Beijing answers this man's calls; not hers
Would it have been better? PNG as a state of Australia

PNG Power: Privatisation would mean exploitation

Privatising PNG Power will open up consumers to exploitation by price gouging. The better option may be to split PNG Power Ltd into several parts


ADELAIDE - While National Capital District governor Powes Parkop may be right in his analysis of the problem of Port Moresby's unreliable electricity supply, the solution he is proposing is not necessarily the best.

If by privatisation Parkop means selling the power assets lock, stock and barrel to a private company, then I believe he is 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 this will be a mistake which merely opens Papua New Guinea 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.

These would probably comprise 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 of 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 generation 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 ensures that the 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 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 (let the buyer beware) when setting up any new electricity supply system.


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Bernard Corden

Another interesting article from Ralph Nader at Counterpunch:

Corney Korokan Alone

We have observed and read what Reganism and Thatcherism did to public utilities, ending up in the grip of greedy private interests with supporting roles from the Bretton Woods creatures.

The espoused idealisms of efficiency and better service and affordable pricing never realised.

Advocating for full privatisation of a critical national asset that is vital for social good as well as economic and national security is a ridiculous proposition as Chris Overland nicely outlined.

It is suspicious to note that some gangs who made an undertaking in the presence of international media during APEC Port Moresby 2018 for the 70% electrification program, and which have failed to move swiftly, appear to be agitated because the key Ramu Hydro modernisation and improvement project landed in the hands of contractors from China.

As often is the case of obstructionism and distraction, that appears to be the reason why full scale privatisation of PNG Power Limited seems to get anonymous consultants singing the old monotonous privatisation song.

The others merely follow the current, aiding and abetting that song without any depth, muddled up in philosophical discussions, notwithstanding the challenges faced by PNG Power over the years.

Bernard Corden

An interesting article, entitled 'Why the Neoliberal Drive to Privatize Everything Is Running Out of Gas', from Richard D Wolff at Counterpunch:

Ian Gray

Morning Chris - thanks for the inclusion and to a large extent we are saying the same things, although I suppose we do differ on the use of 'would' versus 'could' (the headline).

The issue of power supply and development in PNG is a very complex one and well beyond the scope of a short commentary, but awareness is a good beginning.

It will take a mix of private, public and (ongoing) aid agency investment to move electricity development along and bring light to the rural communities.

And aid will continue to be required in PNG simply because the government can't either afford or manage the capital, technical and operational investment risks.

There are of course development models that the country can follow.

For instance in Africa the World Bank has recommended tying in electricity development to the development of commercial mining hubs, where a core commercial investment in electricity generation for the mine (paid for by the private mining company) allows the government to then springboard and use the hub for electricity transmission to communities.

In this scenario, the majority of development and operational risk is off-loaded to the commercial parties with a direct social and economic benefit for the rural communities.

PNG is blessed with an abundance of potentially economic mineral resources to support this approach.

The operating mines at Porgera, Lihir and Ok Tedi could become potential prototypes of this approach in PNG; however success will require coherent government policy planning to support resource development by the private sector, so that marketable offtake and credit guarantees are available for commercial investors.

Chris Overland

Thanks for your comment Ian.

I am in no position to comment on the entire PNG electricity market, being unfamiliar with it. Also, given the manifest failings of the government run enterprise serving Port Moresby, I think that privatisation, in some form at least, probably is the way to go.

The main thing for me is to not allow a systemic commercial monopoly to develop. This always, always leads to the same results, being system "gold plating", price gouging and rent seeking. It does not guarantee superior service either.

The system I suggested is designed to keep the market open and competitive whilst still allowing the constituent parts to make money.

PNG needs several competitors in the electricity supply market for it to have any chance of achieving a market driven, value for money outcome.

Ian G

Chris - an important point is that privatisation will lead to the growth and development of domestic electricity companies in PNG, particularly landowner owned entities

This is already in effect with the likes of Dirio (100% MRDC), PNG Forest Products and Niupower (50:50 Kumul Energy and Oil Search).

Other nascent landowner related companies are already emerging across the country to take up the opportunity, particularly for hydro-power and solar projects.

In fact the new PNG National Energy Authority Act (2020) requires both local landowner/company content during the development and operational phases of new electricity supply.

It's also worth noting that the relatively small size and value of the PNG electricity market, means it's not really at a scale that is of interest to the major foreign entities looking to expand overseas (Ramu 2 excepted)....

Given the complete stagnation of this sector and the obvious failure of government to bring power to the people of PNG, the obvious conclusion has to be let the privatisation begin.

(Tthe definition of insanity is to keep doing the same thing and expect a different result.)

Even though Ian failed to include his full name, a requirement of PNG Attitude, I decided to run his comment because of its substantive contribution to this discussion - KJ

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