Papua New Guinea’s independent power producers are owed in excess of K200 million by state utility PNG Power, which itself is facing revenue challenges, according to industry association, IP3. The situation is being made worse by rising global fuel costs.

Port Moresby Power Station  Credit: Niupower

Papua New Guinea’s model of relying on private, or independent, power producers (IPPs) to supply more of the country’s electricity needs is under pressure.

On the one hand, the IPPs which supply state utility PNG Power Ltd (PPL) with much of its electricity are owed more than K200 million for power already supplied to their major customer.

In turn, PNG Power itself is owed substantial amounts by its own customers, most especially the PNG Government.

IP3’s David Burbidge

‘It remains of concern that PNG Power still has significant arrears in payments to IPPs,’ says David Burbidge, Chair and President of power industry association IP3.

‘Previously, this issue was raised and some funding was forthcoming, albeit well below what is required. It is unfair to expect IPPs to have to bear the burden of supplying power to the national grids and not get paid.

‘The IPPs urge government to settle these arrears urgently.’

No quick fixes

According to Asian Development Bank figures, PPL made a K48.4 million after tax loss in 2020 and had debts of K1.18 billion.

The power company’s revenue has also been constrained in recent years by an effective freeze imposed via the Independent Competition and Consumer Commission (ICCC) on the tariffs PPL can charge its customers.

‘Prices for both diesel and aviation fuel are expected to rise this month by a further 50 toea per litre, or more’

Furthermore, the utility is facing years of under-investment in its transmission infrastructure.

While there are no quick fixes to the situation, recent funding announcements offer hope.

The US$305 million Power Sector Development Project supported by the Asian Development Bank and Australia, announced last month, will help to upgrade PPL’s ageing transmission infrastructure. Another program, the ADB-funded State Owned Enterprises Reform Program, in part aims to address the accumulated arrears owed by PNG’s Government to its own SOEs – estimated in the first half of 2021 to be K365 million.

Rising fuel costs

The situation for sector is being further exacerbated by rising fuel prices, the result of Russia’s invasion of Ukraine and global supply constraints. About 217 megawatts, or 37 per cent, of PNG’s installed power generation capacity relies on diesel fuel.

Hulala Tokome, Country Manager & Director at Puma Energy, PNG’s only fuel refiner and a major supplier of fuel to PPL, tells Business Advantage PNG that prices for both diesel and aviation fuel are expected to rise this month by a further 50 toea per litre, or more.

‘We need to create a regulatory environment which creates certainty, offers stability as well as encourages and protects private investment in the electricity sector.’

‘It’s a global problem and PNG is not immune from it. It’s having huge impact on our people’ he observes.

He told Business Advantage PNG he was hopeful that oil prices would plateau later in the year as sources of fuel unaffected by the war in Europe are put in place around the world.

Reforms

The situation with arrears is happening at a time when the way the electricity market in PNG is regulated is changing.

An industry-funded National Electricity Authority has recently been established as the sector’s regulator. It will not only supplant the ICCC’s role but will oversee the forward investment plan in the power sector (PNG has a goal of extending power to 70 per cent of its population by 2030).

IP3 is calling for greater engagement between industry and the development sector to help shape the investment strategy on the Port Moresby and Ramu Grids, and recently held a workshop in Port Moresby with the NEA to address the key issues confronting the industry.

‘Private sector investment is crucial on the back of the electricity industry policy encouraging public-private partnerships,’ says David Burbidge, who describes the workshop as ‘encouraging’.

‘We need to create a regulatory environment which creates certainty, offers stability as well as encourages and protects private investment in the electricity sector.’