Light at the end of the ‘line’

Focus
PNG Power Ltd has struggled as a Government entity since the early 2000s. PAMA I ANIO writes about its journey, struggles and issues that hunted it before and at the moment.

PNG Power Ltd (PPL) is a Government business nightmare that continues to haunt everyone who has anything to do with it.
Its owner, Papua New Guinea, doesn’t appear to know what to do with this dilapidated and cash-strapped power utility.
But it wasn’t always like this.
The former PNG Electricity Commission (Elcom) was a much-revered Government agency that provided efficient and reliable power supplies to many urban centres prior to and since independence in the 1970s.
Ironically, PNG Power’s woes began after it was corporatised in the early 2000s.
Instead of becoming a more efficient and effective business arm of Government, PPL began to face serious financial, operational and management issues.
Political interference at the management and board levels just seemed to make matters worse.
These same issues have haunted PNG Power over the past two decades and continue to severely impact on its business growth and profitability.
There seems to be no light at the end of the tunnel.
In recent years, PPL’s chronic failure to provide greater coverage and reliable power has caused dissension and outrage among its consumers, from high-end industry and business off-takers to smaller domestic users.
Never-ending blackouts or accidental power outages in Port Moresby and Lae have become synonymous with PNG Power.
Public perception has gone from bad to worse.
Insofar as its consumers are concerned, PNG Power appears to have well and truly lost the plot.
PPL managing director Flagon Bekker thinks otherwise and has embarked on plans to turn the fledgling State power utility around.
Early this year, Bekker hosted the first power sector forum with independent power producers (IPPs) to discuss next steps to progress reform of electricity costs in the country.
He announced that after a detailed analysis of all feasible options for least cost generation of electricity in grids in the country, PNG Power was giving notice to all IPPs that their power purchase agreements were being reviewed.
Independent power producers work in partnership with PNG Power to deliver affordable and reliable power to the grid and therefore to end-user customers.
They do this through contracts with PPL called power purchase agreements (PPAs).
The PPL analysis revealed that, understandably, the price at which IPPs sell their power to PNG Power has a major impact on the final cost of power to the people of PNG.
Bekker said: “PNG Power has a responsibility to all electricity users to maintain the lowest possible retail tariff.
“Independent studies have demonstrated that hydro, gas and solar are the cheapest technologies for power production in the short, medium and long term.”
The strategy underpinning the investment policy for the power sector in PNG is known as the least-cost power development plan.
This ever-evolving strategy is regularly reviewed to incorporate the latest emerging technologies.
Bekker added: “We will be working collaboratively with all independent power producers on a pricing formula that is consistent and cost effective for all stakeholders.
“We want a win-win situation for the people of PNG and independent power producers, while positioning the sector for lower tariffs in the future.
“The least-cost power development plan will do this.
“PNG Power is working to stabilise its major electricity transmission, distribution and mini-grids under a grid stabilisation plan, to be announced soon.
“We will be progressing development of least cost power generation options such as renewable hydro and solar technologies while exploring all short-term options to replace diesel and heavy oil with gas/LNG-powered generation.
“To get the best value for PNG taxpayers, all deals will be assessed following PNG Power’s tollgate process.
“No deal is progressed without first being complaint with the low-cost power development plan for the sector and supports PNG’s economic needs.
“PNG Power plans to run its first auction for new generation capacity in Quarter 3, 2021.”
Seemingly, Bekker has his finger on the pulse, but PNG Power’s nightmare won’t end until it starts maximising its revenue potential.
For that to happen, PPL needs to move 70 per cent of its customer base to being prepaid like progressive telco Digicel. Post-paid customers, especially Government departments and agencies, are PNG Power’s biggest obstacle to timely revenue collection.
The biggest property portfolios are owned by our superannuation institutions and Steamships Trading Company – they can potentially play an important role in realising this paradigm shift.
The Independent Consumer and Competition Commission recently highlighted issues that affect PNG Power’s performance and the reliability of electricity supply around the country.
These notable issues include:

  • NON-PAYMENT of electricity bills by Government, which owes PPL significant outstanding amounts that impact the financial ability of PPL to effectively sustain its operations and meet financial obligations;
  • POLITICAL interference in PPL’s operations – PPL has historically been subjected to a lot of political pressure that has affected the viability of its business. There have been unsolicited proposals forced on to PPL through political means.

These deals have tied PPL to unsustainable long-term financial commitments.
PPL is burdened with astronomical debt; and,

  • TARIFF freeze – PPL’s financial performance has been impacted by the Government imposed tariff freeze since 2013, which has resulted in PPL being unable to invest in rehabilitation programmes, let alone new investments such as extending the reach of its grids.

Another issue that continues to seriously affect PNG Power’s revenue collection is the theft and illegal use of electricity by domestic users and commercial premises.
PPL needs to improve its detection system to curb this theft and illegal use of electricity.
There is an opportunity here to work with Water PNG to develop a sustainable user pay model for urban squatter settlements – these ever-growing settlements are home to public servants, university graduates and private sector workers that form an important part of the modern economy.
PNG Power’s ability to generate significant revenue also suffered a major setback in recent years when several major corporations went off grid in Port Moresby and Lae.
In Port Moresby, these companies, including SP Brewery, Coca-Cola Amatil, Paradise Foods, Motukea Container Terminal and Puma Energy Refinery, were compelled to supply their own power needs because of PPL’s unreliable electricity supply. This significant loss in revenue will continue to haunt PPL until these private organisations reconnect to the Port Moresby grid.
There are no quick-fix solutions to the issues and challenges confronting PNG Power.
While Bekker has his own plans to reform the State power utility, the Government may need to intervene (not interfere) by allowing wholesale changes to the future ownership and management of PPL.
It has been suggested that applying a public private partnership (PPP) approach analogous to the Bank South Pacific story, is the best option for PNG Power’s future sustainability and prosperity as well as restoring reliability for customers – a business model that will form an important pillar enabling PNG’s economic transformation.
NiuPower Ltd managing director Michael Uiari hinted at such a partnership in a media statement back in March.
Uiari said: “NiuPower can offer a sustainable, long-term solution to PNG Power’s challenges in Port Moresby by unlocking the capital required for investment in transmission and distribution infrastructure and to restore Rouna hydro to full capacity.
“Solutions have been broached with PNG Power, industry peers, Kumul Consolidated Holdings and our superannuation institutions.”
NiuPower already supports PNG Power by supplying electricity to the Port Moresby grid.
At full capacity, NiuPower is capable of supplying 60 per cent of Port Moresby and Central Province’s needs.
Its power station capacity is 57.88MW but PNG Power is taking less than that for various reasons.
Between PNG Power’s Rouna Hydro, PNG Power’s gas turbine at Kanudi, PNG LNG 25MW turbine and NiuPower, Port Moresby has more than adequate power supply to meet its needs during peak hours (weekdays 6am to 6pm) and off-peak hours (weekends and evenings).
Uiari added: “The issue confronting us in Port Moresby is ageing transmission and distribution infrastructure and its inability to keep pace with the needs of a growing city.
“We have expressed a willingness to assist PNG Power with useful investment if they can first help us improve our liquidity position.
“We have already assisted by funding the construction of a 24km transmission line from the power station to Gerehu and also funded the delivery of a US$20mil (K70.2mil) 4km gas line.
“NiuPower’s shareholders, Kumul Petroleum Holdings and Oil Search, made additional working capital contributions last year for the assistance that we rendered.
“At PNG Power’s request, NiuPower is working on modifications to its power station in order to provide black start capability not contemplated in its original design but has been necessitated by grid instability.
“This means that in the event of a total system outage, NiuPower’s power station can start up first and help to re-energise the entire grid within 20 minutes instead of 2 to 3 hours.”
Uiari said NiuPower had to adjust its own power station frequency and power factor settings to accommodate the wildly fluctuating voltage and frequency and low reactive power in the Port Moresby grid to stabilise the grid. He said the result of these adjustments was de-rating of NiuPower’s generators to 54MW and could not dispatch at full capacity, which represented a revenue loss and was inefficient for heat rate and fuel consumption.
The concession was accepted in the interests of grid stability until a permanent solution is found.
He added: “Midway through 2020, we worked closely with PNG Power in monthly dispatch planning to ensure it derives a positive margin on its tariff for commercial and industrial customers in Port Moresby.
“This was an initiative of Douglas Mageo at PNG Power which has yielded positive results for them.
“The challenge is that the surplus is never realised in cash at bank because of low and slow revenue collection, power theft, revenue lost through power outages and PNG Power’s own high cost base.
“We have been jointly exploring ways in which PNG Power can recover customer arrears to alleviate its cash flow issues.
Uiari noted: “We are a strong advocate for PNG Power’s IPP partners being zero rated for GST, PPL being given relief from the 2013 tariff freeze so tariffs more closely reflect its cost base and to move towards the mobile telco business model of 70 per cent of its customer base being prepaid.
“The status quo is not sustainable for PNG Power in Port Moresby.
“Subject to the views of NiuPower’s shareholders, we can be part of a solution.
“Together with PNG’s superannuation institutions and our industry peers, we can promote the transformation of the power sector starting in Port Moresby and build on that success by taking this business model around the country to provincial centres.”
At Apec 2018, PNG invited Australia, Japan, New Zealand and the United States to work together to support its enhanced connectivity and the goal of connecting 70 per cent of its population to electricity by 2030.
Electricity lifts the living standards of communities in cities, towns and remote villages.
The issue confronting the industry is the inability of the development sector to focus on funding the electrification of the country and the expansion of existing grids.
Instead, the focus appears to be lending or donating funds to improve the reliability of existing grids.
This shift in focus by the development sector has come about because the activities of the development sector have not been coordinated by Government and the development sector is operating in a vacuum.
This approach needs to change if PNG is to achieve this ambitious goal – PNG Power can recapitalise and borrow capital on a commercial basis while our development partners should focus exclusively on funding the erection of poles, wires, substations and household connections right around the country.
The establishment of the National Electricity Authority should address this inability to coordinate the activities of the development sector.
There is some uncertainty around the transitional arrangements required to efficiently transfer regulatory responsibility to the NEA and this requires PNG Power and the ICCC to manage this transition seamlessly in the broader public interest.
There is light at the end of the tunnel and the future is bright.

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