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PNG Power Receives Assistance from the World Bank

by PNG Business News - April 08, 2021

The World Bank has funded a $30 million (PGK105 million) project to help the state-owned electricity provider PNG Power boost its operational and financial efficiency.

The PNG Energy Utility Efficiency and Reliability Improvement Project (EUPRIP) arrives at a crucial time for PNG, with people around the country facing big problems with inadequate access to electricity, and even for those that do, unreliable power sources and long blackouts that are affecting households, industries, and critical service delivery.

Though PNG has tremendous untapped energy resources, growth is lagging, and electricity connectivity remains extremely limited, with only around 13 per cent of the country's 8.6 million population having access to grid-connected electricity.

The new project, which is scheduled to be completed between 2021 and 2026, will assist PPL in establishing a stable financial base and catalyze private investments in the energy sector.

The scheme includes the reconstruction, reinforcement, and improvement of utilities on PNG Power Limited's (PPL) owned and managed grids in Port Moresby, Ramu, and Gazelle.

The project would also help PPL boost its management and financial stability, with an emphasis on raising service quality to reach higher expectations on a regular basis.

PPL will gain assistance in developing the business reform strategy, which will include smart meter installation and emerging technology implementations.

In addition, through the planning and execution of a Least Cost Power Development Plan for PPL, the initiative will lead to lowering the cost of power generation and switching to clean, renewable energy.

William Duma, the Minister for State Enterprises, said that supplying inexpensive and stable electricity to the PNG community is critical to the government's growth plans and that it necessitates a well-functioning service provider.

Meanwhile, PPL Managing Director Flagon Bekker noted that the World Bank-funded PNG Energy Utility Efficiency and Reliability Improvement Project would allow PPL to contribute significantly to the Government's aim of connecting 70% of the population to electricity by 2030, as outlined in the PNG 2010-2030 Growth Strategic Plan.

“PPL is embarking on major corporate reform initiatives,” he said. “We look forward to working alongside the World Bank team to put in place critical improvements that will ultimately deliver stronger, more reliable energy for all Papua New Guineans.”

Stefano Mocci, the World Bank's Country Manager for Papua New Guinea, also stressed the importance of access to secure, affordable electricity for economic development; companies, schools, hospitals, and clinics, among countless other facilities in PNG, all need reliable, affordable electricity to keep the country developing.

“This new project builds on the groundwork delivered through the World Bank’s Energy Sector Development Project, which helped prepare PNG’s National Electrification Rollout Plan, and geospatial assessments to plan optimal approaches to provide electricity to 70 per cent of the country’s population by the year 2030,” he said.  “We’re proud to be helping ensure more Papua New Guineans can get connected - and stay connected – to reliable, affordable electricity in the years ahead.”

Agriculture, health, road transport, water and sanitation, electricity, rural service delivery, and youth jobs are among the nine successful projects supported by the World Bank in PNG, totalling approximately US$455 million.

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PNG Business News - April 19, 2021

Bekker Says Contract Reviews Are Important

According to PNG Power Ltd, renegotiation and reviews of current contracts with independent power producers (IPPs) make the business healthier and more competitive (PPL). PPL managing director Flagon Bekker made the statement in response to questions raised by IPP industry groups (IP3) about PPL unilaterally reviewing and renegotiating current contracts and contractually negotiated prices to supply electricity to the grid. IPPs, according to Bekker, must be adaptable enough to evolve as fiscal, technical, and environmental factors change with time. “We asked IPPs to respond to a survey late last year where we asked them for their suggestions and next steps in dealing with the current commercial status quo,” he said. “In fact, we offered four or five alternatives to renegotiation. None responded.” According to Bekker, analysis shows that in terms of pricing, spending, and the overall economy, it is best to keep IPPs' share of the total market minimal. “Egypt is the best example of countries that have kept IPPs to a smaller share of the total (market) and found it easier to weather macro-economic shock and have greater freedom in deciding where to source finance for power investment in the future,” he said. “The IPPs not only make the macroeconomy weaker, but they are also the cause of their own problems. “PPL is leading to change this. “IPPs should not resist. “They should partner by suggesting solutions for the future. “PPL will send the survey out again and we hope they respond this time.” According to Bekker, there was a lot of analysis and support focused on post-negotiation evaluations, which shows that the renegotiation process contributes to the discovery of lessons and eventually the execution of those lessons. “Off the top of my head, here is a list of countries that have renegotiated PPAs in full or in part over the years: Philippines, Brazil, India, Argentina, Mexico, Turkey, Poland, China (among others),” Bekker said.


PNG Business News - May 13, 2021

Mayur Discusses Power Plant Project in Lae

Mayur Resources Ltd says it has formed an ongoing relationship with the State negotiation team to discuss and finalize a power purchase agreement (PPA) for its planned power plant in Lae, Morobe. The organization was waiting for the State negotiation team's makeup to be finalized and signed off, according to managing director Paul Mulder. After that, he said, the Enviro Energy Park (EEP) project's final discussions and negotiations will begin. Mayur's planned 52.5-megawatt EEP project is an advanced power plant that will produce more efficient and cheaper electricity than current solutions by combining conventional thermal energy (sourced from the company's wholly-owned Depot Creek project), solar, and biomass woodchip, while also supplying co-generated steam to nearby industrial users who were burning diesel for their steam needs. The EEP, which is near Lae, will also have steam as a by-product for local industrial uses, and potential dual fuel systems will allow for the use of diesel. “The energy park would balance the need for new environmentally friendly technologies and reliable energy,” Mulder said.


PNG Business News - April 12, 2021

Independent Power Producers Concerned Over PNG Power Opening Up Contracts

Independent Power Producers (IPPs) in Papua New Guinea have expressed concern about PNG Power Limited's (PPL) unilateral analysis and renegotiation of existing contracts and contractually agreed rates to supply power to the grid. The task of IPPs, according to David Burbidge, Chair of the IP3 Industry Group for Independent Power Producers, is to collaborate with PNG Power to provide affordable and secure power to the grid and thus to end-users and consumers. “The intention of the Utility to renegotiate the price defined in a contract is problematic for IPPs; it will also have sector-wide ramifications. The price at which IPPs sell their power to PPL is a contractual agreement between the IPP as a power generator and PPL as the Utility, which is captured in PPA – a power purchase agreement. These PPA contracts are generally for a period of 15 to 25 years to ensure both parties know in advance that there is a market for the power generated (for the IPP) and a consistent power supply (for the Utility) at a mutually agreed price level. This gives financiers certainty over the debt repayment and allows the IPPs to recover the cost of capital employed in what has to date been perceived as a high-risk environment,” added Burbidge. The IP3 Industry Group criticized the way PNG Power Managing Director, Mr Flagon Bekker, framed the subject in a recent statement.  “We see it as misleading that Mr Bekker speaks of subsidies to IPPs. IPPs are paid a mutually agreed price for the power they provide, just like any other commercial arrangement,” said Burbidge. “IP3 emphasises that the generation industry is open to working with PPL to implement the lowest cost possible for future generation, which will help reduce the major liquid-fuel bill that currently affects PPL’s net revenue. However, PPL also needs to improve its financial position by reducing the major financial losses due to power theft and billing losses, over 20%. The State and other large non-paying customers also need to consistently pay for power used, as this revenue shortfall is directly responsible for PPL’s losses,” said Burbidge. “Setting the precedent that PPL can reopen PPAs at any time to renegotiate prices will be devastating for the power generation industry in PNG. It will increase the cost of any financing and the future cost of power from IPPs as it creates an environment of major contractual uncertainty and major sovereign risk in terms of all contracts with State-Owned Enterprises in PNG. This will increase the prices offered by IPPs, which is the opposite of what PPL is trying to achieve, and it will not encourage foreign investment in PNG’s energy sector” stresses Burbidge. “We have seen analysis that reveals the fixed generation costs from IPPs represents less than 20% of PPL’s costs, and a focus by PPL on revenue collection and movement away from expensive liquid fuels is fundamental for PPL to improve its operating position for the short, medium and longer-term. “As an Industry Group, we also underline and fully endorse the critical nature of transparent and open tendering for future IPP projects. A number of expensive un-tendered previous PPAs have now expired or will expire relatively soon, they can be replaced by lower-cost IPPs, a number of which have already passed through a transparent tender process. “We support the statement by the PPL Managing Director that we need a ‘win-win situation for the people of PNG and independent power producers while positioning the sector for lower tariffs going in the future. Unfortunately, the approach taken by PPL cannot be characterised as creating a win-win for IPPs, PPL, customers, and the people of PNG, and is more likely to result in power shortages and high power prices, due to increased diesel usage, or the unrequired commitment to large power generation with major capacity charge obligations over 15 years on PPL of over 10 billion Kina,” said Burbidge.

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Oil and Gas

PNG Business News - July 22, 2021

Oil Search Considering Merging with Santos

Santos, an Australian oil firm, announced its plan to combine with Oil Search Limited. Santos proposed a non-binding indicative merger last month with the goal of making the two companies the regional energy champions. The proposed merged entity has a market capitalization of A$22 billion (K56 billion), putting it among the top 20 ASX-listed companies and the top 20 global oil and gas companies. This means, among other things, that the merger will have a diverse portfolio of high-quality, long-life assets spanning Australia and Papua New Guinea, a solid balance sheet with ample cash to support expansion choices, and an investment-grade credit rating. The merger plan, if approved, would be conducted through a Scheme of Arrangement in which Oil Search shareholders would receive 0.589 new Santos shares for each Oil Search share held, according to Santos in a market disclosure to the Australian Stock Exchange.  Following the scheme's acceptance, Oil Search shareholders would control 37% of the combined company, while Santos shareholders would own 63%. Based on Santos' closing price on June 24, 2021, the ownership ratio suggested a transaction price of A$4.25 (10.92) per Oil Search share. This was a 12.3% premium to the Oil Search closing price of A$3.78 (K9.72) on June 24, 2021, and a 9.8% premium to the Mubadala block trade selling price of A$3865. (K9.92). Kevin Gallagher, managing director and chief executive officer of Santos, said the merger will bring more alignment to PNG, allowing for the development of important projects such as Papua LNG, as well as the creation of new employment and support for the local economy. Santos, according to Gallagher, has proposed a true merger in which ownership of the combined firm is based on proportionate contribution and value. “The strategic rationale for a merger is clear and offers superior value to Oil Search shareholders rather than continuing on a standalone basis. “Santos continues to believe that the Merger Proposal represents an extremely attractive opportunity to deliver compelling value accretion to both Santos and Oil Search shareholders.” Oil Search stated in its ASX market update that it is open to receiving and engaging with any proposal that is in the best interests of its shareholders. While the company's board of directors agrees with Santos that combining the two firms makes strategic sense, the conditions must be fair to the company's shareholders, which the terms proposed by Santos are not. Despite Santos shareholders holding 70% more shares than Oil Search shareholders, Oil Search maintains that the proposed conditions provide just a 6.8% premium based on Friday's closing share prices for Oil Search and Santos. According to the firm, no such proposal has been made at this time.   Reference: Post-Courier (21 July 2021). "Oil Search Open To Merger with Santos". 


PNG Business News - July 21, 2021

Study Says Sweet Potato Growers Have Received Significant Insights into Customers Buying Habits

In Papua New Guinea (PNG), sweet potato (kaukau) growers have received significant insight into customer buying habits, which is assisting them in identifying new market possibilities. The recent market analysis, which was supported by the Papua New Guinea-Australia Partnership and conducted by the Australian Centre for International Agricultural Research, revealed that an increasing number of consumers in Port Moresby prefer to buy fresh produce from supermarkets, citing convenience and safety as reasons. While this trend may result in fewer consumers at conventional farmer markets, PNG and Australian experts believe it may open up new marketplaces for rural people. “Farmers are looking for stable markets where they can receive more consistent prices for better-quality produce,” said Professor Philip Brown from Central Queensland University (CQU), who is leading the research project.  “The research shows that consumer behaviour is likely to support an expansion in the supermarket sector in large urban centres and this is positive news for the farmers. This could allow commercial focused farmers to secure more stable market access.” The study of 353 customers was conducted as part of ACIAR-funded sweet potato research sponsored by CQU and the PNG National Agriculture Research Institute (NARI), which aims to improve sweet potato value chains by increasing the quality of harvested roots. Sweet potato quality and production are improving, resulting in increasing supplies to retailers eager to provide better fresh produce. “The project, with support from the Fresh Produce Development Agency and NARI, is helping farmers to build their business skills and connect with emerging supermarket opportunities,” said Professor Brown. Kirt Hainzer, a CQU researcher who collaborated on the survey alongside NARI researchers, said it was the first study to look at customer behaviour and see what role stores may play in the development of PNG's commercial sweet potato sector. “The research sought to better understand and compare how consumers buy staples from open markets and supermarkets and to explore the preferences for purchasing staple foods as supermarkets increase the availability of convenience staples like rice,” said Hainzer. “Although expanding formal sales represents a huge step forward in developing a commercial sweet potato industry, continued research on consumer preferences and the market for fresh produce will help better understand trends in staple food purchasing and what market opportunities exist for growers.” With over a hundred kinds of sweet potato in the nation, NARI economist Raywin Ovah said the study sought to find out which of these customers preferred. “Not all the varieties are preferred from a consumer point of view. There are only a few that consumers want to be based on the taste or health properties and that is what we want to also find out. Farmers can be provided with that information, so they produce those varieties that the market wants.” One of five initiatives under the Transformative Agriculture and Enterprise Development Program is a project to increase commercial sweet potato production and commercialization in the PNG highlands. The ACIAR program, which is funded by Australia in collaboration with the government of Papua New Guinea, aims to improve the livelihoods of rural men and women through private sector-led development, increased agricultural productivity and quality, and the development of individual and institutional capacity.   Reference: Loop (20 July 2021). “Study looks into sweet potato industry”.


PNG Business News - July 21, 2021

Garry: MRA Evaluating K50 Billion Worth of Investments

According to managing director Jerry Garry, the Mineral Resources Authority is evaluating more than K50 billion in investments in the country. Wafi-Golpu, Frieda River, and Woodlark are among them. “We are also looking at the Central Lime and Cement,” he said. “If that project comes on-stream, it will be one of the first industrial mines ever built in the country.” Garry was speaking at a Port Moresby consultation session on the Mine and Works (Safety and Health) Bill 2021. PNG, he added, was home to some of the world's largest mines. “We have grown from strength to strength,” he said. “If you compare the Bank of PNG statistics, the mining sector alone, in terms of production, has exported over K17 billion in 2020 and 2019. “So it’s a huge industry that we are trying to regulate and manage.” Garry expressed gratitude to the industry for making safety a primary priority. “They have been taking health and safety at the workplaces very seriously,” he said. “We must not only consider (the workers) and the environment but also people living around the (areas) we operate in. “And if we are using any hazards, we must also take responsibility.” The newest mining methods in Wafi-Golpu, known as block cave mining, are one of the new things to expect, according to Garry. “New mining hazards will come with this new mining method,” he said.   Reference: The National (20 July 2021). “Authority assessing investments worth K50bil”.

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