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Commentary

Commentary

PNG Business News - November 29, 2019

Joan, Vidi, workplace change and Drug Resistant TB

This is a story about a complex workplace issue - drug resistant TB and the time it takes to make a difference to change health behaviours. Most importantly it is a story about, Vidi, a TB patient and Brian Bell employee and Joan a TB warden at Brian Bell. Vidi is a 28-year-old man from Central and New Ireland who has worked with Brian Bell since 2016. Joan has worked for 17 years with Brian Bell and is from Kagua in Southern Highlands Province. Together they have a success stoy to tell about the role of the workplace in ending TB in PNG.In 2018 Vidi suddenly lost a lot of weight and was having night sweats. At the time Vidi didn’t think he was sick, but as he lost more and more weight, he decided to look for help. He went to several private clinics, but not one offered a solution to his sudden loss of health. On his fourth try for help, he went to the 6-mile clinic, where, because he had signs of extra-pulmonary TB he was referred to Port Moresby General Hospital. At PoM Gen, he was started on a regime of 6 months of TB treatment. Brian Bell gave him leave for 6 months.For a while, it was going well, but Vidi returned to the hospital when a lymph node on his neck started to swell 3 months into his 6-month treatment regime. Using the latest diagnostic tool called the “Genexpert” a sample taken from Vidi’s swollen lymph glands revealed he had drug-resistant extra-pulmonary TB. Meanwhile, back at work Joan Kundiri, Vidi’s line manager at Brian Bell, had attended Businesses for Health’s TB Warden training. Joan re-considered her colleague Vidi’s situation. She had learned to ask about Vidi’s diagnosis and case management. She considered, “had Vidi been tested with Genexpert at first test, why did he have to be away from work, and why was he not responding to treatment?”At TB wardens’ training Joan, learned extra pulmonary TB is not infectious. She considered Vidi’s situation and wondered if Vidi may be able to return to work without fear of him spreading it to others in the workplace. Indeed, Joan followed up with Vidi and he was deemed the doctors to be non-infectious and that Vidi had now been diagnosed using the latest in accurate diagnosis of DR or drug resistant TB. Joan is one of the first TB wardens to know PNG is working to replace microscopy with the rapid molecular GeneXpert test as the initial diagnostic tool for TB. This ensures that every patient at the time of diagnosis knows their drug resistance TB status and accordingly gets the correct treatment regimen from day one!Joan had to create a change in the knowledge and processes at work that would allow Vidi to return to his job. Whilst medically safe to return to work, Joan had to help HR understand the new methods for helping employees with TB about safe return to work. Several meetings at work lots of conversation with Nerrie and Catherine in the B4H office and even more encouragement for Vidi, Joan paved the way with Brian Bell’s HR for Vidi to return to work. After DRTB diagnosis, Vidi’s TB was still “extra-pulmonary”, but now his 6-month of treatment course was extended to 20 months, more TB drugs and for the first six months daily injections of the ‘second line’ DRTB drugs. Despite his major setback to getting better Vidi kept a positive attitude, but he was uncertain if he would be allowed to return to work, or be ordered to stay away from work for the whole duration of his new 20-month treatment regime. Re-enter Joan – Brian Bell TB warden! Three months later, Joan had Vidi back to work. With her now trained mind and new knowledge of TB Joan made sure that Vidi, who was still on medication and daily injectables, was in a supportive workplace environment. Joan met with HR and her management teams. She hosted toolbox sessions with her staff, B4H and ensured they understood TB better. Her work reduced the stigma around TB amongst her staff and created a better environment for supporting treatment completion. Joan made sure that Vidi had transport to go to 6-mile clinic to have his daily injections of the special drugs for drug resistant TB. Joan checked on Vidi daily and to see if he was showing improvement.Vidi’s recovery was remarkable, still taking medication Vidi was able to return to work with the support of Joan and the team at Brian Bell. At Businesses for Health, as far as we know, Brian Bell is be the first business to return a person with DR TB to work whist on treatment. It is a vital step in reducing fear and stigma that still surrounds TB at work. Vidi still has a job and Brian Bell still has Vidi. Vidi remains at work having endured the worst of the DR treatment regimens and will continue his tablets into 2020. Although Joan admits that they are still improvements to be made in the policy surrounding TB at her workplace she also knows that fear, stigma and knowledge of TB management are complex issues that take time to change. Importantly her colleague is on the path to full recovery and Vidi continues to support his family while on treatment. For Joan the more she contributes to helping people like Vidi get diagnosed, the better it is for her employer.In PNG in 2018, there were 37,000 new cases of TB. Five percent of those new cases were found to be drug resistant (DR). In people previously treated for TB, the rate of drug resistance is 25%.

Commentary

PNG Business News - June 18, 2019

Challenges of Cheap Power in Small Island Developing States

By Independent Power Producers of Papua New Guinea Industry GroupPower generation and transmission in small island developing states (SIDS) is typically more expensive and challenging than in larger economies. That is a reality faced by Papua New Guinea (PNG), yet often misunderstood or ignored. There are many challenges that island nations face in powering their economies with affordable, reliable, sustainable and accessible electricity. The issues that faces both the Independent Power Producers (IPPs) and the Utility revolves mostly around several key areas, including cost, scale, demand and reliability – as well as an increasing push for renewable energy. For SIDS like PNG the pathway to develop reliable and affordable, and ultimately cheap, power is not forged overnight, it requires a collective effort by the Utility, the regulator, Government and Independent Power Producers to overcome systemic challenges and misconceptions. Diversified Portfolio Grid-based electricity supply rarely has one single generation solution. There are different types of power generation options needed by a grid, each with dispatch at very different levels. Baseload power runs all the time, so this type needs to have a low total cost. The cost of power to the Utility is usually agreed in a Power Purchase Agreement (PPA), which is typically structured in two parts: a capacity charge (fixed costs) paid by the Utility for the whole capacity contracted; and the dispatch cost (fuel charge), which is paid if and when the generator dispatches power to the grid. Baseload power therefore generally requires a low combination of capacity charge and dispatch cost, but it also needs to fit the size of the baseload demand to minimise unused capacity charges which the Utility would still pay for in the capacity charge – making the overall cost higher.Additional daytime power demand is usually high and varies throughout the day, so midday generation needs to be able to follow the load requirement of the ‘shoulder’ during the day when energy demand increases and then decreases. Commonly there is also a short peak demand window in which generation needs to be able to quickly respond. The type of generation required during daytime variations needs to be sized for the variable and largely predictable daily demand shoulder and peak. The best solution is usually determined by network forecast modelling with different supply options (technology type, PPA cost and size) in order to find the optimal cost and capacity solution. Reliable grids also require an appropriate level of fast response dispatchable sources as a backup supply. With backup supply mostly on stand-by and only used for a small amount of the time, the backup generation needs to be the lowest possible capacity charge, while it can stand a high(er) dispatch charge – and for a reliable grid may rarely be dispatched. As an example of such a diversified and distributed mix of generation is shown for an estimated weekday demand curve of PNG’s Ramu Grid in 2024 (see Figure 2). Having in place the correct distributed generation mix plays an important role in ensuring that power supply is reliable, secured and resilient to climatic changes. It also provides the Utility with various low cost and flexible generators that that easily be dispatched on their economic merits. Cost Versus Scale Versus Demand The cost of power is related to economies of scale. If the grid is large enough, it can deploy large projects to achieve these economies of scale. The larger the scale of the energy project, the cheaper the cost per megawatt (MW). However, and this is where there is often a misconception, a cheap cost per MW for a large project requires the scale of the power generation (how many MW) to be matched to grid demand. Oversizing a power plant to a large scale (e.g., a large 200 MW generation source) while demand is much lower (e.g., 90 MW) will not result in cheap power, as capacity charges are paid by customers for 200 MW, whether it is used or not. The Utility will still be paying for capacity which is not being used (i.e., a high capacity charge) which effectively drives up the average cost of the energy dispatched and results in a high power price. The size of contracted generation capacity therefore needs to anticipate and match grid demand. There is often a temptation to believe that demand will drive up scale and scale will drive down cost. However, a realistic pace of household connection rollouts in PNG indicates that a need for another 100 MW of baseload supply will take a decade or longer. In the case of PNG, only an estimated 13% of the population has access to electricity and there is future latent demand, but only a small amount of current household demand as increased access will require a long-term connection program. The power requirements for a million people connected in rural areas is only around 30-50 MW as the use of LED lighting, improvements in appliance efficiency, and a number of other factors, mean that household demand is not a large number and growth occurs relatively slowly. A critical element in stimulating grid demand for commercial and business customers, who comprise the majority of demand on the Ramu Grid, is enhancing grid reliability through upgrading transmission and distribution infrastructure. In other words, generation is only one part of the power equation – adding more megawatts of generation than currently required rarely solves the cost-scale-demand issue. Smaller grids can more cost effectively grow by deploying modular additions of 15 - 40 MW of power, which encourage new customers without burdening the system with the cost of too many unused MW. Representative Benchmarks Another problem frequently causing confusion over the realistic cost of power generation in SIDS is the incorrect comparison made with power prices in large economies that have already achieved significant grid scale and cheaper electricity. With no representative fleet of power station construction in the Pacific Islands region, many studies on “least cost power development” for PNG quote Asian construction cost and power cost figures as surrogate benchmarks. However, these are not appropriate cost analogues and do not reflect the true cost of generation in small island economies where there is no established low-cost power plant construction or servicing capability, and power plant scale is smaller. This problem is not unique to PNG, it is a shared challenge across the Pacific and Caribbean SIDS (Figure 3). It is unrealistic given PNG’s current level of construction capability, grid supply levels and demand for electricity (currently around 90 MW on the Ramu Grid) to achieve power prices like Thailand and Indonesia where grid demand and reliability is so much greater (over 40,000 MW in Thailand) – which enables those countries to have large energy projects that deliver cheap unit-cost electricity. Benchmarking PNG’s power price on large Asian economies creates unrealistic expectations of the cost of power generation. Demanding the low power price points of large economies overseas is not helpful in making power prices in SIDS more affordable – rather it will have the opposite effect and can deter potential investors who know that construction and operation costs in PNG are not the same as in OECD or large Asian economies. Price expectations based on countries with a very different cost and market compared to SIDS often create unnecessary delays to existing project developers (driving costs further up). These unrealistic price expectations help to condemn island economies to default to what has long been their cheapest capital cost generation – in most cases heavy fuel oil and/or diesel. These types of generation are the highest cost options for consumers (when fuel is included) until infrastructure becomes more reliable and grid demand grows – unless renewables can be deployed at a lower cost. The ongoing public debate in PNG centres around the cost of generation, leading to the misconception that the cost of generation is the primary influence in the overall cost of power. However, generally the cost of generation, transmission and distribution are approximately one-third each of the total cost of power. While the cost of generation needs to be as low as reasonably possibly, there are other significant costs which contribute to the overall cost of power that need to be taken into consideration. Incremental Growth To achieve lower power prices, SIDS need to invest incrementally in electricity infrastructure development that builds the country’s industrial base to grow future demand which in turn opens pathways for energy solutions that are larger scale and lower cost. The reality is that PNG’s power sector cannot evolve overnight to immediately deliver the cheap cost for construction and provide the price point of large-scale overseas economies. Right now, the country needs smaller projects matched to grid demand for incremental and distributed growth. These small incremental and distributed generation projects (up to 40 MW) are not going to be as cheap as the large-scale projects in Asia. However, that does not mean they will be expensive, renewable options at the 15-40 MW scale can be deployed at a low cost. Smaller scale distributed projects can provide a significant improvement in price below heavy fuel oil or diesel and do not burden the State with payments for large amounts of unused MW. While demand grows gradually, these smaller projects will deliver affordable energy and put the country on the right path to future larger scale demand and ultimately the cheap solutions we now dream about.

Commentary

PNG Business News - June 18, 2019

What foreign investors need to know about the Investment Promotion (Amendment) Bill

Businesses already operating in Papua New Guinea (PNG) or considering investing in the country would be aware that the PNG Government has stated its intention to promote the growth of micro, small and medium-sized enterprises (MSMEs). Proposed changes to the Foreign Investment Regime The latest proposal from the PNG Government in this field is the Investment Promotion (Amendment) Bill 2019 (IPA Amendment). An Explanatory Memorandum, 2 sets of Frequently Asked Questions, and a mark-up of the existing Investment Promotion Act 1992 (Existing Act) as it would be amended by the IPA Amendment are available on the Investment Promotion Authority’s website, www.ipa.gov.pg. Contrast with the proposed Foreign Investment Regulatory Authority Bill 2018 Before looking at the IPA Amendment itself, it is worth noting that the IPA Amendment effectively replaces the proposed Foreign Investment Regulatory Authority Bill 2018 (FIRA Bill) which was put before the PNG Parliament in February 2019, but then withdrawn. The FIRA Bill would have substantially changed the regulatory framework for foreign investment in PNG, and attracted substantial criticism regarding: • the extent of the restrictions imposed on foreign investment, which it was claimed would result in negative economic impacts; and • the lack of consultation with the business community before the preparation and introduction of the FIRA Bill. Features of the FIRA Bill that attracted most comment, such as: • imposition of a minimum PGK10 million investment requirement; • application of a “national benefit” test on new applications; • a 3 year sunset period for existing foreign owned operations in reserved activities; • a requirement for a licence for a minority foreign investment in a majority PNG owned enterprise are not repeated in the IPA Amendment. General comments on the IPA Amendment The IPA Amendment tries to achieve more of a balance between promoting MSMEs and the encouragement of foreign investment, and it draws back from the more extreme aspects of the FIRA Bill. However, the PNG Government’s primary aim remains encouraging the promotion of MSMEs and the IPA Amendment proposals should be read against that background. While there are a number of positive aspects to the IPA Amendment (its promise of quicker and more transparent processing of applications for foreign investment certificates is certainly welcome), much of the real detail of how the new system will operate will be in regulations that are not yet drafted. It is possible that some of the elements of the FIRA Bill that attracted criticism could be resurrected in those regulations. Changes to the system under the Existing Act that would be made by the IPA Amendment If the IPA Amendment as proposed became law, and assuming that the FIRA Bill is not reintroduced, major changes to the existing foreign investment regulation system would include: Improved clarity of IPA functions and responsibilities • Creation of a new Registrar of Foreign Investment, whose role is to issue foreign investment certificates. • The Registrar will grant an application for a certificate, unless: • the application is for a reserved activity; or • the Registrar believes the applicant fails on probity grounds (bankruptcy, prior criminal convictions and the like); or • the application is otherwise incorrect, misleading or non-compliant. • The Registrar is now not empowered to impose conditions on certificates for activities that are not restricted activities. It would be necessary to see the Regulations before being certain how much of a change this represents from the current situation. It may be that the Regulations will impose a set of standard conditions which apply to all certificates, including those for unrestricted activities. Additionally it may be that only a limited range of activities are left unrestricted once the lists of reserved and restricted activities are produced; • The Registrar must give written notice of grant or refusal of an application within 5 working days of a “complete and correct” application being lodged (down from 35 working days in the current legislation); Introducing “restricted” activities and a rethink of the “reserved” activity list • A new category of “restricted activities”, where foreign investment may be allowed subject to conditions, has been created; • Regulations will set out what are restricted activities, and will set out conditions that may be imposed on those investments (which can vary from activity to activity). The IPA Amendment sets out 2 categories of possible conditions that may be applied – the form and minimum level of investment required, and a requirement for a minimum level of PNG ownership – but Regulations may set out other types of possible conditions. Until draft Regulations issue, it is not possible to comment on whether the introduction of “restricted activities” will or will not operate as a substantial restriction on foreign investment, counteracting the apparently more positive aspects of the IPA Amendment; • There remains a category of “reserved” activities, but these are now reserved only to “citizens” (that is, individuals who are PNG citizens, or 100% PNG owned entities) and not to both citizens and “national organisations” (majority PNG owned entities). The list of reserved activities is to be set by Regulation. It should be noted that the list put forward with the FIRA Bill is extensive – if that list was to stay in place, that would actually operate to prevent minority foreign investment into many fields of activity; • Some limitation on what can be included in the lists of reserved or restricted activities is proposed, by reference to the number of existing businesses conducting that activity in PNG and whether or not the activity involves the supply of goods or services important to the operation of other PNG businesses. While the drafting of this provision is unclear, the intent appears to be that reservation or restriction will not apply to activities which have few existing participants where the activity is an important supplier to other businesses. This is likely not to greatly limit the activities that can be reserved or restricted; • A review of the reserved and restricted activity lists is required every 3 years; • There is no longer a separate mechanism to seek a certification to invest in a majority PNG owned enterprise, as under the Existing Act. An investment that took an enterprise from majority PNG ownership to majority foreign ownership will require the Registrar to issue a certificate, as for a foreign investment in a new business; • There is also no longer a requirement for religious, charitable and educational bodies to seek exemption from foreign investment legislation – rather the IPA Amendment limits the application of the legislation to for profit activities. There may still be some grey area where a charitable body has associated entities or divisions that generate profits from, for example, the sale of services. It is not clear whether the for profit division is subject to foreign investment licensing if the separate entity or division distributes the profit back to the charitable body for use in its charitable activities. • Existing businesses operating lawfully in reserved or restricted activities will be permitted to continue operating indefinitely, in contrast to the FIRA Bill proposal. However, as currently drafted, any change of ownership of a reserved activity business removes the protection – including quite small changes, or changes resulting from an inter-family transfer, or the will of a family member. A change to the definition of “carrying on business” • The threshold test for an investor wanting to invest in PNG has been changed to include any activity that is to be carried on for profit or gain on a long term or permanent basis. On the other hand, professional service providers (defined as accountants, engineers, architects, lawyers, dentists, doctors and veterinarians) will not have to apply for certification if they are providing services on a temporary basis. Improved compliance and monitoring powers • A new foreign investment register will be established and maintained by the Registrar. • A new annual reporting requirement is imposed. Certificates may be suspended if these requirements are not met. Businesses may be concerned regarding the confidentiality of business sensitive information that may be required in such reports (again, the exact requirements for such reports are to be set by Regulation); • The Registrar has strengthened inspection powers and powers to obtain information • New offences are created in addition to those in the Existing Act where: • any person is “knowingly” party to a foreign enterprise carrying on business with “intent to defraud” or for fraudulent purposes; or • holders of investment certificates (including directors of corporate holders) either fraudulently induce a person to give credit to the foreign enterprise, or deal with property of the foreign enterprise with intent to defraud creditors. The penalties applicable on conviction have not been provided in the current draft. While it is debatable how much this provision extends existing PNG law, it at least potentially makes a prosecution easier; • Appeals from any decision can still be made to the Board and to the Minister. What do I need to do now? The IPA has invited public comment on the IPA Amendment, although it has imposed a very short deadline of 29 March 2019 for the receipt of comments. If you wish to learn more about the proposed IPA Amendment or if you have any questions about it will affect your business (if it becomes law) please contact the authors at karo.lelai@nortonrosefulbright.com and paul.toua@nortonrosefulbright.com. w

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