OBG talks to Tony Koiri, CEO, PNG Power

Interview: Tony Koiri

What are PNG Power’s immediate priorities in the current economic environment?

TONY KOIRI: We are a vertically integrated organisation, starting with power generation down to delivering to our customers. As such, our top priority at the moment is to increase generating capacity. In doing that, we are looking for opportunities to leverage the country’s significant water resources without damaging the environment. Sometimes people forget that hydropower is very economical, so water is one of the best resources that our organisation can leverage. The timeframe for planning and building hydropower facilities is longer than that of thermal power generation plants, but hydropower must be at the top of the priority list for investment.

The most costly way to generate capacity in the country is thermal power. Unfortunately, this is the only option we have in some areas, and in the near future, any additional generational capacity will be created through the use of thermal power.

The biggest component of our expenditure is fuel; InterOil’s monopoly on fuel does not help, so we need to find better ways in dealing with this issue. In 2011 we put together a strategic study looking at both the benefits and the implications of importing fuel. One impediment to the fuel importation strategy is PNG Power’s lack of adequate storage facilities. The other option is using domestic natural gas; we have an abundance of gas, especially with the emergence of liquid natural gas and the giant terminal, but we cannot get a commitment from a commercial supplier or the government to make natural gas available domestically for electricity production. This is unfortunate, because on a cost-pervolume basis, gas is much cheaper than thermal fuel.

Another important area that we sometimes neglect when focusing on increasing generation capacity is the downstream industry. The entire power transmission network was built at the same time and therefore has the same age profile, so the next priority is to concentrate on energy distribution.

Increasing generation capacity will solve one part of the problem, but we also need the infrastructure to distribute more power and support the sector.

Is PNG Power looking at any particular models for privatising the energy sector in the country?

KOIRI: Having studied various power sector privatisation strategies, notably in Australia and New Zealand, I have found that a system like ours is not structured correctly to allow for the successful emergence of an independent power producer (IPP) model. However, if we had a fully integrated transmission system, it would be a different story.

In my experience, when IPPs and power retailers come into a market, they tend to initially extract as much value as they can from an organisation. Upon the first pricing review, however, they usually divest or change their plans, or consolidation takes place as producers seek to purchase competitors to gain access to a larger customer base.

The most difficult part in any privatisation or public-private partnership (PPP) structure is finding an efficient and mutually beneficial operating model.

The key is to distinguish between ownership and operation within the sector. If PPPs are not organised well, difficulties and disagreements will emerge.

With this in mind, any successful model has to release the operating contract to a PPO. In the smaller energy systems, it is difficult to see who will be interested because these systems are suffering losses. If we look at PNG Power, this organisation is assetrich but burdened with debt through different consortiums. We will not be able to start creating value until we can deleverage these debts.

PNG Power is valued more for its parts than as a whole, but we cannot cherry-pick and sell off our valuable assets. That would leave the government with the burden of a group of loss-making networks that will require even more investments in the future.