Independent power producers are playing a key role in helping Papua New Guinea move towards its ambitious electrification goals. But a payment dispute with PNG Power puts their business model at risk, the chair of the peak body representing them tells Business Advantage PNG.

Dirio’s gas-driven power plant uses gas from the PNG LNG project, under domestic market obligation provisions that will also apply to future gas projects. Credit: Dirio Gas & Power

Papua New Guinea represents a “massive opportunity” for independent power producers (IPPs), according to David Burbidge, chairman of IP3, the peak body representing the country’s IPPs.

However, he says their business model will be in question until an ongoing dispute over payments with PNG Power (PPL), the state-owned authority responsible for transmission and distribution of electricity throughout the country, is resolved.

The IPPs are currently claiming at least K820 million in arrears, according to Burbidge.

Moses Maladina, Chairman of Kumul Consolidated Holdings (100 per cent shareholder in PPL), acknowledged the dispute at the 2024 Business Advantage PNG Investment Conference last month, acknowledging the utility’s need to be “re-capitalised”. However, he also said PPL had “issues” with some of the IPPs’ claims.

Additional funds in the 2024 National Budget to address arrears, and the National Energy Authority’s recent decision to allow an increase in electricity tariffs after a ten-year freeze, should help if fully implemented.

Near-term opportunities in Lae

Only 13 to 19 per cent of households in PNG currently have access to electricity, according to data from the Asian Development Bank (ADB) and World Bank. The country has ambitious goals to bring electricity to 70 per cent of its population, which would require adding around 320 MW to its current installed capacity of 600 MW.

David Burbidge, IP3 Chairman. Credit: David Burbidge

David Burbidge tells Business Advantage PNG there are short-term opportunities to add to the country’s two main grids – Port Moresby and Ramu – if some of the structural challenges related to the sector can be resolved.

Following the recent completion of PNG Hydro Development’s 56 MW Edevu hydropower facility in Central Province and PNG Forest Products’ 12.4 MW hydropower facility in Morobe Province, IPPs provide more than 70 per cent of power generated for these two grids, according to Burbidge, with PPL providing the rest.

Burbidge estimates IPPs could “almost instantly” add another 20 MW to the Ramu grid, with immediate benefits to businesses in the city of Lae, by replacing off-grid generation by businesses “running their own generation because they don’t trust PPL to give them reliable power.”

Mini-grids

James Nelson is Chief Executive of Dirio Gas & Power, which is owned by provincial governments and landowners from five provinces through the state-owned Mineral Resources Development Company.

The Dirio opened its 45 MW gas-fired power station in Central Province in 2021, and Nelson sees further opportunity to further add to Port Moresby’s grid.

“When I look at the shape of the load curve, it tells me there’s quite a portion of unserved demand,” he notes.

Nelson is “most excited” by the opportunity provided by renewable energy, specifically solar mini-grids.

“We’ve got three standalone mini grids in three villages in Gulf Province in the advanced stages of a feasibility study,” he says. “We’ll hopefully bring that to tender in the next six months.”

Regional centres

Niupower’s Port Moresby Power Station. Credit: KPHL

Another IPP, NiuPower (owned by Kumul Petroleum’s Kumul Energy subsidiary and Santos), currently operates the 58 MW gas-fired Port Moresby Power Station, drawing its gas from the PNG LNG project.

NiuPower’s Chief Executive Michael Uiari sees opportunities for IPPs to work with PPL to address capacity issues on regional grids.

“We’re promoting a model where PPL leases out a provincial centre, but without relinquishing ownership,” he says.

“Once that capital recovery has happened, the grid can revert to PNG Power, and they’ll have a properly functioning, break-even or profitable provincial centre.

“If we can see if this particular model works, then it will address a really big drain on PPL’s cash reserves.”

This is a version of an article in the Business Advantage PNG Mining & Energy Special Edition 2024/25, which will be published next month.