The crisis of governance in PNG’s power sector

Standby generator at the University of PNG (Michael Kabuni)
Standby generator at the University of PNG (Michael Kabuni)

The recent spate of power outages (70 in a week according to the Post Courier), and the sudden resignation of yet another PNG Power Chief Executive Officer after only nine months in the job have brought into stark relief the chronic crisis that afflicts Papua New Guinea’s power sector.

The electricity sector in PNG is characterised by very low access, and unreliable and expensive service.

PNG is one of the least electrified countries in the world, with only 13% of the population having access to electricity (though this doesn’t include the much higher numbers who have bought themselves a solar panel for lighting). Electricity via a grid is limited to urban centres, and is unreliable. World Bank data for 2015 shows that PNG experienced an average of more than 40 blackouts per month that year, the third highest in the world.

Power outages per month (2015)Power outages per month (2015)Source: World Development Indicators

Long-distance transmission of power is currently limited to the Port Moresby, Ramu (in Morobe and Madang), and Gazelle grids. These serve PNG’s main urban centres, while 19 isolated independent power grids serve provincial centres, relying on high-cost diesel generation. Between 2010 and 2015, average residential electricity prices in PNG were approximately US 39 cents per kWh, among the highest in the world.

Despite high tariffs, lack of funding is a key problem and arises from at least two sources: government payments owed to PNG Power Limited (PPL), and high levels of electricity theft. One estimate puts the debts from the government to PPL at K460 million (about US$130 million). Illegal connections by households that do not pay for electricity cost the utility K25 million (about US$7 million) per month.

Funding shortfalls mean PPL struggles to pay private electricity providers and to upgrade its ageing infrastructure. In 2020, PASCOE International Power Ltd cut electricity to Lae due to PPL’s failure to settle a K60 million debt.

But PNG’s power sector problems run deeper than funding shortfalls and the country’s difficult topography. A recent academic article has argued that the underlying problem is a crisis of governance, and a failure to establish strong electricity institutions.

This crisis of governance has been made manifest by the revolving-door nature of PPL’s CEO position in recent years. Carolyn Blacklock was appointed to the top position in 2018, but resigned 20 months later. She cited government debts owed to PPL, but also the bullying tactics she faced from Chief Secretary of Government Isaac Lupari who, she claimed, undermined her dealings over the proposed Dirio power station. Lupari, on the other hand, accused Blacklock of involving herself in corporate and local politics, and undermining established procedures.

Douglas Mageo was then made acting CEO until Flagon Bekker was appointed in late 2020. On 24 June 2021, the PPL union (which had opposed Bekker’s appointment from the start) called for the CEO’s resignation, claiming the restructuring he was pushing would affect their jobs. Three days later, Bekker resigned. Just two months earlier, at the end of March, he had unveiled his four-year reform plan.

Clearly, both political interference and opposition from PPL unions have undermined the prospects for power sector reform and improved performance.

It is not just the CEO’s position that is vulnerable. PPL Chair Peter Nupiri was dumped in January this year after less than three years in that role. His farewell comments noted PPL’s “militant union”, the slowdown in reform after Blacklock’s departure, and the destabilising impact of political interference.

In the meantime, a lack of affordable, reliable power is hurting PNG’s economic growth. Surveys of businesses constantly show electricity as one of their major concerns. For example, this World Bank report from 2019 cites an INA survey that ranked the state of electricity infrastructure as the fifth biggest constraint to business activities and investment in PNG in 2017.

Small businesses are affected the most by problems with electricity access and constant blackouts. In a 2015 World Bank survey, 4.2% of all firms surveyed, but 11.5% of small businesses (with five to nineteen employees), reported that electricity was their biggest obstacle.

PNG, along with some major international partners, announced a grand plan at the Port Moresby APEC summit in 2018 to provide electricity to 70% of the population by 2030. Despite recent donor funding announcements, given the crisis in the power sector, it is unclear how this target can be met. Unless PNG’s electricity institutions are strengthened, outages will remain common and expansion a pipe dream.

Ultimately, reform is a matter of political will. Most of PNG’s MPs represent rural areas, where PPL is hardly present. What is the prospect of these same politicians, as a group, getting serious about power sector reform? Until they do, the sector will continue to stumble from one crisis to another, and from one outage to the next.

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Disclosure

This research was undertaken with the support of the ANU-UPNG Partnership, an initiative of the PNG-Australia Partnership. The views represent those of the authors only.

Michael Kabuni

Michael Kabuni is a lecturer in political science at the School of Humanities and Social Sciences, University of Papua New Guinea.

Kingtau Mambon

Kingtau Mambon is an economics tutor at the University of Papua New Guinea School of Business and Public Policy (SBPP).

Stephen Howes

Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School.

3 Comments

  • This situation is a tell-tale effect of endemic corruption that is weakening systems of governance and internal controls put in place to manage a corporate entity in PNG Power Ltd that is designed to operate for a profit or simply like a business that pays dividends to its owners-the people of Papua New Guinea through the state. Unlike the Papua New Guinea Electricity Commission that depended on government funding of its operations through taxpayer money, it’s successor PNG Power Ltd is different it is designed in that it’s revenues and profits from it’s annual operations should support it(meaning-you have to make the money, no more government funding).This however, is no simple task it requires highly technical business knowledge and skills coupled with engineering expertise to correctly analyze and correct any discourse in its operating objectives.

    PNG Power Ltd today as is widely reported suffers from ageing infrastructure costs, high cost fuel generation, high wage costs and more recently high power purchasing costs.

    1) Ageing infrastructure-(the engineering term being used is wear & tear/corrosion. Its business terminology or accounting term to be specific is’ Depreciation’ which is a cost calculated as an expense and subtracted from the purchase cost of an asset gradually (eg.turbine) to determine it present value, this information is vital to management to determine the proper age of its assets and which assets, to ensure that the business is not operating non profitable assets, this information is also used to decide whether an asset should be refurbished or replaced a vital financial management information). Investment however has to be effective, applied correctly to impact operations and avoid wastage which on top of an understanding of business functions requires engineering understanding of its power system layout from plant to distribution to determine the correct program to apply, were and when.

    2) High Cost Fuel Generation requires priority low cost renewable energy planning of its existing renewable generating capabilities (currently hydro) and future expansion into this option. However this does not underscore the importance of effectively managing its current portfolio of diesel generating capabilities which supports its hydro capacities which is the source of baseload power on three of its major grids in Port Moresby, Ramu and Gazelle apart from diesel stations off these grids to ensure that PPL is getting the best out of its grids with this arrangement from an engineering and management perspective.

    3) High wage cost. Wage cost is a vital cost of any business whether it is doing well or not. However, correct and effective human resource planning and management is required to ensure that PPL is getting the best from its workforce. Currently it seems that PPL is suffering from a lack of business managerial capabilities specifically with its accounting issues that deals with financial & cost management and given the costs being mentioned here.

    4) High Power purchasing costs is related to its generation capabilities and can also be attributed to the condition and correct and efficient operation of its systems.

    These are issues PPL must address from an engineering and business management perspective, however the key is to rid itself of the corruption that is affecting its operations from top down by investing foremost in institutional strengthening through anti-corruption mechanisms in conjunction with local and international anti-corruption bodies.

  • Let this sink in: “One of the least electrified countries in the world”. How can any business or institution operate without light or computers? When there is power, those few hours, the voltage spikes and harmonic effects fry all the electronic equipment.

    Meanwhile, the electrical engineering department at the PNG University of Technology is too slow at training power engineers with master level competences. Nothing was done to retain the only European power engineer, who was head of department, or to hire more where he was coming from, despite an agreement being in place.

  • Big thanks to the authors for discussing the matter. The obvious reform required is a partial or a total sale of PPL. The same can be said about the telecommunication and the water sectors. One may argue that many Papua New Guineans would face affordability issues as private companies focus on profitability. However, these can be addressed through the establishment of price regulation, where possible.

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