Ramu 2 hydro will be a gamechanger for Papua New Guinea, says PNG Power MD


PNG Power’s Managing Director Flagon Bekker has outlined the state-owned utility’s plans to improve the stability and reliability of power supply in Papua New Guinea during a special Business Advantage PNG briefing. He elaborated on what will be the largest ever investment in PNG infrastructure – the nation-building Ramu 2 hydropower project.


Business Advantage PNG (BAPNG): What is your strategic plan for PNG Power?

PNG Power’s Flagon Bekker.

Bekker: PNG Power needs to reform to survive over the long term. A key area of what we will do is really accelerate the reform process at a sector level, and also for the business.

The second element will be a refocus. We will be looking at our people very closely to make sure we have the right people in the right places geographically, and also in the right roles to deliver against the reform agenda.

The third element is a refurb [refurbishing]. We believe strongly that there has been under-investment, particularly in the national grid and also in the distribution system.

There has been a lot of talk over the years about investment in power stations and fuel conversion and those things are important. But in the end, without a stable and reliable national grid, it is all futile. We need to reposition the narrative more around the capex [capital expenditure] in poles and wires.

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‘Over the longer term, we are looking at a very aggressive turnaround plan. It will take us three to four years to deliver that.’

BAPNG: How well capitalised are you?

Bekker: The government of PNG and Kumul Consolidated Holdings will very shortly be making an exciting announcement around the short term and long term recapitalisation of PNG Power. The business is undercapitalised at the moment, which manifests itself in our [restricted] ability to reinvest in our own assets. Also, more severely, it does hamper our cash flow position.

In the short term, we are looking at what we are calling the Grid Stabilisation Plan, which is a strategic short term plan to inject capital into PNG Power – it will be hundreds of millions of kina.

Over the longer term, we are looking at a very aggressive turnaround plan. It will take us three-to-four years to deliver that. It is tied very closely with reform.

‘The centrepiece of power production in PNG for the long term has to be hydro.’

BAPNG: What will be your priorities?

Bekker: We are going to spend that investment money that will be coming very shortly from the government and our share owners in three chunks.

The first is spare parts: critical parts and the hardware required to deliver the stabilisation. It won’t turn the business around but will stabilise it to around the 2018 level.

With the second portion, we have some significant commitments on us as a business – which a lot of private businesses don’t have – around Community Service Obligations. The government made some commitments as part of the APEC summit, where they promised to commit a portion of counterpart funding. We will be fronting some of that counterpart funding.

The third portion will be bolstering our working capital. Our three largest costs are: the power we purchase from our independent power producers, fuel – we are working very aggressively to convert the fuel from liquid to gas – and salaries.

BAPNG: How important is gas in your power mix?

Bekker: We are spending too much money on liquid fuel; we need to move to natural gas. The answer overall is going to be about energy mix. There is going to be a place for all energy sources. Gas is integral to us, but not at the expense of renewable energy. This country is blessed with an abundance source of, particularly, hydro and solar.

BAPNG: Hydropower is the lowest cost energy source, isn’t it?

The US$902 million (K3.2 billion) Ramu 2 hydro project will be sited below the existing Yonki Dam (pictured) in Eastern Highlands Province. It will reportedly be built by China’s Shenzhen Energy Hydropower Development Co Ltd under a build-operate-transfer arrangement. Pic credit: PNG Power

Bekker: The centrepiece of power production in PNG for the long term has to be hydro. With the Ramu 2 project [in Eastern Highlands Province], we have signed a conditional PPA [Power Purchase Agreement] with a consortium. What that deal does is it creates scale in the centre of a resource-rich region of PNG.

The investment will be the largest infrastructure investment in the history of PNG – that is a nation builder. It is not just about power, it is not just about the mining sector.

The investment that goes into that part of the country will be a gamechanger for the local economy. I would be very surprised if the local businesses that come from that investment don’t outlast the mines that we are all focusing on.

It is PNG Power’s role to be ready when those sectors really start to take off. Ramu 2 creates the scale by which we can play at a totally different level as a country.

BAPNG: Can you give an idea of the scale and timeline of Ramu 2?

Bekker: At the moment the installed power in the whole country is just under a gigawatt. When complete, that one power station will produce 160-180 megawatts. At the flick of the switch, we will have an additional 20% capacity.

It really opens up the opportunities for very innovative private sector players in power generation. It will underpin the resource sector development in this country for the next fifty-sixty–seventy years. It’s the game changer that was needed to bring the giants in the resources sector into play.

We should be looking at financial close in the next three-to-four months. Then, construction will be starting fairly early on the ground. We will make a head start on it. We are looking, in around six or seven years, that the plant will be commissioned. It also depends on our resource investors … we need off-takers.

Flagon Bekker is the Managing Director of PNG Power Ltd. For the full interview, see the video at the top of this article.

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