Global partnership creates path to electric power and economic prosperity in PNG - Oil, Gas & Electricity

For too long, poor access to electricity has been a handbrake on economic and social development in Papua New Guinea. The announcement that Papua New Guinea will partner with Australia, New Zealand, and the United States to electrify the nation should enable Papua New Guinea to put its foot to the floor in pursuing its economic and social development aims.

On 18 November 2018, Papua New Guinea, Australia, Japan, New Zealand and the United States announced that they intended to join together in a 'Papua New Guinea Electrification Partnership' in support of Papua New Guinea's objectives for electrification. The electrification project, which was announced during the APEC leaders' summit, has the potential to transform Papua New Guinea.

Presently only about 13% of Papua New Guinea's population of 8.5 million people have reliable access to electricity – one of the lowest rates in the region. The Papua New Guinea Electrification Partnership aims to lift that rate to 70% by 2030. That target is not new – it was a key goal set out in Papua New Guinea's Development Strategic Plan launched in 2010. The vision of the Strategic Plan was for Papua New Guinea to be a prosperous middle-income country by 2030 – an ambition that will remain unrealised unless power can be delivered to the country's people.

PNG TODAY

Papua New Guinea has one of the least urbanised populations in the world, with more than 80% of its people living in rural areas. The combination of its decentralised population and rugged topography has presented particular challenges for the country's electrification.

Papua New Guinea's installed power generation capacity (including generation by independent power providers) sat at approximately 580 MW just 18 months ago.¹ For urban populations in Papua New Guinea, grid supplied electricity is expensive and unreliable, although in recent years it has improved considerably in the capital, Port Moresby. Many businesses invest in large back-up generators to ensure business continuity, while much of the country's rural population must rely on antiquated energy sources such as kerosene, candles and the burning of agricultural waste.

While PNG has historically been heavily dependent on diesel to generate power, more than half of PNG's current power supply comes from hydropower plants.

GETTING THE ELECTRICITY MIX RIGHT

Installed power generation and distribution capacity will need to increase significantly to achieve the goal of electricity access for 70% of the population by 2030. It will take careful planning get the mix right!

The joint announcement specifically contemplates investment in new 'on grid' generation and distribution assets. There must also be a role for off grid generation and micro distribution networks to service remote rural communities which are a feature of Papua New Guinea. There will be no one solution for the entire country, but rather a range of complementary solutions and technologies including solar PV, micro-hydro, small scale LNG and waste-to-energy.

NO DETAILS YET, BUT A FEW QUESTIONS

Details as to how the project will be managed, delivered and funded are being worked through, with most activity in 2019 expected to involve project scoping.

The Australian Government has announced it will contribute A$25 million in project funding in 2019, against a total estimated project cost in the order of US$1.7 billion over 12 years.

We expect the scoping activities will need to consider:

How to encourage private investment – there are reports that public private partnerships will be considered. The project partners recognise the need for continued investment and improvement in institutional and regulatory frameworks to unlock private investment, which may include public private partnerships.
The role of PNG Power – PNG Power is the State-owned electricity utility, and also performs a regulatory role for the Independent Consumer and Competition Commission. Some have argued for a structural separation of PNG Power into generation, transmission and retail businesses to improve its performance and reduce conflicts of interest with new market entrants.
Exploitation of new technologies – Historical under-investment ironically brings an opportunity for Papua New Guinea to embrace new electricity generation and storage technology, which may provide ideal off grid power solutions.
Revenue collection – PNG Power recognises that electricity theft is a major hindrance to meeting national targets set by the Government, with 25% of generated power being supplied free or stolen.²

A BRIGHT FUTURE

Improving access to electricity has long been recognised as fundamental to substantive economic and social development in Papua New Guinea. With the commitment of the electricity partners, the electrification project will pave the way for a brighter future for the citizens of Papua New Guinea.

Footnotes

¹The World Bank, 'Papua New Guinea Electrification Project (P159840)', Project Information Document / Integrated Safeguards Data Sheet, 10 April 2017, pg 5.

²"Electricity Theft is a Major Hindrance", Post Courier, 21 March 2018.

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