Group raises concern over PPL’s review, renegotiation of contracts

THE unilateral review and renegotiation by PNG Power Ltd (PPL) of existing contracts and contractually agreed pricing to supply power to the grid is a concern, according to an industry group.
Chair of the Independent Power Producers (IPP), the IP3 Industry Group David Burbidge said the role of IPPs was to work in partnership with PNG Power to deliver affordable and reliable power to the grid and, therefore, to end-users and customers.
“The intention of the utility to renegotiate the price defined in a contract was problematic for IPPs, it will also have sector wide ramifications,” he said.
“The price, at which IPPs sell their power to PPL, is a contractual agreement between the IPP as the power generator and PPL as the utility, which is captured in the power purchased agreement (PPA).”
Burbidge said the PPA contracts were generally for a period of 15 to 25 years to ensure both parties knew, in advance, that there was a market for the power generated (for the IPP) and a consistent power supply (for the utility) at a mutually agreed price level. He said this gave financiers certainty over the debt repayment and allowed the IPPs to recover the cost of capital employed in what had to date been perceived as a high-risk environment.
“IPPs are paid a mutually agreed price for the power they provide, just like any other commercial arrangement,” he said.
Burbidge said IP3 emphasised that the generation industry was open to working with PPL to implement the lowest cost possible for future generation, which would help reduce the major liquid-fuel bill that currently affected PPL’s net revenue.
“However, PPL also needs to improve its financial position by reducing the major financial losses due to power theft and billing losses, over 20 per cent,” Burbidge said.
“The State and other large non-paying customers also need to consistently pay for power used, as this revenue shortfall is directly responsible for PNG Power Ltd’s losses.
“Setting the precedent that PPL could reopen PPAs at any time to renegotiate prices wouldbe devastating for the power generation industry in Papua New Guinea.
“It will increase the cost of any financing and the future cost of power from IPPs as it creates an environment of major contractual uncertainty and major sovereign risk in terms of all contracts with state owned enterprises in Papua New Guinea.
“This will increase the prices offered by IPPs, which is the opposite of what PPL is trying to achieve, and will not encourage foreign investment in PNG’s energy sector.”