A very pleasant Monday’s drive indeed
A government with a truly wicked dilemma

Powes Parkop is right: privatise PNG Power

Port Moresby blackout (PNG Loop)
Port Moresby blackout (PNG Loop)

| Academia Nomad

WAIGANI - For three consecutive weeks, electricity in Papua New Guinea’s capital has blacked out in the evenings.

But this is not unusual for Port Moresby, a city dubbed ‘one of the least livable cities in the world’ by The Economist intelligence unit’s Global Liveability Index in the same week.

Powes Parkop, governor of the National Capital District, where Port Moresby is located, criticised the index, which ranked Port Moresby as 138th out of 140 cities, calling it “harsh”.

He has written to Papua New Guinea’s minister for state owned enterprises, William Duma, to sell PNG Power, the state-owned electricity provider that provides power for the city.

Here is Parkop’s letter, and he is right, PNG Power should be privatised:

Dear Minister,


I write regarding the above to express, on behalf of the entire community in the City, our deepest concerns and frustration at the continuous power outage and inability of PNG Power to provide reliable and affordable electricity supply.

This is a continuous problem, but far from getting better, it seems to be getting worse despite all the initiatives of PNG Power itself and the Government generally.

In the City now, corporate entities are forced to buy back-up generators and become electricians or engage electricians on a full time basis. This not only cuts into their cost and makes the cost of doing business in Port Moresby higher, but also diverts them away from their core business.

Instead of focusing on wholesale and retail trading, for example, wholesale and retail companies in the City have to divert their attention to providing electricity to their corporate premises and also homes of their staffs, particularly their Executive Management.

Equally, the individual residents of the City have to not only suffer from unreliable electricity and continuous outage but also the cost passed on by business houses for having to provide their own electricity. Ordinary residents of the City are therefore being hit two or three times over as a result of this situation.

It is my understanding that as a result of the recent commission of new power suppliers, including NiuPower at the LNG Site, there is more than enough electricity for the City.

The private power supply from Edevu near Brown River in Central Province, when it commenced operation, gives us absolutely more than enough electricity we need for the City and an economy our size.

The problem, therefore, is not one of lack of adequate electricity supply but one of inability to deliver electricity reliably and at affordable level.

Past Governments and Ministers have done their part to help PNG Power to transform itself so it can deliver better, but all these efforts seems to be in vain. It is about time, therefore Minister, that we accept what is obvious and deal with the problem so we can have solutions.

In my earnest view the problem is PNG Power Ltd itself. The way it is structured, managed and capitalised simply cannot enable PNG Power Ltd to be a solution.

The sooner we, especially you Minister, recognise and deal with this fact, the better it will be. Even if it is an infrastructure problem, PNG Power Ltd is not made out to solve this problem. PNG Power itself is the problem.

I write, therefore, to propose to you and by you, to the Cabinet that we immediately do an inventory and valuation of all PNG Power asset in the City and Central Province and we strip or remove these assets from PNG Power Ltd and sell these assets to a corporate company that can change the dynamics better and completely.

Be it a US, Japanese, German, Russian or Singaporean Company, the people of NCD, both corporate and individuals, deserve a better service provider of this critical essential services.

Independent State of PNG can continue to have equity in such a Company but as minor shareholders. This has to be and seems to be the only way forward given that PNG Power Ltd does not have the financial capacity to upgrade its infrastructure.

The way it is structured and managed too will not give confidence to Banks or financial institutions to offer credit to PNG Power Ltd to recapitalise and rebuild its dilapidating infrastructures.

We need to bite the bullet so we change the dynamics completely now. You have the power and privilege to make a difference now and I encourage you to make such bold decisions.

I look forward to sitting with you to explore this and other options your team and KCHL might have but we cannot procrastinate or delay any further.

As this is a matter expressed strongly to me recently, by both corporates and individual residents of our City, I will release copy of this letter publicly to media so the public can follow and contribute to solutions.

Thank you

Hon Powes Parkop LlB LlM MP


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Bill McKibben

The honorable governor makes mention of the fact that businesses in Port Moresby & NCD have to buy backup generators to sustain their businesses. This is no different to any other part of PNG whether it be a a large urban centre or one of the smaller towns.
The purchase and provision of backup power supplies is one of the necessities required to operate in all parts of the country. Port Moresby businesses should not be treated differently to businesses in other parts of the country.

Chris Overland

While Powes Parkop may be right in his analysis of the problem, the solution he is proposing is not necessarily the best answer.

If by privatisation he means selling the power assets lock, stock and barrel, then I think is he advocating the wrong solution.

Doing that will merely ensure that a foreign company becomes the monopoly provider of a vital essential service.

Experience here in Australia and elsewhere in the world suggests that this is will be a mistake which merely lays PNG and the citizens of Port Moresby open to exploitation by 'price gouging'.

The better option may be to split PNG Power Ltd into several parts, probably composed of a single privately owned generator company (with the government as a major but not majority shareholder), a private transmission company (responsible for high voltage lines going to sub-stations), and a government owned but privately managed distribution company which retains ownership the poles and wires that run to homes and businesses.

The government can invite prospective retailers of electricity to set up in Port Moresby and offer customers their services at the best rates they can.
These rates will depend upon the commercial arrangements they can negotiate with both the generator and transmission companies, which would probably involve a sliding scale of costs dependent upon the volume of electricity being sold.

The distribution company, being a government owned monopoly, would make the same charges against each and every retailer thus ensuring a level playing field in relation to distribution.

What both a generator and a transmission company want is a steady and predictable load on their systems, so the volume and timing of electricity use becomes a key commercial issue.

Consequently, this set up ensures that those retailers which succeed in attracting the most customers, and have the most efficient and cost effective operations, can do competitive volume based deals for the purchase of wholesale electricity which would be reflected in both their offer to customers and their profit margin.

The important thing in this set up is that the government continues to own the poles and wires, meaning that it has commercial leverage across the whole system. Experience shows that this gives the government an important means of influencing how, when and where electricity is distributed.

Over this whole industry the government can set up a national electricity marketing authority whose task is to ensure that the system functions smoothly, with the various parts working harmoniously.

While this sounds complex (and is) there are models of this system available for study in Australia and, although they are by no means perfect, they do appear to work pretty well in creating a market based but quite tightly regulated means of providing an essential service.

In any event, privatisation of such an essential service should not be turned into a private monopoly of the type apparently being proposed by Governor Parkop.

If this happens, it will be a case of jumping out of the frying pan and into the fire. Monopolies are always exploited to price gouge customers because the temptation to do so is overwhelming. Even Adam Smith warned against them.

So, as the Romans would have said, caveat emptor (buyer beware) when setting up any new electricity supply system.

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