- Landmark developments require integration
A report by ANZ, Bold Thinking: Imagining PNG in the Asian Century, published in 2013, identified the need to integrate PNG’s infrastructure development with key agricultural and minerals projects.
Large concentrated loads – arising particularly from minerals projects – enable the creation of at-scale electricity generation and can also be the centre of regional mini-grids.
- Offering a fair return on new investment
The current system of tariffs has the benefit of simplicity due to it being a government-set tariff for all PNG electricity users. However both the process through which tariffs are set and the incentives they produce act to delay essential investment.
Reforms such as moving on-grid tariffs closer to true costs so they cover operating costs and a fair return on capital or allowing geographically differentiated tariffs would be beneficial.
Introducing an explicit and well-designed subsidy framework would also help as maintaining affordability under differentiated tariffs will require a change in the way subsidies are set. This would primarily involve supporting the higher cost areas such as provincial towns or remote villages with greater subsidies.
- Targeted private sector involvement
Private sector involvement will be vital in creating the competition and innovation needed to expand access.
A structural separation of the vertically integrated PNG Power Limited (PPL), the retail generator and provider in the country, into generation, transmission and customer billing units would help improve its performance and reduce actual and perceived conflicts of interest between PPL and new entrants.
Over time PPL may also benefit from privatisation, although there is a case the transmission (that is, construction and maintenance of the power grid) could usefully remain in public ownership particularly if there is support via the PNG EP.
Nevertheless the private sector will only become involved if there is an enabling environment conducive to investment. This requires not only clarity and consistency around the prevailing regulatory environment but will potentially require changes to PPL’s payment obligations.
The PNG EP is a positive initiative for the country. It is now critical an efficient power structure is implemented to ensure PNG’s continued growth.
Nick Easingwood is Director – Project and Export Finance and Mark Baker is Managing Director, Papua New Guinea at ANZ