"6. Power solution is main priority but no time frame given for solution. Mentioned combination hydro / LNG as a possibility. A lot of pressure from entire mining sector to get it fixed ASAP."
Poor In?rastructure and In?rastructure Services
PNG lags far behind most other major economies in the region in key infrastructure, including transport, electricity, and water supply. Moreover, the state of most of the infrastructure is very poor and in need of major restoration or upgrade.
Electricity PNG lags behind most other economies in the region in terms of access to and consumption of electricity.•Moreover, improvements in access to electricity have been at a very slow pace (NSO 1996, 2006, and World Bank WDI, accessed April 2011).Coverage is largely concentrated in the national capital district and urban areas (ADB 2009b).•The installed generation, transmission, and distribution capacities remain low due to insuf?cient•investment in the electricity sector (PNG Power Ltd., ESCAP 2003)
In?rastructure and In?rastructure Services
Undertake immediate rehabilitation, restoration, maintenance, and upgrading of existing infrastructure•facilities.Review current capacities (transport, electricity, and water supply), and improve the policies and•capabilities of concerned agencies to be able to meet basic infrastructure needs .Strengthen legal and regulatory frameworks to encourage private sector investment and ownership in•infrastructure and services that are commercially viable such as seaports, airports, power generation,urban water supply, and sewerage services.For the electricity sector, focus on locally available renewable sources while exploring clean development•mechanism opportunities, and improve delivery mechanisms for grid and off-grid areas. shortfalls and climate change.
Critical Constraints to Growth 27 3.2.2. In?rastructure Inadequate infrastructure constrains economic growth and private investment. Inadequate infrastructure adds to the cost of doing business, thus reducing economic returns to investments. PNG’s infrastructure remains less developed relative to major economies in Southeast Asia and the Paci?c (Box 3.1). A recent study by the United Nations Economic and Social Commission.
Among the key infrastructure components, de?ciencies in telecom-munications, transport, and electricity are the most critical. In the INA (2008a)survey, investors perceived the inadequacies in telecommunications, transport, and electricity infrastructure and services as the 2nd most critical constraint (governance considerations garnered the top spot).
Electricity Box 3.3 describes the power sector in PNG.
Lack of access to affordable and reliable electricity is a critical constraint. Among major Southeast Asian and Paci?c economies,PNG ranks lowest in access to and consumption of electricity (Table 3.9), and the access has been improving at a very slow pace. Available data suggest that between 1996 and 2006, the access to electricity improved only marginally, from 12.3%of the households to 12.4%. In comparison, 83%–99% of households in Southeast Asia and about 67% in Fiji had access to electricity. The low level of access to electricity also translates into low percapita consumption levels. In PNG in 2006, percapita consumption was about 133 kilowatt-hours(kWh), whereas the levels in major Southeast Asian economies in 2007 ranged from 586 kWh in the Philippines to 3,667 kWh in Malaysia. Electricity tariffs also seem to be high when compared with other major economies in Southeast Asia and the Paci?c. Another serious issue is that the households connected to electricity are highly concentrated in the National Capital District and other urban areas, which is discussed in more detail in Chapter 4.
Box 3.3. Power Generation and Supply Generation, Transmission, and Distribution
. PNG has about 580 megawatts (MW) o? installed genera-tion capacity, about two-thirds o? which are ?rom hydropower (230 MW) and diesel (217 MW). The rest is provided by gas-fred plants, at 82 MW, and geothermal, at 53 MW (ADB 2009b).PNG Power Limited (PPL) manages about 300 MW o? this capacity. The remaining capacity o? about 280MW comprises (1) sel?-generation systems owned and operated by industrial ?acilities, including mining companies; and (2) private sector generators supplying the main grids or rural communities. Transmission is via two main power grids—one in Port Moresby and the other in the Lae–Madang–Highlands areas (the Ramu grid). Both grids are managed by PPL. The two main grids are complemented by small in-dependent power systems servicing the smaller urban centers.PPL has exclusive license ?or distributing electricity within a 10 kilometer radius o? its grids. PPL services customers in almost all urban centers, encompassing industrial, commercial, government, and domestic sectors, but also, where possible, rural communities adjacent to these urban centers. Beyond the grids are some minor diesel power generation centers ?unded by the provincial governments. They service primar-ily the local rural administrator, although some excess power is made available to local communities at no charge. Rural primary and secondary schools generate power ?rom small scale diesel generators and make it available ?or local community use at no charge. Regulation and Tari?s. The Department o? Petroleum and Energy manages the sector policy ?ormulation,and the Independent Consumer and Competition Commission regulates the sector. The Commission regu-lates power tari?s via a long-term (10-year) contract with PPL. Power tari?s are set uni?ormly nationwide,irrespective o? local generation costs. The uni?orm tari? structure cross-subsidizes tari?s ?or consumers and allows ?ull cost-recovery ?or PPL.In January 2011, tari?s and charges were increased by 9.91% except ?or scheduled services, which were adjusted based on the underlying PNG Consumer Price Index (PNG Power Ltd.). Notwithstanding this, the electricity tari? in PNG remains one o? the lowest in the Pacifc islands region. Source: Authors; ADB2007a, 2009b; PNG Power Ltd.
If access to electricity is unaffordable and unreliable, private ?rms must either incur additional costs of setting up and operating their own power generation or endure frequent power outages, which curtail production and shorten the life of equipment and machinery. Available data suggest that the reliability of electricity supplies is poor by international standards and is increasingly so. In 2004, 5,549 power cuts were reported; in 2006, the number had climbed to 8,282. Because PNG Power Limited’s (PPL) service provision fell short of the standards under its regulatory contract,the state-owned enterprise had to issue rebates to its customers in 2008 and 2010. Ef?ciency losses were estimated at 3.8% of total megawatt-hours delivered during 2004–2006
(PNG Power Ltd.)
Because of insuf?cient investment in the electricity subsector, the installed generation, transmission, and distribution capacities remain low. PPL accounted for about 800 gigawatts, or 65% of the installed generation capacity in the country in 2000, and the rest was generated by private sector entities for their own consumption (ESCAP 2003). In addition, the installed generation capacities have been growing at a slow pace. Between 2000 and 2010, PPL’s generation capacity increased by only 9%, from 276 megawatts, to 302 mw, which is likely to have little or no effect on improving the coverage and reliability of access to electricity
(PNG PowerLtd., ESCAP 2003). Installed generation capacity in the private sector has been rising, but a substantial part of it is on account of captive generation to supply projects in the mining sector. Having said that, the government has embarked on a plan to expand private sector participation in the sector.Some of the salient aspects include drafting of the Electricity Industry Act, which includes concerted focus on private sector participation. In addition,PPL now operates under a government-controlled regulatory contract, which has opened up access for the private sector in a controlled manner. These and other initiatives have led to PPL signing a number of power purchase agreements with private sector suppliers. Furthermore, Western Power has started to supply power outside PPL’s grid, and the Kanudi power plant has started to supply to the Port of Moresby grid.
Electricity Developments in electricity generation have so far been based on a short-term development perspective, which has led to reliance on diesel or heavy fuel-oil power plants and generators instead of PNG’s abundant renewable energy resources. Lack of foresight and poor maintenance have resulted in existing plants not being maintained and have necessitated extended closure of already inadequate plants. Even the National Capital District, with about 60% of the nation’s power consumers, suffers constant blackouts. Thus, most businesses use stand-by generators, imposing major additional capital and operating costs. Options for improving affordability and reliability of access to electricity are as follows
Short and Medium Term Undertake immediate maintenance, restoration,•and interim upgrades of current facilities.Update the inventory of current and forecast•power supply and demand for main and minor population centers and rural outposts.Prepare a national energy plan, focusing on use•of locally available renewable resources—hydro(and microhydro), geothermal, wind, and solar—and on future use of domestically produced gas(as already provided from Hides to Porgera goldmine).Explore Clean Development Mechanism funding•opportunities associated with developing clean energy.Open the market to private capital and•investment in power provision, including through PPP arrangements with PNG Power and competing local and national suppliers(subject to the National Energy Plan and environmental, including greenhouse gas emission, considerations).Ensure that formulation of PPPs entails•genuine and transparent tendering and pricing arrangements and avoid uncompetitive build-operate-transfer arrangements.Review and revise legal provisions for supply of •power by the private sector, including provisions governing issues of direct supply and sale of surplus power to the national grid
Medium to Long Term Develop and improve mechanisms both for•centrally supplied and locally operated rural power supply. Use the grid where it is accessible,and local generation and household supply,linked to local needs. Provide technical training and support. Oblige major power generating operators and other players (mines and other commercial projects) to have community service programs, which may be partly ?nancedthrough tax credit arrangements.Use the experience of mobile service providers•(notably, Digicel since 2007) to engage with customary landowners to establish and maintain towers and extend the national grid for power distribution, rather than operating multiple autonomous power plants
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