Government encourages private sector participation in PNG’S energy sector

Papua New Guinea’s national government is encouraging the private operators to generate and supply electricity to state utility PNG Power, which in turn may be set for a partial privatisation.

The lack of a reliable energy supply is consistently identified as an impediment to doing business in PNG— indeed, unreliable utilities were named as the second most critical issue facing business in this year’s PNG 100 CEO Survey (see page 10). Most companies of any size are thus forced to have the generators necessary to meet their own energy needs—a major added cost.

It is no simple matter to supply electricity across a country with a geography and climate such as PNG. State electricity company PNG Power currently runs three main separate power grids and 16 smaller systems, while Western Power owns and operates small isolated grids in Western Province. To complete the complex power mix, there is some private generation for mining operations, as well as mini-grids in provincial centres and stand-alone generators for individual businesses and communities.

PNG’S total installed capacity is about 500MW, according to the Senior Investment Officer at the Asian Development Bank’s Sustainable Infrastructure, Srinivas Sampath, which means only 13% of the country has access to electricity. The aim, he told the 2014 PNG Advantage Investment and Infrastructure Summit, is that by 2030, 70% of the country will have access to electricity.

The challenges facing energy providers in PNG include a reliance on imported diesel, exponentially-increasing demand, and a remote and harsh terrain over which to establish and maintain transmission lines.

Reform under way

While a declared state of emergency in the power sector in early 2015 suggests that inherent problems in PNG’S energy sector persist, there are clear signs of both progress and reform.

Public Enterprise and State Investment Minister Ben Micah told the 2014 PNG Advantage Investment and Infrastructure Summit that all new major power generation projects will come from Independent Power Producers in the private sector. Already, companies such as New Britain Palm Oil and PNG

Forest Products are selling excess power to their regional grids and several other companies are in negotiations.

Reference pricing will also be introduced to help calculate prices.

Alternative power sources

PNG Power is looking at private enterprise to provide gas, biomass and geothermal as alternative energy sources to imported oil.

‘One of the most fundamental ways of reducing the cost electricity is through reducing diesel consumption,’ says Paul Nerau, Chairman of the Independent Public Business Corporation, the state company which manages PNG Power and other state-owned enterprises.

The national government has acquired two gas turbine generators, which will supplement power demand by 30 megawatts in Port Moresby and Lae, he says.

In January, Exxonmobil—which operates the country’s first LNG plant—signed an memorandum of understanding with the PNG Government to supply up to 20 million cubic feet a day of natural gas for 20 years for domestic consumption.

‘A portion of the natural gas supply allocated for domestic use will enable PNG LNG to provide up to 25 megawatts of electrical power for an interim period while the government addresses long-term power generation options,’ says Exxonmobil’s now former Managing Director, Peter Graham.

‘The remainder of the gas supply will be used to fuel state-owned gas fired power generation units expected to be located near the LNG Plant outside of Port Moresby.

‘We think that this is a great step towards improved supply for Port Moresby, and will be working with PNG Power and doing our best to support them so they can quickly access the power.’

Oil Search’s CEO Peter Botten says executives are talking with the government about other projects, too

‘In Lae, we’ve been working very hard on a biomass power generation station—something in the 30-to-35mw range— which would provide very competitively priced power for the Lae and north coast area. We’re working with PNG Power on that. We’re very confident it is feasible, and would involve some 2500 to 3000 local landowners growing trees to provide fuel for the power station.

‘We’re also working with the government on power in the Highlands, both at Hides and at Kutubu, and looking at a number of opportunities and joint venture partners for increasing power generation in the Port Moresby area.

‘There’s a very constructive dialogue going on with the Government about how that might be achieved, but it does require some long-term thinking and long-term investment in infrastructure.

‘Over the next three to five years you will see a number of significant developments under way in the Highlands and the north coast, and certainly extra power in Port Moresby. It may be earlier than that,’ says Botten.

Hydropower

A feasibility report on the Ramu Two hydro power project was delivered to the National Executive Council (PNG’S Cabinet) in January 2015 for endorsement.

This project will add another 180MW to the existing Ramu hydroelectric scheme to meet increasing demands, particularly from mining and industrial developments in the Highlands region.

A further hydropower project is being considered for the Naoro River near Port Moresby, while talks on the giant 10,000 MW Purari River hydro power project may also restart in 2015. It is believed the output could feed into the Port Moresby and Highlands grids, as well as the export of electricity to Australia. Power from the scheme will also be used for rural electrification.

Nerau also says a proposed geothermal project in West New Britain Province could provide 4,000 MW of power.

Privatisation

As for privatisation of PNG Power itself—there is more work to be done. Before PNG Power can be partially or wholly sold off, the first job will be to unbundle its various functions.

‘These are the retail, transmission and generation elements,’ explains Paul Nerau.

Thereafter, it could be that PNG’S electricity sector will follow the reforms being made in telecommunications, where wholesale and retail functions are in the process of being separated (see page 39).