Papua New Guinea turns to the private sector for electricity


Power outages may become a thing of the past, with Papua New Guinea’s power generation capacity set to double in coming years, largely due to increased investment from the private sector. Business Advantage PNG surveys the wave of new and potential developments set to transform the sector.

Hydropower accounts for around 45% of all PNG electricity generation. Credit: PNG Tourism Promotion Authority

Hydropower accounts for around 45% of all PNG electricity generation. Credit: PNG Tourism Promotion Authority

As reported by Business Advantage PNG this week, state utility PNG Power is negotiating with Hong Kong-based power company, Energy World Corporation, to build a new power plant in Port Moresby, with a second private power provider being sought for Lae.

These two larger projects indicate clearly the PNG Government is determined to use Independent Power Producers (IPPs) to supply part of its future energy needs, as flagged by PNG’s Prime Minister Peter O’Neill at the April Australia–PNG Business Forum.

‘IPPs are the model we’d like to see going forward, where the investor has agreed a price to sell power to the grid,’ Thomas Webster, Chairman of the Independent Public Business Corporation told Business Advantage PNG back in April.

Benefits all round

Public-private power deals are not without precedent in PNG. A plant run by Korea’s Hanjung Power Ltd has been selling electricity to PNG Power in Port Moresby since 1999 (in a deal currently being re-negotiated).

There are clearly benefits to both seller and buyer under such arrangements, if NBPOL’s power project in West New Britain is any measure.

Under a contract with PNG Power, NBPOL has been using methane derived from the processing of waste water in two of its palm oil mills to generate power both for its own use and for the town of Kimbe.

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Why PNG needs independent power producers

  • Total installed capacity in PNG right now is around 500 MW, yet average peak demands for power in PNG are scheduled to grow to over 1500 MW by 2030, as presented in the Government’s Strategic Development Plan 2010-2030.
  • Yet PNG Power is struggling even to meet the current needs of power users, in a country where only 13% of the population has access to mains power.
  • This is in spite PNG Power investing K692 million (US$ 313 million) over the past five years and having a K476 million (US$215 million) debt facility for further investment.
  • Power supplies in PNG are sufficiently unreliable for every business of any size to need its own power generation capability. Many major mineral and agribusiness projects exist completely off-grid.
  • Under current regulations, PNG Power has the exclusive right to sell electricity within 10km of 25 designated centres nationwide, leaving space for a private energy sector also to develop beyond these population areas.

NBPOL’s General Manager in West New Britain, Harry Brock, told Business Advantage PNG that the two plants were supplying 1.5MW of power—ranging from 40% to 60% of Kimbe’s current power needs—and that the company had plans to build two more 1MW plants—attached to  its remaining mills—over the next three-to-six years.

‘We’re selling biogas electricity to PNG Power for about half the cost of diesel-generated power,’ he says. ‘It’s part and parcel of our company-wide commitment to sustainability [link]. It’s been a huge game changer for everyone here.’

Oil change

Buying oil to fuel PNG’s Power’s power stations soaked up K140 million—a massive 40% of PNG Power’s entire budget in 2012, according to John Tangit, Acting CEO of PNG Power. Indeed, the state-owned utility this month increased its power tariffs by 5.5% due to rising fuel costs. Clearly, reliance on imported oil fuel for power generation is going to be problematic in the future.

‘Our long-term aim is to convert some of the gas that we’ve got into generating power for the country,’ Peter O’Neill told the April 2013 Australia–PNG Business Forum.

Estimates suggest replacing diesel with gas could halve PNG Power’s annual fuel bill.

There’s no shortage of gas in PNG, of course, subject to a deal being cut with either the ExxonMobil-run PNG LNG project or a second LNG project. (Peter Graham, CEO of Esso Highlands, has confirmed that a flange has been put in place to allow the PNG LNG project to provide off-take gas for power generation if an agreement is reached.

While the two new plants in Port Moresby and Lae will initially use diesel, the plan is for both to diversity their fuel sources, with Port Moresby’s plant using gas and Lae’s using some form of biomass.

Geothermal power, already used at Newcrest Mining’s Lihir gold mine, is also a future power option.

Hydropower, which already meets about 45% of PNG’s power needs, will also be a major contributor to PNG’s future energy needs. The Yonki ‘toe of the dam’ project will add 18MW to the Ramu distribution network (that services Lae and Madang) later this year, while a feasibility study is currently under way for a 80MW plant at the convergence of the Naoro and Brown rivers near Port Moresby.

Technical assistance will be provided to PNG Power and the Department of Petroleum and Energy for the Naoro Brown project by the World Bank, as part of its PNG Energy Sector Development Project, which was signed-off today.

Major hydro

PNG has two potentially transformational hydro projects on the drawing board.

‘This is a project that will go on for a long time. Given it will go for 100 years, it could be bigger than the PNG LNG project.’

The 240MW Ramu 2 project is currently at feasibility stage, with a funding model yet to be announced, but would clearly make a major difference to communities and business along PNG’s northern coast.

The biggest of all by far, however, is the 1800 MW Purari River project currently being considered by PNG Energy Developments Ltd (a 50/50 joint venture between PNG Sustainable Development Program and Australia’s Origin Energy). Indeed, the project is so large, it could turn PNG into a power exporter, with opportunities to supply northern Australia.

The project is at a crucial phase, according to Parkop Kurua, Senior Portfolio Manager, IPBC, who oversees the energy sector.

The government’s powerful Ministerial Economic Committee is currently reviewing the feasibility study, which was completed last December by PNG Energy Development Ltd (PNGEDL), and is now considering how to proceed with the next phase—the scoping and design of the dam project.

This 1800 MW proposal could increase to a massive 10,000 MW, Kurua told Business Advantage PNG. The commercial structure will be critical.

‘If we don’t do the structuring, the commercial arrangement properly, we will miss out. This is a project that will go on for a long time. Given it will go for 100 years, it could be bigger than the LNG project.

‘This is a project of national significance. It has the potential to transform the livelihood of Papua New Guineans. If we structure this project properly, we will achieve our dreams.’