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ANZ’s timely discussion paper, Powering PNG into the Asian Century, argues for further reform in Papua New Guinea’s electricity sector and a greater reliance on newer, cleaner energy technologies.

Powering PNG into the Asian Century follows on from Bold Thinking, a 2013 PNG-focused report also compiled for ANZ by research firm Port Jackson Partners.
This new report addresses an area of infrastructure which is widely viewed as critical for PNG’s future growth: energy, and more especially the policies the PNG government and its agencies might pursue to meet the country’s ambitious electrification targets. As the report’s author, Port Jackson Partners’ Grant Mitchell, writes, ‘economic growth moves in lock-step with increased electricity supply.’

Among its suggestions are that:

  • gas might be ‘superior’ to hydropower for the generation of on-grid electricity, primarily for reasons of cost
    bringing more people onto a centralised energy grid may not be the answer, as newer technologies such as micro-hydro, biomass and solar power make ‘off-grid’ power generation more affordable
  • costly diesel fuel ‘should play little, if any role’ in future power generation
  • Planning is required to ensure agricultural and minerals projects share energy sources where practicable
  • The generation, transmission and retailing of electricity in PNG ‘would be best organised and operated separately’
  • Competition, achieved by encouraging more private sector involvement, will drive expansion

Big savings
Significantly, the report identifies a major financial benefit to PNG of making the right decisions in the future: ’embracing new generation and storage approaches could reduce required expenditure from around US$15 billion to US$10 billion, saving PNG around US$5 billion over the next 15 years’.

It’s a figure guaranteed to attract attention, as is the suggestion that PNG could halve its carbon dioxide emissions over the same period—not such a big deal now, perhaps, but one likely to increase in importance as the world ramps up its attempts to manage climate change.

Whither PNG Power?
The dilemma facing state-owned utility PNG Power Limited (PPL) is outlined succinctly:

‘PPL’s revenues are currently insufficient to secure an economic return on its assets and low prices effectively ensure low quality or insufficient service … Overall, electricity performance in PNG is among the poorest in the region.’

The result, as any business person in PNG will tell you, is that almost all companies of any size end up maintaining their own electricity generation capacity, whether they’re connected to a grid or not. In some cases, the report observes, mining projects in remote areas can find themselves becoming de facto energy utilities.

The report suggests a change in direction for PPL—one that involves ‘a structural separation of PPL into its component parts’, with selective privatisation to be considered—but not rushed into.

New model for tariffs and subsidies
Beyond PPL, the report suggests the current structure of tariffs and subsidies needs review, not only to attract new investors into the sector but also to allow PPL to better cover its costs.

The report argues for less ‘unrealistically low’ subsidies for on-grid users, and for ‘on-grid tariffs closer to true costs.’
That means higher prices, especially if the full costs of fuel are included in the set tariff.

While it says there is still a place for subsidies, the report argues for a move away from a flat national tariff, allowing for differential pricing for rural and remote electricity consumers: pricing that reflects the true costs of generating power:

‘Allowing electricity users and suppliers to be aware of these differential costs of supply, and charge for them, will be critical to future investment in rural and off-grid provision.’

Private sector led
Ultimately, the report envisions a power sector where greater competition, new entrants and better technology drive increased access to electricity for the bulk of PNG’s population over the next 15 years.
Such rapid change would need to managed under new regulatory frameworks and policies, it says, to protect consumers and investors alike.

The work starts here
By its nature, any report looking out as far as 2030 will have to hedge its bets somewhat. The author acknowledges that greater research will need to be done into the right technology mix for PNG, and suggests that government, ably supported by industry and NGOs, needs to engage in a ‘concerted planning effort’.

That said, it applauds recent initiatives such as newly constituted governing body, the Electricity Management Committee, the National Electrification Roll-Out Plan and the 2013 reforms to the Electricity Regulatory Contract.

Many PNG-focused business people would agree with the report’s assertion that ‘size of the prize necessitates an immediate and focused evaluation’ of PNG’s power sector.