PPL’s years of mismanagement

STATE Enterprises Minister Sasindran Muthuvel says PNG’s electricity tariff is one of the world’s highest due to PPL’s decades of poor planning and mismanagement.
He said this was partly the result of allowing low cost assets such as hydro to deteriorate while PPL pursued expensive IPPs, including diesel generation.
“This highlights a key problem in our power sector – it has been developed without any clear plan and often reflecting the interests of private foreign interests who want to sell us power on their terms.
“While the current load shedding is due to outstanding fuel bills and also outstanding power bills from our debtors, the underlying cause is this failure to manage the development of the power sector in line with the national interest to reduce the cost of power.
“We are addressing this as a matter of urgency but it does take time to fix a systemic problem,” he added.
“The World Bank was already commissioned to undertake a comprehensive study to plan our future generation requirements in line with Government’s priority for lower power cost. The preliminary report shows renewables and gas are the best generation options in the near to medium-term, hydro-power being the least cost option in the long-term.
“We are taking urgent action to pursue a fuel switch in the Ramu Grid in line with World Bank recommendations. We have commenced work to refurbish Ramu 1 and Paunda – this could deliver up to an additional 20MW at almost no cost. We are also developing a new gas fired power plant in Hides to deliver more than 40MW using our own gas,” he said.
Muthuvel said: “While we pursue projects that have been the subject of careful study, we have a moratorium on unsolicited projects. We welcome outside private investment in our power sector, including foreign investments – but we can’t allow private interests to dictate to us what will be delivered or simply pull projects out of the hat.
“What we get then are projects that suit them by maximising profits in the energy sector at the expense of our people. This starts with us selecting projects based on careful planning that suits our needs, and then tendering them in the open market on a least cost basis.
“For rooftop solar, ICCC is the regulator that administers the solar guidelines. Solar without battery storage can cause disturbance to power grid if not regulated correctly. The quickest way to resolve this fuel issue is to grant the licence to ExxonMobil to supply gas to NiuPower and Dirio power.”
Seeing PPL’s huge potential, Muthuvel said: “We are liberalising the power generation. Most of our current financial challenges are coming from huge cost on heavy fuels like diesel. As soon as we connect both NiuPower (54MW) and Dirio (40MW) we can switch off all diesel generators and start saving money and reduce our debts and start passing the benefits to customers by end of 2021.
“We just cleared some outstanding with Puma which will allow us to go through this month and, again, we depend on the bill payments that’s owed to PPL by the Government and other agencies. The good thing is PPL will allow generation to go to private investors like super funds and provincial governments.”
PPL had operated on its own until the introduction of IPPs – the maiden IPP was Hanjung Power Station at Port Moreby’s Kanudi in 2008, followed by PNG LNG power plant in 2017 and now NiuPower and Dirio.
Both IPPs have signed Power Purchase Agreements with PPL but have not gone online yet.
It is understood that Dirio has not commenced any work on the power project yet. A domestic pipeline owned and operated by ExxonMobil is awaiting a licence from the Department of Petroleum which is expected to be issued soon.
“NiuPower is waiting on ExxonMobil to secure a pipeline approval from the Department of Petroleum which is only days away and power supply from NiuPower will start to go into the POM grid.
NiuPower chief executive officer Michael Uiari, who is also the Oil Search Joint Venture Liaison vice-president, said: “We have been involved in power generation for many years. We have supplied gas from Hides to generate electricity for Porgera since 1991. We also have two Power Purchase Agreements in place with PPL.
“In 2016, we assisted PPL with the installation and operation readiness to allow for continuous diesel generation in Tari. We continue to support the Tari facility with the establishment of a maintenance contract,” he added.
“Our power business is advancing the initiatives that can deliver scalable, reliable and competitively-priced power to PNG’s communities, businesses and industry. In 2017 we developed a three-tiered power portfolio focusing on power production, domestic energy distribution, and renewable energy generation. The scope of this power portfolio responds directly to the Government’s priorities in the power sector and aligns with its medium to long-term strategic planning,” he said.
NiuPower was established to facilitate joint participation between Oil Search and Kumul Petroleum Holdings to focus on domestic power production in key projects that include the Port Moresby Power Station and the Highlands Power Project.
NiuPower is 50 per cent owned by the people of Papua New Guinea through Kumul Petroleum and 50 per cent by Oil Search. It was launched in 2016 at the invitation of Government to deliver domestic gas fired power to the Port Moresby Grid.
The cost of the development is expected to be K3 billion (US$100 million). This total includes the transmission link to the PNG LNG plant.
In July 2019, legal action was initiated by Pacific Energy Consulting promoting various claims against PPL, NiuEnergy and NiuPower which sought to disrupt progress. That legal action ceased last Oct 31.
After one and a half months of delay, the generation licence for the NiuPower Complex was issued on Oct 9 and commercial despatch of electricity commenced that same day.
On Oct 11, upon advice from the Department of Petroleum, ExxonMobil as operator of the PNG LNG Project ceased supply of gas to the complex for ExxonMobil and the Department of Petroleum to resolve licensing issues.
Wartsila of Finland supplied the generation assets and they are also NiuPower’s operations and maintenance partner.
There is also a grid connection co-commitment by PPL to build power transmission connection infrastructure and a substation for the Port Moresby Power Station-Port Moresby grid connection, estimated to cost K60 million (US$20 million).
At PPL’s request, NiuPower has has started work on the 25km transmission line to connect PPL grid at Gerehu. It is expected to be completed by Dec 31, following which the 57.8 MW power station will be fully despatched, and Port Moresby’s power generation challenges should be a thing of the past.
“This interconnection will reduce reliance on PPL’s gas turbine at Kanudi, the Posco Daewoo power station at Kanudi and Moitaka Power Station. The savings will alleviate the financial situation that has beset PPL in recent times,” Uiari said.
On another development, Oil Search and Kumul Petroleum also agreed to establish an energy distribution company, NiuEnergy Limited, to develop a gas supply chain capability to support gas-fuelled power generation across PNG. Its focus is on the distribution of gas from the highlands to coastal regions in PNG for domestic power generation and industrial use.
On renewable energy, PNG Biomass is a wholly-owned Oil Search subsidiary that operates the Markham Valley Power Project as a low carbon, renewable and sustainable energy initiative.
Located in Morobe’s Markham Valley, PNG Biomass will use wood chips in surrounding plantations to fuel a biomass power plant to provide up to 30MW into Lae and the Ramu grid, with generation due to commence next year.

Dirio has commenced its operation, recruited personnel to run this company and has an inaugural board comprising, Isaac Lupari as chairman, two governors from Hela and Gulf and a senior officer from Mineral Resources Development Authority.
Lupari who is the Chief Secretary to Government, said they were trustees in a transition phase. “Once the company is fully established and has got business running, the shareholders will then elect their own directors.”
Last week, the Hela provincial government became the first to sign a Memorandum of Understanding (MoU) with Dirio for a new power project.
Lupari said the MoU paved the way for Dirio (a company 100 per cent owned by the people) to facilitate business to generate 50 to 200MW of power to service Hela and the highlands region.
Hela Governor Philip Undialu who jointly signed the MoU with Lupari welcomed Dirio, adding together with PPL they will be saving the Government K80 million every year.
Early this year, the four economies of Australia, New Zealand, Japan and the US signed a K3 billion PNG electrification partnership programme in Okapa, Eastern Highlands.
Meanwhile, Shenzhen Power has been working with the Kumul Consolidated Holdings and PPL to build a second hydro-power station in Ramu, costing about K2.6 billion (US$800 million) following four years of “intense negotiations between PNG and Chinese officials” and Cabinet approval.
The power produced would be sold to both Wafi-Golpu and also Ramu Nickle.

Institute of National Affairs director Paul Barker says the challenges for PPL seem interminable, although it should be said that the lack of investment, maintenance and upgrading of all public infrastructure applies to all state institutions, from roads and other transport infrastructure, to schools, health facilities, police stations and staff housing, to telecommunications and many others.
He said the poor state of infrastructure, unreliable and high power tariffs ballooned cost on business, as well as causing public inconvenience.
“Invariably the private sector and public facilities, such as airports, especially those that are manufacturing, retailing or catering, such as operating refrigerated stores, have to invest in back-up power generation and associated costs, whether sourced from diesel or renewable sources.
“This pushes up the costs of business and undermines PNG’s potential competitiveness,” he said.
“The National Capital District (NCD) consumes a disproportionate portion of PNG’s power supply, and yet even in NCD we have extended power outages. Lae, which is PNG’s main port and industrial centre, has worse power capacity and reliability than the capital and that also goes for many of PNG’s other smaller centres.
“Unlike other developed and emerging nations, PNG’s rural households don’t have access to electricity, except those few that have installed solar units,” he said.
Barker said PPL’s output from hydro was often well below maximum capacity owing to the need for maintenance and restoration. Port Moresby’s 63MW power and main water supply, from Rouna 1-4, were installed in the 1960s and subsequent years, and comes from a limited catchment area.
There were plans for major new hydro capacity development in the 1970s from the larger Vailala River, but PPL never had the capital to develop it, and ended up having to pursue stop gap arrangements to fill the shortfall in power generation, notably the 30MW Moitaka station and a power purchase arrangement with the 34 MW Kanudi power plant.
In the meantime, NCD’s population and businesses have been growing and power usage increased substantially and the aging infrastructure has been under strain, especially when PPL had not had the revenue (and cash flow) to pay for the fuel and power from the non-hydro and the privately operated plants. NCD, like Lae, simply does not have ample current supply, especially when there’s failure in the system, for whatever reason.
NCD has, however, secured the additional supply from the 45MW NiuPower gas power plant, that Oil Search with Kumul Petroleum Holdings Limited hurriedly installed at the Government’s request, to ensure there were no blackouts at the Asia Pacific Economic Cooperation (Apec) Leaders’ Summit in November last year.
“For various reasons, NiuPower had been restrained from coming on-stream. This is odd as, apparently the supply cost is competitive and would help PPL with their critical cost of bringing supply costs down.
“The lack of payment, or delayed payment for power provision has been a major problem for PPL, notably from various government entities, as well as from extensive households and even businesses, tapping into the grid fraudulently,” he added.
Barker said: “There must be enough capacity to spare to allow for routine servicing and in case of system failure. In the long-term, hydro power is the main focus, given PNG’s abundant hydro potential. KCH and PPL together with external partners are currently progressing discussions with some major hydro power projects including the Ramu 2 and Naoro Brown Hydro Projects, as well as looking at other generation sources such as biomass and thermal energy for future development.”