There Are No Saints In This PNG Electricity Power Crisis Saga!

On 27th September 2024, the IPP (Independent Power Producer) Dirio, exercised its rights under the PPA (Power Purchase Agreement) with PPL (PNG Power Limited) to suspend supply of electricity to the Port Moresby Power Grid (see Appendix 1). PPL then put the grid into scheduled load shedding (see Appendix 2) then went to court and pulled the 'essential services' legal levers (see Appendix 3) to try and manage this shortfall in electric power generation capacity.

Former PNG PMPO came on board the debate and demanded that the PPA between Dirio and PPL need to be investigated and presented a convincing case. He pointed out that the PPA between Dirio and PPL, executed in October 2019, is for 25 years and requires PPL to pay for 45MW of electricity whether PPL need the power or not. The average tariff metered by PPL between January 2024 and August 2024 is K0.91/kWh and the cost of power from Dirio is K1.40/kWh. The highest rate charge by Dirio in 2024 is K2.31/kWh. According to former PMPO, based on the 2024 average, PPL will have to pay Dirio K1.379 billion over the next 25 years even if they do not need the power produced or for some reason cannot access the power due to say fallen power lines or faulty substation. Refer link below (or see Appendix 4) for more.

However, the former GoPNG of PMPO must also shoulder some responsibility for 'indirectly' allowing this power crisis to come to this state by not increasing power tariffs which was last increased in 2014 but later in the same year reduced.

Even ICCC was concern when power tariffs where further lowered in 2018 from where it was lowered to four years earlier in 2014. This all happened during the GoPNG of PMPO.

In order for the success of the IPP market segment, the GoPNG's 'milking cow' SOE PPL must be financially efficient and effective as a physical asset intensive SOE. Reducing tariff reduced sales and profit margin and there is not sufficient cash inflow to carry out much needed maintenance and infrastructure upgrades to mitigate the higher 'effects costs' that we are paying now. Reducing tariff also means a lower return on assets (ROA). For asset intensive industries like the utilities sector, you would want to show that the existing assets are efficiently and effectively operated with high ROA.

The GoPNG of PMPO had the opportunity to turn PPL around to be a sound business. Instead it did not support tariff increase since 2014 but rather was intent on setting up PPL as 'bankable' for equity financing of PNG's budget deficit before APEC 2018 by strategically lowering PPL's ROA.

Appendices

Appendix 1

Appendix 2

Appendix 3

Appendix 4