Current model ‘restricting’ power sector

By ZEBEDEE GIAME
PAPUA New Guinea’s electricity sector operates a single-buyer model with the objective of attracting new investments in power generation from the private sector through independent power producers (IPPs).
According to a research from the PNG National Research Institute, this objective was to alleviate ongoing electricity shortages.
However, the research found that the inability to fulfil commitments and rigidity of the contractual arrangements in the power purchase agreement (PPA) under the current model was concerning.
The research, titled “Independent power producers and deregulation in an island-based small electricity system: The case of Papua New Guinea” by Associate Professor Rabindra Nepal and research fellow Ronald Sofe, reviewed the prospect of electricity sector reforms and the development of IPPs.
The PNG economy is facing severe electricity shortages and has turned to implementing broader power sector reforms as a vehicle to attract private investments in electricity generation.
This study, based on a case-study approach, revisited the reform progress and plans in the electricity sector of PNG alongside the development and integration of IPPs in its small power system.
The research said lessons of reform experiences and IPPs integration were drawn from three other smaller power systems belonging to Nepal, Nicaragua and the Northern Territory of Australia, including stakeholder consultations, which included two IPPs of PNG.
“We found a widening gap between reform ‘theory’ and ‘practice’ in the PNG power sector,” Nepal said.
He said the cost reflective pricing was implemented, but cost recovery was never achieved by the vertically integrated State-owned utility.
“The insolvency of this State-owned single buyer posed the greatest perceived revenue risk to the IPPs,” he said.
Nepal said lack of revenue reimbursement to the IPPs by the single buyer was a barrier towards attracting private capital into electricity generation even though IPPs were satisfied with the role of the regulator and negotiation of the PPAs being cost reflective.
“PNG’s power sector was in transition of growth in terms of power size and policy-makers should consider improving the sector regulation planning and the industry structure because electricity shortages in PNG implied that the country should focus more on developing a framework for adequate supply of power to meet demand without imposing supply constraints,” Nepal explained.