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China v the West in great PNG electricity war

| Harvard International Review | Extracts

Compared with China, the West’s contributions to electrification are less tangible and far less financially robust

CAMBRIDGE MA USA - Amidst global discussion of the increasingly competitive dynamic emerging between China and the United States, Papua New Guinea represents a potential battlefield.

As the country works to establish a functional electricity network, Chinese and Western-allied involvement in the process has presented a point of competition.

The US and Australia have previously expressed concern regarding the perceived lack of transparency of Chinese infrastructure funding in the Pacific, and with the accumulating debt to China among small Pacific states.

In the case of PNG, extensive telecommunications and infrastructure projects funded by China have amounted to over US$1 billion in loan debt, which compounds economic difficulties for PNG.

Budget shortfalls in PNG have already driven the Australian government to extend loans totalling hundreds of millions of US dollars to the country, meaning that Australia is largely paying for PNG debts to China.

The realities of such a situation indicate extensive Chinese leverage over both PNG and Australia, and inform the media perception that the Partnership is working to “counterbalance” China’s influence in PNG and the Pacific at large.

The 2018 US$1.7 billion PNG Electrification Partnership to develop the electricity sector in PNG was announced came against the backdrop of two controversial and ongoing Chinese-funded projects in PNG.

The Ramu-2 hydroelectric project, a US$800 million facility that would increase PNG’s electricity output by a third, has been alleged by parliamentary opposition leader, Patrick Pruaitch, to have been approved through backdoor methods that violated finance management laws.

The other project is a US$145 million transmission line and substation initiative, which the opposition argued lacked an “obvious open tendering process.”

These questionable funding practices led the opposition leader to warn that the US would withdraw from the Partnership if “open and competitive tendering” was not more prominently supported.

A return to questionable funding practices could instigate further tensions, particularly if Western nations feel the practices in question favour Chinese investment at the expense of Western influence in PNG.

PNG has a population of around nine million with 80% residing in rural areas, much of which is mountainous and heavily forested.

Given these demographics, it is more financially viable for many rural locales to generate electricity themselves than to connect with the national grid, and generate sizable market share in localised, off-grid means of electrification.

As such, the nature of the foreign involvement in electrical development will largely influence whether China or Western nations can consolidate influence in PNG.

In addition to the Ramu-2 and transmission line projects, almost all off-grid solar products are imported from China. The market for these is valued at US$259 million and is increasing.

Compared with China, the Partnership’s contributions to electrification are less tangible and far less financially robust.

The specific projects are largely being funded on a country-by-country basis. Japan, as well as Australia and New Zealand jointly, have each focused on expanding the grid to rural buildings, projects which entail a US$23 million contribution cumulatively.

The US Agency for International Development (USAID) has contributed US$57 million in funding which “leverage[s] private sector investment” into PNG electrification and aims to bolster the capabilities of PNG Power Limited (PPL), a state owned power company.

This disjointed and economically conservative effort (relative to Chinese contributions) seems to give China the upper hand in the electricity development process, as China controls the off-grid product market and invests significantly greater amounts in large scale projects.

Furthermore, myriad financial and organisational issues at PPL throw into question recent financial contributions by members of the PNG Electrification Partnership, which often rely on PPL to complete the projects themselves.

A series of funding crises in 2021, coupled with general dysfunction within the company, mean it is unlikely that PPL can be relied upon to carry out necessary projects.

Debts from the government to PPL have been estimated at US$310 million and illegal grid connections cost a further US$7 million per month.

Aging equipment and frequent outages mean an unreliable grid, a 2018 World Bank report found electrical difficulties to be the fourth largest business constraint for large businesses and the third largest for small and medium enterprises.

While these issues can certainly be resolved, organisational conflicts within PPL do not seem conducive to effective problem solving.

If PPL is unable to address internal company issues, the ability of the Partnership to compete with direct involvement of Chinese corporations will likely be diminished.

As competition between China and Western nations continues into the future, electrification in PNG may prove a lucrative and conflict-ridden process.

While PNG does not typically come to mind as a nation at the forefront of international politics, the nations of the South Pacific are finding themselves to be under the focus lens of Chinese geopolitics.


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