TA7783 Final Report
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Technical Assistance Consultant’s Report Project Number: (43197-012) November 2012 PNG: Port Moresby Power Grid Development Project (Financed by the ADB’s Technical Assistance Special Fund) Prepared by: Richard Murray SMEC International P.O. Box 5119, Wellesley Street Auckland 1141, New Zealand For: Asian Development bank (executing agency) PNG Power Ltd. (implementing agency) This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. Asian Development Bank Project Nº 5036211 TA 7783-PNG: Port Moresby Power Grid Development Project Final Report – Volume I November 2012 Prepared for: Independent Public Business Corporation (IPBC) as Executing Agency; and PNG Power Limited (PPL) as Implementing Agency Prepared by: SMEC International PTY Ltd Rouna 1 and 3 Hydropower Station This page blank for double siding TA 7783-PNG: Port Moresby Power Grid Development Project: Contents TABLE OF CONTENTS Glossary KNOWLEDGE SUMMARY 1 1 EXECUTIVE SUMMARY 2 1.1 Overview of Outcomes 2 1.2 Financial and Economic Outcomes 3 1.3 Financial Assessment PPL 3 1.4 Social Impact, Gender and Safeguards Measures 3 1.5 Project Benefits 4 1.6 Future Project/TA Funding Options 4 2 INTRODUCTION 6 2.1 Background 6 2.2 Description of PPTA 7 2.3 Subproject Location 7 3 POWER SECTOR ANALYSIS 8 3.1 PNG Strategic Overview 8 3.2 Regulation in the Power Sector 9 3.3 Power System Facilities / Performance Indicators and Analysis 9 3.4 Power Tariffs 10 3.5 Demand Forecast & PPL Planning Projections 11 3.6 Port Moresby Power Grid Analysis 13 3.7 Government Sector Strategy 16 3.8 ADB Sector Strategy 17 4 PROJECT RATIONALE 19 4.1 Background 19 4.2 Sector Issues 20 4.3 Generation Issues 21 4.4 Existing Transmission and Distribution Issues 21 4.5 The Need for Investment 22 5 DESIGN AND MONITORING FRAMEWORK 23 5.1 Problem and Objectives Tree 23 5.2 Design and Monitoring Framework 24 6 THE PROPOSED PROJECT 25 6.1 Impact and Outcomes 25 6.2 Infrastructure Investment Summary 25 6.3 Subproject 1: Kilakila Substation and Transmission line 25 6.4 Subproject 2: Substation Capacitors or Statcom 27 6.5 Subproject 3: Upgrade of 11 kV System to Open Loop Mesh 27 6.6 Subproject 4: a) Loss Reduction Programme (LRP) b) Energy Access 29 6.7 Subproject 5: Rouna 1 Hydropower Rehabilitation 30 6.8 Subproject 6: Sirinumu Toe of Dam Upgrade 32 6.9 PSS/E Study Outcomes 33 6.10 SCADA Review 35 6.11 Distribution Design Standards 37 6.12 Future Project/TA Options 38 7 COST ESTIMATES AND FINANCING PLAN 41 7.1 Cost Estimates 41 7.2 Financing Plan 42 8 ECONOMIC ANALYSIS 43 8.1 Macroeconomic Context and Demand Analysis 43 8.2 Economic Analysis Methodology 46 8.3 Least-Cost Analysis 46 8.4 Economic Valuation of Costs and Benefits 47 8.5 Results of Economic Analysis 50 9 PNG POWER LTD FINANCIAL ANALYSIS 52 9.1 Introduction 52 9.2 Historical Financial Performance 52 9.3 Tariffs and Cost Recovery 53 Final Report | 30 November 2012 Page | i TA 7783-PNG: Port Moresby Power Grid Development Project: Contents 9.4 PPL’s Financial Position. 53 9.5 PPL Financial Projections 55 9.6 Assessment of PPL Financial Management. 56 10 ENVIRONMENTAL ANALYSIS 57 10.1 Objectives and Scope of Environmental Assessments 57 10.2 Policy and Legal Framework 57 10.3 Project description and subproject environment 60 10.4 Rapid Environmental Assessments 60 10.5 Public Consultation and Grievance Redress Mechanism 60 10.6 Environmental Management Plan 61 10.7 CO2 Emissions 61 10.8 Conclusions 62 11 SOCIAL AND POVERTY ASSESSMENT AND MITIGATION 63 11.1 Objectives 63 11.2 Project Beneficiaries 63 11.3 Socio-Economic Profile of the Subproject Sites 63 11.4 Project’s Social Impact 64 11.5 Land Acquisition and Resettlement 64 11.6 Involuntary Resettlement & Indigenous Peoples 65 11.7 Proposed Mitigation Measures & Plans 65 11.8 Summary 65 12 GENDER ANALYSIS 66 12.1 Introduction 66 12.2 Gender Impacts 66 12.3 Public Consultation 66 12.4 Proposed Mitigation Measures & Plans - Gender 66 12.5 Conclusions 66 13 PUBLIC-PRIVATE SECTOR CAPACITY 67 13.1 Introduction 67 13.2 Regulatory 69 14 PPL INSTITUTIONAL CAPACITY 70 14.1 Introduction 70 14.2 Corporate Governance and Management 70 14.3 Staffing 70 14.4 PPL Asset Management 71 14.5 PPL Project Delivery 72 14.6 Capacity and Culture of PPL 72 14.7 Private Participation in Works 73 15 PROCUREMENT 75 15.1 Proposed Procurement Methods 75 15.2 Procurement Capacity Assessment 75 16 PROJECT IMPLEMENTATION ARRANGEMENTS 77 16.1 Project Management 77 16.2 Implementation Schedule 77 17 CONCLUSIONS AND RECOMMENDATIONS 79 17.1 Conclusions 79 17.2 Primary Recommendations 79 17.3 Secondary Recommendations 79 Appendix A Design and Monitoring Framework 81 Appendix B Individual Feasibility Studies (with IEEs) – Volume II 85 Appendix C Sector Assessment (Summary): Energy 87 Appendix D Development Coordination 89 Appendix E PPL Financial Analysis & Management Assessment 91 Appendix F Subproject and Overall Financial Analysis 113 Appendix G Subproject and Overall Economic Analysis 125 Appendix H Due Diligence / Social Compliance Audit Report 137 Appendix I Poverty Reduction and Social Strategy 139 Appendix J Community Support and Consultation 143 Appendix K Gender Action Plan 163 Final Report | 30 November 2012 Page | ii TA 7783-PNG: Port Moresby Power Grid Development Project: Contents Appendix L Resettlement Plan 165 Appendix M Indigenous Peoples Due Diligence Report 167 Appendix N Implementation Schedule 175 Appendix O Procurement Plan 177 Appendix P Procurement Capacity Assessment 185 List of Tables Table 1: Subproject Financial and Economic Outcomes 3 Table 2: Social Impact, Gender and Safeguards Outcomes 3 Table 3: Project Physical Benefits Summary 4 Table 4: PPL Key Statistics 11 Table 5: Historical and Future Sales Growth Projections 12 Table 6: PPL Levellised Cost of Generation 14 Table 7: PPA Benchmarks: Comparison with PPL Port Moresby System 15 Table 8: Results Framework Indicators 24 Table 9: Subproject Proposed Investment 25 Table 10: Detailed Cost Estimates by Expenditure Category 41 Table 11: Financing Plan 42 Table 12: Loan Structure 42 Table 13: Electricity consumption and total losses during 1993-2011 45 Table 14 Demand Forecast for Port Moresby Grid System, 2012-2025 45 Table 15: Conversion of Financial Costs into Economic Costs (Rouna 1) 47 Table 16: Capital Cost Estimates 47 Table 17: Estimated Tariff Trend 49 Table 18: Values of Electricity in PNG 49 Table 19: Detailed EIRR Computation - Overall Project 50 Table 20: EIRR and ENPV Base Case and Sensitivity Analysis 51 Table 21: PPL - Key Historical Financial Data (Kina millions) 52 Table 22: PPL Financial Covenants of the Existing Consortium Lending Facility 54 Table 23: PPL Cashflows (Kina millions) 54 Table 24: PPL Key Financial Ratios 54 Table 25: Summary of PPL Financial Projections (K 000’s) 55 Table 26: Key Environmental Laws of PNG 58 Table 27: Environmental Regulatory Compliance 59 Table 28: Relevant Employment Laws 59 Table 29: Subproject Recommendations 79 Table 30: PPL - Key Historical Financial Data (Kina millions) 93 Table 31: PPL Key Technical Statistics 95 Table 32: Tariff and Cost Recovery 95 Table 33: PPL - Financial Position (Kina millions) 96 Table 34: PPL Financial Covenants of the Existing Consortium Lending Facility 97 Table 35: PPL Cashflows (Kina millions) 98 Table 36: PPL Key Financial Ratios 98 Table 37: Summary of PPL Financial Projections (K 000’s) 102 Table 38: Weighted Average Cost of Capital 115 Table 39: SP1 FIRR and FNPV Base Case and Sensitivity Analysis 115 Table 40: SP1 Detailed FIRR Computation - Kilakila Substation & Transmission Line 116 Table 41: SP2 FIRR and FNPV Base Case and Sensitivity Analysis 117 Table 42: SP2 Detailed FIRR Computation - Capacitor Banks or Statcom 117 Table 43: SP3 FIRR and FNPV Base Case and Sensitivity Analysis 118 Table 44: SP3 Detailed FIRR Computation - 11 kV Mesh 118 Table 45: SP4 FIRR and FNPV Base Case and Sensitivity Analysis 119 Table 46: SP4 Detailed FIRR Computation - Energy Access 119 Table 47: SP5 FIRR and FNPV Base Case and Sensitivity Analysis 120 Table 48: SP5 Detailed FIRR Computation - Rouna 1 Refurbishment 121 Table 49: SP6 FIRR and FNPV Base Case and Sensitivity Analysis 122 Table 50: SP6 Detailed FIRR Computation - Sirinumu Rehabilitation 122 Table 51: Overall FIRR and FNPV Base Case and Sensitivity Analysis 123 Table 52: Overall Detailed FIRR Computation - Overall Project 123 Final Report | 30 November 2012 Page | iii TA 7783-PNG: Port Moresby Power Grid Development Project: Contents Table 53: SP1 EIRR and ENPV Base Case and Sensitivity Analysis 127 Table 54: SP1 Detailed EIRR Computation - Kilakila Substation & Transmission Line 127 Table 55: SP2 EIRR and ENPV Base Case and Sensitivity Analysis 128 Table 56: SP2 Detailed EIRR Computation - Capacitor Banks or Statcom 128 Table 57: SP3 EIRR and ENPV Base Case and Sensitivity Analysis 129 Table 58: SP3 Detailed EIRR Computation - 11 kV Mesh 130 Table 59: SP4 EIRR and ENPV Base Case and Sensitivity Analysis 131 Table 60: SP4 Detailed EIRR Computation - Energy Access 131 Table 61: SP5 EIRR and ENPV Base Case and Sensitivity Analysis 132 Table 62: SP5 Detailed EIRR Computation - Rouna 1 Refurbishment 132 Table 63: SP6 EIRR and ENPV Base Case and Sensitivity Analysis 133 Table 64: SP6 Detailed EIRR Computation - Sirinumu Rehabilitation 134 Table 65: Overall EIRR and ENPV Base