Biomass firm provides fuel for jobs

Business

Morobe’s renewable energy company Markham Valley Biomass is a subsidiary of Oil Search Ltd, the operator of oil and gas projects in the country. Reporter JEFFREY ELAPA speaks with project director MICHAEL HENSON about the benefits of this project.

QUESTION: What is the total cost of the entire project?
Henson: Since 2010 over K200 million has been invested into PNG Biomass across engineering, project development, environment and social impact assessments, feasibility studies, plantation trials, pilots and establishment, landowner payments and involvement of world experts on sustainable biomass developments. The total project investment is estimated to be well over K400 million.

Q: What is the arrangement to gain access to customary land?
Henson: Access to land is a crucial part of the project: 16,000 hectares will be required to plant trees. A further 53h is required for the power plant site and central nursery which will be leased for 35 years. PNG Biomass will only gain access to land through voluntary lease agreements.
We are committed to avoiding land acquisition through purchase. This means we do not acquire (as in purchase) any land.
We access (as in lease) land from landowners through voluntary lease agreements with incorporated land groups (ILGs). We lease land under the 2012 Amended Land Registration Act of 1981 and the Land Groups Incorporation Act of 1974.
This type of lease has no official name, but has been referred to by some as ‘Collective Freehold’ lease because it has created an opportunity for ILGs to establish a permanent and exclusive title over an area of land which is indefeasible, so there is no legal mechanism by which the land in question can then be separated from its collective owners. We support landowners with the surveying and registration of their land and help them with the establishment of their ILGs.
The Department of Lands and Physical Planning recently visited the Markham Valley and assessed our approach and spoke to landowners to hear their comments on our approach.
The feedback from landowners was positive and DLPP is supportive of our approach to leasing land.
We only lease land not in use for farming or where grazing is no longer required.
Our negotiations with landowners for long-term land access are under the principle of free, prior and informed consent.
Landowners are free to use their right to negotiate, or right to say ‘no’. Earlier this year we reached agreement with the landowners on the benefits and terms for the land lease. Our legal team is now working on the preparation of the lease agreements.

Q:How are landowners involved in the project?
Henson: We actively engage landowners in the project by engaging them in employment through their own business groups and offer them business opportunities.
We have already helped landowners establish the Zif Faring Business Group through which we currently employ over 70 local people.
The project is forecast to generate 400 jobs during construction. Ongoing operation of the power plant and tendering of plantations will create 500 direct jobs and 2000 indirect jobs over the 25-year project life. PNG nationals will constitute more than 90 per cent of the total workforce. A local productive economy will originate from our PNG Biomass project.
We build and maintain roads, offer communities agricultural cash crop ‘intercropping’ opportunities, and actively help landowners register their land under incorporated land groups.
The ‘intercropping’ farming technique we offer communities to practice is the growing of fruits and vegetables within our tree plantations in between rows of trees. We have conducted intercropping trials on our eucalypt plantations in the Markham Valley with melons, cucumbers, pumpkins, rice, cassava, yam, peanuts and other food crops.
After highly-successful intercropping trials, the practice has been adopted by many communities. Across the Markham Valley they are now increasing food supply for markets and creating additional value and income streams.
Local women are making good money from intercropping.
They sell their crops on the market making on average about K50 to K100 a day, and on good days even K200. We recently had one family that made K8000 out of one single harvest of watermelons from intercropping.
While mostly women venture into intercropping as a natural extension to tending their village gardens, some men are also taking up the practice.
We see intercropping as a core element in promoting inclusive local economic growth.
This means that communities, especially women, are increasing their incomes and growing more food.
This is great for local food security and it empowers women as they are now in control of their own small businesses and income streams.
The next step is supporting the many women practising intercropping to organise themselves into business groups through which they can start planning which crops to plant, when to harvest, and how to better distribute to different markets – and ultimately make even more money.

Q:What are the financial benefits to landowners?
Henson: PNG Biomass provides landowners with three direct income streams and additional opportunities to generate further income.
Income streams includes:

  • Land rental which is annual payments for leasing land. Landowners receive a payment rate per hectare each year for leased land. The rental payments are annually adjusted against the Consumer Price Index (CPI) so that landowners earn a sustainable income over the 25-year project life.
  • Crop share payments for harvested trees. Crop share payments are harvest-based on green metric tonnes. Green metric tonnes are the net weight of cut-down trees without bark. Trees will be weighed on a truck over a weighbridge. Any bark sold will also be weighed. Landowners get a payment rate for every green metric tonne of trees (and bark) at the end of rotation. This rate will also be adjusted annually against the CPI.
  • A one-off carbon credit payment for afforestation and reforestation.

Will the project in anyway reduce the cost of power in the country?
Henson: Our fuel is priced mostly in Kina, we have a fixed real price over 25 years, and unlike fossil fuels, the biomass power price does not change with the oil price or dollar/kina exchange rate.
It will also not be impacted by any carbon tax or pricing in the future so it locks PNG into a future of low-cost sustainable and clean energy from a domestic source.
The tariff of biomass power is about half of the current generation mix on the Ramu Grid.
It is also significantly cheaper than the new generation alternatives being discussed at the moment. Biomass power is adaptable, scalable, and a clean local fuel source. Best of all, our biomass power price is low, it is cheaper than diesel, heavy fuel oil, and most fossil fuels – and even cheaper than new large hydro projects.
PNG gets 30MW cheap, clean and renewable electricity. This project demonstrates PNG’s commitment to the Paris Agreement and showcases that PNG is serious about its climate change policy to limit global warming to 1.5° Celsius in view of the escalating threats from rising temperatures.

Q:What is the progress and timeline of the project?
Henson: Last week we completed all the legislative requirements for the project. We now have all the required permits and licences.
That means PNG Biomass is now fully approved and endorsed at the national level.
In addition, this project also has strong backing from international financiers such as the Asian Development Bank and the International Finance Corporation. We are one of only two IPPs (independent power producers) selected through an international competitive tender process and part of the ‘Least Cost Development Plan’ for the Ramu Grid.
We signed a 25-year PPA (power-purchase agreement) with PPL that was endorsed by NEC (National Executive Council) and price-approved by ICCC (Independent Consumer and Competition Commission) .
We are also part of PNG’s 100-day plan for economic growth.
We have been issued an environment permit in April this year and last week we secured a generation licence.
We will have a final investment decision before the end of the year.
Construction of the power plant will commence in 2019, with first power into the Ramu Grid expected for early 2012.

Q:Are there any plans to expand the project?
Henson: Once the main biomass plant is up and running, we may explore smaller satellite plants, as well as mini-grid solutions. We also already have tree farming trials in Madang province.

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