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Privatising PNG Power is necessary

A senior academic and head of the government’s research and think tank agrees it is time to privatise PNG Power Limited (PPL).

Dr Thomas Webster, head of the National Research Institute (NRI), says the PNG Power problems that have come into the limelight recently had been festering for some time and the current Government’s announcement to privatise it with other State-owned Enterprises (SOEs) was welcoming news.

However, he says it is not clear what aspects of PNG Power will be privatised, where and how competition can be introduced, where public private partnerships can come in and how regulatory functions that cannot be privatised, is retained under State control.

“There is obviously a need for more thorough analysis and proper structured reforms after considerable consultations among all stakeholders. Whatever decision is taken, the problems will not be easily resolved but will take time for full results to emerge, only if consistency is maintained in implementation,” says the independent analyst and commentator.

Dr Webster also warns that divesting PPL’s ownership in its current form may not result in desired outcomes. It will only be a “band aid” approach and will not address adequately all the underlying problems.

“We need to look objectively at what we want to achieve and then explore the different mechanisms through which we can attain the end goals.”

In his analyses of PNG Power issues released today, Dr Webster discusses possible options for reforms. One, he says PPL suffers from the legacy issues faced by most SOEs that come as part of an evolutionary process, similar to those faced by many other countries where they started off as government departments before the 1970s, with public service employees reporting to a department head and then to a Minister.

He observes the 1980s as a wave of corporatisations following a change in ideology beginning in the United Kingdom; then New Zealand where costly, failing government entities were turned around to provide effective and efficient services.

In the case of PNG, Dr Webster says PNG Banking Corporation to Bank South Pacific (BSP) in 2001 was the sole success story of privatisation in PNG.

“The sale was initially marred in controversy but BSP has since grown to be a highly successful bank with a large network both within PNG and the Pacific Islands region.”

He says countries with some degree of success were often the ones where the State had divested controlling interest by bringing in private capital with technical and managerial expertise. In others, they appointed independent boards with a mix of relevant professional expertise that would oversee, and recruit professionals and well skilled staff to run these entities based on commercial disciplines rather than political imperatives.

He says Air Niugini, Water PNG, Eda Ranu and PNG Power are fully owned by the Government with politically aligned boards and management that are not operated on commercial disciplines but rather on political imperatives.

As to the future of PPL, Dr Webster suggests changes in four distinct areas, namely electricity generation, electricity distribution, retail sales of electricity and regulation: Electricity generation needs to be left to private providers to produce and sell to the electricity consumers.

The existing hydro electricity generation plants can be sold off or if not, ownership transferred to separate companies established with equity holdings by private sector, state, landowners and other Papua New Guineans. This will provide opportunities for private investors, provincial governments and even village groups to generate electricity and sell all or part of the electricity produced to the main power grid.

There are many river systems for small hydro plants to be established by different communities for consumption while the surplus is sold to a national grid for other consumers. The operations of the current main electricity grids will still need to be maintained as a monopoly. It may not be technically feasible to have two or more grids operating in the same vicinity. This could be done preferably with the participation of private sector partners with the relevant technical expertise, Dr Webster says.

Under this proposal, the cities, town areas and outlying districts could be fragmented into many retail zones with contracts awarded to a retailer to purchase electricity from the main grid and distribute to consumers. The pricing regime would continue to be regulated by the Independent Consumer Competition Commission (ICCC).

There will be a need for an independent electricity regulator maintaining a technical oversight regime over those involved in the electricity generation, distribution and retail sales. This is currently done by PNG Power with evidences of inadequacy as it cannot police itself nor will it do that adequately to the growing number of private electricity producers and retailers as proposed.

In conclusion, Dr Webster says access to cheap electricity is vital for the nation’s basic needs, as well as for the growth of industries and services, and attracting investment opportunities to provide employment for a growing workforce in PNG.

He says allowing PNG Power Ltd to continue under its current form is not an option anymore. “Clearly the privatisation of PNG power is overdue,” says Dr Webster.

This article was sourced from www.pngloop.com

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