Independent power producers concerned over contracts review

David Burbidge

INDEPENDENT power producers (IPPs) in Papua New Guinea have expressed concern over the unilateral review and renegotiation by PNG Power Ltd (PPL) of existing contracts and contractually agreed pricing to supply power to the grid.
David Burbidge, chairman of the IP3 Industry Group for IPPs, said their role was to work in partnership with PNG Power to deliver affordable and reliable power to the grid and, therefore, to end-users and customers.
Responding to a recent statement by PNG Power managing director Flagon Bekker, the IP3 Industry Group questioned the way Bekker had framed the issue.
“We see it as misleading that Bekker speaks of subsidies to IPPs,” Burbidge said.
“IPPs are paid a mutually agreed price for the power they provide, just like any other commercial arrangement.
“IP3 emphasises that the generation industry is open to working with PPL to implement the lowest cost possible for future generation, which will help reduce the major liquid-fuel bill that currently affects 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 failure of the State and other major customers to pay their utility bills was the major reason PPL was not profitable.
“The State and other large nonpaying customers also need to consistently pay for power used, as this revenue shortfall is directly responsible for PPL’s losses,” he said.
“Setting the precedent that PPL can reopen PPAs (power purchasing agreements), at any time, to renegotiate prices will be devastating for the power generation industry in PNG.” Burbidge said this would increase the cost of any financing and the future cost of power from IPPs as it would create an environment of major contractual uncertainty and major sovereign risk in terms of all contracts with State-owned enterprises in PNG.
He said this would also increase the prices offered by IPPs, which was the opposite of what PPL was trying to achieve, and it would not encourage foreign investment in PNG’s energy sector.