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PNG Power responds to Public and Business House outcry on Tariff increase

Staff Reporter 1/08/2014 | | |
The electricity industry is a capital intensive industry, requiring huge capital to put in equipment and power plants. 

The lead time to order and install major equipment and diesel power plants is more than 12 months. 

For these reasons improved electricity services cannot be expected immediately as this benefit can only be seen sometime after new equipment and diesel power plants are installed.

PNG Power suffers from legacy issues where power plants on average are more than 25 years old, past their economic and technical life and distribution networks are more than 30 years old. 

The problems we are facing today did not occur overnight but took many years to manifest itself. 

As power facilities age, technology changes and the cost of maintenance and replacement goes up and since PNG Power had financial problems in the past (in the nineties and early 2000) it could not carryout important maintenance and replacement programs when they were due. 

With delays in maintenance of power facilities the consequence is accumulation of problems that have created a huge backlog of maintenance and replacement programs. 

We are in a catch up mode trying to resolve 20 years or more of neglect in the maintenance and replacement programs of PPL and it will take some time for customers to notice improvements in the supply of electricity.

PPL has a huge investment portfolio and a significant portion of this is to improve existing assets. 

PPL will also be encouraging partnerships with the private sector to provide generation facilities in some areas of PNG. 

However, this program will not be completed in a single year and therefore customers will not see any drastic improvements in supply service this year. 

PPL is also obligated to meet reliability targets set by ICCC so our efforts this year will aim at achieving this requirement.

The recently approved tariff increase of 5.9% by the Regulator is part of the strategy to raise internal income to assist PPL fund power projects, particularly to improve performance of existing assets and this tariff increase is based on PPL’s projected capital works program over the next five years.

A significant component of PPL’s capital works program is debt funded and the major lenders are the Domestic Banks and Super Funds, ADB and JICA. 

If PPL did not get debt funding, the increase in tariff would be higher or if fuel costs came down significantly, say to 2008 levels, PPL would not need to increase tariffs by this much, in fact it may not have to increase tariffs at all.

To recap, customers will not see huge improvements in service this year but may see this benefit some years later. 

The tariff increase helps with funding of capital projects but PPL relies also on loan finance to fund projects. 

These projects take time to implement because of their long lead time. PPL cannot just go to the local market to get equipment or power plants it needs and therefore has to bring them from overseas. This takes time.

John Tangit
CHIEF EXECUTIVE OFFICER

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