006.

General References

ADB. Kiribati Country Strategy and Program Update 2006-2007. Asian Development Bank, Manila.
January 2006.
Lonely Planet. South Pacific: Polynesia, Melanesia & Micronesia. 1st Edition. Lonely Planet
Publications. Melbourne. 2000.

UNDP. Human Development Report 2005, UNDP, New York 2005.

World Bank. Cities, Seas and Storms (regional economic report on the Pacific Islands).
Washington, DC. 2000.

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