Private sector investment is important in strengthening the electricity sector
The private sector plays a significant role in electricity generation in Papua New Guinea, according to a Spotlight released today by Papua New Guinea National Research Institute.
The Spotlight, titled “Private sector in electricity generation in Papua New Guinea – constraints and policy options”, by Research Fellow, Ronald Sofe, examines the important role Independent Power Producers (IPPs) play in electricity generation and the challenges affecting private sector participation in the country’s electricity sector.
It stated that substantial private sector investments have already been made in constructing and operating power generation facilities in PNG. These investments are important for meeting the country’s growing demand for reliable electricity, upgrading the electricity network and expanding access to electricity in rural areas. According to the Spotlight, IPPs offer a viable opportunity to meet the gap in the demand and supply of this essential service by expanding generation capacity, fostering injection of private capital, deployment of technology, transfer of skills set and infusion of competitive pressure in the market.
However, the current single-buyer model, under which IPPs sell electricity to PPL through Power Purchase Agreements (PPAs), presents several challenges for private investors. These include revenue insecurity, weaknesses in PPA procurement, and constraints of small and isolated power systems.
Under the current model, PNG Power is the principal buyer of electricity generated by IPPs. The financial difficulties facing the utility have affected its ability to make timely payments to power producers, creating cash-flow pressures for private generators and increasing investment risks. The Spotlight also highlights weaknesses in the procurement of PPAs. It notes the need for greater transparency and more competitive processes to reduce investment uncertainty, avoid excess generation capacity and ensure electricity prices are sustainable.
The Spotlight proposes several measures to strengthen PNG’s electricity sector which include:
Implementation of tariff adjustment: Electricity tariff should reflect the actual cost of generating and supplying power, including fuel and operating costs. Implementing this without any counterproductive political influence will not only improve commercial viability but importantly boost private investors confidence to invest in the electricity sector.
Strengthen revenue collection: Clamping down on illegal connections and electricity theft holds great potential in strengthening revenue collection of the state utility. In addition, government agencies with outstanding bills should be required to use reliable metering systems, including prepaid meters where appropriate. Improving the reliability of the electricity supply to large load customers and industry anchor players is also important because these businesses are more likely to pay when they receive consistent and reliable services.
Create a better environment for private investment: It is important to make the process of negotiating and awarding PPAs more transparent, fair and accountable. Future PPAs should reflect the actual cost of producing electricity and provide greater certainty for IPPs. This would build investor confidence and encourage more private sector investment. In the ongoing pursuit to reform the country’s electricity sector, private sector still remains a significant player.
Authorised for release by :
Dr Osborne Sanida
PNGNRI Director
