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
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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
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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
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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
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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 Case and Sensitivity Analysis 135 Table 66: Overall Project Detailed EIRR Computation 135 Table 67: Power Customers of PNG Power 144 Table 68: Power-related Problems of Households in NCD 146 Table 69: Development Activities and Cost for PPL Operations 149 Table 70: Time Plan for Implementation of Community Support & Development Programme 152 Table 71: Participants and Locations of Consultations by Subproject 158 Table 72: Details of Stakeholders for Assessments 158 Table 73: PPL and Government Agencies and their Role in Consultation Process 159 Table 74: Cost for Implementation of Consultation & Participation Plan 160 Table 75: Time Plan for Public Consultations in Implementation Phase 160 Table 76: Subprojects Activities and Potential Impacts on People 172
List of Figures
Figure 1: Subproject Location Map 7 Figure 2: Sales and Generation 1993 to 2026 12 Figure 3: Problem Tree 23 Figure 4: Projected Electricity Revenue (K ‘000s) 100 Figure 5: Projected PPL Net Profit / (Loss) (K ‘000s) 100 Figure 6: Projected Net Assets (K ‘000s) 101 Figure 7: Projected Annual Net Cash Generation (K’000s) 101
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GLOSSARY
Abbreviations & Acronyms ADB Asian Development Bank CAIDI Customer Average Interruption Duration Index CBD Central Business District CO2 Carbon Dioxide CPS Country Partnership Strategy CSO Community Service Obligations DFR Draft Final Report DMF Design and Monitoring Framework DSP Papua New Guinea Development Strategic Plan 2010-2030 EA Executing Agency [IPBC] EIP Electricity Industry Policy EMP Environmental Management Plan ERC Electricity Regulatory Contract ETF Electricity Trust Fund HPS hydropower station HV High Voltage [> 35 kV as per IEC] IA Implementing Agency [PPL] ICB International Competitive Bidding ICCC Independent Consumer and Competition Commission IEE Initial Environmental Examination IPBC Independent Public Business Corporation [EA] LFF Loan Fact Finding mission LV Low Voltage [≤1,000 V as per IEC] MAP Maximum Average Price MD Maximum Demand MTDS Mid-Term Development Strategy MV Medium Voltage [>1 kV to 35 kV as per IEC] NCB National Competitive Bidding NCD National Capital District NEC National Executive Council (The Cabinet of PNG Parliamentary system) O&M Operations and Maintenance pa per annum PATA Policy and Advisory Technical Assistance PNG Papua New Guinea POM PGDP TA7783 - Port Moresby Power Grid Development Project POM PSRP TA7783 - Port Moresby Power System Reinforcement Project POM Port Moresby PPL PNG Power Limited [IA] PPP Public-Private Partnership PPTA Project Preparation Technical Assistance PSS/E Power System Simulator for Engineering [transmission system simulation software] RFI Results Framework Indicators ROW Right Of Way (for transmission or distribution power route cross public or private lands) RRP Report and Recommendation of the President to the Board SAIDI System Average Interruption Duration Index = CAIDI x SAIFI SAIFI System Average Interruption Frequency Index SCADA Supervisory Control and Data Acquisition SLD Single Line Diagram SMEC SMEC International Pty Ltd SP Subproject [SP1 to SP6] SPS Safeguard Policy Statement SS Substation [132/66/11 kV, 66/11 kV, 33/11 kV or similar] TA Technical Assistance TEIP Town Electrification Investment Programme TML Transmission Line (>35 kV) TOD Toe of Dam
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ToR Terms of Reference USE un-served energy
ADB Safeguards Terms DDR Due Diligence Report EARF Environmental Assessment and Review Framework IEE Initial Environmental Examination EIA Environmental Impact Assessment EMP Environmental Management Plan ESMS Environmental and Social Management System GAP Gender Action Plan IP Indigenous Peoples IPP Indigenous Peoples Plan IPPF Indigenous Peoples Planning Framework LA/RP Land Acquisition / Resettlement Plan PSA Poverty and Social Assessments RP Resettlement Plan SPS Safeguard Policy Statement (2009) SPRSS Summary Poverty Reduction and Social Strategy
Financial and Economic Terms PGK or K PNG Kina USD or US$ United States Dollar GDP Gross Domestic Product EIRR Economic Internal Rate of Return ENPV Economic Net Present Value EOCC Economic Opportunity Cost of Capital FIRR Financial Internal Rate of Return FNPV Financial Net Present Value LRMC Long Run Marginal Cost [of the cost of power from generation stations] NPV Net Present Value SERF Shadow Exchange Rate Factor SoE Statements of Expenditure SWRF Shadow Wage Rate Factor WACC Weighted Average Cost of Capital
Glossary of Other Terms Op. Cit. Opere Citato (Latin: in the work cited) Ibid abbreviation for the Latin Ibidem, meaning "The same"
Units & Measures GWh Giga-Watt-hour (109 watt-hour) hr hour k kilo = thousand = 103 km kilometre kV kilovolt (103 volt) kVA kilo Volt-Ampere (103 Volt-Ampere) kW kilo Watt (103 Watt) kWh kilo Watt-hour (103 Watt-hour) M Mega = Million = 106 MVA Mega Volt-Ampere (106 Volt-Ampere) MVAr Mega Volt-Ampere reactive (106 Volt-Ampere reactive) MW Mega Watt (106 Watt) MWh Mega Watt-hour (106 Watt-hour) Wp Watt, peak yr year
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KNOWLEDGE SUMMARY
A. Port Moresby, the largest urban centre in Papua New Guinea (PNG), is expanding rapidly due to on-going strong economic growth. Load demand on the Port Moresby power grid has increased significantly in recent years fuelled by high economic growth associated with the LNG plant under construction as well as continued growth in the mining sector and associated industry. Energy sales growth is averaging 4.5 % and is expected to continue this trend over the next 10-15 years. Power outages are becoming increasingly frequent due to poorly maintained transmission and distribution systems. Reliability performance when benchmarked with other Pacific region island nations is unsatisfactory; SAIDI is presently 124 hours per annum compared to benchmarked average of less than 10 hours per annum. B. The Port Moresby grid has historically been supplied by renewable energy from the Rouna hydropower 58.75 MW cascade. The hydropower share of power generation has fallen from 76 % in 1994-1995, due to increasing demand and deferred rehabilitation on the Rouna cascade, to 59 % in 2010-2011 with the remaining supplied by diesel generation. Large additional hydropower generation in the long term or alternatively LNG if available is planned to support the expanding demand in the medium term. However investments are urgently required to rehabilitate the existing Rouna hydropower infrastructure to (i) meet immediate demand requirements, (ii) offset the need for investment in diesel generation, and (iii) maximise efficiencies in the power system. C. Due to power supply unreliability there is considerable back-up self-generation capacity in the urban areas. This is maintained and operated at high cost and low efficiencies. Lack of access to affordable, reliable power is limiting economic growth and hindering private sector development. Investments in the Port Moresby grid transmission and distribution infrastructure are required to (i) improve reliability and security of power supply, (ii) improve efficiencies through reducing the current 22 % system losses, and (iii) enable grid expansion to growing city areas. D. The proposed Project will improve network reliability, reduce fossil fuel consumption and increase energy access in the Port Moresby power grid. The Project will help PNG Power Limited (PPL), the national power utility, to increase efficiency of the distribution network and expand generation of renewable energy. The Project will (i) upgrade and rehabilitate two hydropower plants (Rouna 1 and Sirinumu Toe-of-Dam), (ii) develop the 11 kV distribution mesh network to improve efficiency and reliability, reduce un-served energy and extend the network to approximately 3,000 additional households, (iv) construct a new substation (Kilakila) with interconnecting 66 kV transmission lines and upgrade existing substations to provide additional capacity into Southern Port Moresby and the CBD relieving capacity at other substations enabling supporting growth and extensions to peri-urban districts of Port Moresby. E. Thorough Social Impact, Safeguards including Initial Environmental Examination and Gender assessment and analysis has identified that there are no insurmountable issues. All necessary documentation has been completed. F. Overall financial and economic analyses of the proposed Project and its subprojects have been conservatively assessed and are robust to sensitivity analysis.
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1 EXECUTIVE SUMMARY
1.1 Overview of Outcomes
1. SMEC International Pty Ltd (herein referred as the Consultant or SMEC), has prepared this Draft Final Report as the third deliverable under the Asian Development Bank (ADB, the Client) Contract N° 100922-S41885 of 16 May 2012, for Consulting Services for “TA 7783-PNG: Port Moresby Power Grid Development Project“ (the Project) with SMEC1. 2. The Project has 6 subprojects, for which due diligence and feasibility studies were undertaken. These reports are summarised in Section 6 and presented in full in Appendix B. With some amendments to the original Consultant terms of reference, all subprojects, except SP4, are technically viable and have the requisite FIRR and EIRR for implementation: Subproject 1: Kilakila Substation and Transmission Line. The study included an alternative “Kaugere” location. Kilakila was confirmed as the recommended option. A 2x 20/30 MVA substation and 6.1 km double circuit transmission line is proposed. Subproject 2: Substation Capacitor or Statcom. Final recommendation on which was optimal needed detailed system stability and protection study which was outside of the Consultant scope. Either option has requisite FIRR and EIRR for implementation. Subproject 3: 11 kV Open Mesh. The objective was to enable uninterrupted load transfers between substations and feeders to enhance reliability and timely restoration following faults. The initial investigation focussed on load break switch technologies as per Consultant ToR but was found not feasible. Following review with PPL management the scope was upgraded to include automated switchgear and distribution capacitors to enhance customer restoration time and power quality. The amended project was feasible. Subproject 4a: Loss Reduction Programme (LRP). Various options were reviewed some of which were subsequently included in SP3. This subproject was scaled back to a support programme for a loss reduction pilot study and provision of essential equipment to enable the subproject. Whilst not producing the requisite FIRR/EIRR as a standalone subproject the positive benefits are included in SP3. Benefits will arise for the pilot project programme as loss reduction opportunities are identified and may have potential for additional funding. It was considered essential this programme proceed given PPL’s overall system losses exceed 22 %. Subproject 4b: Energy Access. During the LFF Mission the PNG Government proposed a subproject to bring power to approximately 3,000 households currently unable to afford the connection costs. The Government would contribute US$ 2.5 million equivalent to this project. Whilst not producing the requisite FIRR/EIRR as a standalone project this is considered part of the Community Service Obligations (CSO’s) of PPL. Subproject 5: Rouna 1 Rehabilitation. Various options were analysed for upgrade of the present 3.5 MW operational capacity to more effectively use available water. The least cost was decided to be complete replacement of Rouna 1 HPS with a new 6 MW station located beside the existing and the remaining plant decommissioned. Subproject 6: Sirinumu Toe of Dam Rehabilitation. Options of (i) total replacement or (ii) rehabilitation only along with possible provision for installation of a future second generator reviewed were investigated. Option (ii) was selected as the least cost option. This involves upgrade on the existing 1.6 MW plant, rated at 1.1 MW due operational constraints to a 1.6 MW output.
1 The TOR may be referred to in the Inception Report Appendix A.
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1.2 Financial and Economic Outcomes
3. The following table summarises the financial and economic outcomes. The costs include Goods and Works needed for the delivery of the outcomes, even though such may be procured under another package. Thus SP1 includes US$ 2.93 m of distribution works needed to interconnect the substation, even though procurement would be under SP3 packaging. Table 1: Subproject Financial and Economic Outcomes Project Cost FIRR FNPV EIRR ENPV US$ ma US$ m US$ m SP1: Kilakila Substation and Transmission line $11.53b 7.0 % 15.15 15.0 % 2.45 SP2: Substation Capacitor or Statcom $2.70 8.4 % 4.55 32.9 % 4.45 SP3: 11 kV Open Mesh $7.43 10.7 % 21.95 25.7 % 8.83 SP4a: Loss Reduction Programme $0.50 } N/A } (5.12) } 10.6 % } (0.13) SP4b: Energy Access Programme $2.07c SP5: Rouna 1 Replacement $25.23 15.0 % 95.96 18.3 % 14.8 SP6: Sirinumu Rehabilitation and Upgrade $7.87 13.3 % 24.88 16.5 % 3.0 Overall Project $57.33 10.2 % 146.19 17.7 % 29.20 a Excludes physical and price contingencies and taxes: b Includes distribution network costs of US$ 2.93 m to connect SS into system: c PNG Government Grant of US$ 2.5 m less contingencies and taxes. This additional subproject 4b is not within Consultant scope and was prepared by the Government of PNG and PPL.
4. Subproject 4 overall has a negative FNPV. The components are to provide in component 4a tools and equipment to support overall system loss reduction and initiate a pilot project to focus on system loss reduction. During Project implementation further investment may be identified. Component 4b is to fund connection of up to 3,000 new customers to be supplied from the Port Moresby Grid. These customers are those who cannot presently afford the connection costs. Component 4b was not with the Consultant scope and was prepared by the PNG Government and PPL; albeit with the Consultant providing financial and economic analysis.
1.3 Financial Assessment PPL
5. Section 9 summarises and Appendix E provides full assessment of PPL financial position. In summary PPL are presently capable of servicing a projected US$ 80-85 million loan, with the caveat that PPL have an ambitious capital development programme over the next ten years. 6. It is understood all recent audits are qualified. PPL was unable to provide copies of the audit reports or qualification covering letters thus the Consultant’s own report on PPL financial status must inherently be qualified also. PPL advised significant issues are being attended to.
1.4 Social Impact, Gender and Safeguards Measures
7. There are no insurmountable impacts in any of the Social Impact, Gender or Safeguards policy sectors of environmental, involuntary resettlement and indigenous peoples. Due diligence identified the need for preparation of the documents summarised in Table 2 and contained in the Appendices. Sections 10-12 provide additional summary detail. Table 2: Social Impact, Gender and Safeguards Outcomes Policy Actions Category Outcome (Documents prepared) Social Impact General social impacts were identified All SPs = B Appendix I - Social and Poverty using checklists and other tools: due Assessment and Mitigation Plan prepared; diligence / social compliance audit Appendix J – (i) Community Support and prepared - Appendix H. For all Development Programme (ii) Consultation subprojects, impacts are to be and participation plan; managed by general mitigation plans. GRM - Grievance Redress Mechanism - No subproject specific issues were included in IEEs Appendix B: [the latter two identified: in collaboration with Environmental aspects] Gender No subproject specific issues were All SPs = B Appendix K - GAP prepared identified. Gender issues in general for all subprojects to be managed by GAP.
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Policy Actions Category Outcome (Documents prepared) Social Safeguards Environmental IEE DDR and CCR checklists prepared. All SPs = B Appendix B - IEE/EMP/GRM prepared for all Subprojects. Included in feasibility reports Involuntary SP1 land acquisition required: no SP1 only = B Appendix L - SP1 LA/RP prepared Resettlement involuntary resettlement. SP2-6 on public or PPL land: DDR prepared: no LA/RP required. Indigenous Appendix M - IP DDR prepared C No IP Plan required peoples
1.5 Project Benefits
8. The following table summarises the primary physical benefits of the Project overall. These are derived from Section 5.2 Table 8 Results Framework Indicators. Table 3: Project Physical Benefits Summary No Indicators Benefits Methods Used 3 Losses: Injection new 2x 20/30 MVA 66/11 kV substation, new Energy Saved (GWh) 3.4 GWh (0.56 %)2 feeders overhead (6.8 km) and underground (13.2 km to CBD), 9.3 km feeder uprating, install 11 kV capacitors and implement pilot loss reduction programme (SP1, SP3 & SP4) 4 Reliability: Automated system restoration on 11 kV (SP3) Un-served Energy (GWh) 1.7 GWh (23 %)3 Above automated system + Statcom at Boroko substation SAIDI (Hours) 124 hrs to 87 hrs4 (SP3 & SP2) 5 Installed energy New plant 6 MW Renewable energy (hydropower) displacing diesel. generation (MW) Incremental increase New 6 MW plant replacing existing 3.5 MW. (SP5) 2.5 MW+0.5 MW Rehabilitate 1.5 MW plant operating at 1.1 MW to 1.6 MW (SP6) 6 New households 3,000 new household An affordable energy access programme enabling poor and connected to electricity connections low income households to connect to the distribution grid. (number) 7 Greenhouse Gas 12,000 tCO2-equiv/yr The grid supplied electricity has lower greenhouse gas Emission Reduction emissions due to displacement of diesel generation with (tCO2-equiv/yr) additional renewable generation. Grid energy saved directly (3 above) reduces diesel based generation
1.6 Future Project/TA Funding Options
9. Section 6.12 provides the rational for additional ADB funding under the Loan. 10. Essential Action 1. Section 3.6C identifies a number of poor system performance issues. Section 6.9 identified transient and stability issues in determining the viability of a Statcom installation. It is strongly recommended that PPL undertake thorough study of the issues using independent experts in protection, system transient and stability analysis and possibility harmonics and governor AVR issues as well to identify and recommend long term solutions. It is proposed US$ 250,000 be included for Independent Consulting Services (ICS) to be procured under the loan and is included in the draft procurement plan in Appendix O. 11. Essential Action 2. Section 6.12 recommends that a planning team be established to undertake the 11 kV mesh detailed design. In support an ICS specialist in distribution planning is proposed and that a budget of US$ 100,000 is provided for these services. Procurement of SINCAL planning software is also proposed with appropriate training of PPL staff and IT equipment is implemented. Budget is included in the draft procurement plan in Appendix O of (i) US$ 120,000 for SINCAL, (ii) US$ 35,000 for training, and (iii) US$ 20,000 for IT equipment. 12. For the following recommendations, NIL budget is provided for in the proposed Loan.
2 Present system losses are 22.24 % of total GWh produced or 112 GWh. 3 On implementation of proposed Transient, harmonic, stability and protection studies there is potential to reduce USE by 6 GWh (80 %) overall and SAIDI to less than 10 hours. 4 Ibid.
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13. Essential Action 3. Section 15.2 recommends that during advance procurement ADB/PPL appoint a procurement specialist to support PPL align ADB procurement implementation criteria and PPL criteria. 14. Recommended Action 1. Under Section 6.3 for Kilakila Substation implementation provision of a CBD 11 kV switch-room along with an additional underground express feeder from Konedobu was recommended. A cost estimate of US$ 1.89 m was prepared but PPL need to identify and progress land procurement before ADB safeguards could be initiated should ADB funding be sought. The proposed enhancements to CBD to create a “no break” high reliability supply network would enable a “world class” supply network encouraging greater investment into the CBD. 15. Recommended Action 2. There would appear to be a need to resolve capacity constraints along the Waigani Drive development corridor and out to Gerehu. There are numerous solution options. It is suggested that an appropriate study and design be prepared for due diligence analysis. This may then become a recommended project for additional funding. This is detailed further in Section 4.4 and 6.12. 16. Recommended Action 3. This recommendation is an operational and organisational issue outside the scope of the proposed loan. Section 3.6.4 identified that there was considerable scope to improve PPL asset management focus and to expand the development of System Master Planning with a strategic asset management focus. It is strongly recommended that PPL initiate procurement of a specialist advisor in strategic asset management master planning to develop necessary capacity within PPL teams. It is also suggested that PPL consider further strategic alignment of its organisational structure to provide focus on organisational deliverables required from the PNG Government Strategic Development Plan 2010-2030. 17. Recommended Action 4. PPL Distribution Design Manual was last revised January 1989. Section 6.11 of this DFR recommends updating of the manual in alignment with PPL asset management criteria and AS/NZS 7000:2010 ‘Overhead line design - Detailed procedures”. 18. Recommended Action 5. Section 6.10D recommends PPL review the application of the SCADA system to include (i) a real-time cascade management application be provided for the Rouna cascade, (ii) a distribution management application in support of automation and remote control of 11 kV switching devices, and (iii) that Sirinumu be included in the generation SCADA system. 19. Recommended Action 6. Under Section 3.3 and 3.6C reliability issues are discussed. It is recommended PPL implement accurate methodologies in the evaluation of SAIDI, CAIDI and SAIFI reliability indices. This would also align to current discussions with ICCC. 20. Potential additional funding under this Loan. This PPTA raises several other potential funding initiatives. These include: Recommended Action 1 (CBD 11kV switch room) and 2 (Waigani Drive development corridor) above. Following on from SP4a, the loss reduction programme, a number of additional initiatives will be identified for possible works and funding. Following on from the cascade study, a separate TA from this PPTA, there may be additional capacity initiatives at Rouna and Sirinumu.
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2 INTRODUCTION
2.1 Background
21. PNG Power Limited (PPL), the national state-owned corporatised power utility, manages installed generation capacity of about 300 MW, including the three main grids located in (i) Port Moresby, (ii) Lae-Madang-Highlands areas (Ramu grid) and (iii) Gazelle on New Britain along with 26 other smaller urban centres through 19 independent power systems. Power is provided by a mix of thermal, primarily diesel, and hydroelectric generation. The existing independent provincial electricity grids are clustered around the regional population centres and isolated due to the rugged terrain of the country and large distances between centres making interconnectivity uneconomic. In PNG, less than 10 % of the population has access to electricity. Where power is available, generally in the main urban centres, supply is often unreliable. 22. In Port Moresby reliability and system capacity factors seriously impact on economic growth. Access to electricity, whilst largely available within the National Capital District (NCD), is never-the-less not affordable for large sectors of the community. Only 69 % of the potential customer base is connected. Where existing supply is available it estimated that 15 %5 of Port Moresby potential customer base cannot afford connection. Access is limited in rural areas, and if available on long 22 kV feeders with poor reliability indices. 23. Power to Port Moresby is from medium speed diesel engines at Kanudi (IPP - 2x12 MW) and Moitaka (2x8 MW + 2x7.5 MW), gas turbine peaking units at Kanudi (2x15 MW) and Moitaka (1x18 MW) operating on diesel but convertible to gas, and the Rouna Hydropower cascade system (58.75 MW: excluded 2x1 MW recently decommissioned and “spare” 6 MW plant at Rouna 2) including generation from a small hydropower Toe of Dam at Sirinumu (1.5 MW, though generator is rated 1.6 MW) that is in poor condition. 24. In Port Moresby transmission is predominantly via double circuit 66 kV transmission towers to 66/11 kV substations located at Boroko, Konedobu and Waigani in N-1 configurations. There are two smaller N configured substations at Kanudi and Bomana. There is a small section of single circuit 66 kV pole construction. MV distribution is predominantly 11 kV with only two 22 kV rural feeders. LV is at 415 V. Reliability indices on all feeders are poor and are below acceptable international benchmarks.6 25. PPL has a nationwide7 power tariff, to those areas to which PPL holds a licence, based on the provisions in the Electricity Regulatory Contract between PPL and the Independent Consumer and Competition Commission (ICCC). The nationwide power tariff is based on average costs based on a mix of hydropower and thermal generation. As a result, PPL subsidises the power sold in many provinces by between 1.0 to 1.5 Kina per kWh according to PPL advice: this is not however the case in Port Moresby. 26. The present provisions in the Electricity Regulatory Contract between PPL and ICCC have severe penalties for reliability based on un-served energy indices. The level of penalties has diverted funds away from critical network reliability enhancing initiatives. PPL are in discussion with ICCC to refocus the reliability regulatory measures to international benchmark practices consistent with IEEE 1366 Full-Use Guide on Electric Power Distribution Reliability Indices and to restructure the penalty regime in the interim so that funding may be released into specific reliability initiatives. This realignment will support commercial drivers to resolving Port Moresby power system reliability and system capacity constraints. 27. In order to improve the reliability and capacity of the Port Moresby power system this PPTA develops six (6) subprojects through due diligence and feasibility study.
5 PPTA survey data - refer Appendix J: Social and Poverty Assessment and Mitigation Plan. 6 Pacific Power Association “Performance Benchmarking for Pacific Power Utilities: Benchmarking Report Dec 2011. 7 There are other licenced electricity providers whose tariffs differ from PPL.
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2.2 Description of PPTA
28. This Report has been prepared by SMEC International Pty Ltd (SMEC) on behalf of the Asian Development Bank (ADB), as part of TA 7783-PNG: Port Moresby Power Grid Development Project. The technical assistance study supports the development of reliable and sustainable supply to the Port Moresby to assist economic growth and increase capacity to support greater access to electricity for local residents, businesses and industry. 29. The Project includes project preparation due diligence and feasibility studies for six (6) transmission, distribution and generation subprojects segmented into three broad components: (i) Upgraded substation capacity, consisting of construction of (a) SP1 a new substation at Kilakila and 6.1 km 66 kV transmission line from Tower 56 (T56) to Kilakila, and (b) SP2 retrofits to existing substations involving capacitor or Statcom banks at Boroko and Konedobu Substations. (ii) Upgraded distribution grid, including (i) SP3 upgrade of the existing 11 kV distribution grid to an open loop mesh design and, (ii) SP4 implementation of a loss reduction programme and extension of the grid to an estimated additional 3,000 households. (iii) Hydropower upgrade and rehabilitation, consisting of (i) SP5 upgrade of Rouna 1 hydropower plant (to 6 MW), and (ii) SP6 rehabilitation and upgrade of Sirinumu Toe- of-dam hydropower plant (to 1.6 MW).
2.3 Subproject Location
30. Figure 1 following provides a map and overview of the subproject locations in and around Port Moresby. Figure 1: Subproject Location Map
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3 POWER SECTOR ANALYSIS
3.1 PNG Strategic Overview
31. PNG is composed of a group of islands including the eastern part of the island of New Guinea, the second largest island in the world. Indonesia occupies the western half of New Guinea Island and borders PNG to the west. To the south of PNG is the Coral Sea and Australia; the Solomon Islands and Nauru are located to the east, while the Federated States of Micronesia lie to the north. PNG has a population of 7.06 million8 representing over 800 cultural groups widely spread over the country's fertile highlands, rivers and island coasts. 32. PNG is rich in natural resources particularly in gold, oil, gas, copper, silver, timber and is home to abundant fisheries. PNG has a long tradition as an agricultural society and up to 80 % of the population engage in agriculture, forestry and fisheries. However, a challenging geography coupled with weak transportation and telecommunications infrastructure, extreme ethnic diversity and political instability, among others, have hindered the broader utilisation of the country's natural wealth for the benefit of the Papua New Guineans. Up to 28 % of the population lives below the national poverty line9 and the economy remains highly exclusive: a small urban elite is involved in a formal sector that focuses mainly on large-scale export of natural resources, while the vast majority of the population, up to 87 %, mostly dispersed in the rural areas live by subsistence and semi-subsistence. 33. The Government of PNG is a member of the Commonwealth of Nations and is a constitutional parliamentary democracy. Executive powers lie with the Prime Minister who is elected by Members of Parliament (MPs). There is still a strong emphasis on key leaders and personalities, not necessarily on political parties; and MPs are more concerned with delivering goods and services to constituents. This tendency of MPs to lean toward the dispensing of largesse to the people has historically worked against implementing long term policies in the national interest.10 However, starting in 2002, PNG has been able to achieve relative political stability and has had significant progress in the areas of economic management and policy development.11 This coincided with a supportive external environment, which helped reverse the economic recession experienced in the late 1980s and early 1990s.12 Economic expansion peaked during the period of 2007-2008 reaching growth rates of 6-7 %. With the decline in prices of copper and oil13, two of PNG's major exports, the economy's growth tapered in 2009 to 3.9 % but the country remains in the longest period of uninterrupted economic growth since its independence in 197514. 34. The Papua New Guinea Development Strategic Plan 2010-2030 (DSP) is the overarching development strategy that outlines the Governments economic and social development plan. The initial Mid-Term Development Strategy (MTDS) for 2005-2010 has evolved to the 2011 to 2015 MTDP and aligns to the DSP. It is a high-level framework which central goal is to "foster sustainable improvements in the quality of life of all Papua New Guineans" by promoting robust and broad-based economic growth. The MTDS focuses on strengthening PNG's competitive advantages on agriculture, forestry, fisheries and tourism with the support of its mining, petroleum, gas and manufacturing industries. The strategy in the 2005-10 MTDS expected to result in a sustained economic growth of 5 % annually in real terms towards the end of the period.15 This was largely achieved and similarly robust projections are made for the new period to 2015 under the
8 As of 31 Dec 2011, ADB Papua New Guinea Fact Sheet, April 2012 9 Op. cit. ADB PNG Fact Sheet, p.2 Table 4. 10 ADB Country Strategy and Programme, Papua New Guinea (CSP PNG), June 2006, p.4 11 Ibid. p.4 12 ADB Country Economic Review, Papua New Guinea, June 2000, p.5 13 World Bank Country Brief, Papua New Guinea, May 2010: http://web.worldbank.orq/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/PAPUANEWGUINEAEXTN/O,, contentMDK:20174825~menuPK:333775~pagePK:1497618~piPK:217854~theSitePK:333767,00.html 14 Ibid (WB) 15 Op. cit. PNG-MTDS 2005-10, p.II
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MTDP with significant upturn projected from 201416 as the benefits of the LNG export strategies flow through to the community. 35. The Electricity Industry Policy November 2011 integrates an overall policy framework, stating aims, goals and objectives and establishes key policy directives. The policy is designed to address three strategic objectives of the Government: (i) improving access in the provision of electricity services; (ii) improving reliability of electricity supply; and (iii) ensuring that power is affordable for consumers. 36. The PNG Government is thus planning toward strong economic growth with overall growth indicators being robust. This PPTA is thus structured to support growth by improving generation capacity, reliability and to serve a greater sector of the peri-urban community to share in the overall economic and social prosperity improvements projected.
3.2 Regulation in the Power Sector
37. PPL is the dominant player in the PNG power sector and has exclusivity rights17 for service area loads within 10 kilometres of the distribution network operated by PPL, as at the date of commencement of its licence, for loads under 10 Megawatts (MW). The regulatory framework allows for free entry to serve large customers above 10 MW. PPL is owned by the Government through the Independent Public Business Corporation which is a vehicle created by law18 to manage and, where appropriate, undertake the privatisation of state-owned corporations. 38. Policy formulation is managed by the Ministry of Petroleum and Energy through the Energy Division of the Department of Petroleum and Energy (ED-OPE). ED-OPE monitors, reviews, and provides recommendations on fuel pricing, electricity tariffs, and Government charges and subsidies. 39. Regulation of the sector, on other hand, is the purview of the Independent Consumer and Competition Commission. The ICCC regulates PPL's tariff through a Regulatory Contract (RC) which sets a "maximum average price" (MAP) for the provision of electricity. The MAP is determined by considering all of the operating cost of PPL's various facilities (hydro and thermal) and uniformly set for all PPL service areas nationwide. The RC is valid for a period of 10 years and allows for the "pass through" of certain uncontrollable costs due to fluctuations in foreign exchange rates and fuel costs. Other cost components can be escalated in accordance with prevailing inflation rates with consideration for productivity improvement factors. However even with a clear tariff regime, tariffs have historically been set at a level below what is allowed by the RC. As a consequence, PPL has had to subsidise the power sold particularly in areas that are supplied purely by diesel generators where the cost of generation is significantly higher. 40. PPL is in on-going discussion with ICCC to review the tariff structure to enable growth and capacity in PPL assets in alignment with and align performance benchmarks to better reflect current international best practice. A key focus of this PPTA is to improve performance benchmarks.
3.3 Power System Facilities / Performance Indicators and Analysis
41. Generation Overview. Electric power supply in PNG is provided through an estimated 581 MW19 of installed generation capacity, composed of approximately 229 MW in hydroelectric power (39.5 %), 217 MW of diesel generation (37.3 %), 82 MW gas fired (14.1 %), and 53 MW of geothermal generation (9.1 %). Of these, approximately 300 MW are managed by PPL, the national state-owned corporatised power utility, while the remaining 280 MW is comprised of generating facilities installed and owned by industrial facilities, including mining companies for their own consumption; and private sector generators who supply power to PPL's power transmission grids or to rural communities. On the main island of New Guinea, PPL deliver power through two
16 PNG-MTDP 2011-15, Fig 2.1, p.8 17 Electricity Industry Policy, Nov 201, Section 3.1 p.6. Also PPL Electricity licence (not sited) 18 Independent Public Business Corporation of Papua New Guinea Act 2002 19 These are estimates from 2010 PPL statistics. Various PPL documents are in conflict.
Final Report | 30 November 2012 Page | 9 TA 7783-PNG: Port Moresby Power Grid Development Project separate transmission grids: the Port Moresby system and the Ramu system. In the Port Moresby system Hanjung Power Ltd, a private company, operates the 24 MW Kanudi power station. 42. Generation Competition. The MTDP 2001-1520 establishes strong benchmarks for the encouragement if IPP generation into the PPL system some of which will be in direct competition with PPL. Conclusion of feed-in tariffs, access arrangements, regulatory contracts and issuance of licences for new IPPs feeding electricity into the Port Moresby system with the advent of 2 IPPs by 2015 is being promulgated. The strategy also seeks a higher level of renewable energies and thermal high efficiency gas and clean coal with reduced reliance on diesel generation. 43. The Port Moresby System, the focus of this TA, is served by installed capacity of approximately: (i) 65 MW (59 MW rated) Rouna hydropower cascade; (ii) 24 MW and 30 MW medium speed diesel generators at Kanudi IPP plant and Moitaka respectively; and (iii) 30 MW and 18 MW gas turbine peaking units at Kanudi and Moitaka operating on diesel but convertible to gas. Total installed capacity is approximately 168 MW, however firm base load capacity from the hydro and medium speed diesels is <100 MW due to long term plant outages, poor availability and generation restrictions. Thus the base load generation barely meets the daily peak load needs which reaches over 90 MW and at 13:30 18 April 2012 reached 97 MW. The peaking plants are operated as needed when base generation is unavailable and are reserve capacity for dry season generation. Power from generation is transmitted via a 66 kV transmission network and 22/11 kV distribution systems. 44. Reliability. Analysis of Port Moresby system performance indicators showed generation/transmission side initiated failures account for 61 % of total un-served energy (USE) through system faults and outages. Detailed investigation to resolve the generation issues is required: the issues are system stability, protection and under frequency load shedding co- ordination related. The 11 kV system contribution to USE is approximately 39 % due to outages and poor response times in restoration. Total Network power losses in the Port Moresby system, excluding USE, peaked at 21.8 % in 2005 but improved to 17.9 % in 2007. Since 2008, the Port Moresby system network losses (technical and non-technical) have deteriorated and now stand at approximately 22 %.21 45. The subprojects and provision for special consulting services to review the high level of USE under this PPTA thus support: (i) additional renewable energy firm capacity to reduce reliance on higher cost diesel generation; (ii) improvements in system reliability reducing USE; and (iii) reduction in system losses thus reducing carbon production and/or releasing generation for new customers and growth.
3.4 Power Tariffs
46. Retail Tariff. The PPL retail tariff is subject to economic regulation by the regulator, the Independent Consumer and Competition Commission22. An Electricity Regulatory Contract (ERC) for a period of 10 years to 31 December 2011 was established between ICCC and PPL. The period of the ERC has been extended up to 31 December 2012 and from 2013 it is expected that a new ERC will be put in place for a period of 5 years. 47. Key Statistics. Table 4 presents some key PPL statistics over the period 2007-2011. The overall system has had a load growth of 6 % per annum on average and the Port Moresby System has followed this. Of Port Moresby generation, which accounts for 49 % of PPL total, the hydro generation component has increased significantly from 50 % to 60 % of total GWh due mainly to additional rainfall and river flows since 2009. System losses in the Port Moresby System, both technical and non-technical are high at 22 %. Reduction in the level of losses (as envisaged under this PPTA) will have an immediate impact on PPL profits and/or tariff levels.
20 MTDP 2011-15, p.58 21 The 22 % losses comprise technical and non-technical components. PPL are of the view the level of losses are overstated due to a significant level of un-metered installations, primarily PPLs own installations. 22 ICCC established under the Independent Consumer and Competition Commission Act, 2002 and consists of two Commissioners and a five member executive management team.
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Table 4: PPL Key Statistics Year ending 31 December 2007 2008 2009 2010 2011 Gross Generation (GWh) 820 851 898 965 1,018 Total Sales (GWh) 671 765 707 754 801 System Loss (%) 18 % 10 % 21 % 22 % 22 % Overall System Hydro Generation 65 % 65 % 66 % 66 % 67 % Overall System PPL Generation 81 % 81 % 83 % 83 % 84 % Gross Generation Port Moresby System (GWh) 393 418 441 485 494 Sales in Port Moresby System (GWh) 322 377 348 376 394 Hydro Generation in Port Moresby System 50 % 52 % 58 % 58 % 60 % Source: PPL annual accounts and generation statistics
48. Fuel Costs. PPL’s fuel cost has increased by 18 % per annum on average over the last five years. As a result the fuel cost of thermal generation which was K0.60 /kWh in 2007 averaged K0.83 /kWh in 2011. PPL purchases electricity from the Hanjung Kanudi IPP in Port Moresby has consistently delivered approximately 153 GWh (15 % of total generation) at an average cost to PPL of K0.64 /kWh. In blending the thermal with the hydro generation costs the overall cost of production is K0.57/kWh. 49. Tariff Adjustments. ICCC approved a 14.59 % tariff increase23 (nominal terms) for 2012, based on submissions by PPL on their revenue requirement. During the period 2007-2011, ICC approved price increases in nominal terms of 12 %, 0 %, 13.8 %, -4.8 % and 9.9 % respectively averaging 3.5 % annual increase. Nominal increases for 2013-2015 of 10.8 %, 9.8 % and 9.5 % respectively are projected based on projected fuel cost increases and for capital works necessary to meet growth and performance reliability targets. 50. Tariffs and Cost Recovery. PPL’s cost of production is being recovered through its tariff. Also in 2011, PPL lost K0.17 /kWh (22 %24) due to power losses for technical or non-technical reasons. Any reduction in losses will have a direct impact on its profitability. The cost recovery percentage although positive does not leave much of a margin since it is from this difference that finance costs and taxation is recovered. The profits after deduction of the above costs are then available for investment in growth and reliability initiatives. 51. Affordability of Current Tariff. During the PPTA, a socioeconomic survey was carried out in the project area which, inter alia, also elicited responses to questions on the average electricity bill and household income. Findings from this survey indicate that the average monthly domestic electricity bill was K100 and the average monthly household income K786. Therefore the cost of electricity is 13 % of the monthly income on average, which is high. As a general rule of thumb, utilities payments accounting for 5 % of income is considered affordable. Never-the-less a high 81 %25 of respondents interviewed considered power cost whilst high now would be as reasonable if improvements in reliability were forthcoming: this later comment from commercial/industrial customers primarily.
3.5 Demand Forecast & PPL Planning Projections
52. The graph following depicts historical sales and generation with projection of future generation production requirements 2012 to 2026. PPL planning documents26 advise the underlying total average growth rate from 1995 to 2010 was 2.5 % per annum. The forecasted average growth rate for the year 2012 to 2026 is 4.63 %.
23 ICCC, Office of the Commissioner and CEO, 1 December 2011 24 Refer to Table 3.1 above, 25 From this PPTA community surveys. 26 PPL Fifteen year Power Development Plan 2012-2026 p.A3
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Figure 2: Sales and Generation 1993 to 2026
Source: PPL
53. Table 5 provides additional PPL data27 on sales projections that conflict with PPL’s “15 year Power Development Plan 2012-2026”. Detailed analysis for 1996-2011 shows 2.1 % with 2012 to 2026 at 4.23 %. Capturing PPL recent growth rate from 2006-2011 and projecting to 2020 (15 years) indicates a 5.23 % average growth profile and to 2025 4.9 %. These higher projected load growths reflect the LNG and mining growth impacts on domestic, commercial and industrial growth in Port Moresby as supported by PNG Government planning documentation28 and recent growth rates projected forward. Also the 2011-15 MTDP projects strong GDP growth in real terms exceeding 8 %. Thus PPL data of a 4.63 % average growth level is reasonable; albeit there is risk this may be conservative on the basis of Government growth rate data. An average of 4.5 % or 3.75 % compounding growth rate is used in the Consultant financial and economic analysis of projects so such analysis would be robust. Table 5: Historical and Future Sales Growth Projections Port Moresby Grid Sales Production Losses Annual Sales 10 yr Sales 15 yr Sales Year (MWh) (MWh) (%) Growth Growth Growth 1993 258,674 270,315 4.31 % na na na 1994 281,329 318,892 11.78 % 8.76 % na na 1995 294,747 336,940 12.52 % 4.77 % na na 1996 311,284 345,455 9.89 % 5.61 % na na 1997 298,634 344,245 13.25 % -4.06 % na na 1998 315,477 357,592 11.78 % 5.64 % na na 1999 325,548 386,367 15.74 % 3.19 % na na 2000 362,767 398,202 8.90 % 11.43 % na na 2001 321,473 380,964 15.62 % -11.38 % na na 2002 326,808 386,019 15.34 % 1.66 % 2.63 % na 2003 313,347 385,757 18.77 % -4.12 % 1.14 % na 2004 322,629 382,587 15.67 % 2.96 % 0.95 % na 2005 304,033 388,920 21.83 % -5.76 % -0.23 % na 2006 326,295 388,030 15.91 % 7.32 % 0.93 % na 2007 322,496 392,925 17.92 % -1.16 % 0.22 % 1.64 % 2008 377,178 418,110 9.79 % 16.96 % 1.59 % 2.27 % 2009 347,873 441,070 21.13 % -7.77 % -0.41 % 1.20 % 2010 377,967 484,711 22.02 % 8.65 % 1.76 % 1.43 % 2011 391,962 504,048 22.24 % 3.70 % 1.99 % 2.08 %
27 Supported by spread-sheet data M Emanuelsson “Port Moresby Demand Forecast.xlsx” 28 Medium Term Development Plan 2011-2015, Oct 2010.
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Port Moresby Grid Sales Production Losses Annual Sales 10 yr Sales 15 yr Sales Year (MWh) (MWh) (%) Growth Growth Growth 2012 423,824 533,112 20.50 % 8.13 % 3.53 % 2.29 % 2013 453,463 570,394 20.50 % 6.99 % 4.06 % 2.62 % 2014 471,867 593,544 20.50 % 4.06 % 5.52 % 2.00 % 2015 490,272 616,694 20.50 % 3.90 % 5.03 % 3.50 % 2016 508,676 639,845 20.50 % 3.75 % 5.77 % 3.71 % 2017 527,081 662,995 20.50 % 3.62 % 3.97 % 4.55 % 2018 545,485 686,145 20.50 % 3.49 % 5.68 % 4.61 % 2019 563,890 709,296 20.50 % 3.37 % 4.92 % 5.70 % 2020 582,294 732,446 20.50 % 3.26 % 4.86 % 5.23 % 2021 600,699 755,596 20.50 % 3.16 % 4.17 % 5.75 % 2022 619,103 778,746 20.50 % 3.06 % 3.65 % 4.28 % 2023 637,508 801,897 20.50 % 2.97 % 3.51 % 5.55 % 2024 655,912 825,047 20.50 % 2.89 % 3.38 % 4.90 % 2025 674,317 848,197 20.50 % 2.81 % 3.26 % 4.80 % 2026 692,721 871,348 20.50 % 2.73 % 3.14 % 4.23 %
54. A reduction in losses is not projected in Table 5 with only a small reduction from 22 % to 20.5 %. In the view of the Consultant this is undue pessimism as the issues underlying losses can be determined with thorough analysis: a plan of action that PPL is already working toward.
3.6 Port Moresby Power Grid Analysis
A. Generation 55. The primary means of generation for Port Moresby are hydro through the Rouna cascade scheme of installed capacity 64.75 MW, 55 MW medium speed diesels and 48 MW peaking gas turbines presently operating on diesel. 56. Rouna Generation. The Rouna cascade has an installed capacity of 64.75 MW following the decommissioning of 2x1 MW machines at Rouna 1 (previously 66.75 MW). However, Rouna 2 may operate only 4 of its 5 machines simultaneously due to discharge restrictions leaving an effective Rouna scheme capacity of 58.75 MW if all machines are available. Actual generation GWh depends on plant and water availability. Whilst the Sirinumu dam provides considerable storage, the primary purpose of the dam is for city water, thus outflow available for generation is under strict rule. According to this rule an average 7.53 m3/s over 24 hrs may be extracted, subject to water levels in the dam, but may peak above this when water is available. The balance of the 19 m3/s available at Rouna 2 is due to tributary inflows and then on flows to Rouna 1&3 head pond less 1 m3/s for city water supply. However, even this peak of 19m3/s is only available about 15 % of an average year. With only a few hours of head pond storage in the system the scheme is essentially “run of river”, though with effective cascade management systems the Sirinumu outflow could be “blocked” for a greater flow to arrive 14 km downstream 6-12 hours later at the Rouna complex enabling more peak period generation to be installed: but at high cost due to (i) the poor availability of water and (ii) the marginal additional GWh produced. 57. PPL 15-year plan states29 an expectation of generation increase at Rouna 1 from 3.5 MW to 8 MW but with study and penstock design by Hydro Tasmania Consulting completed for a 6 MW design. However, analysis of the potential for an 8 MW design indicated water flow may be problematic for this level of generation to be commercially viable. ADB is funding a Technical Assistance grant to undertake a detailed cascade management study to validate additional capacity: procurement of the consultant is in process at time of DFR writing. Subproject 5 of this report for Rouna 1 rehabilitation further details the options and recommends a 6 MW installation with flexibility to adapt to larger generation capability if viable.
29 PPL Fifteen Year Power Development Plan, 2012-2026, p.A.13
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58. Generation Cost: PPL uses Least Cost techniques for evaluation and has not undertaken full WASP type LRMC analysis. The Least Cost methodology used does not appear to optimise generation options in dispatch considering also plant factors. Table 6 below summarises in levellised cost terms costs of new generation production as stated in PPL’s Generation Development Plan. The levellised cost for Rouna 1 hydro upgrade considers the benefits in the entire cascade due to the upgrade and not just as a stand-a-lone plant which would show a much higher result based on costs of generation and GWh produced alone. Table 6: PPL Levellised Cost of Generation New Generation Sources Value, K/kWh Rouna 1 Hydro upgrade 0.21 to 0.32 Hydro (Naoro-Brown, Rouna 1) 0.33 to 0.35 Gas turbine LNG 0.46 Diesel medium speed (additional generation) 0.76 Diesel high speed 1 to 1.6 Average Tariff 0.89 Source: Generation Development Plan 2011-2025, PNG Power Ltd., 2011
B. Transmission and Distribution 59. Existing Systems. PPL operates primary HV30 132 kV and 66 kV transmission systems, with MV 33 kV at sub-transmission and distribution levels and at MV distribution also 22 kV and 11 kV. Rural lines are predominantly 22 kV. In Port Moresby the MV system back bone is all 11 kV with two 22 kV feeders. All LV throughout PNG is 415/240 V with customer nominal voltage 230 V. 60. General observation of the Port Moresby system by the Consultant team noted poorly maintained systems particularly at distribution level. Out of balance conductor sags, tree interference, leaning poles, leaning pins in cross-arms, damaged equipment such as arc chutes on air-break switches, out of balance phase currents on transformers and numerous other basic issues pointing to a lack of even basic planned maintenance inspection and repair strategies or if such are in place a lack of implementation capability. 61. Future Systems. PPL has not provided for 220 kV options within the 15 year planning horizon31. 132 kV transmission to Port Moresby is proposed for the Naoro-Brown River hydroelectric development of some 80 MW. Upgrade of the Port Moresby 66 kV transmission system to 132 kV is not within the 15-year planning horizon. The present nature of the distributed generation injecting at several system points and relatively short transmission distances would support this view. 62. 15-year Plan. Within the 15-year time frame PPL projected need for capacity upgrades of substations at Konedobu and Boroko (completed) with new substations at Kilakila, Gerehu and CBD: the latter near the end of the planning period. Kilakila development is a subproject under consideration in this report for funding by the ADB. Whilst reasonable documentation exists at a Generation level, only basic 15-year conceptual level documentation exists for transmission systems. Also system planning does not take an asset optimisation approach. Distribution planning is not clearly documented and is done on an “ad-hoc” basis. 63. Long Term Planning >15-years. Whilst the 15-year plan does not envisage HV upgrading in Port Moresby, no PSS/E long term planning study has been undertaken to validate these assumptions. However as the system approaches 200 MVA maximum demand and greater reliance is placed on concentrated generation bases, if alternative distributed generation options are not strategically advanced, then operational constraints will dictate significant additional investment.
30 This report uses IEC definitions for HV, MV and LV. These are defined in Abbreviations & Acronyms. This is at variance with PPL practice which uses HV for all voltages in excess of LV being >1,000 Volts. 31 PPL Fifteen Year Power Development Plan 2012-2026.
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C. System Performance 64. Table 7 provides some comparative data with Pacific Power Association32 members. Table 7: PPA Benchmarks: Comparison with PPL Port Moresby System Benchmarked Indices PPA Ave PPA median PPA PPL (POM) Benchmark System Losses (Total) 12.8 % 11.6 % 5 % trans + 5 % 22.24 % distribution System Losses (Technical) 5.6 % 5.9 % n/a 12 % estimated SAIDI 530 minutes 139 minutes 200 minutes 8640 minutes
65. Given the compactness of the Port Moresby system, albeit slightly larger than some other members, the data indicates significant opportunity for improvements. The PPL SAIDI of 124 hours equates to 1.41 % of total annual hours and correlates to un-served energy estimates at 1.48 %. 66. System Losses. Losses in Port Moresby presently exceed 22 % and have been rising steadily over the years. Benchmarking against other PPA members average losses are 12.8 %. Reduction to the PPA median would save on 9.4 % of generation total GWh. Based on 2011 data of 504 GWh generated, 9.4 % represents 47 GWh or at average cost of diesel generation of 0.76K /kWh K36 million pa. Sub-projects 1, 2 3 and 4 will support loss reduction, but it is clear that there is substantial additional potential to invest in loss reduction initiatives, reduce costs to energy consumers and add economic value to the community. 67. Performance Measures. PPL is working with ICCC, the Regulator, to put in place a performance benchmarking system aligned to international practices (IEEE 1366:2003 proposed). At issue presently is that PPL are not accurately recording SAIDI, CAIDI and SAIFI performance measures. PPL needs to put in place appropriate systems to capture the required data. 68. High Unreliability of the System. System Average Interruption Duration Index (SAIDI) a measure of annual hours customers are un-served. At 124 hrs (8640 minutes) per annum this is significantly higher than the regional benchmarked average of 592 minutes per annum, but it was noted in the PPA33 report that the PPA data may be unreliable. The PPA benchmark target is set at 200 minutes. For a system as compact as Port Moresby such a benchmark should be easily achievable. In the Port Moresby system the frequency and long duration of outages is very high and is having seriously detrimental impacts on realising the economic benefits of current developments to the Port Moresby community as a whole. 69. Un-Served Energy (USE). USE is directly related to reliability issues. At approximately 7.4 GWh pa on the PPL system represents about 1.48 % of total system generation. Typical unplanned USE internationally for a comparable utility would be much less than 0.001 %. Approximately 4.4 GWh occurs within the Transmission system (generator bus to 66/11 kV substation 11 kV bus). A large portion of these are initiated by generation machine trips, often in the Rouna scheme, destabilising the system resulting in cascade failure and total or partial system black out. The root cause is unclear though could be related to MVAr shortfall and fast response protection schemes at the Kanudi IPP tripping machines and thus collapsing the system before spinning reserve, if available, or under-frequency feeder trips are able to respond. The balance 2.9 GWh USE is due to 11 kV faults and unplanned outages and <0.1 GWh to planned outages. Much of the 2.9 GWh in the distribution system is due to long periods taken to identify the faults and then restore power. At the average present tariff of 0.89 K/kWh, 7.4 GWh of USE represents forgone revenue of K6.58 million pa. But the economic impacts to the community are more severe. 70. Maintenance Performance. In PPL asset maintenance approach is one of reactionary rather than higher level strategies such as planned, proactive or engineered predictive reliability levels. The underlying issues are lack of (i) strategic asset planning, (ii) effective implementation of
32 PPA “Performance Benchmarks for Pacific Power Utilities, Dec 2011”. This report also states accuracy of data may be unreliable. 33 Ibid
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O&M, and (iii) supporting investment in system infrastructure and operational maintenance on the existing assets over many years. D. PPL’s 15-year Power Development Plan 2012-2026 71. This document falls short of being optimal. The primary concerns are: (i) inaccuracies and conflicts within the data presented and between other data sources; (ii) lack of comprehensive system load flow and planning studies to support conclusions; (iii) overall system benchmark performance is very poor so clearly strategies and results have a big mismatch; (iv) basic planning concepts such as consideration of Mesh benefits to support N-1 security levels are not included in optimising 66/11 kV transformer capacity; (v) lack of risk analysis in the processes including the risk that the 4.63 % load growth may be understated, (vi) lack of asset performance strategies to align with PNG Governmental, IPBC and PPL strategies and (vii) lack of clear financial planning to support achievement of the desired outcomes. The document should be a blue print that drives all PPL system development, maintenance and operations programmes, and corporate performance. All should be aligned to achieving those deliverables and the strategies of the PNG Government.
72. PPL have recognised some of the document failings and are to update the Plan. However, it is strongly recommended PPL review entirely its approach to planning to support alignments in optimising asset investments to community, PPL and governmental strategic and policy directions: that is “Strategic Asset Planning” in a nut shell.
3.7 Government Sector Strategy
73. Sector Policies. The government has recognised the range of issues (refer Problem Tree for Energy Appendix C) facing the power sector and in response approved the Electricity Industry Policy (EIP) in 2011. The EIP (i) encourages private sector participation in the power sector by facilitating competition and developing a clearly defined access regime, (ii) transfers a range of regulation functions from PPL to the government, and (iii) up-scales rural electrification through government assistance. The EIP will support state financing of CSOs through establishment of an electricity trust fund (ETF). 74. Strategies and Plans. Electrification is important in realising the agenda of the national Medium Term Development Strategy relating to export-driven economic growth, rural development, and poverty reduction.34 An expanded, more efficient electricity system will be an integral element of successful economic development in PNG. The government has included the power sector as a key sector in the Papua New Guinea Development Strategic Plan 2010-2030.35 The proposed development of the power sector in each province is detailed in the PNG Power 10-year Power Development Plan36, which (i) lists the status of current infrastructure and proposed investments over a 10-year timeframe, and (ii) provides a roadmap of priority hydropower developments in the provinces to reduce reliance on diesel generation and improve service delivery. The investment programme will support implementation of the Power Development Plan. 75. Private Sector. The government and PPL recognise that the private sector will play an important role in providing investment and management capacity for power sector expansion. The government has passed the Public-Private Partnership (PPP) Policy, which will support development of private sector participation in the power sector, along with the EIP. 76. Tariffs. The government has recognised the investment disincentive provided by the single national power tariff and proposes to address the issue by (i) allowing flexible tariff-setting under
34 Department of National Planning and Monitoring. 2004. The Medium Term Development Strategy 2005-2010: Our Plan for Economic and Social Advancement. Port Moresby (November). 35 Department of National Planning and Monitoring. 2010. Papua New Guinea Development Strategic Plan 2010-2030. Port Moresby (March). 36 Government of PNG. 2000, PNG Power National and Provincial Ten Year Power Development Plan 2009-2018. Port Moresby (July).
Final Report | 30 November 2012 Page | 16 TA 7783-PNG: Port Moresby Power Grid Development Project the EIP, (ii) establishing a CSO policy37 to support government financing of non-financially viable power infrastructure, and (iii) establishing an ETF under the draft EIP to finance such investments.
3.8 ADB Sector Strategy
77. ADB's operational strategy for PNG is aligned to the government's Medium-Term Development Plan, 2011-2015. The country partnership strategy, 2011−2015 aims to help PNG plan and implement a successful transition through the conversion of its natural resource wealth into inclusive economic growth. ADB interventions will support more inclusive growth by creating livelihood opportunities and improving access to basic services, especially in rural areas where 87 % of the population lives. ADB's support will focus on economic infrastructure, which is vital for better service provision and market access in rural areas. To ensure these investments are sustainable, ADB will help establish reliable financing mechanisms for asset maintenance. ADB will also help build capacity within infrastructure agencies to mitigate the risks of climate change, including through ADB financing of pilot and demonstration projects. ADB will support rural populations by providing them with greater access to finance and primary health services. ADB support for private sector development, through state owned enterprise reform, will lower business transaction costs, helping expand small and medium enterprises and create jobs in the formal economy. ADB will continue investing directly into the private sector, using loans, equity, and guarantee facilities, and will mainstream gender in all general intervention projects.
78. ADB's Country Partnership Strategy (CPS) for Papua New Guinea defines the country's medium-term development strategy and operational programme for 2011-2015. The CPS is aligned with Papua New Guinea's development plan and poverty reduction goals, and its preparation with the ADB Developing Member Countries development planning cycle.
79. ADB recognises the importance of improving PNG's energy sector and has had a long engagement in PNG. A Sector Results Framework table summarising these activities is included in Appendix C. ADB supported the development of the power sector through technical assistance projects for the period 1970-2000 38 and processed four loans for hydropower and transmission projects.39 Between 2000 and 2005, ADB provided two technical assistance projects to assist in development of the gas sector.40 ADB is currently implementing two regional technical assistance projects with components being implemented in PNG, namely: i) Promoting Energy Efficiency in the Pacific 41 which is assisting PNG Power with grid efficiencies, and ii) Promoting Renewable Energy in the Pacific 42 to assist DPE in innovative approaches to rural hydropower.
80. Port Moresby Grid. The Port Moresby Power Grid Development Project will assist to expand renewable energy generation, connect currently un-served customers to the Port Moresby grid and significantly improve the quality of electricity supply, through (i) upgrade and rehabilitation of two hydropower plants (Rouna 1 and Sirinumu Toe-of-Dam), (ii) extension of the grid to approximately 3,000 additional households, and strengthening of the distribution network (11 kV mesh grid), and (iii) construction of a new substation (Kilakila) and upgrade the existing substations. Additionally, ADB is currently implementing two regional TA projects with components being implemented in PNG: (i) Promoting Energy Efficiency in the Pacific,43 which is assisting PPL with improving Port
37 ADB is assisting the establishment of the CSO policy through ADB. 2009. Technical Assistance for Pacific Private Sector Development Initiative Phase II. Manila (TA 7430-PNG, approved on 10 December). 38 1995. ADTA PNG-2418. Hydrocarbon Sector Policy and Strategy Study; 1991. ADTA PNG-1521: Gas-based Power Generation Study; 1989. ADTA PNG-1131: Power System Planning Study; 1986. PPTA PNG-823: Luwini Hydropower; 1984. PPTA PNG-638: Ramu-Port Moresby Transmission Interconnection Study. 1983 ADTA PNG559 Institutional Study of Papua New Guinea Electricity Commission; 1979 ADTA PNG-307 Electricity Tariff Review, 1977. ADTA PNG-214 Technical Assistance to PNG for the hydrological/Hydroelectric Planning Project. 39 Loan-0318 PNG: Provincial Mini-hydropower Project, 1977, Loan-0414 PNG: Upper Warangoi Hydropower, 1979, Loan-0805 PNG: Ramu Grid Reinforcement, 1986 and Loan-0962 PNG: Divune Hydropower Project, 1989. 40 2005. PPTA PNG-4710: PNG Gas Project; 2001. ADTA PNG-3736: Gas Pipeline Development. 41 2009. RETA-7329 REG: Promoting Renewable Energy in the Pacific. 42 2009. RETA-6485 REG: Promoting Energy Efficiency in the Pacific. 43 2009. RETA-7329 REG: Promoting Renewable Energy in the Pacific.
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Moresby grid efficiencies; and (ii) Promoting Renewable Energy in the Pacific,44 which is assisting PPL to improve management and efficiency of the Rouna Hydropower Cascade (which supplies the majority of energy to the Port Moresby grid) through development of a cascade management plan.
81. Town Electrification. ADB is supporting development of the power supply for provincial urban centres through the Town Electrification Investment Programme (TEIP), which was approved in 2010. TEIP is a $150 million Multi-tranche Financing Facility (MFF) to support PNG Power Ltd with renewable energy (hydropower) supply to provincial centres. Tranche 1 includes (i) Divune Hydropower Plant, (ii) Ramazon Hydropower Plant, and (iii) Lake Hargy Interconnection.
82. Rural Electrification. In 2012, ADB approved a $5 million grant project Improved Energy Access in Rural Communities to provide access to electricity in an estimated 4,500 households in 3 targeted provinces.
83. Support for Sector Policy. In 2009, ADB completed TA for preparation of the national Power Sector Development Plan,45 which will provide strategic assistance to the power sector through preparation of the power demand forecast and least-cost supply development plan. ADB is also processing a 2012 Policy and Advisory Technical Assistance (PATA) for Implementation of the Electricity Industry Policy, which will assist with capacity building, preparing operational guidelines and implementation of pilot projects.
84. PNG’s development partners have traditionally focused on policy support in the energy sector and development of small off-grid power supply projects with direct poverty alleviation benefits. The Pacific Islands Applied Geoscience Commission provided support for a number of energy sector issues in PNG, including consultation regarding the draft national energy policy and draft REP through the Pacific Islands Energy Policy and Strategic Action Planning. The World Bank, with support from the Global Environment Fund, has been supplying rural teachers in the Western Province with solar lighting kits. It has also recently closed a regional Sustainable Energy Financing Project, which was designed to provide financing support for household power supplies in a range of Pacific countries, including PNG. The World Bank has combined with PNG Sustainable Energy as a local implementing agency.
44 2009. RETA-6485 REG: Promoting Energy Efficiency in the Pacific. 45 2007. ADTA PNG-4932: Power Sector Development Plan.
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4 PROJECT RATIONALE
4.1 Background
85. Port Moresby is the largest urban centre in PNG, with a population of 318,000 in 57,741 households (2011 census) and is expanding rapidly due to on-going strong economic growth. Of total households approximately 69 % are provided with direct connections compared with <10 % across the rest of PNG. There are a total of 41,661 customers including commercial and industrial. 86. Port Moresby has the largest single standalone power grid in PNG with 47 % of the national installed generation capacity46, 48 % of the national customers47 and a peak load under 100 MW48. Load demand for the Port Moresby power grid has increased significantly since 2008 and demand is expected to rise significantly in coming years,49 fuelled by high economic growth associated with the proposed Liquefied Natural Gas Plant as well as continued growth in the mining sector and associated industry. The Port Moresby power grid is owned and operated by PNG Power Limited (PPL), which is a 100 % state owned enterprise. The Port Moresby grid has historically been supplied by renewable energy from the Rouna hydropower cascade (rated available capacity of 57.75 MW)50. In 1994-1995 hydropower provided 76 % of power generation for Port Moresby, however due to increasing demand and deferred rehabilitation on the Rouna cascade, the share of hydropower in the energy mix in 2010-2011 had fallen to 59 %51 with the remaining supplied by diesel generation. Large additional hydropower generation is planned52 for the Port Moresby grid to support the expanding demand in the medium term; however investments are urgently required to rehabilitate existing Rouna cascade hydropower infrastructure to (i) meet immediate demand requirements, (ii) offset the need for investment in diesel generation, and (iii) maximise efficiencies in the existing system. 87. Electricity Industry Policy (EIP) states “The goal of efficiency requires the supply of electricity in PNG in the most reliable, cost-effective and expeditious manner, to enhance affordability for low income consumers; reduce cost for business for which electricity is an output; and, thereby, encourage broad based economic growth to improve living standards at grass-roots level in Papua New Guinea”. The present PPL system fails short of this policy goal. The Problem Tree in Appendix C expands on poor quality and low access to power issues. 88. In Port Moresby, power outages are becoming increasingly frequent due to inadequate design and poorly maintained transmission and distribution systems. Because of the unreliability of the power supply, there is considerable self-generation and back-up generation capacity in the urban areas, which is maintained and operated at high cost and low efficiencies. A sample survey of 75 households conducted during this project confirmed 100 % experienced frequent disruptions to power and extended blackouts. Lack of access to affordable, reliable power is limiting economic growth and hindering private sector development. Investments in the Port Moresby grid transmission and distribution infrastructure is required to (i) improve reliability and security of power supply, (ii) improve system efficiencies through reduced system losses53, and (iii) enable the grid to expand to growing areas of the city.
46 Excluding loads from mining centres. 47 PPL has 87,772 customers nationwide of which 41,661 are in Port Moresby. 48 Power grids in PNG consist of two main grids (Port Moresby and Ramu) which are not interconnected and 26 other smaller urban centres through 19 independent power systems (not including mine sites). 49 Peak demand is anticipated to increase 30 % in the next 5 years (annual average 6 %) and 46 % in the next 10 years (annual average of 4.6 %). 50 Rouna rated capacity: R1: 3.5 MW, R2: 30 MW (installed 36 MW), R3: 12 MW, R4: 13.25 MW. Sirinumu: 1.5 MW 51 Port Moresby grid is currently supplied by (i) medium speed diesel generators at Kanudi (24 MW) and Moitaka (31.2 MW), (ii) gas turbine peaking units at Kanudi (30 MW) and Moitaka (18 MW) operating on diesel but convertible to gas, and (iii) Rouna Hydropower cascade (68.25 MW). 52 Medium term capacity increases will be met by additional hydropower generation (Naoro-Brown hydropower 60MW), however due to long construction lead times (approximately 5 years), short to medium term demand increases will be met through diesel generation which can be converted to gas should this become available. 53 The Port Moresby grid currently has estimated 22 % system losses.
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89. Power tariffs are independently regulated by the Consumer and Competition Commission (ICCC) and allow full cost recovery for PPL. Electricity tariffs are currently K0.8147/kWh ($0.39/kWh) for residential customers on prepayment meters with the first 30 kWh/month at K0.4794/kWh ($0.23/kWh). Improved grid efficiencies and increased replacement of diesel generation with hydropower generation54 will place downward pressure on power tariffs. The Government's ownership in PPL is maintained through the Independent Public Business Corporation (IPBC). Sector policy formulation is managed by the Ministry of Petroleum and Energy and, specifically, the Energy Division of the Department of Petroleum and Energy (DPE). 90. The proposed Project is in line with the (i) PNG country strategy and programme 2011- 2015 of the Asian Development Bank (ADB),55 which prioritises energy as a key area of support, and (ii) PNG Development Strategic Plan 2010-203056 priority of improving power supply. The Electricity Industry Policy (EIP) recognises the (i) low level of electricity access, (ii) unreliability of electricity supply and subsequent economic impacts, (iii) high costs for private sector in terms of cost of power as well as unreliability of service, and (iv) difficulties faced by PPL in raising capital for infrastructure investments. The proposed development of the PNG power sector, including the Port Moresby grid is detailed in the PPL 15-year power development plan. The proposed subprojects to be supported by the project are included in the PPL 5 year business plan.
4.2 Sector Issues
91. Approximately 90 %57 of the population in PNG does not have access to electricity service. The household electrification rate in PNG is only 11 %58 and where power is available, mostly in the main urban centres, supply is often unreliable. Access to electricity is virtually non-existent in off-grid rural areas. The 2009-2010 Papua New Guinea Household Income and Expenditure Survey indicates 16.7 % of households obtain lighting from the electricity grid with rural 6.3 % and urban 67.8 %. Within Port Moresby 69 % of households have connection with affordability of connection a primary casual factor. 92. The PNG Medium Term Development Plan59 states the energy development goal as “All households have access to reliable and affordable energy supply, and sufficient power is generated and distributed to meet future energy requirements and demands”. It states challenges in implementation being, (i) lack of investment is asset maintenance leading to reliability issues, (ii) need for revenues raised by PPL to be reinvested into the system and (ii) engaging the private sector through PPP will provide investment capacity in generation in particular. 93. PPL's annual energy sales have fluctuated significantly over the years60 as commerce and industry in particular has ceased/started business or relocated. In recent years the situation has stabilised to a steady growth pattern particularly within the Port Moresby grid. But it is also evident that the power situation has been a major constraint in the economic growth in urban areas and is acknowledged as contributory factor to poverty in the rural areas. 94. A number of key development issues and challenges facing the PNG power sector within urban areas have been identified with the unreliability of power in urban areas in particular impacting economic development. The existing power sector infrastructure requires: i) rehabilitation for improved efficiency and reliability, ii) generation expansion to meet growing demand, iii) extension of existing grids to service the growing urban populations, and iv) expansion of disaggregated generation to service the rural populations.
54 Levellised cost of energy from a rehabilitated Rouna 1 hydropower plant is estimated at $0.10-$0.16 /kWh compared to levellised avoided cost of diesel generation of $0.45 /kWh (2 % real fuel price increase). 55 ADB. 2010. Country Strategy and Programme: Papua New Guinea, 2011-2015. Manila. 56 Government of PNG, Department of National Planning and Monitoring. 2010. Papua New Guinea Development Strategic Plan 2010-2030. Port Moresby. (March). 57 PNG Medium Term Development Plan 2011-1015, p.57 58 ADB, Key Indicators for Asia and the Pacific, 2010, p.242 59 PNG Medium Term Development Plan 2011-1015, S3.13, p.57 60 Table 3.5 of this report. The reasons for fluctuation are many and varied including incorrect year-end sales accruals, but commercial and industrial sales have also significantly impacted (Source PPL sales records)
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95. Reliability Performance Measures. The basic internationally accepted performance benchmarks used for reliability performance measures are (i) Un-Served Energy (USE) which is primarily a transmission measure, (ii) SAIDI and SAIFI which are measures of outage duration and frequency of faults across the system, (iii) CAIDI which is a distribution level focused measure on customer interruption duration, and (iv) MAIFI which is a measure of momentary fluctuations and short-term outages typically <1 minute. PPL in its present regulatory contract has USE measures and have recommended to ICCC to also adopt IEEE 1366:2003 as an international standard for performance benchmarking. 96. PPL does not accurately measure USE or fault and customer impact durations. PPL’s present methodology for measuring CAIDI in particular is flawed. The main issues are (i) customer numbers between system switching points are not accurately recorded, (ii) the correlation between customer numbers and timing open/closing of switch points for duration is not accurately recorded or calculated for CAIDI for that particular fault. The present methodology only records feeder circuit breaker outage periods against total estimated (not actual) customers on the entire feeder. 97. One of the major benefits from accurate recording of CAIDI is that feeders contributing most to a high overall CAIDI can be identified, root causes of faults confirmed and strategies put in place to reduce the faults in a cost effective manner can be developed in a logical least cost approach. It is a very simple matter to establish a manual recording methodology supporting the collection of data and put this fundamental asset manage tool into operation. Without good distribution system automation and SCADA feedback, records can still be somewhat prone to inaccuracies of operator records.
4.3 Generation Issues
98. Due diligence reports (Appendix B and summarised in Section 6) on the existing Rouna 1 plant finds that the remaining 1x 1 MW and 1x 2.5 MW plants are in poor condition and in need of rehabilitation or replacement. Similarly the Sirinumu plant has operational constraints due to poor condition of the plant and access issues due to a poor access road preventing access during rains. 99. High reliance is placed on diesel generation and focus is required more toward renewable resources such as hydro or additional distributed generation such as PV. This PPTA supports additional renewable energies through Rouna and Sirinumu upgrading. PPL have longer term plans for new hydro on the Naoro-brown scheme. Also with LNG coming on stream there is also the opportunity to enter into supply contracts and utilise such gas in high efficiency gas turbine plants including conversion of the existing GT plants in Port Moresby from diesel operation. The latter option of LNG may be commercially more attractive than Naoro-Brown on the basis of PPL generation planning61 to date. 100. There is significant capacity62 to foster PV systems. The Load profile of Port Moresby power system shows a dominant day time peak ideally suited to PV generation injection. This will lop off the peak needs for gas turbine and diesel generation and provide base GWh into the system at much lower cost. A further advantage of utilising such distributed generation is that developing of major system capacity in additional transmission, substations and distribution strengthening can be deferred or eliminated.
4.4 Existing Transmission and Distribution Issues
101. The Issue. The underlying issue is clearly reliability driven from poor operational and maintenance practices and other issues depicted in the Problem Tree in Figure 3 Section 5. A secondary issue is under-utilisation of existing assets through lack of 11 kV system capacity for load transfer. Section 3.6C details system performance issues. 102. Planning: There is significant opportunity to raise the bar in regards to system planning and transmission and distribution levels. Whilst 15 year plans are produced they lack detail and
61 PPL Generation Development Plan, 2011-2025 62 As reported by Irving/Fleming in ADB TA-7783 PNG: POM PSRP Report, 2011
Final Report | 30 November 2012 Page | 21 TA 7783-PNG: Port Moresby Power Grid Development Project strategic linkages to be effective as a planning tool. Reviews of PPL planning documentation have indicated significant gaps in the planning process. The linkages to corporate and national strategies are not evident. There are no apparent formalised linkages to or from planning to O&M strategies further evidenced by poor system performance benchmarks. Whilst PPL has E-Tap and PSS/E planning tools due to lack of effective on-going training these tools are rarely used. There is no distribution planning tools such as SinCAL to optimise planning at this level. The Consultant experienced all the noted issues during implementation. Documents were confusing and contradictory within and between documents. Some items had to be further substantiated with physical inspection. 103. The present system planning does not take an asset optimisation approach. Within the Port Moresby system the total 66/11 kV installed power transformer capacity at substation points of supply is 125/175 MVA (dual rating) for a system MD peak of <100 MW. However, Kanudi and Bomana are lightly loaded so removing these two substations and their estimated system coincident peak of about 5 MVA available capacity leaves 100/140 MVA for a 92 MW peak. With Kilakila installed total capacity serving major load centres will be 140/200 MVA. In a worst case scenario of a Boroko 20/30 MVA transformer failure there would remain still some 140-20-92=28 MVA plus a further 60 MVA including 10 MVA from Boroko from dual rated transformers. This totals 88 MVA reserve capacity. The problem is releasing that capacity. Thus capacity within the distribution system to transfer this reserve load delivery capability is essential in deferring premature investment in under-utilised assets. Meshing of the 11 kV can support N-1 security of supply at critical substations and partnered with dual rated transformers there would “appear” to be adequate substation capacity with the new Kilakila Substation. Thus there is a clear case for “load transfer” to adjacent substations thus deferring further major transformer capacity enhancements. 104. For Waigani however, which is already heavily loaded this may be misleading. Some of this load can be transferred onto Bomana and Kanudi; albeit with some 11 kV tie feeder upgrading. However, as the Waigani Drive to Geruhu is a major development corridor it may be a viable option to build a new Gerehu SS transferring the Bomana and Kanudi 15/20 MVA transformers to Gerehu and purchasing smaller transformers for Bomana and Kanudi rather a third transformer at Waigani. This requires appropriate study to evaluate financial and economic viability of the options. 105. PPL’s 15 year Power development Plan 2012-2026” does not effectively capture the above issues and neither is there focus on resolution of reliability issues. Section 3.6C expands on this.
4.5 The Need for Investment
106. The proposed Project will reduce fossil fuel consumption, increase access and improve network reliability on the Port Moresby power grid. The project will assist PNG Power Ltd. to expand renewable energy generation, connect currently un-served customers and significantly improve the quality of electricity supply. The Project will (i) upgrade and rehabilitate two hydropower plants (Rouna 1 and Sirinumu Toe-of-dam), (ii) extend the grid to approximately 3,000 additional households, including strengthening the distribution network (11 kV mesh grid), and (iii) construct a new substation (Kilakila) and upgrade the existing substations. 107. Recommendations in support of the above USE and planning issues are detailed in Section 6.11. SP1 and SP3 will support reduction of losses and USE in the 11 kV Mesh and SP2 will support at a transmission level. However, detailed study of the transient, stability and protection issues that are leading to the high USE on the transmission system are needed prior to implementation of 66 kV capacitor or Statcom banks SP2 to confirm the preferred options will not worsen the current problems. Further to support effective implementation of SP3 support in the provision of SinCAL planning tools and assistance of a planning expert have been proposed. Support to the Loss Reduction Team and pilot project for implementation of a major focus on loss reduction is proposed. It is this component that could have biggest benefit for PPL and the Port Moresby community and dedicated focus of PPL management is needed to focus on this issue.
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5 DESIGN AND MONITORING FRAMEWORK
5.1 Problem and Objectives Tree
108. The Problem Tree in Figure 3 following, developed during the Design and Monitoring Framework stakeholder workshops illustrates "reliability" as the focal problem caused by root problems in the bottom half of the Problem Tree diagram. The focal problem in turn branches out leading to other issues and challenges that are shown in the upper half of the diagram. Figure 3: Problem Tree Reduced revenue for utility power health services services Impact on Lackof reserves generation public services services Low quality Low services Reduced of quality education Insufficient power Insufficientpower generation capacity generationcapacity
es es Insufficient maintenance maintenance
investment Discouraging Discouraging
Reduced Reduced employment employment employment employment opportuniti opportuniti Low Low capacity management PPL limited capacity capacity Impacts life life Regulatory Reduced Reduced of quality of quality
Poor O&M System planning Poor grid Lower Lower Lower Lower Poverty Poverty Poverty Poverty Impact on residential customers incomes incomes incomes incomes Increased Increased Port Moresby Moresby Port (core problem) (coreproblem) Unreliable power supply in Unreliablepower supply demand Lossof Increased new areas new revenue and expanding densityin CBD Reduced industrial efficiency inareas some distribution infrastructure infrastructure distribution Insufficient investment Lossesfor Lack of power transmission Lackpower of industrial sector industrialsector commercial and and of self High costs generation generation Crime Poor asset Increased management distribution gridsdistribution transmission and Low quality Low existing Low Low staff PPL image image morale morale limited Negative financing financing accessto corporative
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5.2 Design and Monitoring Framework
109. Figure 3 and the Project Design and Monitoring Framework in Appendix A underlines reliability as a key issue and establishes Project benchmarks. The following table of Results Framework Indicators (RFI) summarise the key indicators and expected outcome benefits for this Project. Non-standard indicators are provided in respect of un-served energy (USE) in GWh and SAIDI in hours being measures of system reliability to place focus on the reliability issue. USE indicates the loss of sales in GWh thus revenue and SAIDI (System Average Interruption Index) indicates the period of interruption to customer supply during a year. Table 8: Results Framework Indicators N° Indicators Outcome Benefits Methods Used 1 Transmission lines installed 6.1 km double circuit New line to be constructed from T56 to Kilakila (km) Substation (SP1) 2 Distribution lines installed or 29.3 km New feeders overhead (6.8 km) and underground (13.2 upgraded (km) km) from Kilakila substation and upgrading 9.3 km of existing line (SP1 & SP3) 3 Energy Saved (GWh) [Losses] 3.4 GWh (0.56 %)63 Injection new 66/11 kV substation, 9.3 km feeder uprating, install 11 kV capacitors and implement pilot loss reduction programme (SP1, SP3 & SP4) 4 Additional Indicator: Reliability Un-served Energy (GWh) 1.7 GWh (23 %)64 Automated system restoration on 11 kV (SP3) SAIDI (Hours) 124 hrs to 87 hrs65 Above automated system + Statcom at Boroko substation (SP3 & SP2) 5 Installed energy generation New plant 6 MW Renewable energy (hydropower) displacing diesel. (MW) Incremental increase New 6 MW plant replacing existing 3.5 MW. (SP5) 2.5 MW+0.5 MW Rehabilitate 1.5 MW plant operating at 1.1 MW to 1.6 MW (SP6) 6 New households connected to 3,000 new household An affordable energy access programme enabling poor electricity (number) connections and low income households to connect to the distribution grid. 7 Greenhouse Gas Emission 12,000 tCO2-equiv/yr The grid supplied electricity has lower greenhouse gas Reduction (tCO2-equiv/yr) emissions due to displacement of diesel generation with additional renewable generation. Grid energy saved directly (3 above) reduces diesel based generation
110. The reliability indicators are poor, thus there is a strong recommendation66 for resolution of the high level of USE (4.4 GWh) in the generation and transmission system through to the 11 kV bus at each substation. Funding for the studies included in the Procurement Plan in Appendix O. There may be downstream investment from those studies that will impact significantly in reduction of USE and in parallel a large improvement in system reliability. The outcome benefits of this study are not accrued to this Project as benefits will need to be accrued to the down-stream projects. The benefit apportionment cannot be assigned until the study is completed.
63 Present system losses are 22.24 % of total GWh produced or 112 GWh 64 On implementation of proposed Transient, harmonic, stability and protection studies there is potential to reduce USE by 6 GWh (80 %) overall and SAIDI to less than 10 hours 65 Ibid 66 Ibid
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6 THE PROPOSED PROJECT
6.1 Impact and Outcomes
111. The Project Design and Monitoring Framework in Section 5 and Appendix A underlines reliability as the key issue and establishes performance benchmarks aligned to ADB Results Framework Indicators. These also align to EIP policy. The subprojects align to achieving the goal stated in the EIP: “The goal of efficiency requires the supply of electricity in PNG in the most reliable, cost-effective and expeditious manner, to enhance affordability for low income consumers; reduce cost for business for which electricity is an output; and, thereby, encourage broad based economic growth to improve living standards at grass-roots level in Papua New Guinea”. 112. The proposed subprojects are all meritorious in their benefits to the PNG economy and to the bottom line of PPL’s financial position, thus supporting further investment potential in the future.
6.2 Infrastructure Investment Summary
113. Summary of Subprojects, investment type and feasibility are presented below. Feasibility Studies for each subproject are included in Appendix B. Table 9: Subproject Proposed Investment Subproject Investment Group FIRR EIRR SP1 - Kilakila Substation Transmission 7.0 % 15.0 % SP2 - Station capacitors or Statcom Transmission 8.4 % 32.9 % SP3 - 11 kV Open Mesh Distribution 10.7 % 25.7 % SP4a - Loss Reduction Programme Distribution } N/A } 10.6 % SP4b - Energy Access Distribution SP5 - Rouna 1 Rehabilitation Hydropower 15.0 % 18.3 % SP6 - Sirinumu Rehabilitation Hydropower 13.3 % 16.5 % Overall 10.2 % 17.7 %
6.3 Subproject 1: Kilakila Substation and Transmission line
114. Scope. To undertake due diligence review of designs prepared by others and prepare a feasibility report complete with financial and economic analyses of subproject viability for a proposed 66/11 kV Kilakila SS of nominally 2x 15/20 MVA or 2x 20/30 MVA capacity serviced by a 6.1 km double circuit 66 kV TML. The objectives expanded from the PPTA TOR are to (i) inject additional system capacity and reduce loads on adjacent substations at Boroko and Konedobu; (ii) improve power system reliability and quality to the Southern side of Port Moresby from Konedobu to Korobosea and in particular the CBD; and (iii) provide for future system load growth particularly in the CBD and toward Taurama and Magi Highway. 115. Due diligence. At inception reporting the detailed design was available for the Substation but design was not available for the transmission line or distribution out-feeds. A joint PPL/SMEC planning and design team was established to complete both the 66 kV system planning and distribution network design from the SS. The studies provided the basis for analysis of system loss reduction and reduction of un-served energy (USE). These benefits provided the primary data for FIRR and EIRR evaluation. 116. As part of the due diligence, alternative SS locations at two sites near Koki and Kaugere were reviewed to support capacity and reliability needs in the CBD: these sites being 3.0 km and 2.2 km closer to the CBD respectively. These options were not as effective in supporting growth toward Taurama and Magi Highway. The Koki site was discounted due to the very rocky nature of the terrain. Whilst construction costs were higher for the Kaugere SS option by $2.0 m, it was marginally the least cost option over its life cycle. Following review of technical risks and the potential financial premiums this option may incur, the Kaugere option was also discounted. 117. Due diligence confirmed the PPL selected site at Kilakila provided long term benefits for the CBD by the provision of two underground express feeders from Kilakila to the CBD and several
Final Report | 30 November 2012 Page | 25 TA 7783-PNG: Port Moresby Power Grid Development Project alternative meshing options via the overhead network. Capacity and feeder options to supply the Taurama and Magi Highway growth are available when needed. Transfer of load from Konedobu and Boroko to Kilakila also defers the need for additional transformer capacity at Konedobu beyond a 5-year planning horizon and for the proposed CBD substation beyond the 15-year planning horizon in-so-far as required to adequately serve the South side of Port Moresby. 118. The Feasibility Study Report is provided in Appendix B1. The study recommends the Kilakila site land acquisition be completed and for works to progress as per the amended design proposals prepared by the SMEC-PPL design team. 119. The substation with its associated short transmission line is viable when considering location, technical attributes and overall costs. The establishment of this third key zone substation near the CBD conforms with the recommendations of previous studies, including the Power Sector Development Plan of June 2009, as well as related assessments by Evans and Peck (June 2011) and by J Irving and B Fleming (December 2011). Possible alternative sites were identified, however were found to have disadvantages outweighing any perceived advantage from their locations several km closer to the CBD area. Thus the PPL recommendation for the Kilakila site is confirmed by this report. 120. The Kilakila site is restricted when considering 11 kV distribution feeder egress from the site along available roads; however practicable routes have been identified for six 11 kV feeders towards the CBD and adjacent areas, as well as two alternative feeder options. The restricted aspect of the 11 kV feeders to the CBD area is resolved by installing two dedicated underground feeders directly from Kilakila to the CBD. 121. The 66 kV transmission line presents no construction challenges, because (i) the short route (6.1 km) in open, undeveloped country, (ii) standard construction of lattice steel towers and (iii) easy access for construction works and subsequent maintenance. However, as this is a small works by international standards there may be issues in attracting adequate interest in bidding of the works. Thus the works may be packaged with the substations component or linked in with the distribution goods procurement and works implementation packages. 122. It is recommended that the provision of a CBD 11 kV switch-room proposed in PPL 15-year planning for 2014/15 be advanced and if possible included in the scope of the proposed loan as additional funding. Full due diligence was outside the Consultant scope of this TA. The proposed enhancements to CBD reliability by maximising the benefits of the two express feeders from Kilakila and the provision of at least one similar feeder from Konedobu SS combined with existing reconfiguration of overhead feeders to create a “no break” high reliability CBD supply network would enable a “world class” CBD supply network encouraging greater investment into the CBD. 123. Social Impact, Gender and Safeguards Assessments. Assessments did not identify any insurmountable issues. For the most part the works and proposed facilities are on public land and for Kilakila substation and transmission line it is on customary land. The latter is largely uncultivated grassland or hills and not occupied. A Land Acquisition / Resettlement Plan (Appendix L) was required for the Kilakila SS purchase and ROW for the TML. There is no relocation of populace involved but acquisition of a small section of unproductive land only. PPL progressed land procurement for the Kilakila site with the primary land owner group (Vaga) through a Memorandum of Agreement and deposits have been paid to procure the land and ROW on all but two short sections of the 6.1 km route: 260 m over customary land of another land group which is under negotiation and 280 m across PNG Government lands occupied by the military for which PPL has rights of access. A project specific IEE and EMP were prepared for inclusion in the bidding documents and the contracts for the subproject implementation. A Social and Poverty Assessment and Mitigation Plan, Community Support and Development Programme and GAP were prepared encompassing all subprojects. There were no significant gender issues specific to this subproject. Further detail is provided in Section 11 and 12 and Appendices B1 and H-M. 124. Subproject Benefits. Network enhancement associated with the introduction of the substation into an 11 kV Mesh will contribute significantly to quality of supply, reliability improvements and system loss reductions to the Southern side of Port Moresby from Korobosea to Konedobu including the CBD, with additional capacity released from Konedobu and Boroko to support further load growth in the rest of Port Moresby and particularly along Magi Highway to
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Bautama City development. Benefits include an estimated 0.75 GWh USE or 10 % of the total and 1.45 GWh (0.3 %) losses reduction from the current 22 %. Further the loss reductions contribute to displacement of diesel generation and thus carbon production. 125. Recommendation. The overall FIRR and EIRR at 7 % and 15 % respectively were above the WACC (1.9 %) and Economic (12 %) hurdle rates respectively. The evaluation took a conservative approach and is robust under sensitivity analysis. The feasibility study confirms Subproject-1 is technically, financially and economically viable for implementation.
6.4 Subproject 2: Substation Capacitors or Statcom
126. Scope. To advise whether substation capacitors or a Statcom would be optimum solutions and prepare a feasibility report complete with financial and economic analysis of subproject viability. The objectives are to (i) determine which of these two options is optimal to improve transmission system power stability, load flow and power factor on the Port Moresby 66 kV transmission system, (ii) conduct a brief feasibility study of the options, and (iii) to recommend the optimal location(s) for siting such equipment if determined necessary. The outcome would be substantially improved power system quality and reduction in transmission power losses across Port Moresby. 127. Due Diligence. PPL PSS/E studies were not available for SMEC to undertake due diligence. Additional personnel resources were assigned from PPL and SMEC. Significant issues with system stability were identified for which PPL did not have the PSS/E stability module. ADB funded the purchase of the stability module for PSS/E to enable stability studies proposed for integration into an overall protection and stability study outside of this PPTA. 128. The Feasibility Study Report is provided in Appendix B2. Due to non-availability of PSS/E stability studies, nor of software to undertake such studies, a final recommendation of switched capacitor or Statcom banks could not be made. Technically the Statcom banks would be the preferred option with project cost estimates and FIRR/EIRR based on this option. Due diligence confirmed the Statcom option installed on the 66 kV bus at Boroko initially but possibly also at Konedobu to be the preferred outcome, however before implementation transmission system stability and protection studies must be completed as above. 129. Social Impact, Gender and Safeguards Assessments. Works and proposed facilities are within PPL existing substations. A project specific IEE and EMP was prepared. No insurmountable issues were identified. The IEE and EMP will be included in the bidding documents and the contracts for the subproject implementation. No safeguards are applicable as there are no relevant impacts. A Social and Poverty Assessment and Mitigation Plan, Community Support and Development Programme and GAP were prepared encompassing all subprojects. There were no significant gender issues specific to this subproject. Further detail is provided in Section 11 and 12 and Appendices B2 and H-M. 130. Subproject Benefits. Whilst the proposed facilities have only a very small benefit in regards to loss reduction on the transmission system the injection of either switched capacitors or Statcom has very strong potential to support correction of the stability issues being experienced. Thus the primary benefits would be in reduction of USE and improved power conditioning. 131. Recommendation. The overall FIRR and EIRR at 8.4 % and 32.9 % respectively were above the WACC (1.9 %) and Economic (12 %) hurdle rates respectively. The evaluation took a conservative approach and is robust under sensitivity analysis. The feasibility study confirms Subproject-2 is technically, financially and economically viable for implementation, subject to a system stability and protection study to validate the Statcom option.
6.5 Subproject 3: Upgrade of 11 kV System to Open Loop Mesh
132. Scope. To undertake due diligence and prepare a feasibility report complete with financial and economic analysis of subproject viability. The objectives are to (i) enhance reliability of power supply, (ii) enhance system capacity for future load growth, (iii) enable load transfer between substations in support of N-1 reliability, and (iv) to upgrade and rehabilitate sections of the system
Final Report | 30 November 2012 Page | 27 TA 7783-PNG: Port Moresby Power Grid Development Project impacting on system reliability. The outcome would be a rehabilitated backbone 11 kV open mesh enabling operational flexibly on full system loads thus minimising customer interruptions whilst optimising reliability enhancements and load transfer. 133. Due Diligence. During the inception phase it was discovered initial design work on the mesh had not been completed for due diligence to commence. PPL established a design team under supervision of SMEC. Extensive inputs overcame further delays with the primary design objectives achieved. However, there is need for further extensive detailed design before procurement of Goods and Works packages. The detailed design phase is proposed for advance procurement activities. 134. The Feasibility Study Report is provided in Appendix B3. The study recommends the upgrade of 11 kV System to Open Loop Mesh Design. SP3 is viable when considering commercial and technical attributes, as well as overall costs. SP3 conforms with the recommendations of previous studies, including the Power Sector Development Plan of June 2009, as well as related assessments by Evans and Peck (June 2011) and by J Irving and B Fleming (December 2011). 135. A component of the works involves 11 kV feeder capacitor banks installation for voltage correction. It is flagged that PPL have had on-going problems with field capacitor bank failure. Also optimisation of the reclosers, sectionalisers and GIS switchgear on the system requires assessment. Both these factors require a detailed planning team to be established and the procurement of SINCAL software to support optimal analysis. The Procurement Plan in Appendix O provides for a short term distribution consultant to provide guidance to PPL during this phase and to assist on the initial procurement specification and BOQ, preparatory the commencement of the Design and Supervision Consultant, thus expediting the project delivery timeframe. 136. SP3 presents construction challenges particularly in regard to (i) daily switching required to de-energise work locations on feeders, (ii) conformance with PPL safety procedures for work access to de-energised lines, (iii) traffic hazards, (iv) minimising disruption and power outages to customers during the work, and (v) restoring power in a timely manner each day, after cessation of work. Thus key to implementation will be close operational supervision and co-ordination of outage planning between PPL and the Contractor(s). 137. Social Impact, Gender and Safeguards Assessments. Works are on public lands and existing facilities of PPL. Only minor safeguards were identified with no insurmountable issues. A project specific IEE and EMP were prepared. The IEE and EMP will be included in the bidding documents and the contracts for the subproject implementation. A Social and Poverty Assessment and Mitigation Plan, Community Support and Development Programme and GAP were prepared encompassing all subprojects. There were no significant gender issues specific to this subproject. Further detail is provided in Sections 11 and 12 and Appendices B3 and H-M. 138. Subproject Benefits. The initial automatic switchgear and then integration with PPL SCADA67 for a fully automated and managed system currently being installed will have significant benefits in reduction of USE on the 11 kV network of an estimated 1.6 GWh or 22 % of the system total. Distribution capacitors would improve the power factor of the distribution system thereby enhancing the quality of power supply to the end customers. Along with the conductor upgrading this will contribute 1.4 GWh (0.3 %) reduction in overall system losses from the current 22 %. Rebalancing of feeder loads and rebalancing of distribution transformer LV side loads benefits have not been specifically assessed but are estimated at 0.5 GWh (0.1 %) Further the loss reductions contribute to displacement of diesel generation and thus carbon production. 139. Recommendation. The overall FIRR and EIRR at 10.7 % and 25.7 % respectively were above the WACC (1.9 %) and Economic (12 %) hurdle rates respectively. The evaluation took a conservative approach and is robust under sensitivity analysis. The feasibility study confirms Subproject-3 is technically, financially and economically viable for implementation.
67 PPL SCADA is currently under procurement processes for installation over 2013/14.
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6.6 Subproject 4a: Loss Reduction Programme (LRP)
140. Scope. To review the on-going PPL Loss Reduction Programme and prepare a feasibility study report complete with financial and economic analyses of subproject viability. The objectives are to focus on power factor and loss reduction in the distribution network servicing the end customer. 141. Review of PPL LRP. On meeting with PPL personnel, it was identified that PPL were having significant issues separating and identifying technical and non-technical losses in the system to establish a meaningful programme. Installation of feeder metering had commenced however further assistance with equipment procurement was proposed. Also a component of losses had been identified in that PPL’s own facilities were not metered: this estimated to be perhaps 2 % of unmetered losses. PPL have this matter in hand for resolution. 142. Further review identified that PPL existing distribution capacitors had practically all failed in service. The precise determination of the causes could not be made, but is thought to be either higher frequency currents causing burn out of the units and/or poor selection of rated fuses. 143. It was also determined that distribution transformers in general had unbalanced LV outputs, though overall total installed capacity indicated utilisations of under 30 %. This indicated a programme to redress the LV imbalance and to relocate transformers more optimally in the system would have significant loss reduction potential. These issues are routine maintenance matters and as new transformers are not required there was no scope for funding works under the Loan. 144. The Feasibility Study Report for the LRP is provided in Appendix B4 of the LRP component only. The proposal is to provide only adequate funding to support the initiatives of the PPL loss reduction team with additional test and metering equipment. A pilot study feeder will be selected and a programme implemented and tested. This may generate addition procurement of equipment that may be managed under SP3. The metering equipment is to be installed on zone substation 11 kV feeders to support identification of system losses by PPL own resources. The test equipment will include in-field temporary metering and data logging devices and possible harmonic analysis tools to support correction of 11 kV feeder capacitor failure issues. 145. No due diligence study or feasibility study of the Energy Access component was completed by the Consultant. 146. Social Impact, Gender and Safeguards Assessments. Works are on existing PPL facilities or on public lands. Only minor safeguards were identified with no insurmountable issues. There are no resettlement impacts. Indigenous people plan and gender plan are not required as there are no relevant impacts. A project specific IEE and EMP were prepared. The IEE and EMP will be included in the bidding documents and the contracts for the subproject implementation. A Social and Poverty Assessment and Mitigation Plan, Community Support and Development Programme and GAP were prepared encompassing all subprojects. There were no significant gender issues specific to this subproject. Further detail is provided in Sections 11 and 12 and Appendices B4 and H-M. 147. Subproject Benefits. This project has substantial potential to support a significant reduction in PPL present level of system losses at 22 % toward the PPA benchmark target of 12 % or less. Consultant recent experience in several countries indicate such a programme will quickly identify and quickly correct around 50 % of the differential for minimal cost, though investment will be required to achieve the balance. Some of that will come from the subproject initiatives of this PPTA. It is likely additional funding may be an outcome. 148. Recommendation. The overall FNPV was negative at (US$ 5.12) as was ENPV at (US$ 0.13), and positive EIRR at 10.7 % which never-the-less is below the ADB Economic hurdle rate of 12 %. The evaluation took a conservative approach and is robust under sensitivity analysis. Whilst financial and economic objectives indicate non-viability, potential benefits for substantial loss reduction will be identified in the course of this subproject so is never-the-less recommended for implementation.
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6.7 Subproject 4b: Energy Access
149. Scope. During the PPTA the Government of PNG requested up to 3000 new customer connections be provided to enable energy access to those unable to afford such and forms part of the Government of PNG and PPLs Community Service Obligations (CSOs). A government grant of US$ 2.5 million is proposed. This section is the entire summary of this proposed subproject as no feasibility study was undertaken. 150. Review of Energy Access Subproject. This additional scope, SP4b, has not undergone technical due diligence nor feasibility report compiled by the Consultant, though financial and economic assessments were completed. Only a brief assessment of social impact, gender and safeguards assessments was undertaken. 151. Proposed Works are to provide supply from existing LV and some limited short LV extensions. Funding is for provision of an MSK (Minimum Supply Kit: a fused panel with 2-3 power outlets), service cable, ground connections and LV mains fusing. The average cost of a basic minimum supply connection estimated at PGK 1,250 (US$ 625). The cost excludes metering where low cost 5 Amp pre-paid metering is estimated to cost a further PGK 330 (US$ 165) but other options of using current limiting devices and local transformer bulk metering to account for total energy sales may avoid an element of the costs for individual metering. No internal house wiring is required with an MSK unit thus households avoid this considerable cost. Integrated base costs of US$ 2.3m were assessed with a total US 3.0m budget for 3000 connections which includes all physical and price contingencies and taxes including GST. 152. Social Impact, Gender and Safeguards Assessments. Works are on existing PPL facilities, on public lands or on customer premises. Only minor safeguards were identified with no insurmountable issues. There are no resettlement impacts. Indigenous people plan and gender plan are not required as there are no relevant impacts. As the works would be implemented under Subproject 3 the IEE and EMP presented in Appendix B3 is applicable to SP4b. The IEE and EMP will be included in the bidding documents and the contracts for the subproject implementation. A Social and Poverty Assessment and Mitigation Plan, Community Support and Development Programme and GAP were prepared encompassing all subprojects. There were no significant gender issues specific to this subproject. Further detail is provided in Sections 11 and 12 and Appendices B3 and H-M. 153. Financial Analysis. The energy access programme will be carried out using government funds and is designed to provide connections to 3000 households who cannot afford the cost of a connection. It is assumed that these households will consume electricity at or below 30kWh/month and therefore, the lifeline tariff of K0.47 /kWh will apply. Since the cost of production of electricity is greater than this amount, PPL will make a loss of every unit provided though this will be part of its contribution to PPL community service obligations. 154. AN FIRR could not be evaluated. The FNPV of the energy access programme is negative $5.1 million meaning PPL will be making a financial loss on this component. The detailed analysis is presented in Table 46 Appendix G. Sensitivity analysis of the FNPV was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The results reveal that all the tests fail to meet ADB guidelines. FIRR and FNPV Base Case and Sensitivity Analysis
Scenario FIRR (%) FNPV ($m) Base Case NA (5.1) 10 % increase in costs NA (6.5) 10 % reduction in revenues NA (6.0) 10 % increase in costs and 10 % reduction in revenues NA (7.4) Source: PPTA Consultant 155. Economic Analysis. It is assumed that these households will consume electricity at or below 30kWh/month and therefore Willingness to Pay at PGK 1.32 /kWh for domestic consumers was used to value the benefit. Whilst using Willingness to Pay as a guideline to assess economic benefits there are additional long term community benefits in support of the poor not assessed.
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These include such as health and education, opportunities for such low income families to earn additional income and crime reduction. 156. The incremental EIRR of this component is 10.6% and the ENPV is ($0.13) million when discounted at the EOCC. The EOCC is 12% thus component is economically un-viable; albeit marginally so. Detailed analysis is presented in Table 60 Appendix G. Sensitivity analysis of the EIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The results reveal that all the tests fail to meet ADB guidelines. EIRR and ENPV Base Case and Sensitivity Analysis
Scenario EIRR (%) ENPV ($m) Base Case 10.6 (0.13) 10 % increase in costs 7.8 (0.4) 10 % reduction in benefits 7.6 (0.4) 10 % increase in costs and 10 % reduction in benefits 4.7 (0.7) Source: PPTA Consultant 157. Recommendation. The overall FNPV was negative at (US$ 5.12) as was ENPV at (US$ 0.13), and positive EIRR at 10.7 % which never-the-less is below the ADB Economic hurdle rate of 12 %. Thus all indicating non-viability. Whilst using Willingness to Pay as a guideline to assess economic benefits there are additional long term community benefits in support of the poor not assessed which indicate economic viability. These include health and education, opportunities for such low income families to earn additional income and crime reduction all of which will support overall long term economic community benefits whilst also contributing to PPL meeting its community service obligations.
6.8 Subproject 5: Rouna 1 Hydropower Rehabilitation
158. Scope. To undertake a feasibility study of the Rouna 1 HPS refurbishment. The objectives are to refurbish/restore the 5.5 MW generation capacity at Rouna 1. However two 1 MW units were already decommissioned with a third aging and costly to refurbish. The remaining 2.5 MW plant is over 55 years old with little remaining life and most equipment without available spares. Thus options of replacement of the entire plant to optimise the use of available water flow for 6 MW were initiated. The outcomes of enhancing Rouna generation capability from 3.5 MW to 6.0 MW enables replacement of fuel oil generation thus providing lower cost power to Port Moresby and effective replacement of the 3.5 MW of 1940’s/50’s equipment with limited remaining life. 159. Due diligence. Initially SMEC assessed least cost analysis options a) 1x6 MW in new machine hall within the confines of the existing Rouna 1 station effectively extending Rouna 3 or b) 2x3 MW inside the existing machine hall. These options were based on an HTC report68 whereby a penstock for a 1x6 MW unit was designed. The existing 2.5 MW generator would be retired as there is inadequate space to install two new 3 MW units in the space vacated by the 1 MW units. This analysis concluded that on initial assessment that a 2x3.2 MW installation was least cost. This is sizing that can fit in the existing turbine hall with minimal disruption. 160. During evaluation of options, documentation69 supported potential water for up to 10 MW of generation with effective cascade management. Thus the Consultant scope was expanded to encompass construction of new plant either of a 10 MW or 6 MW capacity with options to allow future expansion if water availability was confirmed. Detailed flow analysis covering 10 years hydrology assessed that additional water was only available for up to 10 % on average of the flow periods, so the 10 MW proposal lacked viability. It was proposed that a detailed cascade management plan would be required to optimise flows further. Thus investigation on the 10 MW option ceased. 161. The Feasibility Study Report is provided in Appendix B5. The proposal is to replace the existing Rouna 1 3.5 MW capacity with replacement 6 MW station constructed adjacent to the
68 Hydro Tasmania Consulting (HTC) “Rouna 1 Penstock Design Hydraulics Report, Sep 2010” 69 HTC Report “Rouna 2 Unit 4 Turbine performance test witness - Feb 2009”
Final Report | 30 November 2012 Page | 31 TA 7783-PNG: Port Moresby Power Grid Development Project existing and for the existing plant to be decommissioned. This option was determined to be the least cost of all 6 MW options. Provision of a 10 MW sized penstock and new head gate were included in the feasibility study to allow for potential rehabilitation or replacement of the existing 2.5 MW machine in Rouna 1 with a 3.2 MW (or larger) new replacement plant unit. If the cascade study is completed prior to design and procurement of the 6.0 MW plant, then adjustments may be made in plant sizing and penstock sizing to optimise utilisation of available flows. 162. Modifications to the existing 33 kV switchyard will be required. Single line diagrams (SLD) of existing and proposed configurations are included in Appendix B5 Annexure 7. If 10 MW of generation is available, then these SLDs will need to be amended to allow for the additional capacity. The proposal is for total replacement of the existing 3.3 kV generator switchgear with 11 kV switchgear and a separate integrated PLC based control panel with future SCADA interface capability. 163. Social Impact, Gender and Safeguards Assessments. The works are within PPL existing hydro facilities. No insurmountable issues were identified. An IEE and EMP were prepared for the project. The environmental authorities will be informed about the project for the construction of the new powerhouse. In either case if a 6MW or a 10 MW powerhouse is ultimately proposed following the cascade study it will initiate a review of the statutory environmental assessment requirements by the environmental authority under the Environment Act 2000 due to the potential increase in the scale of the existing activities at Rouna 1. At least the IEE and EMP will be included in the bidding documents and the contracts for the subproject implementation in due course. A Social and Poverty Assessment and Mitigation Plan, Community Support and Development Programme and GAP were prepared encompassing all subprojects. There were no significant gender issues specific to this subproject. Further detail is provided in Sections 11 and 12 and Appendices B5 and H-M. 164. There have been land ownership disputes with local clans’ people. The Government of PNG is of the view that the land is Government land properly acquired and has documentary evidence to support this. The local community disputed this and sought compensation and benefit from the entire scheme. Original formal title to the land dated 1900 has since been presented. Never-the-less the government has advised following formal registration of a community land group, which requires proof of heredity, a package to support community development in the area will be developed. This will be discussed and agreed with the people once prepared. 165. Subproject Benefits. The primary project benefits are (i) in the additional 8.6 GWh of renewable energy produced, (ii) providing a reliable generator enhancing system reliability and ensuring the present 9.9 GWh is on-going for the life of the new plant, and (iii) reduction in carbon emissions of 6800 tCO2-equiv/yr due to the displacement of diesel generation by the additional generation capacity. 166. Recommendation. The overall FIRR and EIRR at 15 % and 18.3 % respectively were above the WACC (1.9 %) and Economic (12 %) hurdle rates respectively. The evaluation took a conservative approach and is robust under sensitivity analysis. The feasibility study confirms Subproject-5 is technically, financially and economically viable for implementation.
6.9 Subproject 6: Sirinumu Toe of Dam Upgrade
167. Scope. To undertake a feasibility study of the upgrade / replacement requirements for the Sirinumu TOD, suitable for financing decision. The objective is to rehabilitate and if practicable upgrade generation capacity at Sirinumu TOD. The outcome will be additional reliable base generation capacity replacing diesel fuelled medium speed generation. 168. Outside of the Consultant’s ToR there remains potential for further generation to be installed subject to detailed hydrological and cascade analysis. Such generation could be sited beside the existing powerhouse in a new powerhouse. This option has not been reviewed in detail as it falls outside rehabilitation objectives. Any capacity increase should be considered in an overall cascade management plan. 169. Present Status. The existing valves and turbine are in poor condition verified by inspection. Main inlet and guide valves were all leaking and head gate damaged and unable to be
Final Report | 30 November 2012 Page | 32 TA 7783-PNG: Port Moresby Power Grid Development Project operated. Noise levels are extremely high (exceeding 100 dB, 5 times allowable WB environmental and safety guidelines) indicating very poor bearing condition. The plant is currently capable of 1.3 MW only, but practically limited to 1.1 MW by PPL system control, largely due to excessive leakage through the valves and turbine gates leading to generation inefficiencies. The associated 1.6 MW induction generator is robust requiring only testing and basic maintenance for on-going serviceability. Being an induction generator there are no excitation or AVR requirements. Access problems during rain and needs for two person operation restricts plant utilisation, as does reliability problems with the 22 kV generation distribution feeder line. A higher plant capacity factor could be achieved if remote operating equipment was installed and the feeder upgraded. 170. The Feasibility Study Report is provided in Appendix B6. The proposal is to totally replace the existing valves, turbine and generator unit with higher efficiency units within the existing powerhouse with some minor enhancements, and add remote control capability for linkage to PPL SCADA system being undertaken by a separate project. Some equipment in the small substation will require replacement: namely 22 kV CB and metering CT’s with new bulk metering installed. However, PPL propose that the generation feeder line is to be upgraded to 33 kV, in which case a new substation will be required. PPL shall be implementing this outside the scope of the PPTA. 171. There remains potential for further generation to be installed subject to detailed hydrological and cascade flow analysis. Such generation could be sited beside the existing powerhouse in an extended or new powerhouse. Any capacity increase should be considered in an overall cascade management plan. The concept design and costing provision has allowed for a bifurcation and blanking plate in the existing penstock pipeline to accommodate a second generator. 172. Social Impact, Gender and Safeguards assessments. The works are within PPL existing hydro facilities. No insurmountable issues were identified. In the past PPL and the Government provided a development package to the Sirinumu people via the registered company owned by the land owners and there are no issues outstanding. The communities of Sirinumu did raise concern about the condition of the national road that leads to the dam and requested to have the road rehabilitated before construction could commence. PPL are to discuss with the Public Works department for the rehabilitation of this road. A project specific IEE and EMP were prepared. The IEE and EMP will be included in the bidding documents and the contracts for the subproject implementation. A Social and Poverty Assessment and Mitigation Plan, Community Support and Development Programme and GAP were prepared encompassing all subprojects. There were no significant gender issues specific to this subproject. Further detail is provided in Section 11 and 12 and in Appendices B6 and H-M. 173. Subproject Benefits. The primary subproject benefits are (i) in the additional 3.5 GWh of renewable energy produced, (ii) providing a reliable generator more many years to come thus enhancing system reliability and ensuring the present 1.03 GWh is on-going for many more years, and (iii) reduction in carbon emissions of 2700 tCO2-equiv/yr due to the displacement of diesel generation by the additional generation capacity. 174. Recommendation. The overall FIRR and EIRR at 13.3 % and 16.5 % respectively were above the WACC (1.9 %) and Economic (12 %) hurdle rates respectively. The evaluation took a conservative approach and is robust under sensitivity analysis. The feasibility study confirms Subproject 6 is technically, financially and economically viable for implementation.
6.10 PSS/E Study Outcomes
175. Scope: The Consultant's TOR required review of PSS/E study results, assess and recommend options for improving energy efficiency and security of the Port Moresby transmission and distribution grid. System Planning Studies using PSS/E were not available for due diligence of SP1 and SP2. This was added to the scope of the Consultant following inception reporting and a PPL/Consultant team established to undertake the studies. The studies only required load flow analysis, but for SP2 involving capacitor or Statcom bank installation, there was concern that the Statcom may introduce additional system stability issues above those already present.
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176. Also initial EIRR/FIRR for SP3 on the basis of un-served energy recovery alone could not justify the project. So additional distribution system load flow studies were undertaken to optimise load-flows with the introduction of the Kilakila Substation. 177. PSS/E stability analysis was also identified as necessary but was deferred due to identification of other transmission transient and protection issues requiring more advanced studies. Thus such stability studies could not be completed and final decision of SP2 capacitor or Statcom banks deferred to a separate study with the recommendation for such studies to be funded under the Loan. 178. The Report. A detailed PSS/E study report is included as Appendix B7. The primary findings are: SP-1. The injection of Kilakila substation had justifiable net system loss reductions and affected necessary load transfer from Boroko and Konedobu substations. There were small net load flow benefits on the 66 kV system, but a significant future benefit if a single circuit 66 kV line is constructed from Kilakila to Konedobu. This benefit, not accrued to this study, is discussed further in paragraph 179. On the 11 kV systems significant loss reduction was achieved enabling FIRR/EIRR subproject viability. A significant benefit on reduction of USE was achieved, particularly if PPL also in the future install the CBD 11 kV switch room. This switch- room is recommended to proceed and possibility of funding from this Project as an additional project subject to detailed feasibility study is recommended. SP-2. Whilst the study showed 20 MVAr at Boroko and up to 10 MVAr at Konedobu switchable capacitor or Statcom banks, both in addition to present fixed banks, which type of bank could not be determined. Paragraph 180 recommends further study to resolve transient, stability and protection issues on the transmission network and optimal determination of Statcom place in such a scheme. SP-3. In upgrading conductors, relocating of open points some small benefits in load flow were achieved. However these benefits were inadequate to justify the project when combined with installation of load break switchgear to capture USE benefits. When merged with outcomes of SP4 study on distribution capacitor banks for voltage support and automated switchgear for supply restoration then the load flow outcomes supported subproject viability. SP-4. For the load flow studies it was discovered for the 11 kV mesh system to be viable that installation of capacitor banks to improve system voltage were required. Thus load flow studies included an estimation of capacitor bank support. The study outcomes recommending capacitor banks were then merged into SP3 over 11 kV study. However further detailed study is required to optimise location and sizing of the capacitor banks. This Project recommends such distribution studies be undertaken and that funding for a specialist and necessary software to undertake these studies be provided. 179. Under SP1 load flows were completed with options of (i) a double circuit 66 kV line from T56 to Kilakila only, and (ii) a single circuit option from T56, via Kilakila and onward to Konedobu. Whilst both produced small overall system load flow improvements, there is potential in the future to construct a 66 kV tie line between Kilakila and Konedobu to enhance reliability and load transfer capability on the 66 kV system. There is a major inherent system weakness, in that should there be a major 66 kV failure at Boroko, there is in-adequate 66 kV capacity to transfer Rouna generation into the POM system. Having this proposed tie line will restore N-1 security in case of a major Boroko outage and enable transfer of the Rouna output past Kilakila and onto Konedobu maintaining South POM power supplies including to the CBD. 180. Under SP2 in order to appreciate and evaluate the effects of having the STATCOM it is required to carry out dynamic and transient simulations using appropriate software. As an outcome of such a transient study it is possible to determine the exact dynamic parameters of the
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STATCOM required for Port Moresby Grid system for the next 25 years. This proposed study involves deep analysis of power quality and transient aspects70. Further with the across board protection issues identified during the study integration of protection issues with the overall transient and stability study. 181. The results of simulation for SP3 primarily consist of load flow, power factor, percentage losses, and line currents which are presented in several spread sheets for comparison between with and without auto-switchable switchable devices on 11 kV feeders. The simulation is carried out for the years 2012, 2015, 2020, 2025. The studies also confirmed approximate requirements for 11 kV feeder capacitor installations, though in using PSS/E rather than SINCAL for the analysis positioning could not be optimised. It is noted under SP3 subproject summary that PPL existing capacitors have all largely failed in service. The precise reasons are unclear and study is required on this matter also. 182. Recommendations. (i) Due to the transient, stability and protection issues reviewed during the study, it is recommended that more detailed studies be implemented. (ii) As part of capacitor final positioning and sizing optimisation advanced use of SINCAL software is recommended. The Procurement Plan Appendix O provides for such studies and software procurement for (i) and (ii).
6.11 SCADA Review
A. Requirements under TOR 183. The Consultant TOR for SP5 required review of the Rouna 1 HPS integration with the Port Moresby System SCADA. During due diligence for SP3 11 kV Open Mesh, it was determined for long term operational efficacy of the mesh, integration with the SCADA system would be required. Similarly for Sirinumu under SP6 effective operation remote control was determined essential. Following is a synopsis of the findings. B. Review Outcomes 184. PPL provided some information from the Ramu SCADA system advising the Port Moresby SCADA system will be similar. The system appears to be a standard electricity network SCADA system. The system focuses on substations and substation bays. Generating entities are treated as medium voltage substation bays. The basic system does not provide for generator control or distribution system management applications. 185. The system provides for the following advanced features which are options planned to be provided at a later date. (i) Automatic generation control will require that the SCADA at least have the capability to control generator output (ii) Network applications be considered and (iii) expansion for National SCADA system which provides operators at Port Moresby with the facility to monitor and control the Ramu and Gazelle networks. 186. The Consultant suggests that adoption of each of these advanced SCADA features be assessed on their technical merits and economic benefit through further study. 187. The SCADA does not include a distribution management application, which almost certainly could be justified given the improvement in reliability and quality of supply it would provide. 188. The SCADA system does not include hydropower cascade management application, or a hydro/thermal optimisation application. The latter may not be necessary. Given PPL’s large investment in hydro plant on the Rouna cascade, and inefficiencies in the use of the associated water, a real-time cascade management application should provide significant benefits. It is understood that current plans for a water management system envisage (appropriately) a tool which will be used for operations planning and not for real-time control. 189. Real-Time Cascade Management Application. A real-time cascade management system would treat the Rouna cascade as a single generator entity. It would receive generation parameters/commands from the SCADA system as if the cascade was a single generating unit and
70 [6] ABB HV Equipment, ABB Web site. [7] CHiNT HV Equipment, CHiNT web site. [References in PSS/E report Appendix B7].
Final Report | 30 November 2012 Page | 35 TA 7783-PNG: Port Moresby Power Grid Development Project use these to deliver the required energy making optimal use of the plant and water which is available. This type of application/subsystem is standard in hydropower SCADA schemes. It would be appropriate to locate the physical equipment at Rouna 2 and treat Rouna 2 as a central control facility for the cascade. The need for it appears to have been overlooked. 190. A real-time cascade management application will require that all of the hydropower stations be capable of remote control. Suitable communications infrastructure (OP GW – optical galvanised wire) is already in place for all of the stations except Sirinumu. It will also require telemetry of hydrological and meteorological data. Most of this was previously available using manual systems. Many of these are defunct. Reinstating them and upgrading them to have telemetry capability would provide for informed operational decision-making for manual operations, and will be required for real-time cascade management and operations planning applications. 191. The SCADA system appears to be intended to be limited to electricity network data. Given the large investment required for a SCADA system and associated communications system, it would be appropriate to extend the concept of the SCADA system to include all corporate data acquisition, for example, information to be used by a computer maintenance management system (e.g. equipment operating hours) or the information for a hydrological database (the concept of having a separate standalone hydrological database has been abandoned by most utilities). The data and signals needed for real-time operational control can be readily secured against external influences and other applications by delivering data through an internet server and security measures such as bidirectional firewalls. International standards for security of real-time operating systems have been recently developed and should be applied. 192. Water Management System. It is understood that current plans for a water management system are to provide an operations planning tool which will be used off-line in Port Moresby. As far as operation of the electricity network is concerned, it is unlikely that this system will provide more than optimal weekly operations schedules. It will not be able to cover all operational constraints or unplanned outages, and will utilise historic and forecast load, hydrological and meteorological data. It will be a valuable (even necessary) planning tool. However, a real-time catchment management system will provide further benefits in water utilisation and by enabling the cascade to be treated as a single generating entity will simplify operational decision-making in response to electricity network events, hence allowing the responses to be more effective. 193. Distribution Management Application. The proposed SCADA system is an electricity network SCADA system for which various applications have been proposed, largely as options. These applications do not include a distribution management application. Other than the immediate benefits from a basic SCADA system on network operation (through provision of timely and accurate information), a distribution management system could provide an immediate and direct benefit from the SCADA system through timely (and largely automatic) restoration of supply to customers in the case where there are disruptions caused by system events on the medium voltage network. The supplier should have an appropriate application available. Some augmentation of the SCADA communications facilities would be required for two-way communication with non-substation sites. The most suitable technology for this is likely to be GPRS radio communications, which uses mobile telephone technology. 194. Improvements in the delivery and use of electrical energy are increasingly being achieved through the use of “smart grid” technology, which requires two-way communication with a large range of field equipment, including customer equipment. As PPL achieves improvements in efficiency and effectiveness in generating energy and delivering it to customers, this technology will become increasingly applicable as it facilitates direct interaction with customer equipment to obtain further efficiencies. This will not have an impact on the immediate SCADA system; however, PPL should remain aware of this and take it into account as it plans the evolution of its electricity SCADA system. C. Application to Subprojects 195. SCADA and SP3: the 11 kV Open Mesh. The 11 kV open mesh will allow significant improvement in quality of service by reducing response times to system events. However, with the existing arrangements such responses will be through human intervention. This means that, from time to time, the response to system events will be delayed or may even be inappropriate. A
Final Report | 30 November 2012 Page | 36 TA 7783-PNG: Port Moresby Power Grid Development Project distribution management system can automate such responses so that they are always appropriate and timely. It is recommended that a distribution management application be included in the SCADA system. Within this subproject, equipment being provided will include the signals and interfaces through which distribution automation can be realised. 196. Also the SCADA system distribution management application can support accurate recording of system outage durations and support calculation of key system performance measures such as USE, SAIDI, CAIDI and SAIFI for (i) regulatory performance measuring and (ii) for system asset management strategic and operational correction of on-going fault issues. 197. SCADA and SP5: Rouna 1. The optical cable for SCADA communications has been extended into the Rouna 1 and 3 powerhouses; however, it is not at all clear what it is intended to be used for. It is assumed that it will be used for monitoring the equipment in the powerhouses. Any remote and/or automatic control scheme is generally hierarchical and has equipment distributed so that components of the SCADA system are physically in the same location as the equipment they control/monitor. 198. For the hydro stations on the Laloki River, it would be appropriate to have equipment at Rouna 2 which handled SCADA functions which applied to the cascade rather than individual power stations, for example, for automatic generation control of the cascade as a single generating entity. Such equipment could readily provide for remote control of the power stations from Rouna 2 (e.g. as an alternative to fully automatic control). For the immediate project, this means that the new control equipment should be capable of being controlled remotely, so that it does not require adaptation when remote control either from a Rouna 2 and/or through the SCADA system is introduced. 199. SCADA and SP6: Sirinumu. It does not appear that it is intended to include Sirinumu in the SCADA system. It would be sensible to include it. Irrespective of SCADA, there would be significant benefits if Sirinumu could be controlled and monitored from Rouna 2 control room. The facilities required for this will allow for Sirinumu to be integrated into the SCADA system using the SCADA equipment at Rouna 2. D. Recommendations 200. Other than Recommendation 3, these recommendations have no direct relevance to this PPTA. However, the potential benefits which they could provide have been an outcome from the PPTA studies and they are presented here for separate consideration as it is PPL intention to self- fund such initiatives. 201. Recommendation 1. That a real-time cascade management application be provided for the Rouna cascade. This would require that all power stations were provided with remote control facilities. It could be implemented as a standalone system which was later integrated into the Port Moresby SCADA system. It would entail reinstatement and upgrade of hydrological and meteorological measurements. The data obtained from these will also be required for the prospective water management planning application, and would most appropriately be served to that application through the SCADA (corporate) database. 202. Recommendation 2. That a distribution management application be provided for the Port Moresby SCADA system. This application would probably provide greater immediate benefits than other advanced SCADA applications which are already being considered for that system. It is highly recommended that system performance recording be implemented with the distribution manage systems. 203. Recommendation 3. That Sirinumu be included in the SCADA system. This is essential to optimise the utilisation of Sirinumu generation and water blocking for downstream enhancements to generation optimisation.
6.12 Distribution Design Standards
204. The Consultant TOR required a review of PPL distribution design standards and recommend alternative designs and standards where applicable.
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205. PPL Distribution Design Manual was updated during 198871 by then consultants Beca Worley International at a time when there were practically no international standards for overhead line design. It is a well thought through and constructed document and is in regular daily use even today by design personnel in PPL. It was designed predominantly for rural application for conductor sizes up to “Cherry”. Now PPL, in urban centres, uses “Grape” and Saturn”, both of which require heavier design not encompassed by the existing manual. Asset management techniques have also advanced and with the introduction of new types of field equipment practices in design have not been maintained to capture these benefits. 206. Modern design practices are now based on Limit State Design rather than safety factor design techniques as used in the present manuals. There are now good international base standards available for power system design criteria. PNGS, AS/NZS and BS standards are PPL approved72 base standards for use in PNG with IEC standards accepted if no equivalent exists. Some ASTM and similar USA standards in matters of civil, structural and material design are also accepted. For distribution line design the recently introduced AS/NZS 7000:2010 “Overhead line design - Detailed procedures” is now the accepted standard in Australia and New Zealand. This is based on earlier Guidelines produced in Australia ESAA C(b)1-2003 “Guide for Design and Maintenance of Distribution and Trans Lines”. PPL design standards do not reflect the benefit in the use of such Standards as the primary guidelines for design. 207. Formulation of a modern distribution design standard would reference such PNG, AS/NZS or international standards and focus toward the asset management strategies and design principles to be adopted. Modern planning techniques and use of such tools as PSS/E, SINCAL and others would establish key network design parameters around which the Standard would be applied. This provides a practical guide for design complementary to the Standards and provides the designer with a comprehensive approach aligned with corporate asset management initiatives. 208. Many utilities in Australia and New Zealand are also willing to make their design and construction standards available. These will need customisation to PNG and PPL criteria but would provide a good base for substantial reduction in costs for producing such documents. 209. Recommendation. With the recent release of AS/NZS7000:2010, the timing is thus appropriate for PPL to upgrade its distribution design standards.
6.13 Future Project/TA Options
210. Essential Action 1. Section 3.6C identifies a number of poor system performance issues. The high level of un-served energy (USE) caused by apparent stability and protection within the generation/transmission system leads these issues. Also full due diligence of Subproject 2 for capacitors or Statcom banks could not be completed due these issues. Whilst a Statcom will in theory support approximately 10 % reduction in USE, the underlying problems will not be resolved without intervention. It is strongly recommended that PPL undertake thorough study of the issues using independent experts in protection, transient and system stability analysis and possibility harmonics and governor AVR issues as well to identify and recommend long term solutions. The level of USE equates to 4.1 GWh pa or approximately PGK 3.65m pa of sales but a hugely greater community economic benefit. The benefits from resolution of the issues can fund a significant level of downstream work. 211. Thus it is proposed US$ 250,000 be included in the loan provisions for Independent Consulting Services (ICS) to be procured under the loan. At least 3 pm each for an HV system planning specialist in PSS/E transient/stability analysis and a strong protection specialist well versed in the theory and art or practical resolution of protection issues is proposed. Contingency should be made for possible additional specialists of 2 pm total and for specialist testing personnel if these persons cannot be provided by PPL. Companies with vested downstream interests in equipment sales must not be commissioned for the consulting services, but may be commissioned
71 Issued January 1989 72 PPL Bidding Specifications 2007. NISIT provides guidance that PNGS and AS/NZS shall take precedence over IEC where such standards exist www.nisit.gov.pg
Final Report | 30 November 2012 Page | 38 TA 7783-PNG: Port Moresby Power Grid Development Project to support any specialised testing required but under the overview of the independent consultants. Budget is included in the draft procurement plan in Appendix O. 212. Linked to the above is the need to put in place IEEE 136673 benchmark performance indicator measuring systems and accurate recording of SAIDI, CAIDI and SAIFI performance measures to support enhanced identification of root fault causes and align strategic initiatives to reduce reliability issues on the presently poor performing network. 213. Essential Action 2. Section 6.5 on the 11 kV Mesh recommends that a planning team be established. This team should be supported by distribution planning advice and planning tools to be procured under advance procurement provisions in the loan agreement. The purpose is to advance detailed design and optimisation of the placement of automatic recloser, sectionaliser and capacitor bank devices in the system. Also the issue of 11 kV capacitor bank failures needs to be identified and resolved so that solutions may be incorporated into design of placement and procurement specifications. These actions would enable the Design and Supervision Consultant on appointment to move straight toward procurement activities and project implementation rather than adding delay to the process whilst such design work is actioned. 214. Whilst PPL should provide the bulk of the resources for the design team, an ICS specialist in distribution planning with strong familiarity in use of system planning tools such as SinCAL be commissioned for up to 3 pm inputs and that a budget of US$ 100,000 be provided for these services. PPL should of its own initiative investigate the underlying reasons for capacitor bank failures. Further procurement of SinCAL planning software with appropriate training of PPL staff be implemented. It is proposed a budget of US$ 120,000 be provided for the full suite of essential tools be provided with a second suite primarily for load flow analysis giving PPL two sets of software for on-going planning. A training budget of US$ 30,000 and for support equipment of US$ 35,000 is also proposed. Budget is included in the draft procurement plan in Appendix O. 215. Recommendation 1. Under Section 6.3.3 for Kilakila Substation implementation it is recommended that the provision of a CBD 11 kV switch-room proposed in PPL 15-year planning for 2013/14 be initiated under this Loan. Full due diligence was outside the scope of this PPTA and whilst a cost estimate of US$ 1.89m was prepared, PPL need to identify and progress land procurement before ADB Social Impact and environmental safeguards could be initiated should ADB funding be sought. The proposed enhancements to CBD to create a “no break” high reliability supply network would enable a “world class” supply network encouraging greater investment into the CBD. 216. Recommendation 2. There would appear to be need to resolve to resolve capacity constraints along the Waigani Drive development corridor and out to Gerehu as some feeders are very heavily loaded. PPL proposals cover options on expanding the Waigani SS to three transformers, a Waigani II SS or transferring load to a new Gerehu SS. Additional mesh strengthening utilising Kanudi and Bomana may also be an option. It is suggested that PPL initiate appropriate study and design for due diligence analysis. 217. Recommendation 3. This recommendation is an operational and organisational issue outside the scope of the proposed loan. Section 3.6.4 identified that there is considerable scope to improve PPL asset management focus and to expand the development of System Master Planning with a strategic asset management focus. It is strongly recommended that PPL initiate procurement of a specialist advisor in strategic asset management master planning to develop necessary capacity within PPL teams. It is suggested initial inputs of up to 9 pm in the first 12 months be assessed. It is also recommended that PPL consider further strategic alignment of its organisational structure to provide focus on deliverables required by the PNG Government Strategic Development Plan 2010-2030. 218. Recommendation 4. PPL Distribution Design Manual was last revised January 1989. Section 6.11 of this DFR recommends updating of the manual in alignment with PPL asset management criteria and AS/NZS 7000:2010 ‘Overhead line design - Detailed procedures”.
73 1366-2003 - IEEE Guide for Electric Power Distribution Reliability Indices. In process of 2012 update
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219. Recommendation 5. PPL review the application of the SCADA system to include (i) a real- time cascade management application be provided for the Rouna cascade, (ii) a distribution management application in support of automation and remote control of 11 kV switching devices, and (iii) that Sirinumu be included in the generation SCADA system. 220. Potential additional funding under this Loan. This PPTA raises several other potential funding initiatives. These include: Recommended Action 1 (CBD 11kV switch room) and 2 (Waigani Drive development corridor) above. Following on from SP4a, the loss reduction programme, a number of additional initiatives will be identified for possible works and funding. Following on from the cascade study, adjunct to SP5 and SP6 and a separate TA from this PPTA, there may be additional capacity initiatives at Rouna and Sirinumu.
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7 COST ESTIMATES AND FINANCING PLAN
7.1 Cost Estimates
221. The project is estimated to cost US$ 83.0 million (Table 10). Table 10: Detailed Cost Estimates by Expenditure Category (US$ million) Item Foreign Local Total % of Total Exchange Currency Base Cost A. Investment Base Costs 1. Civil Works a 6.8 9.1 15.8 22.92 % a. Upgraded Substation Capacity 2.4 2.8 5.2 7.45 % b. Upgraded Distribution Grid 1.9 1.3 3.1 4.53 % c. Hydropower Upgrade and Rehabilitation 2.5 5.1 7.6 10.94 % 2. Equipment b 39.7 1.4 41.1 59.44 % a. Upgraded Substation Capacity 8.7 0.0 8.7 12.55 % b. Upgraded Distribution Grid 5.5 1.4 6.9 9.96 % c. Hydropower Upgrade and Rehabilitation 25.5 0.0 25.5 36.93 % 3. Land Acquisition 0.0 0.4 0.4 0.58 % 4. Consulting Services 3.6 2.5 6.1 8.82 % 6. Taxes and Duties 0.0 5.7 5.7 8.24 % Subtotal Base Costs (A) 50.1 19.0 69.1 100.00 % B. Contingencies 1. Physical c 5.0 1.9 6.9 10.00 % 2. Price d 2.2 0.8 3.1 4.44 % Subtotal (B) 7.2 2.7 10.0 14.44 % C. Financing Charges during Implementation 1. Interest during Implementation 3.8 0.0 3.8 5.51 % 2. Commitment Fees 0.1 0.0 0.1 0.17 % Subtotal (C) 3.9 0.0 3.9 5.68 % Total Project Cost 61.3 21.8 83.0 120.12 % a Civil works include installation costs b Equipment procurement on the basis of CIP cost (carriage and insurance paid) c Physical contingencies are computed at 10 % of base cost d Price Contingencies are computed by expenditure based on annual domestic and foreign inflation
222. Base costs are estimated including all taxes and duties. For estimation of total costs, physical and price contingencies and financing charges during implementation are included. 223. The following key assumptions have been made: Taxes and duties are shown separately. The only applicable tax is the Goods and Services Tax (GST). Power sector equipment is exempted from Customs Duties. Tax assumptions are as follows: Tax Rate Base Goods and Services Tax 10.0 % Sales
Exchange Rate: PGK 2.08 = US$ 1.00 All costs are in mid-2012 prices. Physical contingencies are computed at 10 %. Price contingencies based on expected cumulative inflation over the implementation period are as follows:
2013 2014 2015 2016 2017 Foreign rate of price inflation (%/year) 0.5 % 0.5 % 0.5 % 0.5 % 0.5 % Domestic rate of price inflation (%/year) 6.0 % 5.0 % 5.0 % 5.0 % 5.0 % Assumed rates (2013 to 2017) are provided by the Asian Development Bank.
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7.2 Financing Plan
224. The government of PNG has requested a loan of US$ 51.7 million from ADB’s ordinary capital resources (OCR) and a further loan of US$ 15.0 million from ADB’s Special Funds (ADF) resources to help finance the project. The government of PNG will on-lend the proceeds of the OCR and the ADF loans to PPL under subsidiary loan agreements acceptable to ADB. This is proposed as the same interest rates and repayments periods as that of OCR loan and ADF loan respectively. 225. The government of PNG will finance the remainder of the total project cost of US$ 16.3 million including local taxes and duties. The financing plan is in Table 11. Table 11: Financing Plan Source Amount (US$ million) Share of Total (%) Asian Development Bank (ADF) 15.0 18.1 % Asian Development Bank (OCR) 51.7 62.3 % Government 16.3 19.6 % Total 83.0 100.0 %
226. The terms of the loans are summarised in Table 12. Financing costs include capitalised interest and commitment fee charges as follows: For the OCR component, interest during construction is proposed at the 15-year USD Swap rate of 2.36 % (as of 20 August 2012), ADB spread of 0.4 % and maturity based premium of 0.1 % totalling 2.86 %. The commitment charge on the OCR facility, as proposed by ADB, is 0.15 % of the undisbursed balance. For the ADF component, interest during construction is proposed at 1.4 % based on an interest rate on 1 % during the grace period and 1.5 % thereafter with zero commitment charge. Table 12: Loan Structure Total period Grace Interest Commitment Interest Rates & Interest Commitment of loan Period capitalised fee capitalised Terms rate charge (years) (years) into loan into loan ADB OCR Loan 2.86 % 0.15 % 25 5 100 % 100 % ADB ADF Loan 1.40 % - 40 8 100 % NA ADB = Asian Development Bank.
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8 ECONOMIC ANALYSIS
8.1 Macroeconomic Context and Demand Analysis
A. Macroeconomic Context 227. The population of Papua New Guinea (PNG) has grown from 5.2 million74 in 2000 to over 7.0 million75 in 2012. Strong economic performance of PNG continued in the past two years with an annual average growth rate of over 8 %, following 6.1 % growth in 2009, according to Bank of Papua New Guinea. The upturn in 2010 was led by sectors mostly linked to future energy and minerals production and the growing investment and income streams they are generating. The global financial crisis had little impact because of continued foreign demand for PNG's commodities. The long-term expected economic growth potential is 5 %, according to IMF. Continued economic growth and urbanisation (which is also expected to increase by an average of 5 % a year) create growing demand for electricity. However, the last decade of economic growth has led to rising inequalities in the country76and that, if continued, may impact on growth of household demand due to lower income growth and relative reduction of affordability. 228. Similarly, economic growth in Port Moresby area (the project area) has increased demand for electricity. Several large commercial complexes have been connected to grid recently and new commercial projects are being built. A significant increase in housing is also expected in short to medium term. In addition, the development of the Papa Lealea LNG Refinery and the proposed industrial centre near Motukea will contribute to demand growth through construction activities and employment. The energy sector development will also depend on the achievements of other key sectors of the economy that are implementing initiatives and programmes under the government’s Mid-Term Development Plan 2011-2015 (MTDP)77. B. Sector Context 229. The power system of the country is operated by PNG Power Corporation (PPL), which is a fully state-owned corporatised entity. PNG currently has four main sources for electricity generation: gas, hydro, geothermal, and diesel. The MTDP emphasizes that the anticipated rise in demand due to economic growth and an increasing population requires urgent need of upgrading and rehabilitation. Emphasis also will be given to development of gas and hydro generation (with priorities given to Rouna, Ramu, and then Gazelle) and replacement of diesel. The power transmission and distribution system also requires major overhaul due to high outages and low efficiencies with technical losses of 12 %-13 %. 230. The current access to electricity in PNG is very limited outside of urban centres and power supply to provincial urban centres is of relatively poor quality, with frequent load shedding and an inability to meet growing demand. As a result industrial consumers often self-generate power using expensive diesel-fired generators. Approximately 90 % of the population does not have access to electricity78. MTDP focuses on increasing access to electricity (targeting 27 % by 2015, 41 % by 2020, and 70 % by 2030) and indicates that in some cases the level of electricity services has been deteriorating due to insufficient funding for maintenance. 231. According to PPL data, currently the total number of households directly connected to the PPL electricity grid is about 80,000, i.e. about 7 % of total population. This figure is increased to about 8 % when considering those living in high rise apartments and “strata” accommodations where landlords pay for electricity under commercial rate, also rural Government services and project townships in isolated areas (mines, timber, etc.). There are also people living within urban areas who do not use electricity because they cannot afford it - so they have access to electricity but they do not actually use it. This group represents roughly another 8 %, according to PPL estimates, and if included, the total population that has access to electricity can be up to 16 %.
74 2000 PNG Census, National Statistics Office. 75 2012 estimate, Government announcement in Apr. 2012. Complete census data and reports expected by 2013 76 www.adb.org 77 Mid-Term Development Plan 2011-2015, PNG Department of National Planning and Monitoring. 78 Percent of population in urban areas is 12.5 % [2010], ADB web site.
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232. In the project area (Port Moresby Grid System) households (“Domestic Customers”) consume about 22 % of electricity sold by PPL, commercial customers (“General Customers”) consume about 65 %, and industrial customers (“Industrial Customers”) consume about 13 %79. 233. Average electricity tariff in PNG has been increasing substantially in the past few years. In 2011 it increased by about 10 % (i.e. by 4 % in real terms80) and in 2012 by about 15 % (i.e. by over 6 % in real terms81). Current average tariff is 0.887 K /kWh (i.e. about $0.44/kWh)82. According to PPL (Strategic Planning Department) the tariff covers the cost recovery level and is likely to increase further mainly due to increase in fuel prices. 234. SMEC Survey. A survey conducted in the project area by SMEC in July-August 2012 revealed some of the key issues relating to current electricity access, demand and potential usage of electricity by households and commercial entities, and also willingness to pay. In the project area the connection rate is about 69 % based on the survey. In addition, about 10 % of the surveyed households were accessing the grid without proper permissions. All unconnected households are willing to be connected, however, about 70 % of them indicated that are unable to connect to the grid due to high connection costs including fees and house wiring; it is especially unaffordable to low-income households. The unconnected consumers use hurricane lamps, candles, battery-operated torch lights, etc. According to the survey, 35 % of the connected households were using power to also run small businesses. All of the 15 interviewed businesses and organisations use at least one stand-by generator (some use more) as the grid supply is unreliable and also risky to their expensive equipment due to power surges and voltage instability. So, businesses have made quite high investments on backup generator sets and power conditioning equipment to reduce impacts on their equipment, as they have suffered damages in the past. According to the survey, overall perceptions of business customers on the quality of the grid power supply needs to be substantially improved. 235. Electricity Losses. While considering expanding generation capacities to meet the growing demand, it is very important to emphasize on loss reduction measures that PPL needs to take during the coming years. The electricity losses, that include technical and non-technical, have doubled since early 90’s reaching over 22 % as shown in Table 13. The technical losses currently count for about 12-13 % according to PPL. The non-technical losses is about 10 % and come mainly from theft of electricity (such as meter tampering, by-passing meter, and illegal connection by customers), incorrect meter readings (incorrect multiplier for High Voltage CT metering) and unrecorded and unbilled owners use (power station auxiliary uses, etc.). 236. PPL’s current plan for reducing the system losses includes: (i) metering all PPL installations such as power station use, substation use, PPL workshops, PPL Stores buildings, PPL Offices and amenities, etc.; (ii) reinforcing the transmission and distribution networks by upgrading conductors, putting in capacitors and by creating open meshes that would also allow minimum customer disruptions and quicker restoration following disruptions; (iii) reducing incidents of illegal connections and theft of electricity by regular checking and getting those found to be involved to legitimise connections and use by submitting applications for power supply; (iv) minimising human errors in compiling generation and sales statistics by requiring them to be vigilant and rigorous in their recording and verification of statistics; (v) removing completely incidents of faulty HV metering through monthly checks of HV metering; and (vi) ensuring correct customer meter readings are taken and correct multipliers for HV metering are applied. By undertaking these measures PPL target to reduce total losses down to around 12 % for Port Moresby and 13 % for PPL total by 2025. SP4, as well as SP2 and 3, are designed to support the PPL’s Loss Reduction Programme. 237. Rationale for Public Sector Investment. The power system of PNG is owned and operated by PPL, a state-owned corporatised entity. The Rouna 1 and Sirinumu hydro generators are in urgent need of repair in order to improve efficiency of hydro generation and replace diesel generator units without resorting to load shedding. Furthermore, the transmission and distribution
79 Calculated based on PPL electricity consumption data 80 Increase by about 10 % (PPL) and inflation was 6.0 % (Bank of Papua New Guinea). 81 Increase by about 14.59 % (PPL) and inflation was about 8.5 % (Bank of Papua New Guinea). 82 Independent Consumer and Competition Commission (ICCC), Letter to PPL of 1st Dec. 2011.
Final Report | 30 November 2012 Page | 44 TA 7783-PNG: Port Moresby Power Grid Development Project system also needs urgent rehabilitation in order to reduce un-served energy and high technical losses. In these circumstances, public sector investment is imperative. 238. The Project. The project involves the replacement of existing Rouna 1 hydro generation (with mainly 2.5 MW unit operating) with a new 6 MW generation and refurbishment of the Sirinumu hydro power plant. Furthermore it involves improvements to the electricity transmission and distribution network by constructing the Kilakila Substation and relating transmission line, upgrading of 11 kV System to Open Loop Mesh, and installation of Substation Capacitors or Statcom. The project also includes Loss Reduction Programme. The implementation of these activities is expected to be carried out by the PPL. 239. The primary objective of the proposed project is to reduce fuel consumption by increasing generation efficiencies and reducing losses in the transmission and distribution network. However, the project will also add generation capacity, thus benefitting both existing customers and new potential customers previously not connected to the grid. C. Demand Analysis 240. Historical Consumption. The historical electricity sales of PPL (in country and project area) are presented in Table 13. Table 13: Electricity consumption and total losses during 1993-2011 PPL Total Port Moresby Grid Sales Production Losses Sales Production Losses Year (MWh) (MWh) (%) (MWh) (MWh) (%) 1993 532,123 na na 258,674 270,315 4.3 % 1994 566,604 639,801 11.4 % 281,329 318,892 11.8 % 1995 574,273 673,609 14.7 % 294,747 336,940 12.5 % 1996 611,186 704,037 13.2 % 311,284 345,455 9.9 % 1997 610,877 710,442 14.0 % 298,634 344,245 13.2 % 1998 645,354 737,055 12.4 % 315,477 357,592 11.8 % 1999 655,558 777,101 15.6 % 325,548 386,367 15.7 % 2000 688,559 793,905 13.3 % 362,767 398,202 8.9 % 2001 650,391 768,291 15.3 % 321,473 380,964 15.6 % 2002 648,932 779,995 16.8 % 326,808 386,019 15.3 % 2003 631,625 770,620 18.0 % 313,347 385,757 18.8 % 2004 688,559 757,203 9.1 % 322,629 382,587 15.7 % 2005 612,729 777,477 21.2 % 304,033 388,920 21.8 % 2006 650,329 784,021 17.1 % 326,295 388,030 15.9 % 2007 671,133 817,947 17.9 % 322,496 392,925 17.9 % 2008 764,553 849,678 10.0 % 377,178 418,110 9.8 % 2009 706,921 895,706 21.1 % 347,873 441,070 21.1 % 2010 756,311 959,910 21.2 % 377,967 484,711 22.0 % 2011 803,976 1,011,216 20.5 % 391,962 504,048 22.2 % MWh= megawatt-hour; na = data is not available. Source: PNG Power Limited (PPL).
241. Demand Projections. PPL has prepared its Generation Development Plan for the period 2011-2025, based on a projected electricity demand growth at about 4 %. The Port Moresby area (Project area) demand is projected to grow similarly at average of 4.5 % (compounding 3.75 %) during 2012-2025, that is increase from 618 GWh to 1010 GWh with corresponding average aggregate weekday maximum demand increase from 114 MW to 185 MW83 as shown in Table 14. 242. The project area (Port Moresby area) is experiencing substantial growth in electricity demand and coupled with an aging generation asset base there is a significant need for both replacements as well as additional generating capacity.
83 Generation Development Plan 2011-2025. PNG Power Limited, 2011.
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Table 14 Demand Forecast for Port Moresby Grid System, 2012-2025 2012 2013 2014 2015 2016 2018 2020 2022 2024 2025 Demand, GWh 618 664 693 721 750 808 865 923 981 1010 Average weekday 114 122 127 132 138 148 159 170 180 185 max demand, MW GWh=gigawatt-hour; MW=megawatt. Source: Generation Development Plan, 2011-2025, PPL, 2011. The above data includes “reserve” system capacity for maintenance and forced outages and compares with actual 2012 system maximum demand to Aug 12 of 97 MW.
8.2 Economic Analysis Methodology
243. Economic analysis has been carried out in accordance with ADB Guidelines84. Economic analysis appraises the project from the point of view of the national economy whilst financial analysis appraises a project from the owner’s perspective. The result of the economic analysis is an Economic Rate of Return (EIRR), which is based on incremental economic cash flows, i.e., the difference between “with project” and “without project” cashflows. These streams of cashflows are arrived at by projecting cashflows over the economic life of the project and discounting to their Net Present Value (NPV). 244. In projecting cashflows, the financial costs and benefits were converted to economic costs and benefits by way of economic or shadow prices. Certain financial costs such as taxes and interest have been eliminated as they are transfer payments and do not have an effect on the economy. The economic analysis uses the Domestic Price Numeraire. 245. The primary economic benefit of the project was the savings in the country’s fuel bill as a result of the project due to improved generator efficiencies and reduction in transmission and distribution losses. Generally, there are both incremental and non-incremental benefits; with incremental benefits arising in the form of a Consumer Surplus based on what the consumer will be willing to pay as compared to what they pay now, and non-incremental benefits arising due to displacement of existing sources of energy and the cost savings as a result of such savings. In this analysis a conservative approach was used by quantifying and including only the latter.
8.3 Least-Cost Analysis
246. An analysis of options was carried out to determine whether the options identified are the least-cost alternatives for meeting the expected goals and benefits under the forecasted demand growth. The least-cost analysis is carried out in accordance with the Guidelines for the Economic Analysis of Projects (ADB, 1997). Possible alternatives for subprojects have been first studied for technical feasibility. 247. There were two options identified for a substation location and transmission line routes under Subproject 1.85 However, one option was excluded from further analysis due to high technical costs and risks. 248. For the meshed network (Subproject 3) the original scope was for conductor upgrade and replacement of 11 kV switches with load break types. The benefits were deemed too low. Thus a more expensive option of fully automating the switching system was considered. In conjunction with improving system voltage and reducing loss reduction with capacitor and conductor upgrades, the introduction of the automated system results in considerable capture of un-served energy resulting in a viable project. 249. For Rouna 1 (Subproject 5) various options of rehabilitation, replacement of equipment within the existing powerhouse and replacement with a new station were investigated. The conclusion was for complete replacement with a new penstock and power station besides the existing. Benefits from all options were similar, thus the option with the lowest capital cost was
84 Economic Analysis of Projects, ADB, 1997. 85 The subproject components are: (1) Kilakila substation and transmission line; (2) substation capacitors or Statcom; (3) upgrade of 11 kV system to open loop mesh; (4) loss reduction programme; (5) Rouna 1 hydropower refurbishment; (6) Sirinumu toe of dam upgrade.
Final Report | 30 November 2012 Page | 46 TA 7783-PNG: Port Moresby Power Grid Development Project selected as least cost. No new generation capacity and “No subproject” alternatives lead to reliance on existing costly diesel generation and high system losses. No other major alternative options that could compete with the proposed options in terms of technical viability and costs were identified for other subprojects.
8.4 Economic Valuation of Costs and Benefits
A. Estimation of Costs 250. Cost Stream for Economic Analysis. The main costs to society are the capital investment and operating costs of the proposed subprojects and associated costs of environmental and social mitigation. The assumptions used in determining the economic cost stream are (i) a 30 year project economic life; (ii) no residual value assumed at the end of the 30 year period; (iii) all costs based on 2012 constant prices which include physical contingencies but exclude price contingencies. 251. Traded components are converted into economic prices using a shadow exchange rate factor (SERF) of 1.08 and a shadow wage rate factor (SWRF) of 0.6786 is used to convert financial into economic wage rates for unskilled labour. Table 15 shows conversion of Financial Costs into Economic Costs for Rouna 1 (SP5). Table 15: Conversion of Financial Costs into Economic Costs (Rouna 1) (Constant 2012 US$ millions) Foreign Component Local Component Local labour Materials Financial costs Civil works 4.44 0.56 0.56 E&M and other 22.20 - Total Financial cost 27.75 Economic costs Civil works 4.80 0.37 0.56 E&M and other 23.98 - Total Economic cost 29.70 Source: PPTA Consultant.
252. The estimated capital costs of the subprojects are shown in Table 16. Table 16: Capital Cost Estimates (Constant 2012 US$ millions) Item Description Civil & Install Works Goods & Materials Land Acq Total Subprojects Local Int Local Int USD m SP1 Kilakila SS, TML, Dist 2.157 2.095 0 6.873 0.400 11.525 SP2 Capacitors/Statcom 0.600 0.300 0 1.800 0 2.700 SP3 11 kV Mesh 2.717 0 0.841 3.881 0 7.439 SP4 LRP & Energy Access 0.400 0 0.500 1.666 0 2.566 SP5 Rouna 1 3.837 2.307 19.081 25.225 SP6 Sirinumu 1.220 0.201 6.451 7.872 Sub-total 57.327 Implementation Support Local Int USD m Consultancy Services and Other 0.597 0.503 1.100 Project Management (including 1.900 3.100 5.000 design supervision consultants) Sub-total 6.100 TOTAL 63.427 Source: PPTA Consultant.
86 Based on “ADB Town Electrification Investment Programme Report, 2011”
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B. Estimation of Economic Benefits 253. The primary economic benefit of the project is the reduction of oil consumption and reduction of un-served energy. This is achieved due to greater hydro generation efficiency, reduction of T&D losses (and thereby reducing generation to supply the same demand) and improved reliability of the power system. Better access to a reliable source of electricity can stimulate local economic development and employment. Particularly, there will be significant positive social impact due to reduced load shedding, and electricity supply to additional customers that will benefit from modern electricity for heating, cooling, cleaning and communication. At the same time, better communication through cell phones, television and internet will create opportunities for trading, education and empowerment. 254. As a secondary benefit the project will also enable the supply of suppressed domestic demand and environmental benefits due reduced carbon emissions. Since the project also provides benefits through expanding supply there are benefits from both incremental and non- incremental consumption. Incremental consumption is valued using willingness to pay (WTP) or its demand price. Non-incremental output is valued on the basis of resource cost savings as a result of displacement of existing diesel electricity or the supply price. For the sake of robustness a conservative approach was used to quantify only non-incremental output. 255. The net economic benefits were derived by comparing the “with” and “without” project scenarios. Under the “without project” situation, it is assumed that the PPL would serve demand through existing diesel generation capacity, and that no new capacity would be added to the current system over the project period. Under the “with project” scenario, diesel generation would be replaced by the new Rouna 1 and refurbished Sirinumu hydropower plants. Under other subprojects, installation of a substation (Kilakila) and capacitors and upgrade of 11 kV system would improve reliability and reduce un-served energy. 256. The major benefits of subprojects for the purpose of analysis comprised: (i) Reduction in economic costs of electricity supply as a result of displacing higher-cost diesel power (of both PPL and customers) with hydropower; (ii) Reduction of un-served energy and suppressed demand for electricity by improving reliability and adding additional generating capacity to the system through hydropower; and (iii) Electricity loss reduction; (iv) Environmental benefits through reduced air pollution and reduction of noise annoyance; (v) Employment of local labour. 257. The first three categories of the above listed benefits were quantified and included in the calculation of the economic internal rate of return (EIRR). Considering that the major benefits were partially quantifiable and that other benefits were not included, the calculated EIRRs are conservative and thus tend to be robust. 258. Economic values of electricity are used to quantify key benefits in monetary terms. Also, since demand generally depends on price level87, it was important to estimate an expected “real tariff”(that does not reflect inflation) trends88 and whether the tariff level is going to be above the cost recovery level. 259. Tariff Trend. Based on the current PPL generation expansion planning89 and regulatory principles for annual tariff adjustments, for the purpose of this analysis it is assumed that the real average tariff of PPL will grow as shown in Table 17.
87 No recent studies were available on Electricity demand elasticity in PNG. 88 Consumer demand functions are derived by maximising utility subject to a budget constraint. 89 Assumptions made based on PPL’s Generation Development Plan, 2011-2025.
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Table 17: Estimated Tariff Trend 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Real annual 5 % 5 % 4 % 4 % 4 % 0 % 0 % 0 % 0 % 0 % tariff increase Source: PPL and PPTA Consultant.
260. Average tariff based on 2011 actual of K0.78 /kWh adjusted for losses and projected by the real tariff increase submitted by PPL for approval by the regulator. This involves a nominal tariff increase of 14.59 % for 2012 (already approved by the regulator), 10.8 % for 2013, 9.8 % for 2014 and 9.5 % each for 2015 and 2016 and 2017. 2013-2017 covers the period of the second regulatory contract for which and these tariff increases have been submitted by PPL to the regulator based on its annual revenue requirement. The long term nominal tariff increase is assumed to be 5 %, in line with inflation. 261. Cost of Generation Expansion. Table 18 presents comparison of various electricity energy compared to the current average tariff and willingness-to-pay (WTP). Table 18: Values of Electricity in PNG Electricity Value, K/kWh Comment Rouna 1 Hydro upgrade 0.21 to 0.32 Levellised Cost of Production Hydro (Naoro-Brown, 0.33 to 0.35 Levellised Cost of Production Rouna 1) Gas turbine LNG 0.46 Levellised Cost of Production Diesel medium speed 0.76 Levellised Cost of Production (additional generation) Diesel high speed 1 to 1.6 The economic cost is higher as to include CO2 pollution, noise annoyance (major factor particularly for tourism), etc. Average Willingness to 1.32 to 1.47 For domestic and non-domestic customers in urban areas Pay (2011 prices, POM PSRP Report). Un-Served Energy 2.85 90 In earlier study this was estimated at 5 K /kWh for poorer areas to 20K /kWh for CBD area. Average Tariff 0.89 After the tariff increase for 2012 Sources: Generation Development Plan 2011-2025, PNG Power Ltd., 2011; ADB TA-7783 PNG: POM PSRP, 2011.
262. Value of Un-Served Energy (USE). Improved reliability of the grid supply and better opportunity for PPL to supply the existing demand by cheaper hydro generation due to the subprojects at Rouna 1 and Sirinumu and the faster restoration responses of the mesh subproject will decrease USE as well as bring additional economic values due to improved voltage stability and decreased equipment damages, etc. 263. Economic values of USE were estimated for commercial and household consumers. Studies indicate that household consumers place a low value of USE on durations up to one hour. And this is a policy of PPL to keep any power disruptions within one hour by means of scheduling to the extent possible. For commercial consumers, the economic value of USE is estimated based on running costs of backup generators. Economic value of USE was calculated to be 2.85 K/kWh. 264. K2.85 /kWh is a conservative value as the overall cost of standby generation was estimated 91 at K5 /kWh in prior reporting . The economic cost is even higher as it should include CO2 pollution, noise annoyance (major factor particularly for tourism), etc. In earlier studies the value of USE was assumed to vary from K5 /kWh for the poorer zone areas Bomana, Kanudi and Gerehu, K7.5 /kWh for Kilakila, K10 /kWh for Konedobu, Waigani and Boroko and K20 /kWh for the CBD zone area increasing at 2 % per annum in line with GDP and increasing dependence on electricity. However, PPL undertook a comparative study recently92 with other utilities which reduced USE to about 5K /kWh average. This is low relative to developed countries but appropriate to PNG. However the
90 Consultant’s estimate based on costs of running of backup generator. 91 ADB TA-7783 PNG: POM PSRP Report, 2011. 92 This was PPL internal review against Thailand and other countries in the Asian region. There is no written report, but papers written were assessed as a basis.
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Consultant approach has been to look at the cost of private replacement energy sources as a conservative approach and not the overall macro-economic benefits to the PNG economy. 265. Willingness to Pay. The recent SMEC survey93 indicated that 81 % of the surveyed households are willing to pay more “if” the current grid reliability problems are improved. Given the significant kWh costs of alternatives such as using kerosene lamps for lighting or self-generation using diesel generators, WTP is much higher than the existing national tariff rates (around K0.67 /kWh for domestic users, K0.95/kWh for non-domestic users and K0.61/kWh for industrial users). In a recent study94 WTP for electricity was estimated at K1.32 /kWh for domestic consumers, and K1.47 /kWh for non-domestic consumers, and these were used in this analysis. 266. Environmental Benefits. As was already mentioned, the proposed subprojects generate positive environmental benefits by replacing diesel plants with hydropower, and also reducing losses, resulting in avoided nitrogen oxide, particulate matter, sulphur dioxide, and carbon dioxide emissions. Environmental benefits were small and insignificant to quantify relative to other benefits, and therefore were not quantified.
8.5 Results of Economic Analysis
267. Economic Internal Rate of Return (EIRR). The EIRR was calculated for each subproject by calculating the discount rate at which the total present value of benefits and the total present value of costs are equalised. The results for subprojects are presented in the subproject sections in Appendix B. Table 19 presents results for the overall project. Table 19: Detailed EIRR Computation - Overall Project (Constant 2012 US$ millions) Base case Total Econ Total Econ Net Econ Year Costs Benefits Benefits 2012 - - - 2013 (17.3) (0.3) (17.6) 2014 (35.8) (0.4) (36.2) 2015 (15.5) 5.2 (10.3) 2016 (1.0) 9.4 8.3 2017 (0.7) 10.0 9.3 2018 (0.9) 14.7 13.7 2019 (0.9) 15.0 14.0 2020 (0.9) 15.4 14.5 2021 (0.9) 15.7 14.8 2022 (0.9) 16.1 15.2 2023 (0.9) 16.6 15.6 2024 (0.9) 17.1 16.1 2025 (0.9) 17.5 16.6 2026 (0.9) 17.9 17.0 2027 (0.9) 18.3 17.3 2028 (0.9) 18.7 17.7 2029 (0.9) 19.1 18.1 2030 (0.9) 19.5 18.5 2031 (0.9) 19.9 18.9 2032 (0.9) 20.3 19.4 2033 (0.9) 20.7 19.8 2034 (0.9) 21.2 20.3 2035 (0.9) 21.6 20.7 2036 (0.9) 21.8 20.8 2037 (0.9) 21.9 21.0 2038 (0.9) 22.1 21.1 2039 (0.9) 22.2 21.3
93 SMEC Survey, Anura Widana, 2012. 94 TA-7783 PNG: POM PSRP Report, 2011.
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Base case Total Econ Total Econ Net Econ Year Costs Benefits Benefits 2040 (0.9) 22.4 21.5 2041 (0.9) 22.5 21.6 2042 (0.9) 22.7 21.8 2043 (0.9) 22.9 21.9 2044 (0.9) 23.0 22.1 EIRR 17.7 % NPV US$ 29.20
268. It is important to note that this is a conservative estimate of the project’s economic viability as some benefits and externalities such as environmental benefits have not been quantified and included. The EIRRs for the subprojects exceeds the EIRR threshold of the Economic Opportunity Cost of Capital (EOCC), which is 12 %95. Therefore, the subprojects are economically viable. 269. The incremental EIRR of the overall project is 17.7 % and the ENPV is US$ 29.20 million when discounted at the EOCC. The EOCC is 12 % and since the EIRR is greater than the EOCC, this component is economically viable. 270. Sensitivity Analysis. An analysis was undertaken to test the sensitivity of the estimated EIRRs of the proposed subprojects to adverse changes in key variables and to confirm their economic viability and robustness under unfavourable conditions. One of the major risks is that the cost estimates at this concept phase, if even done conservatively and with typical contingencies, is as broad as about -10 % to +20 % of the best estimates undertaken. To capture about 70 % of this risk the sensitivity test considers a 10 %96 increase in capital cost. Altogether, four major risks are considered: (i) 10 % increase in capital cost; (ii) 10 % decrease in benefits; (iii) 10 % increase in capital cost and (iv) 10 % decrease in benefits. The sensitivity analysis is presented in Table 20. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve a EIRR greater than the EOCC. This indicates the project’s resilience to adverse impacts. Table 20: EIRR and ENPV Base Case and Sensitivity Analysis Scenario EIRR (%) ENPV (US$ m) Base Case 17.7 % 29.2 10 % increase in costs 16.3 % 23.8 10 % reduction in benefits 16.2 % 20.9 10 % increase in costs and 10 % reduction in benefits 14.9 % 15.5 Source : PPTA Consultant
95 ADB threshold. 96 That is estimated as -10 % + 70 % x (+20 % - (-10 %)) = +11 %, meaning that 70 % of the cost risks may be at about 10 % above the best estimate.
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9 PNG POWER LTD FINANCIAL ANALYSIS
9.1 Introduction
271. A detailed report on the assessment of PPL finances is presented in Appendix E. This section provides a précis of the most critical aspects of that report.
9.2 Historical Financial Performance
272. PPL Historical Financial Performance. PPL’s revenues from the sale of electricity and related activities (new meters, meter testing and reconnection) account for 99 % of all revenues. During the past five year period (2007-2011), largely as a result of the significant hydropower in PPL’s generation mix, it has been in a position to report positive operating and net profits in all years. The operating expenses are roughly split equally among fuel expenses, expenses for purchased power and other operating expenses that include repairs and maintenance and direct staff expenses. Table 21: PPL - Key Historical Financial Data (Kina millions) Year ending 31 December 2007 2008 2009 2010 2011 Sales in GWh 671 765 707 754 801 Gross Production GWh 820 851 898 965 1,018 Operational Revenue Electricity Sales 385 435 500 530 622 Related Sales 2 1 2 2 2 Other 11 5 6 6 4 Total Operating Revenue 398 442 508 538 629 Operating Expenses Fuel 79 143 97 125 152 Purchased Electricity 84 99 78 98 100 Other Operating Expenses 60 103 92 118 174 Administration Expenses 86 53 118 136 105 Depreciation 27 30 30 35 52 Total Operating Expenses 336 428 415 512 583 Operating Profit / (Loss) 62 14 92 26 46 Finance Cost 6 6 6 14 29 Profit before Tax 56 8 86 12 17 Taxation (16) (2) 12 (3) (5) Net Profit / (Loss) for Year 40 6 97 9 13 Source: PPL
273. PPL purchases electricity from the Hanjung Kanudi IPP with a capacity of 24 MW which has consistently delivered approximately 153 GWh (15 % of total generation) energy into the Port Moresby system. The PPA will expire in 2014 and PPL has the option of extension of the PPA or buy back of the plant and the average cost to PPL is K0.64 /kWh. The average fuel cost alone for PPL plants is K0.83 /kWh and it is only blended with the hydro generation costs that PPL cost of production is K0.57 /kWh. PPL has entered in to a PPA with PNG Forest Products Limited (PNGFP). PNGFP generates power from its Biaunne Hydropower Plant (existing 4 MW and new up to 9 MW by 2013) and supplies power that is in excess of its requirements into the Ramu power system. In 2011, PPL purchased 10 GWh of energy from PNGFP at an average cost of K0.27 /kWh. PPL has an arrangement to supply power to the Morobe Mining Joint Venture (MMJV) / Hidden Valley, within the Ramu power system. Under this agreement, PPL agreed to supply 14 MW to Hidden Valley and any shortfall has to be paid by PPL on the basis of a rebate calculated on a quarterly basis. PPL is paid by the mining company on the basis of a base purchase price of K0.38 /kWh adjusted for inflation. The rebate paid by PPL to the mining company is based on the average quarterly price of diesel and an agreed heat rate. For the year 2011, there was an energy shortfall of 60 GWh and the corresponding rebate paid by PPL was a K22 million. During that year, PPL earned revenues from Hidden Valley of K13 million. It is expected that the
Final Report | 30 November 2012 Page | 52 TA 7783-PNG: Port Moresby Power Grid Development Project rebate will substantially reduce or cease with the completion of the Yonki Toe of Dam Project in 2013 which will supply the Ramu system and Hidden Valley.
9.3 Tariffs and Cost Recovery
274. The PPL retail tariff is subject to economic regulation by the regulator, the Independent Consumer and Competition Commission (ICCC)97. An Electricity Regulatory Contract (ERC) for a period of 10 years to 31 December 2011 was established between ICCC and PPL. The period of the ERC has been extended up to 31 December 2012 and from 2013 it is expected that a new ERC will be put in place for a period of 5 years. 275. The ERC uses the Annual Revenue Requirement methodology for PPL (including a return on assets) to determine its starting average tariff, termed as the Maximum Average Price (MAP) in the ERC. The MAP would be adjusted in subsequent years according to the movement in the cost elements based on a weight-age for those elements. However, price re-sets are at the end of the financial period and as a result PPL has to finance any fluctuations in its cost structure during the year. This is especially relevant for the fuel price a period of rapidly rising prices. 276. Fuel is the most volatile factor in the MAP. The ERC takes into account the average fuel price for preceding 12 months up to September. This increase (or decrease as the case may be) is then applied to the MAP for the next 12 months up to the subsequent September. However, since it is an average of the preceding 12 months that is applied forward to the next year, this will create a significant lag in monetary terms as price rapidly rises. This is exactly the situation that took place in 2008, with serious financial consequences for PPL. As a result there is now a verbal agreement with ICCC to use the price reset mechanism on a quarterly basis. 277. Affordability of Current Tariff. During the PPTA, a socioeconomic survey was carried out in the project area which, inter alia, also elicited responses to questions on the average electricity bill and household income. Findings from this survey indicate that the average monthly domestic electricity bill was K100 and the average monthly household income K786. Therefore the cost of electricity is 13 % of the monthly income on average, which is high. As a general rule of thumb, utilities payments accounting for 5 % of income is considered affordable.
9.4 PPL’s Financial Position.
278. PPL’s financial position in terms of its key assets and liabilities are summarised in the paragraphs below. 279. Fixed Assets. PPL’s gross fixed assets increased from K968 million in 2007 to K1,472 million by 2011 an annual average increase of 11 %. PPL has averaged K140 million of capital expenditure each year from 2007-2011. These includes major projects undertaken during this period such as Rouna 2 Rehabilitation, Ramu 1 upgrade (on-going), substation and transmission line at Hidden Valley (on-going), Yonki Toe of Dam project (on-going) and the installation of 2 X 10 MW Gas Turbines at Kanudi. These investments in assets have been funded by long term loans and from operational cashflows. 280. Borrowings. In 2007, PPL entered into a credit facility with a consortium of banks for a total of K331 million, which was further increased to K418 million in 2009. These funds were designated to finance key projects in the coming years such as the purchase of 2x10 MW Gas Turbines at Kanudi, substation and transmission line in Hidden Valley, Yonki toe of dam project, Ramu 1 rehabilitation and Ramufibre optics. The facility had a grace period of two years with repayments from February 2009 until 2015 and carried a lending rate of 9.45 %-1 % per annum. At the end of 2010, PPL experienced significant delays with its contractor for the Yonki project which resulted in the contract being terminated bringing the project work to a standstill. The financiers were informed and this resulted in further due diligence on their part. As a result, the financiers realised that PPL was not in compliance with all the financial covenants of the facility and
97 ICCC established under the Independent Consumer and Competition Commission Act, 2002 and consists of two Commissioners and a five member executive management team.
Final Report | 30 November 2012 Page | 53 TA 7783-PNG: Port Moresby Power Grid Development Project disbursements were suspended for several months. This resulted in severe cashflow difficulties for PPL, which had to resort to short term high cost Bank Overdraft to finance some of the capital expenditure. Disbursements from this facility have re-commenced after negotiations with its bankers. The financial covenants of the facility and the PPL results are set out in Table 22. Table 22: PPL Financial Covenants of the Existing Consortium Lending Facility Financial Covenant As Agreed Actual 31 December 2011 Interest Cover 4 times 2.89 times Debt Level Not Greater than 3.5 4.34 Equity Ratio Not Less than 45 % 51 % Source: PPL
281. Due to the suspension of disbursements under this facility for several months, PPL had to rely on its internal cash flow and its Bank Overdraft to finance some of this expenditure. PPLs’ Bank Overdraft rose to K49 million at the end of 2011 from K20 million at the end of the previous year. The Overdraft has since come down to K34 million by the end of May 2012, with the disbursement of funds from the consortium facility commencing after a lapse of several months. Clearly some of the Overdraft was used to finance long term assets which is not prudent financial management but was unavoidable due to the curtailment of the long term facility. 282. PPL Cash flow Position. PPL has been financing its capital expenditure programme with both debt and operational cash flow and as a result has had very little funds available at the end of each year. In 2011, it also had to resort to its overdraft facilities for funding. Table 23: PPL Cashflows (Kina millions) Year ending 31 December 2007 2008 2009 2010 2011 Cash flow from Operations 46 63 155 99 99 Cash flow from investing activities (112) (137) (172) (198) (78) Cash flow from financing activities 89 29 38 98 (50) Net Change in Cash and Cash Equivalents 23 (44) 22 (2) (30) Cash and Cash Equivalents at Beginning of Year 17 40 (5) 17 15 Cash and Cash Equivalents at end of Year 40 (5) 17 15 (15) Source: PPL
283. PPL Key Financial Ratios. PPL’s EBITDA (Earnings before interest, tax, depreciation and amortization) as well as its Profit Margin has fluctuated widely between 2007-2011, as a result of its peak in 2009 as a result of the tariff re-set mechanism. Nevertheless, PPL’s Profit Margin has been rather low at 2 % for both 2010 and 2011 due to increased depreciation, interest and taxation due to the large capital expenditure in these years. PPL’s Debt Service Coverage Ratio (DSCR), which is an indicator of its ability to service its debt stood at 1.8:1 at the end of 2011, indicating sufficient profits to service its current level of debt. PPL debt to equity ratio stood at 31:69 indicating capacity to take on more debt in its capital structure provided it can be serviced. Furthermore, PPL’s Current and Quick ratios, at 0.3:1, are well below the acceptable level since all debt is reported as current due to the non-compliance with loan covenants. Even if adjusted for this, the current (which should be about 1.3:1 and 1.1 respectively) the current ratio and quick ratios are 0.7:1 and 0.6:1. Table 24: PPL Key Financial Ratios Year ending 31 December 2007 2008 2009 2010 2011 EBITDA to Sales 22 % 10 % 24 % 11 % 16 % Profit Margin % 10 % 1 % 19 % 2 % 2 % Debt Service Coverage Ratio (DSCR) 6.8:1 4.4:1 6.5:1 1.6:1 1.8:1 Debt Equity Ratio 20:80 24:76 25:75 33:67 31:69 Current Ratio 1.4:1 0.9:1 0.9:1 0.3:1 0.3:1 Quick Ratio 0.9:1 0.5:1 0.6:1 0.2:1 0.3:1 Source : PPTA Consultant
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9.5 PPL Financial Projections
284. Financial projections have been prepared and presented two scenarios for period 2012- 2020. Scenario 1 relates to without the project situation i.e., assuming the status quo to remain, Scenario 2 is based on the “with” project situation, on the basis that PPL undertakes the proposed project. 285. Projected Financial Ratios. Table 25 below presents some key ratios based on the financial projections for the two scenarios. Table 25: Summary of PPL Financial Projections Year ending 31 December 2012 2013 2015 2019 2020 Operating Margin % Scenario 1 : “without” project 21 % 20 % 31 % 39 % 41 % Scenario 2 : “with” project 21 % 20 % 31 % 40 % 42 % Profit Margin % Scenario 1 : “without” project 6 % 5 % 13 % 22 % 23 % Scenario 2 : “with” project 6 % 5 % 13 % 23 % 25 % Debt Service Coverage Ratio (DSCR) Scenario 1 : “without” project 2.5:1 2.5:1 3.5:1 6.7:1 7.9:1 Scenario 2 : “with” project 2.5:1 2.5:1 3.4:1 6.3:1 7.3:1 Debt Equity Ratio Scenario 1 : “without” project 36:64 41:59 37:63 15:85 11:89 Scenario 2 : “with” project 36:64 43:57 43:57 19:81 15:85 Current Ratio Scenario 1 : “without” project 0.29:1 0.27:1 0.65:1 2.22:1 2.75:1 Scenario 2 : “with” project 0.29:1 0.25:1 0.61:1 2.26:1 2.81:1 Quick Ratio Scenario 1 : “without” project 0.22:1 0.2:1 0.50:1 2.05:1 2.57:1 Scenario 2 : “with” project 0.22:1 0.18:1 0.46:1 2.09:1 2.64:1
286. Projections reveal that PPL operating margin (defined as EBITDA / Sales) continues to remain healthy. During 2007-2011, PPL had an average operating margin of 17 % which is expected to improve with the proposed tariff increases and higher generation from hydro through the planned investments. The profit margin, which averaged 7 % during 2007-2011 continues to remain at the same level until 2015 with increased depreciation and finance charges, but then increases thereafter with benefits accruing from the capital projects. Under “with” project scenario these ratios improve in the later years. 287. The projected DSCR and debt to equity ratios remain acceptable during the period of projection. The DSCR improves to 2.5:1 in 2012 from 1.8:1 due to stronger tariff levels98 and continues to improve thereafter even with the higher debt service cost. The debt equity ratio which was 31:69 increases to 41:59 by 2013 and reduces thereafter due to servicing of debt. Even at its peak of 41:59, the debt equity ratio is acceptable and the DSCR indicates no issues in servicing that debt. Under the “with” project scenario, DSCR is marginally lower than “without” project but at 3.4:1 in 2015 and 7.3:1 by 2020 is acceptable. 288. The current ratio and quick ratios continue to remain at the 0.3:1 level which is due to all debt being reported under current liabilities due to non-compliance with BSP consortium loan covenants. However with improved profitability after 2017 these ratios improve to acceptable levels. However, by 2015 it is projected that this situation will pass and both ratios will well above 2:1 under both “with” and “without” project scenarios. This is acceptable. 289. Compliance with BSP Consortium Loan Covenants. The financial projections reveal that PPL will not be in compliance with the requirement that equity ratio (defined as equity to total assets) exceeds 45 % until 2015. In the case of the “with” project scenario, the level will not be
98 ICCC approved a tariff increase of 14.59 % in nominal terms for PPL for the year 2012.
Final Report | 30 November 2012 Page | 55 TA 7783-PNG: Port Moresby Power Grid Development Project reached until 2016. The equity ratio is between 41 % - 43 % until 2015. Feedback from PPL is that the consortium is aware of this fact but continues to disburse funds for earmarked projects.
9.6 Assessment of PPL Financial Management.
290. Results of the Financial Management Assessment. PPL financial management is generally satisfactory. Their financial statements are regularly audited by a professional firm with international affiliation. Annual budgets are prepared and compared against actual performance and any significant variances highlighted and reported on a monthly basis. The accounting system is computerized on an Oracle based integrated system. 291. The Management Letter issued by the auditor has raised several issues related to the non- reconciliation of general ledger balances with sub ledger balances. This is been looked into by PPL with the assistance of a Consultant with Oracle expertise. 292. Although PPL operates Oracle based integrated software, there are several other software packages that are used in conjunction, mainly as a result of the other software being in use prior to the transition to Oracle. PPL is considering integrating these functions into the Oracle database as far as possible and this should be pursued. There are also issued raised in the auditor’s Management Letter regarding non-reconciliation of account balances in these systems prior to transfer to Oracle general ledger. The Oracle database should be used to the full extent in financial reporting not only up to the Trial Balance stage but the final financial statements themselves. At present the financial statements are produced in MS Excel which is time consuming and error prone. The same holds true for bank reconciliations and preparation of the budget. It is important that the system is used to its full potential. 293. A number of internal control related issues highlighted by the auditors should have been resolved through the on-going internal auditing process. 294. Recommendations arising from PPL Financial Management Assessment. As the IA, ADB would require PPL to maintain Statements of Expenditure (SoE) to support Withdrawal Applications and the maintenance of separate project accounts within the framework of the overall PPL financial statements. Assuming the project approvals proceed as planned in the early part of 2013, the commencement of the project will be very close to the commencement of the ADB TEIP which was delayed. Therefore, this will be a new experience for the finance staff at PPL and it is important that they receive proper training prior to project implementation. 295. The finance staff must liaise with other relevant divisions of PPL during year-end finalisation of accounts to ensure that the proper cut-off procedures are followed, especially in the areas of inventory, capital works in progress and customer services where prior year adjustments have been made in the past. It is not acceptable practice to adjust finalised financial statements subsequently when errors and omissions become known, especially if this is a regular occurrence. 296. Once the reconciliation of the general ledgers and sub ledgers is completed by the Consultant, it is necessary that this reconciliation process is carried out monthly in the future by PPL. Such reconciliations should be checked and signed off by the relevant managers. This is also important in areas where the outputs from other systems (Gentrack, Chris 21 and Suprema) are inputs to the Oracle based general ledger system. 297. The Oracle based system should be used to its full potential by limiting off-system work to a minimum. This applies to areas of financial reporting, bank reconciliations, budget preparation in particular. 298. The internal audit division must note the reconciliation and other internal controls highlighted in the auditor’s Management Letter and ensure that staff audit programmes capture work related to these areas.
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10 ENVIRONMENTAL ANALYSIS
10.1 Objectives and Scope of Environmental Assessments
299. The objectives and scope of this environmental work stream for the Project are to (i) assess the existing environmental conditions of the project areas, (ii) identify potential environmental impacts from the proposed POM PGDP, (iii) evaluate and determine the significance of the impacts, (iv) develop an environmental management plan (EMP) detailing mitigation measures, monitoring activities, reporting requirements, institutional responsibilities and cost estimates to address adverse environmental impacts, and (v) carry-out public consultations to document any issues/concerns and to ensure that such concerns are addressed in the project design. 300. The initial assessment identified the subprojects as category B for environment and initial environmental examination (IEE) is required. IEEs and environmental management plans (EMPs) have been prepared for all the subprojects and are included in the respective subproject feasibility reports in Appendix B. The IEEs have been submitted to ADB by the borrower. The IEE reports including (EMPs) will be disclosed to the public through the ADB website and to the public in Papua New Guinea by PPL before project implementation. The final IEE reports and EMPs will be updated to incorporate any comments and will be incorporated in the bidding documents before project implementation and subsequently in the contracts for implementation of the respective subprojects. 301. The objectives and scope of the subproject IEE are to (i) assess the existing environmental conditions of the project areas, (ii) identify potential environmental impacts from the proposed subproject, (iii) evaluate and determine the significance of the impacts, (iv) develop an environmental management plan (EMP) detailing mitigation measures, monitoring activities, reporting requirements, institutional responsibilities and cost estimates to address adverse environmental impacts, and (v) carry-out public consultations to document any issues/concerns and to ensure that such concerns are addressed in the project design.
10.2 Policy and Legal Framework
A. Environmental Regulatory Compliance 302. The implementation of the Project will follow the guidelines in the Asian Development Bank Safeguard Policy Statement (SPS, 2009) and will be governed by the environmental laws, policies and regulations of the Government of the Independent State of Papua New Guinea (GOP). B. Asian Development Bank 303. The ADB SPS requires that environmental concerns are addressed in all stages of the project cycle and categorises the proposed components into categories (A, B or C) to determine the level of environmental assessment required to address the potential impacts. 304. The subprojects are all category B and IEE’s have prepared to address the potential impacts in line with the SPS. Stakeholder consultation has been carried out as part of the IEEs and environmental management plans (EMP) have been prepared specifying mitigation measures to be adhered to during implementation of the subprojects. C. Government of Papua New Guinea 305. The implementation of the Project will also be governed by laws, regulations, and standards for environmental assessment and management of Government of Papua New Guinea (GOP). Table 26 summarises the main requirements of GOP for environmental management that will apply to the Project.
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Table 26: Key Environmental Laws of PNG Statute Outline Relevance Environmental Conservation of environment, The provisions of the act apply to some of Act 2000 improvement of environmental standards the Project interventions in the and control and mitigation of construction & operation stages. environmental pollution. Environmental Provides prescription of Level 1, Level 2 The subprojects are a mixture of existing (Prescribed (Category A or Category B) and Level 3 and planned activities that are categorized Activities) activities in two schedules by regulation. as Level 2 or Level 3. However DEC have Regulation requested notification of all subprojects in (EPAR), 2002 POM PGDP as required under section 48 of the Environment Act 2000, DEC will decide on the requisite administrative requirements and need for application for clearance and environmental permit in due course. Environmental Prescribes processes & requirements for Generally relevant to all subprojects in (Permits and obtaining Environmental Permit (EP) by POM PGDP. All requisite clearances Transitional) regulations, an Inception Report and (EPs) from the DEC shall be obtained Regulations Environmental Impact Statement (EIS) prior to commencement of civil works on (EPR), 2002 must accompany the permit application to ground. PMU will proceed with application the Department of the Environment and for POM PGDP clearances and EP in due Conservation (DEC). Projects are course. classified according to impact on the environment (See EPAR) Environmental Section 64 of the Principal Act is repealed This section of the Act permits that the (Amendment) and is replaced. regulations may provide for dispensation Act (2002) of notification, referral and consultation requirements under the Environmental Act in such circumstances as are prescribed. Mining Act Responsibilities for mining and quarries to Project must integrate community health 1992 Mineral Resources Authority but in and hygiene of the residents and workers practice to ensure public health for in the construction stage, and take residents by providing primary and public forward appropriate issues to the health services, sanitation, water supply, operational stage. vector and infectious disease control, etc.
306. The main provisions for environmental protection and pollution control in Papua New Guinea are contained in the Environmental Act (2000) and the Environmental Permits and Transitional) Regulations 2002 (EPR). This legislation also provides the principal mechanism for assessing and mitigating the environmental impacts of projects, both existing and proposed. Under the EPAR projects are classified as Level 1, Level 2 or Level 3 to determine the level of environmental assessment and requirements involved. According to EPAR schedules the POM PGDP is Level 3 as the total investment will exceed 50 million Kina (Schedule 2, section 14.1) but the various subprojects trigger only Level 299 requirements. A notification under Section 48 will be submitted to the Director of Environment in DEC for clarification. The requirements for preparation of environmental assessments will be determined by DEC. Table 27 shows the summary of expected environmental regulatory compliance required for the subprojects based on inspection of the statutes.
99 Consultation with the DEC during the course of the environmental assessment indicated that DEC requires notification of all subprojects to decide on categorization when the detailed scope of the subprojects is defined in due course.
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Table 27: Environmental Regulatory Compliance Component Description GOP ADB Category in Environmental Category in Environmental accordance Assessment accordance Assessment with EPR * with SPS SP 1: Kilakila Substation and TML Level 1 Follow COPs Category B IEE SP 2: Statcom or Capacitor Level 1 Follow COPs Category B IEE SP 3: 11 kV Open Mesh Level 1 Follow COPs Category B IEE SP 4: LRP & Energy Access Level 1 Follow COPs Category B IEE SP 5: Rouna 1 rehabilitation Level 2 IR, EMP, EIS Category B IEE SP 6: Sirinumu rehabilitation Level 1 Follow COPs Category B IEE Other activities: - Waste Disposal (solid and Level 2 IR and EIS Category B IEE liquid) - Water Abstraction Level 2 IR and EIS Category B IEE ADB = Asian Development Bank, EPR* = Environmental (Permits and Transitional) Regulations (EPR), 2002, EMP = Environmental Management Plan, EIA = Environmental Impact Assessment, IEE = Initial Environmental Examination, SPS = Safeguard Policy Statement. EIS = Environmental Impact Statement, IR = Inception Report
D. Environmental Clearance Requirements 308. Section 54 of the Environmental Act requires that the application for Environmental Permit must be accompanied by an Environmental Impact Statement (EIS) and Environmental Management Plan (EMP) submitted to the DEC. Prior to the EIS and Inception Report (IR) with scope of the EIS should be agreed by the DEC Divisional Officer (60 days). Under the EPR, DEC has 30 days to respond to the application for Environmental Permit (EP) and EIS. Therefore there is a minimum of 90 days for the approval of the EIS and granting of the EP. 309. In order to facilitate the statutory environmental impact assessment process the PMU in PPL will disclose the scale and scope of the Project to the environmental authority DEC in a timely manner. If DEC decides formal environmental assessment is required for any of the subprojects the PPL / PMU will submit the necessary Environmental Impact Statement (EIS) to DEC and disclose the updated scale and scope of the subprojects to the DEC. PPL will also progress the environmental clearance of the project under the Environment Act 2000 (as amended). The statutory environmental permit application process (if required) will be triggered by submission of an Inception Report to DEC specifying the coverage of the EIS indicating that the application for environmental clearance is underway. This will result in agreement of terms of reference for the EIS. The acceptance (in principle) of the environmental assessment by DEC requires the EIS to be approved after which clearance of the subproject area can start. Physical demolition and construction works can only take place after DEC has issued the environmental permit for the project under the Environment Act or declared that the relevant subproject is Level 1 in which case the subproject will be implemented following the DEC codes of practice and the EMP approved by ADB. E. International Conventions 310. Papua New Guinea is a party to several international conventions that are relevant to environmental management. None of these conventions have any direct or specific relevance for the POM PGDP as none of the subprojects encounters any areas of environmental sensitivity covered by the conventions. F. Occupational Health and Safety 311. During construction, the subprojects will conform to the labour laws and occupational and health related rules as outlined in Table 28. Table 28: Relevant Employment Laws Title Year Overview Employment Act 1978 Provides for safety of work force during construction period. Employment Regulations 1980 Provides for safe and healthy conditions for work, equipment etc. Source: Papua New Guinea Government Rules and Regulation book
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10.3 Project description and subproject environment
312. Subprojects 1, 2, 3 & 4 are all located around Port Moresby in the National Capitol District Province. Subprojects 5 and 6 are located further afield in Central Province. The POM PGDP will upgrade the PPL’s existing facilities and the details of each subproject have been described in Section 6 of this report. 313. Subproject 1 will require the construction of an electrical power transmission line with associated substation. The subproject will require land acquisition for the substation and a right of way (ROW) across customary land for the transmission line. 314. Subprojects 2, 3, & 4 will be in the form of improvements carried out on existing facilities serving the POM power grid. The likely interventions will include changes to equipment, introduction of additional equipment and the way that equipment is operated and how the overall system is managed to improve the performance of the power grid and improve the efficiency of power delivery. There are no anticipated direct impacts on the environment outside the existing facilities but the improvements overall should result in benefits in terms of more efficient power provision. 315. Subprojects 5 & 6 will either rehabilitate or replace certain equipment at Rouna 1 and Sirinumu toe of dam facilities. These improvements will also be carried out on existing facilities serving the POM power grid. The likely interventions will include new components for equipment or new equipment and operational arrangements that will improve the performance of overall system and the capacity to deliver renewable hydropower to the power grid. There are no anticipated direct impacts on the environment outside the existing facilities but the improvements overall should result in benefits in terms of more available electrical power provision and less reliance on non-renewable fuel sources. 316. None of the areas identified as candidate priority subprojects have potential interfaces with areas protected for their biodiversity or areas that potentially have critical habitats. ADB has defined critical habitats as a subset of both natural and modified habitat that deserves particular attention. Critical habitats include areas with high biodiversity value, including habitat required for the survival of critically endangered or endangered species; areas having special significance for endemic or restricted-range species; sites that are critical for the survival of migratory species. Subprojects 1, 2, 3 & 4 are all located around the highly disturbed urban area of Port Moresby in the National Capitol District Province. Subprojects 5 and 6 are located adjacent to the Sirinumu Reservoir and the Laloki River valley that runs below it. Neither of the areas is protected for their biodiversity.
10.4 Rapid Environmental Assessments
317. No previous environmental assessment for the subprojects had been completed. A rapid environmental assessment (REA) was completed for each of the subprojects based on the key physical activities in the above outputs which would cause environmental impacts as defined by ADB's SPS. The REAs were based on field reconnaissance surveys, secondary sources of information, and public consultation undertaken specifically for this set of subprojects. On the basis of all subprojects being Category B, IEE’s were prepared for each subproject in compliance with the SPS. The REAs are not appended as IEEs became the required output.
10.5 Public Consultation and Grievance Redress Mechanism
A. Information Disclosure, Consultation and Participation 318. The stakeholder consultation and participation plan was prepared for discussion with PPL. The consultation process disseminated information to all key stakeholders near the POM PGDP including the general public and the authorities through meetings and focus group discussions. Information was provided on the scale and scope of the POM PGDP and the expected impacts and the proposed mitigation measures in advance; by consultation with government departments, local authorities and the general public in meetings and by surveys. The process has gathered
Final Report | 30 November 2012 Page | 60 TA 7783-PNG: Port Moresby Power Grid Development Project information on relevant concerns of the local community in the POM PGDP area so as to address these in the project implementation stages. B. Grievance Redress Mechanism (GRM) 319. A GRM will be established to receive, evaluate and facilitate the resolution of affected people’s concerns, complaints and grievances about the environmental and social performance at the level of the Project. A draft GRM was prepared for discussion purposes during the Consultation and Participation phase and has been agreed in principle with the senior management of PPL. The GRM will aim to provide an accessible, time-bound and transparent mechanism for the affected persons to voice and resolve social and environmental concerns linked to the Project.
10.6 Environmental Management Plan
320. Mitigation measures, environmental monitoring, and capacity development are required to minimise the environmental impacts in the design, pre-construction, construction and operational phases. The main issues for SP1, SP2, SP3 and SP 4 relate to planning and fine tuning the design of the POM PGDP structures, drainage, control of construction impacts such as site clearance, spoil and waste disposal, traffic interruption, noise and dust during construction. The main issues for SP5 and SP6 relate to protection of the Laloki River, drainage, control of construction impacts such as waste disposal, erosion and runoff control (SP5) during construction and planning and fine tuning the design of the SP5 and SP6 interventions. 321. To ensure these impacts are mitigated to the greatest extent possible, the PMU shall disclose the subprojects to DEC in a timely manner, update the IEEs if necessary and include the assessments in the IEEs and the updated EMPs in the bidding and contract documents in the preconstruction phase. The updated IEEs and EMPs shall be approved by ADB and will include all the management plans which will form part of the contract documents and will include: (i) waste management and spoil disposal; (ii) temporary drainage; (iii) construction materials management; (iv) runoff control and excavation protection; (v) noise and dust control; (vi) temporary traffic management; and (vii) worker and public safety and any other management planning necessary to ensure environmental impacts are mitigated to the greatest extent possible. 322. Implementation of the POM PGDP subprojects (SP1, SP2, SP3 and SP4) in POM should only have short term and reversible negative impacts. SP5 and SP6 should have some beneficial environment impacts overall due to the increased efficiency of the renewable energy resources at Rouna 1 and Sirinumu. The upgrading of the power generation facilities will allow more power production from renewable resources and this can be expected to reduce reliance on carbon based fuels and therefore air emissions should also be reduced.
10.7 CO2 Emissions
323. The outcomes from SP5 and SP6 subprojects will be additional reliable base generation capacity from renewable hydropower, displacing diesel fuelled medium speed generation. Also on the distribution loss reduction initiatives under SP1-4 there will be further benefits. These interventions should result overall in less reliance on carbon based fuels for power generation. 324. No major impact benefits were identifiable in terms of major carbon emission reductions at this stage and the subproject components cannot trigger CDM recommendations100. However it is estimated that 15.4 GWh of diesel generated electrical power can be avoided with the proposed subproject interventions and this can result in benefits of 12,200 tons carbon / annum (based on a 101 conversion factor 793.73 tCO2/ GWh ).
100 Application for Clean Development Mechanism financing is not considered warranted as the transaction costs would exceed the estimated revenue from CO2 emission reductions. 101 ADB Results framework indicators are in conflict using 793.73 tCO2/ GWh and 739.73 tCO2/ GWh. On advice from ADB, recommending 800 tCO2/ GWh recognising that all carbon based generation is diesel, 793.73 is used.
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10.8 Conclusions
325. The project overall has been classified as category B for environment following ADB’s Safeguard Policy Statement. An initial environmental examination (IEE) has been prepared for each subproject and included as an Annexure in each of the subproject Feasibility Studies in Appendix B. The main potential environmental impacts identified include land clearing, earthworks, dust, noise, tree trimming, river protection, materials sourcing, transportation, construction traffic issues, waste disposal and discharges, cleaning and refurbishment of plant and upgrading of an access road. The IEEs and EMPs will be integrated into the bidding documents for each subproject and if there are changes to the scope of a subproject an updated IEE and EMP will be compiled by the PPL PMU and approved by ADB and DEC prior to implementation.
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11 SOCIAL AND POVERTY ASSESSMENT AND MITIGATION
11.1 Objectives
327. A social and poverty assessment was undertaken for the project. The purpose was to identify target area, beneficiaries and characterize them, assess their needs, aspirations requirements for participation in the project and to benefit from its activities. Based on the analysis, mitigation measures are proposed to minimise potential adverse impacts and to enhance potential benefits. Analysis included a pro-poor focus on project proposals so that many of the poor households might be able to benefit from the proposed investments. 328. A total of 243 individuals representing households, clans, businesses, industries, government agencies, NGOs and religious establishments have been contacted to collect information as appropriate.
11.2 Project Beneficiaries
329. The target project beneficiaries are in three main groups namely, households, industries and businesses. Included in the business category are organisations such as government and NGOs and religious establishments. The households are the largest single category of beneficiaries who are spread out over the entire landscape of NCD. The households connected to electric power are 95 % of total connections. The households in Sirinumu and Rouna in Central province are also project beneficiaries, of which numbers are unknown. 330. The breakdowns of total number of industries consisting of large, medium and small units are unknown. The former two are mainly concentred in urban locations of the city. The industries such as the Coca Cola factory, large super markets and SP Brewery are heavy power users while there are hundreds of medium to small-scale power using industries spread out over the city landscape. Business customers include government organisations, private establishments, NGOs and religious institutions that are located almost all over NCD’s landscape. 331. According to the 2011 Census, the city has a population of 318,128 persons in 57,741 households. The population comprises of 170,112 males and 148,016 females, giving the males to females’ ratio of 115 males to 100 females. Comparison with the 2000 census shows a 25 % increase in population to 2011.
11.3 Socio-Economic Profile of the Subproject Sites
332. The ethnic composition of the country is diverse. It is reported that the country’s population belongs to some 1,000 different ethnic groups. The city population comprises of a mixture of different ethnic groups that have migrated from almost all provinces of the country. This makes the ethnic composition of the target area diverse. 333. The life expectancy in NCD population is 59.2 years split as 58.5 for males and 59.9 for females. The literacy levels of population in the 3 main languages are Pidgin (94 %), followed by English (77 %) and Motu (44 %). The Gross school enrolment rate for NCD is 75.5 % while the net enrolment rate is 66.4 %. 334. Seventy-nine per cent of beneficiaries live in permanent houses, 15 % in semi-permanent houses while 6 % are in impoverished units. The incidence of poor housing is severe in settlements without land titles, where settlers are mainly migrants from other provinces of the country. Each house unit has an average of 3 rooms. The number of occupants per room is 2.90. The majority (94 %) of houses are owner-occupied whereas 5 % people live in communal houses. About 1 % live in rented houses, which is reported only in settlements without a land title. 335. The main income sources of beneficiaries are salaries, wages and pensions, service contracts such as transport, delivery, cleaning, etc., and small markets. The income from sale of crops, animals and fish is small. Being an urban area, it is expected that many households in NCD depend on salaries, wages, pensions and the provision of various services to businesses as their
Final Report | 30 November 2012 Page | 63 TA 7783-PNG: Port Moresby Power Grid Development Project income source. The sale of crops and animals, as expected contribute to a small proportion of household income. 336. The incidence of poverty due to low education, poor living conditions and large number of household members is greater in settlements compared to the traditional villages and in up-market areas. The income poverty was found to be not high because the people live within the urban centres where work opportunities are greater than elsewhere. The mini markets are making a huge contribution to push income poverty low. Only 4 % households are extremely poor while there are 21 % who are poor, making overall poor household to be 25 %. On the other hand, 75 % households consider themselves to be out of poverty (59 % non-poor and 16 % wealthier). 337. The gross household power connection rate is 69 % while the majority of businesses are connected to the grid. Power supply is weak with frequent shut-downs and black-outs. The overall supply is unreliable with low to high fluctuations that cause problems for households and business power users. The majority (65 %) household power is used for domestic purposes while about 35 % are using it for small-scale income generation activities.
11.4 Project’s Social Impact
338. The project is targeting connection of 3,000 households in the poorer peri-urban villages of Port Moresby. Access to electricity will (i) reduce household chores (mainly women) for collecting firewood, (ii) replace kerosene lighting with a cheaper form of energy, thereby freeing household expenditure, (iii) enable household income generation, (iv) improve children education, (v) reduce indoor health and safety issues associated with burning firewood and kerosene, and (vi) enable street lighting which will reduce crime. The project is also expected to provide more reliable power supply to broader residential areas, including poor areas, in Port Moresby. Improved power supply will enhance quality of life of Port Moresby residents by (i) reducing the regular power outages to residents, (ii) facilitate low-income families to engage in small-scale income generation activities, i.e. sale of cooked and refrigerated items (which is currently not possible due to the regular extended power outages which sometimes last for 2-3 days), (iii) improve street illumination to reduce crimes, and (iv) improve water supply to residents which is disconnected during regular extended power outages. 339. The project will create social impacts on target beneficiaries in three main directions. The obvious beneficial social impacts are improved, reliable power supply that will lead to better lighting, facilitate domestic tasks and support income generation activities and the targeting of 3000 households in the poorer peri-urban villages. Improved street lighting will contribute to reduction in unlawful activities which is a huge benefit for the entire population. The improved and reliable power will benefit businesses and organisations by way of efficient operation and reduction of losses. In order to enhance project benefits to all target beneficiaries including the poor, it is suggested that a community support and development programme (CSDP) be implemented during project implementation. A suggested programme is included in Appendix J. This shall require agreement of ADB and PPL for its implementation. 340. The negative social impacts that may arise from project implementation include land acquisition, potential HIV/AIDS trigger from contractor’s labour force, noise, pollution and inconveniences that may be caused by construction activities and cultural impacts that may be caused by the contractor staff engaged in project implementation activities.
11.5 Land Acquisition and Resettlement
341. Only the Kilakila TML and substation subproject (out of 6) will trigger SPS’s involuntary land acquisition impacts. The affected people (APs) are 744 in 198 HHs. They will have both restricted access to the use of their customary land beneath transmission lines while the land area occupied by towers and substation will be permanently acquired from the APs. A LA/RP has been prepared and submitted to ADB. The implementation of the LA/RP will manage social impacts that may be caused by the acquisition of land. The LA/RP is included in Appendix L of this report.
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11.6 Involuntary Resettlement & Indigenous Peoples
342. The project has been classified as category B for involuntary resettlement and category C for indigenous peoples following ADB’s Safeguard Policy Statement. The project does not involve physical displacement of people or structures, but requires acquisition of land for the new substation and transmission line. A due diligence report (DDR) for existing sites and a land acquisition/resettlement plan (LA/RP) for the new substation and transmission line have been prepared with the LA/RP in Appendix L. PPL will update and finalise the DDR and RP prior to project implementation. PPL will coordinate with relevant government and non-government agencies to implement and monitor the land acquisition and compensation activities. 343. The target area does not have specific population or groups that will benefit disproportionately from the proposed project. The entire Papuan population in the city would benefit. Accordingly, it is to be highlighted that there are no outstanding or unresolved issues that trigger IP impacts as per ADB’s SPS. A separate IP DDR was submitted and ADB confirmed that there will be no impact on distinct and vulnerable indigenous peoples thus there was no requirement to prepare an IPP. The IP DDR is included in Appendix M.
11.7 Proposed Mitigation Measures & Plans
344. A community support and development programme (CSDP) has been prepared to mitigate problems faced by the poor. This is included in Appendix J. Whilst ADB requested the Consultant to assist PPL prepare the CSDP no formalised discussion between ADB, the Government of PNG or PPL have taken place in respect of its content. The CSDP has proposed several activities for funding and implementation whereby poor people could benefit as much as the non-poor from project investments. 345. Due to land ownership issues raised during preparation of the Social Safeguards documents and the above CSDP, ADB requested the Consultant to undertake a Due Diligence Social Compliance Audit Report to confirm the land ownership of the existing sites and identify any outstanding safeguard compliance issues. This is included in Appendix H. 346. The disputes that may arise during project implementation will be resolved via the Conflicts Redress Mechanism (CRM). The CRM provides all details and processes to manage project-related conflicts. The CRM is contained within the subproject IEEs in Appendices B1-B6. 347. A stakeholder consultation and participation plan (C&PP) has been prepared for the project implementation phase and included in Appendix J. The active and on-going consultation with all stakeholders (include beneficiaries) will be supported throughout project implementation. 348. The project’s gender impact will be managed via the implementation of the GAP detailed further in Section 12. The other potential adverse impacts such as HIV/AIDS minimisation, provision of unskilled employment opportunities for local people, minimisation of constriction- related disturbances and the management of the alien work force are to be managed through the implementation of the Environmental Management Programme (EMP). The EMP includes best practices for management of transport, health and safety, environmental sanitation, waste minimisation and disposal and staff. The contract has specific clauses whereby the contractor has a binding to implement good practices in labour recruitment, health and safety standards, and the requirement that staff are screened for HIV/AIDS. The subproject EMPs are contained within the IEEs in Appendices B1-B6.
11.8 Summary
349. All safeguard documents will be endorsed by the government, disclosed to affected persons and local stakeholders and posted on ADB website. The project will support capacity within PPL and the PMU to manage safeguard aspects. This will be through international and national environment and social safeguard specialists working within the PMU.
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12 GENDER ANALYSIS
12.1 Introduction
350. The sex ratio in NCD, based on 2011 Census is 115 males to 100 females. About 12 % households in the country are female-headed while the relevant figure for NCD is about 13 %. 351. A large gender gap exists in gross primary enrolment rates in Metro areas (81.6 % for females and 88.1 % for males in grades 1-6), and secondary enrolment rates are very low for both females (58.6 %) and males (69 %). The adult literacy rate in Metro areas is lower for women (85.9 %) than for men (91 %). The highest educational achievement for male population (6 years and over) in Metro areas is 28.6 % at tertiary level education, whereas the same figure for female population (6 years and over) is only 27.6 % at a primary level.
12.2 Gender Impacts
352. The women in NCD area are predominantly engaged in household activities. The males are active in employment and in other income generation activities outside home. The main problem faced by women living in city fringes is fetching water where it was observed that some women walk long distances and wait hours for their turn to collect water from dripping taps. Majority of women find it difficult to cook, their completion of home-making tasks are badly hindered due to severe power problems. The improvement of power supply will therefore impact women in particular. They will find their tasks easier and rewarding with an improved and reliable power supply.
12.3 Public Consultation
353. A stakeholder consultation and participation plan has been prepared covering project implementation phase. The plan includes several types of public consultation. This is provided in Appendix J of this report.
12.4 Proposed Mitigation Measures & Plans - Gender
354. A GAP has been prepared to address concerns of relevant gender issues as well as to secure their active participation in project implementation and to benefit from project investments. This is provided in Appendix K of this report.
12.5 Conclusions
355. The project is categorized as effective gender mainstreaming. A gender action plan (GAP) has been prepared for project implementation and monitoring. Key gender action items include, (i) prioritize female headed households for connection to the grid, (ii) undertake training workshops in newly connected communities (at least 50 % female participation) on electricity safety, operation of prepayment meters, energy efficiency, and household utility budgeting, (iii) undertake training workshops in 5 communities (at least 50 % female participation) on using electricity for increased income generation, (iv) women participation in community consultations (at least 40 %), (v) include at least one women member on the grievance redress mechanism committee, (vi) require contractors to pay equal wages to men and women for work of equal value, provide female workers with sanitation facilities, and include women in their labour-based work (at least 20 % women workers), (vii) women’s wages will be paid directly to them, (viii) gender awareness training to contractors, PMU and PPL management, and (ix) inclusion of an international social/gender specialist to support the PMU.
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13 PUBLIC-PRIVATE SECTOR CAPACITY
13.1 Introduction
356. Overview. The Consultant has been asked to comment in the matter of PPP even though it is outside the TOR. As ADB have structured a TA in support of PPP102, this summary does not propose to repeat statements or progress on the PPP process or the content of the TA which ably states the overall situation and background at time of TA preparation. This brief only summarises recent developments and progress on the PPP initiatives of the Government. As the Consultant personnel have no expertise in the field, nor scope in the services provided for such specialist, the statements in this brief are not definitive and presented as an indicative outline of progress to date and possible issues. The content is based on brief meetings with various PPL personnel and a search of the internet: primarily the Treasury website. 357. Status. The Government and PPL recognise that the private sector will play an important role in providing investment and management capacity for power sector expansion. The government has promulgated Public–Private Partnership (PPP) Policy and along with the EIP is designed to support development of private sector participation in the power sector. Extracts from the Deputy Secretary of Treasury Anthony K. Yauieb speech103 of 13 Sep 2012, summarises the status of the key policy and interlinking legislative initiatives. “As detailed in the 2012 Budget Paper, the SOE policy framework has shifted significantly since late 2011. The Budget identifies a number of key SOE reforms – a Dividend Policy setting out the government’s expectation as a shareholder for the SOEs; a Community Service Obligation (CSO) policy framework to ensure SOEs operate commercially and deliver CSOs without undermining their commercial principles, the development of a Public Private Partnership (PPP) legislation to complement the existing and planned Public Private Partnership arrangements; an On- lending policy tries to ensure that the SOEs are treated similarly to private sector borrowings through appropriate risk sharing between State as the shareholder/lender and SOEs as borrowers.” “We still have much more work to do in order to place our SOEs on a fully commercial footing, and Treasury is pleased to see that IPBC's business plan for 2012 reflects the same priority actions: - Ensuring compliance with the planning and reporting requirements contained in the IPBC Act; - Establishing stronger links with the Independent Competition and Consumer Commission (ICCC) in the defining and enforcing service standards and financial performance outcomes for relevant SOEs; - Publicly reporting on service standard outcomes and financial performance of SOEs; - Reviewing and reporting on opportunities for greater private sector involvement through mechanisms such as Independent Power Producers (IPPs), PPPs and possible divestment of shares in public enterprises; and - In consultation with Treasury, contribute to the finalisation of the CSO and dividend policies for government consideration.” 358. Background. PPL has historically been experiencing problems with regard to operational efficiency in generation of electricity, planning and management. Whilst the regulatory model provides incentives and penalties as well as independent audit of operational and capital expenditure and forecast models, performance keeps on slipping. A further concern for the sector is that a significant proportion of generation capacity is aging and is being phased for replacement.
102 http://www.adb.org/sites/default/files/projdocs/2011/43199-01-png-tar.pdf. 103 http://www.treasury.gov.pg/html/speeches/files/2012/opening.remarks_SOE.benchmark.reportlaunch.pdf.
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In parallel there are needs to meet increased demand. Replacement generation capacity needs to be provided to sustain current as well as anticipated growing future growth in demand. 359. In light of the condition of the electricity sector, the National Executive Council (NEC) in 2007 called for the establishment of an Electricity Industry Policy Task Force, chaired by the Department of Planning and Monitoring and the Department of Information, Public Enterprises and Communication to develop and recommend an appropriate electricity policy. The policy has been promulgated and PPP legislation is now progressing through parliament. This will strengthen and incentivise private sector participation in the investment and development of the power sector. The issues that could impede private sector interest in the electricity being addressed by policy and legislation could be summarized under the following areas: (i) macroeconomic environment, (ii) major changes in the policy framework, (iii) regulatory issues, (iv) institutional arrangements, and (v) legal and commercial issues needing review and resolution. As may be deduced from the speech of the Deputy Secretary, progress is being made to create these linkages to encouraging and developing capacity in public-private participation. 360. Macroeconomic Environment. The global macroeconomic environment sunk into deep recession after 2007. This reduced private sector interest in private power in most regions of the world, but now there are strong indicators that emergence is in progress. PNG has been sheltered from the major impacts due to a booming mining sector and investment into LNG. 361. The most notable manifestation of the recession was that the international banks were not extending much credit, particularly in 2007-2009. Since, ADB and WB as two examples, banks are rebuilding relationships in PNG. Private sector banking within PNG, notably Bank of South Pacific, has formed consortiums of interested funders in providing finance into major projects: for example the Yonki TOD hydropower project funding to PPL. Recent queries in PPL in regards to IPP ventures or new power development schemes being promoted by the private sector with several such proposals floated during September alone, but perhaps also very speculative proposals. 362. It is possible that private sector bidders interested in acquiring generation assets in PNG on a project finance basis may not experience the same problems in mobilising investment capital. PNG is still dependent on long term external finance as PNG's bank sector whilst maturing has no debt bond market. There is greater competition in the banking sector with ANZ and Westpac firmly in country, albeit a dominance of Australian market banking. However loans are still based on variable rate market indicator rather than a fixed rate basis loans. This has the effect of increasing rather than mitigating risks. So the private banking sector in PNG is still maturing. The fundamental issues still comes down to the development of long term fixed bond markets or similar long term instruments for capital investment in infrastructure. 363. Off-setting and creating some tempering impact is the fixed rate basis for ADB and WB loans, but generally they are supporting in sectors of the development market where private investment is hard to attract. Also such loans are government guaranteed thus concessional. However with the PNG government looking closely at “on lending rate” issues to strike a balance to enable PPP investments this may constrict PPL ability to respond to supporting growth needs. 364. A significant advantage is that PNG will benefit from Exxon Mobile investment of US$18 billion in LNG export processing facilities. This has improved the long-term outlook for the country. This landmark financing is bound to have a positive effect on the ability of the country, including its private sector, to mobilise finance from external sources in the future. In PNG, should the investments in LNG be developed as currently envisaged, private investors and lenders are likely to consider investments in PNG favourably until such time as it is evident that the management of foreign exchange and foreign exchange liabilities is deemed to be inadequate. 365. However, there is an underlying catch-all. Such investments into the mining sector in the past have not resulted in significant trickle down to the populace in general. Whilst this is being addressed through the new policies and legislation to enable a balanced PPP and CSO framework operating commercially, there is a level of risk that may restrict the realisation of such benefits. 366. Impacts of PPL Uniform Tariff Policy. Under the prevailing uniform tariff policy of PPL, absent of CSO framework, it would be difficult to attract private investment particularly into rural electrification. Already there are market competitors who under their own licence agreements are
Final Report | 30 November 2012 Page | 68 TA 7783-PNG: Port Moresby Power Grid Development Project establishing tariffs that better reflect the localised situation that they are supplying into. The policy of retaining a uniform PPL tariff creates cross-subsidisation barriers to recruiting investment into the power sector, particularly rural areas. These are naturally high cost areas for investment and private power companies would naturally want high prices to recover costs. Thus the regulator should be considering flexibility within PPL tariff scheme for rural area tariff flexibility and/or allow through the CSO to fund the rural sector higher costs returning a regulated investment return. This would also encourage PPL to partner private investment to rural development. 367. A new CSO framework, for the electricity sector in PNG should 'incentivize' the providers of electricity service to take up investments in high cost areas. The concept being developed would amount to a Government buy-down of capital investment to the point needed to make a service area economically viable and allow appropriate profits in an electricity price regime of uniform tariffs. The size of the capital grant, however, would be determined through a competitive tender.
13.2 Regulatory
368. Status. The current policy and regulatory framework provides, or allows: Exclusive service areas for PPL (defined as within 10 km of the distribution network operated by the Company as at the date of commencement of the licence) for loads under 10 Megawatts (MW); Third party producers to generate and bulk supply PPL within or outside service area with electricity for subsequent sale to customers; Free entry within PPL exclusive areas to serve large customers (i.e. with loads of 10 MW or more); Regulated third party access to PPL's wires in circumstances where the supplier can lawfully supply, e.g. for customers with loads of at least 10 MW; Third party investment in generation, transmission and distribution activities in areas outside current PPL's exclusive areas, which include rural areas; A single PPL national tariff (which charges the same price for customers within a particular category, regardless of location – in-so-far as PPL service such areas), which gives rise to the inherent cross-subsidies necessary to maintain the affordability of electricity access in high cost (largely rural) areas; and An independent regulator of the electricity industry, the Independent Consumer and Competition Commission (ICCC), established by the Independent Consumer and Competition Commission Act 2002, responsible for issuing licenses, setting conditions for licensing and regulating the price and other aspects of electricity supply operations of PPL, under a regulatory contract. 369. The initiatives still require development. There are still many issues to be progressed in implementing the overall PPP strategy of the Government. Legislation drafted in October 2010 is still apparently yet to passed into law. 370. The ADB TA will support the implementation of the PPP and CSO initiatives on passing of the necessary legislation.
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14 PPL INSTITUTIONAL CAPACITY
14.1 Introduction
371. This section reviews the overall management structure supporting the Project Management Units for delivery of the ADB projects being the Towns Electrification Implementation Project, an effective loan and this proposed PPTA Loan for the Port Moresby Power Grid Development Project. Identified are potential gaps that may hinder effective achievement of core reliability objectives of the PPTA and project delivery. 372. PPL is a private regulated Government entity incorporated under the PNG Companies Act 1997. In this respect, PPL is vested with powers and responsibilities to plan, develop, generate, transmit, distribute and sell electricity throughout PNG in accordance with its "regulatory contract". Essentially PNG Power is a vertically integrated power utility company. PPL's operations are governed by the regulatory contract signed between the Independent Consumer and Competition Commission (ICCC).
14.2 Corporate Governance and Management
373. PPL Board of Directors is appointed by the National Executive Council (NEC). There are three board subcommittees and these are: Audit Risk and Compliance Committee; Tenders and Capital Works Committee; and HR Committee. 374. The roles of Executive Management are documented104 and guides in position objectives. Complimentary position descriptions support understanding. The PPL Executive Management team comprises the Chief Executive Officer (CEO), Director Strategy and Marketing / Deputy CEO, Chief Operating Officer (COO), Chief Finance Officer (CFO), General Council and seven General Managers responsible for business units as follows: General Manager – Human Resources Management reporting to CEO General Manager – Corporate Services reporting to CEO General Manager – Operating and Maintenance reporting to COO General Manager – Performance Engineering reporting to COO General Manager – System Operations reporting to COO General Manager – Asset Development reporting to COO General Manager – Project Coordination reporting to COO 375. The Director Strategy and Marketing/DCEO is responsible for the strategy and marketing directorate and CFO for the Finance and Customer Service business units.
14.3 Staffing
376. PPL employs a total of 1,449 permanent employees and approximately 600 casuals and 21-25 trainees as at August 2012. The 600 casuals are employed mainly on major projects. PPL continues to address the capability and structure of its most important asset, the PPL people, on an on-going basis. 377. The management structure was put in place during late 2010 early 2011 following a prior restructure in 2005. Effective 1-September-2012 a new General Manager position for Project
104 PPL Organisation Chart.
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Coordination was created the place greater focus and consolidation of resources for design, standards and programme management of major projects.
14.4 PPL Asset Management
378. The structure of PPL asset management has strategic infrastructure and long term 5-15 year planning under the auspices of the Director Strategy and Marketing, whilst short to mid-term planning, design and implementation of projects, O&M and operations falls under the COO. An effective long term planning, asset management and project/works/O&M structure is essential in the longer term identification and delivery of projects. 379. The borders of accountability and responsibility for asset management are unclear. Further there appears to be misalignment in the implementation of key strategic asset development and O&M strategies. The disconnect appears to be in the alignment of strategic corporate deliverables from long term planning to timely asset development105 and more critically to focused maintenance initiatives. 380. These disconnects appear to be in the structure and the challenge to focus personnel on what are two divergent skill sets: strategic asset management and implementation. It is very rare for people with a pure maintenance back ground to be able to step into (i) strategic 5-15 year thinking developing policy and maintenance strategies, (ii) then to move these into 1-5 year operational strategies, procedures and documentation, financial and economic justification and planning and (iii) then implementation involving physical planning and works implementation (this last phase starting in the year prior to implementation. The gap issue is in the 1-5 year period before implementation. In discussion with the COO this was identified as a potential focus for asset management realignment to support more effective long term delivery of projects. 381. The suggestion is for PPL to restructure those core skills into a Strategic Asset Management group that takes responsibility for mid-term Strategic Asset Management following the corporate strategic and policy initiatives developed from long term planning. Whether this group is established under the Strategy and Marketing Directorate or as a separate business unit under the COO is a decision of PPL. Never-the-less the structural positioning must clearly separate this critical component away from the day to day performance engineering aspects. 382. In the Performance Engineering business unit there are a Standards and Materials section and three reliability engineering sections covering all of PNG. (i) Firstly to some extent the Standards and materials section is a duplication of efforts that were under GM Asset Development but now GM Project Co-ordination: albeit the difference being a maintenance delivery focus rather than project delivery focus. However standards and materials specification must be core elements in an organisation and having two drivers should be reviewed. It is suggested the standards and materials specifications components be focused into the Strategic Asset Management Group as such must align to strategic initiatives regarding quality, reliability and cost. (ii) The second, reliability data is a key input driver to strategic asset management, yet none of this data appears to be integrated into mid-term strategic asset management and planning, and certainly not into the long term 15-year planning. The efforts in reliability data capture and application to short term maintenance application appears to have a total disconnect. This is evidenced by (a) poor maintenance strategies and poor reliability indices, (b) lack of knowledge in the teams on the fundamentals of reliability engineering and how data from system outages and analysis techniques may be used to simply prioritise and structure focused maintenance techniques, even collecting the data is not compliant with IEEE 1366106 distribution reliability indices, and (c) maintenance is reactive rather than planned, even though there is a separate manager “Asset Management Planning” largely responsible for asset maintenance
105 The shortcomings of the 15-year Power development Plan are discussed in Section 4.4 and 3.6D. 106 1366-2003 - IEEE Guide for Electric Power Distribution Reliability Indices. In process of 2012 update.
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planning. The techniques available are basic and globally a minimum in effective asset management, yet are not understood or if understood are not being well applied within PPL. This disconnect would appear to be in the personnel bias toward “what they know” as most are from an operational maintenance focus. 383. Whilst this review has been high level and the nuances and culture of PPL as an integral organisation not fully revealed, there would appear to be some scope for minor organisational realignment to place focus of strategic asset management and the drivers needed. Such re- alignment will support identification and delivery of not only the subprojects proposed in this PPTA but future project identification and necessary studies for funding agency due diligence and potential investment, thus accelerating the potential for urgently needed investment in the sector.
14.5 PPL Project Delivery
384. Reporting to the COO, the General Manager Asset Development (GMAD) and the General Manager Project Coordination (GMPC) have overlapping roles though distinct responsibilities in project delivery. The appointment of the GMPC is a very recent development in PPL management structure to provide greater focus on major projects delivery. Core responsibilities are; The GMPC has primary responsibility for Design, Standards, QA and procurement (tendering) of resources for all projects. The GMAD is responsible for implementation of projects. The GMPC hands over completed design and procured goods to the GMAD and then provides an auditing/monitoring function ensuring effective delivery of those projects to PPL policy and standards. The PMU for each major project will initially report to the GMPC through procurement and design phases, then as projects reach implementation on award of works or turnkey contracts the PMU reports to the GMAD. The GMPC continues to provide overall programme and QA monitoring through a separate management unit. 385. Project resources for delivery of the works for the ADB projects require forming a Project Management Unit staffed concurrently by National PPL personnel and supporting International Personnel. The primary role of the International personnel is to provide the specialist expertise and guidance in project implementation to the criteria required of the Loan Agreement. The Consultant performance and reporting will still be through the GMPC even during implementation, but the Consultant is required to provide support to the GMAD during supervision phases primarily in the Contract Administration and Management linking in with the GMAD provided supervision and/or construction personnel. 386. Whilst the above structural implementation process is a recent development and will grow into the responsibilities, the accountabilities of the PMU and reporting to PPL management needs to be very well coordinated and managed in the transition phase whilst the PMU will have a foot in the door of both the GMPC and GMAD.
14.6 Capacity and Culture of PPL
387. It has been the observation of this Consultant that progress on achieving outputs is very slow and the capacity of the organisation in general to deliver is weak. The most basic of system maintenance from generation stations through to the customers meter is lacking evidenced by the system reliability and system loss issues. The suggestions in 14.4 and 14.5 will support some clarity injection and refocus of personnel toward improving timely delivery of subprojects identified in this PPTA and projects in general. 388. However there is need for real leadership and drive at the grass roots level. There are key people at all levels but the majority lack focus and sense of urgency. People whilst technically capable are unable to deliver results. Too many decisions are coming from an executive level and not enough practical problem solving within the hierarchy. This puts subproject delivery under this PPTA at risk as it places excessive burdens on the Design and Supervision Consultant.
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389. There would appear to be considerable opportunity for management to refocus staff, without any radical restructuring: rather tweaking around the edges and getting the person in the right position or place that suits their character and way of working. This needs capacity building through evolution by association rather than revolution. This suggests greater focus and emphasis on personnel development through training needs analysis and effective follow up programmes may contribute to improving overall skill levels and “ownership of responsibilities”. Training plans exist but are yet to find their way to implementation. Effective skills mentoring and coaching may well need support of “expatriates” at the hands on level supporting local level leadership in fostering the capacity needed. This will be a process of many years. 390. For the interim the indications are it will be some time before PPL will have the capacity to manage effectively major ADB funded projects: it is struggling with the basics at a maintenance level. The Consultant observation is this appears prevalent across all PNG and PPL would be in fact better than many other SOE’s. But this is also part of a nation maturing from a deeply reversed position following independence. 391. Thus during implementation of the ADB structured projects the appointment of international expertise to manage and drive the projects will be essential, but in doing so must partner and work together with counterparts. The combined ‘team” must be stationed together in-so-far as practicable. Enthusiastic and willing nationals also need appointment to the PMU and be allowed to grow and take the initiative under consultant guidance rather than the “highly paid consultant” doing all the work. If that happened then there would be serious risk of unacceptable project delays and potential for capacity building would be lost.
14.7 Private Participation in Works
392. Resources may be internal to PPL or contracted. PPL have indicated that all works under the Loan developed under TA7783 should be bid on ICB basis: this also permits nationally lead bidders and that only if these failed would PPL consider undertaking the works themselves. Never- the-less PPL indicated confidence based on previous experience that there would be bidder interest. There is at least one international company from Malaysia based in Port Moresby that had been providing on-going services to PPL and several national companies generally associated with the mining sector that could provide strong associate partnerships with international companies. Few national companies would have the skill set and resources to implement a turnkey project. 393. Assessment of Local Market for Contractor Resources. Overall the local market is weak of skilled resources at the power system transmission and distribution construction level. At a labouring level many willing workers, but again with very little experience in power sector work which requires generally skilled persons well trained in their field. The subproject resource skill sets requirements are somewhat different for each of the subproject primary components of transmission and substations, distribution and hydropower components. Substations/Transmission. There is one international contractor based in Port Moresby who could design, procure and implement substations and transmission projects. Whilst there are some experienced contractors in the mining sector for general controls and power system works that could associate with an international bidder there are no known national companies with the full resources to implement such projects. However all civil works including ground works, buildings and steel structures could be sub- contracted with PNG, except that there may be restrictions on galvanising as there is only one known plant which is for the products of that company. Distribution Works. There are components that could be sub-contracted to the national market and local labour is readily available. In addition to the one known international company noted for substations who may be able to resource for distribution works, the principal sources would be from companies who have experience in the mining sector power systems. However none are known to have extensive international procurement or necessary design expertise for turnkey projects in the distribution sector. Aisi-Bishman Contractors and Niugini Electrical are two examples. Aisi-Bishman who are electrical, mechanical and instrumentation contractors have in the past
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demonstrated capability in 11kV switch-room, MV cabling installation and 11/33kV overhead line construction for mining companies and has had a very long association with various mining companies. Aisi-Bishman however are not known to have extensive international procurement experience other than in the equipment they supply to the local market, nor necessary design expertise for turnkey projects. Niugini Electrical is a similar company. However, this Project for distribution works is proposing Goods procurement and detailed design by PPL with the issuance of Works only contracts involving only minor item procurement, both within the capability of these companies. However, neither is known to employ certified linemen, but both can access specialists from Australia, New Zealand and regionally as required. There may be other similar companies. Hydropower. The nature of the specialist design, plant and construction requirements will likely dictate only international bidders. Such however may associate with a local company or that company may even be the lead with the international company providing equipment, materials and specialist design expertise. In a recent expression of interest issued by PPL for Rouna 1 and Sirinumu hydropower rehabilitation there was strong interest shown by two such companies – one a national company as lead and the other the international company as lead; both presented strong proposals. There are several known international companies, including such as Andritz, who have indicated intent to bid for the work and/or are currently working in the hydropower sector in PNG.
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15 PROCUREMENT
15.1 Proposed Procurement Methods
394. The full Procurement Plan to ADB criteria is included in Appendix O. PPL have indicated a preference for all works to bid out rather than utilise in-house construction resources. It is also recommended that advance procurement and retroactive financing be permitted. 395. All procurement of goods and works will be undertaken in accordance with ADB’s Procurement Guidelines (April 2010, as amended from time to time)107. International competitive bidding (ICB) procedures, national competitive bidding (NCB) and shopping procedures will be used within the thresholds scheduled below. Direct Contracting has also been proposed for some items relating to proprietary software procurement and training therein. Procurement of Goods and Works (US$) Method Threshold International Competitive Bidding (ICB) for Works >$3,000,000 International Competitive Bidding for Goods >$500,000 National Competitive Bidding (NCB) for Works ≤$3,000,000 National Competitive Bidding for Goods ≤$500,000 Shopping for Works <$100,000 Shopping for Goods <$100,000 396. Consulting support shall procured under ADB’s Guidelines on the Use of Consultants (April 2010, as amended from time to time),108 using QCBS and ICS procedures.
15.2 Procurement Capacity Assessment
397. A procurement capacity Assessment Report is included in Appendix P. Overall, sufficient resources and capacity exists within PPL to efficiently carry out procurement activities. In addition, adequate control processes and oversight are in place. Current procurement practices carried out according to PPL's procurement policies do not fully conform to international funding agency best practices. This results in reduced transparency and levels of competition between suppliers and contractors in supplying goods, works and services to PPL. This creates an average risk procurement environment. 398. In order to reduce existing procurement risks, the PMU must adhere to ADB procurement requirements for this Project, rather than carrying out procurement activities according to PPL's existing procurement procedures: this later path unacceptable to ADB. It is recommended also that PPL consider reviewing and adopting strengthened procedures for all of its procurement activities that align to International and ADB procurement practices. Specific Recommendations: Project Implementation Capacity Constraint Recommendations Action Responsibility and comment Unacceptable procurement Strengthen existing procurement PPL Board of Management is practices: these include: (i) lack of policies and procedures to meet responsible for approving any detailed technical specifications, BOQ international funding agency best changes to current procurement and Pricing schedules; and (ii) opening practices. policies and procedures. of bids behind closed doors and not maintaining meeting minutes; and (iii) over-reliance on selective tendering practice. Lack of existing complaints Introduce mechanisms for mechanisms: currently all decisions handling complaints to improve made by tender committees are final, transparency of contract award and there are no procedures in place to process. review decisions or lodge complaints.
107 Available at: http://www.adb.org/Documents/Guidelines/Procurement/Guidelines-Procurement.pdf 108 Available at: http://www.adb.org/Documents/Guidelines/Consulting/Guidelines-Consultants.pdf
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General Recommendations: EA Capacity Capacity Constraint Recommendations/Action Responsibility and comment Lack of training opportunities: Expedite plans to introduce Senior Manager Procurement is comprehensive procurement training planned comprehensive training responsible for organising programme is not currently available to programme under new corporate procurement training programme all relevant PPL staff Work Force strategy. according to the Work Force Plan planning was recently introduced coordinating with HR as needed for company wide. approvals. Advice during Advance Commission or seek ADB (i) PPL Director Strategy and (ii) GM procurement: to ADB criterion. support for specialist. Projects.
399. Key recommendation. During advance procurement the key recommendation is to appoint an ADB procurement specialist to support PPL in aligning ADB procurement implementation criteria and PPL criteria.
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16 PROJECT IMPLEMENTATION ARRANGEMENTS
16.1 Project Management
400. The Government of PNG will be the Borrower, Independent Public Business Corporation (IPBC) will be the executing agency (EA) and PNG Power Ltd. (PPL) will be the Implementing Agency. A project management unit (PMU) will be established within PPL to coordinate implementation of the activities under the project. The PMU will be responsible for implementation of the project. The PMU will be responsible for engaging all consulting services and contracts under the project. The project organisation chart is as follows:
Project Steering Executing Agency Committee (PSC) (IPBC)
Implementing Agency (PPL)
Design and Supervision Project Management Consultants (DSC) Unit (PMU)
PMU Project Manager
Safeguard Unit Hydropower Design Transmission and Financial (Social and and Supervision Distribution Design Management Environment) and Supervision
16.2 Implementation Schedule
401. An implementation schedule based on the assumption that advance procurement will be approved by the PNG National Executive Council (NEC) and ADB follows. This is also included in Appendix N.
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IMPLEMENTATION SCHEDULE Port Moresby Power Grid Development Project Advance procurement initiated by PPL to ADB requirements '12 2013 2014 2015 2016 ID SP Task Name Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1 Loan Effective (early by / latest by) * * 2 PPL: DS Consultant procurement (Advance) f f f fff* 3 Design and Supervsion Consultant (DSC) p fffffffffffffffffffffffffffffffffffffff p SP-1 Kilakila Substation and Transmission Line (6.1km) 4 Design, EPC Bids and Contract Award p f f f f f f f p 5 Contract Effectiveness p f f 6 66kV Transmission Line Kilakila f f f f f f f f f f 7 66/11kV Substation Kilakila ffffffffffffffffff 8 Tests, Commissioning 66kV Works p 9 Project Completion p f p SP-2 66kV Capacitor/Statcom 10 PPL/ICS: Transmission protection & stability study f f f f 11 PPL: EPC Bids, Contract Award (Advance procurement) f f f f f f * 12 Plant Delivery (Statcom) f f f f f f f f f f 13 Installation, Commissioning f f f f f f SP-3 11kV Feeder Open Loop Mesh, Capacitors & SP-1 Distribution 14 PPL: design, bid docs, bidding (with ICS suppport) f f f f f f 15 DSC: Evaluation Plant & Materials, Contracts Awarded p f f p* 16 Plant and Materials Delivery p f f f f f f f p 17 Installation Works bid docs, Bids and Contract Award f f f f f f * 18 Contract effectiveness f f 19 11kV Lines: Refurb, New Work, Switchgear, Capacitors p ffffffffffffff p 20 Progressive Commissioning ffffffffffffff SP-4 Loss Reduction Programme 21 PPL: Pilot Study Design, Equipment procurement f f f f f f 22 DSC: Programme reviews and outcomes assessment f f f 23 PPL: Field Assessment (Start existing PPL equipment) f f f f f f f f f 24 PPL: Plant/materials procurement (added to SP3) f f f f f f f 25 PPL: Corrective Action, Pilot Feeder f f f f f f 26 PPL: Plan/design/review POM network corrective action f f f f f SP-5 Rouna Hydro Power Station Replacement (6MW new) 27 PPL: Preliminary Works (incl tendering for services) f f f f f f f f f 28 DSC: Design, ICB Docs Preparation and Approval f f f f f f 29 Tendering Process and Contract Award f f f f f f * 30 Contractor design ffffffffffff 31 Equipment Procurement ffffffffffff p 32 Civil Works ffffffffffffffffffffffff p 33 Water Control Plants Works p f f f f f f f p 34 Power Plant and Substation Works p fffffffffffff p 35 Commissioning p p SP-6 Sirinumu Hydropower Station Rehabilitation (1.6MW) 36 PPL: Preliminary Works p f f f f f p 37 DSC: ICB Docs Preparation and Approval f f f f 38 Tendering Process and Contract Award f f f f* 39 Equipment Manufacture, Supply and Delivery ffffffffffff 40 Intake Gate, Draft tube gate Refurbish p p 41 Guard Valve remove and install new. p f p 42 Turb/Gen Removal, Install new Turbine, Generator & MIV f f f f f 43 Switchgear and C&P equipment installation f f 44 Cone valve removal and install new f 45 Commissioning f
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17 CONCLUSIONS AND RECOMMENDATIONS
17.1 Conclusions
402. This report concludes the following: (i) Six subprojects have been identified that meet ABD and PPL technical, financial and economic criteria for implementation. (ii) That the Project will contribute significantly to substantial reductions in PPL overall reliability problems, allow expanded connections and load growth to support the greater economic development of Port Moresby whilst also providing connections to approximately 3,000 poor families. (iii) PPLs financial capacity is sufficient to service a projected US$ 80-85 million Loan at the estimated project costs, noting that PPL have an ambitious capital development programme over the next ten years. (iv) PPL procurement practices require amendment to be in compliance with ADB procurement procedures. If adopted as common PPL practice this would support improved project implementation for future international funding agency loans.
17.2 Primary Recommendations
403. Table 29 below summarises the subprojects recommended for implementation along with a summary of base project costs, financial and economic benefits. Table 29: Subproject Recommendations Project Cost FIRR FNPV EIRR ENPV US$ ma US$ m US$ m SP1: Kilakila Substation and Transmission line 11.53b 7.0 % 15.15 15.0 % 2.45 SP2: Substation Capacitor or Statcom 2.70 8.4 % 4.55 32.9 % 4.45 SP3: 11 kV Open Mesh 7.43 10.7 % 21.95 25.7 % 8.83 SP4a: Loss Reduction Programme 0.50 N/A (5.12) 10.6 % (0.13) SP4b: Energy Access Programme 2.07c SP5: Rouna 1 Replacement 25.23 15.0 % 95.96 18.3 % 16.6 SP6: Sirinumu Rehabilitation and Upgrade 7.87 13.3 % 24.88 16.5 % 3.30 Overall Project $57.33 10.2 % 146.19 17.7 % 29.20 a Excludes physical and price contingencies and taxes: b Includes distribution network costs of 2.93 m to connect SS into system: c PNG Government Grant of $ 2.5 m less contingencies and taxes. This additional subproject 4b is not within Consultant scope and was prepared by the Government of PNG and PPL.
17.3 Secondary Recommendations
404. Poor system reliability was identified as a key issue that drove the selection of the above subprojects. The underlying cause has been poor system operations and maintenance practices leading to a deteriorated system. The system is approaching capacity constraints as the PPL load growth accelerates due to recent economic factors detailed in this report. Thus there are potentially additional investments in the short term that may also require implementation. Also to assist in more rapid programme implementation and suggestions on a number of organisational enhancements are detailed in this Section. 405. For the essential actions identified below funding is proposed within the Loan. For the recommended actions following, no funding is provided for in the proposed Loan, but the recommendations may be subjects of additional funding within or without the Loan. 406. Essential Action 1. Section 3.6C identifies a number of poor system performance issues. Section 6.9 identified transient and stability issues in determining the viability of a Statcom installation. It is strongly recommended that PPL undertake thorough study of the issues using independent experts in protection, system transient and stability analysis and possibility harmonics
Final Report | 30 November 2012 Page | 79 TA 7783-PNG: Port Moresby Power Grid Development Project and governor AVR issues as well to identify and recommend long term solutions. It is proposed US$ 250,000 be included for Independent Consulting Services (ICS) to be procured under the loan and is included in the draft procurement plan in Appendix O. 407. Essential Action 2. Section 6.12 recommends that a planning team be established to undertake the 11 kV mesh detailed design. In support an ICS specialist in distribution planning is proposed and that a budget of US$ 100,000 is provided for these services. Procurement of SINCAL planning software is also proposed with appropriate training of PPL staff and IT equipment is implemented. Budget is included in the draft procurement plan in Appendix O of (i) US$ 120,000 for SINCAL, (ii) US$ 35,000 for training, and (iii) US$ 20,000 for IT equipment. 408. Essential Action 3. Section 15.2 recommends that during advance procurement ADB/PPL appoint a procurement specialist to support PPL align ADB procurement implementation criteria and PPL criteria. However, no funding is provided within this PPTA. 409. Recommended Action 1. Under Section 6.3 for Kilakila Substation implementation provision of a CBD 11 kV switch-room along with an additional underground express feeder from Konedobu is recommended. A cost estimate of US$ 1.89 m was prepared but PPL need to identify and progress land procurement before ADB safeguards can be initiated should ADB funding be sought. The proposed enhancements to create a “no break world class” high reliability CBD supply network encouraging greater investment into the CBD. 410. Recommended Action 2. There would appear to be necessary to resolve capacity constraints along the Waigani Drive development corridor and out to Gerehu. There are numerous solution options. It is suggested that appropriate study and design for due diligence analysis be advanced. This may then become a recommended project for additional funding. 411. Recommended Action 3. These two recommendations are operational and organisational issues and are outside the scope of this PPTA or of the proposed loan. (i) Section 3.6D identified that there was considerable scope to improve PPL asset management focus and to expand the development of System Master Planning with a strategic asset management focus. It is strongly recommended that PPL initiate procurement of a specialist advisor in strategic asset management master planning to develop necessary capacity within PPL teams. (ii) Section 14 also identified some organisation misalignment and suggests that PPL consider further strategic alignment of its organisational structure to provide focus on strategic organisational deliverables in support of maintenance and operational improvements and as required from the PNG Government Strategic Development Plan 2010-2030. 412. Recommended Action 4. PPL Distribution Design Manual was last revised January 1989. Section 6.11 of this DFR recommends updating of the manual in alignment with PPL asset management criteria and AS/NZS 7000:2010 ‘Overhead line design - Detailed procedures”. 413. Recommended Action 5. PPL review the application of the SCADA system to include (i) a real-time cascade management application be provided for the Rouna cascade, (ii) a distribution management application in support of automation and remote control of 11 kV switching devices, and (iii) that Sirinumu be included in the generation SCADA system. 414. Potential additional funding under this Loan. This PPTA raises several additional potential funding initiatives. These include: Recommended Actions 1 (CBD 11kV switch room) and 2 (Waigani Drive development corridor) above. Following on from SP4a, the loss reduction programme, a number of additional initiatives will be identified for possible works and funding. Following on from the cascade study, a separate TA from this PPTA, there may be additional capacity initiatives at Rouna and Sirinumu. Appendices follow:
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Appendix A Design and Monitoring Framework
CONTENTS Section I: Problem Tree Section II: Project Design and Monitoring Framework
I. PROBLEM TREE Reduced revenue for utility power health services services Impact on Lackof reserves generation public services services Low quality Low services Reduced of quality education Insufficient power Insufficientpower generation capacity generationcapacity
es es Insufficient maintenance maintenance
investment Discouraging Discouraging
Reduced Reduced employment employment employment employment opportuniti opportuniti Low Low capacity management PPL limited capacity capacity Impacts life life Regulatory Reduced Reduced of quality of quality
Poor O&M System planning Poor grid Lower Lower Lower Lower Poverty Poverty Poverty Poverty Impact on residential customers incomes incomes incomes incomes Increased Increased Port Moresby Moresby Port (core problem) (coreproblem) Unreliable power supply in Unreliablepower supply demand Lossof Increased new areas new revenue and expanding densityin CBD Reduced industrial efficiency inareas some distribution infrastructure infrastructure distribution Insufficient investment Lossesfor Lack of power transmission Lackpower of industrial sector industrialsector commercial and and of self High costs generation generation Crime Poor asset Increased management distribution gridsdistribution transmission and Low quality Low existing Low Low staff PPL image image morale morale limited Negative financing financing accessto corporative
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II. PROJECT DESIGN AND MONITORING FRAMEWORK
Data Sources and Design Performance Targets and Reporting Assumptions Summary Indicators Mechanisms and Risks Impact Assumptions PPL customers Reduced un-served demand by PMU Quarterly Improved power supply will (residential and 20 % in Port Moresby by the Reports encourage private sector business) end of 2016 (measured in MWh) and improve economic increase against January 2013 baseline conditions. economic Risks activities Other external factors will act to prevent the private sector from expanding and benefiting from the improved power supply. Outcome Assumptions PPL provides Reduced duration of outages to PPL Annual Report PPL continue to manage improved power customers109 by 42 % in Port grid effectively supply for Port Moresby by the end of 2016 Risks Moresby against January 2013 baseline Extended droughts effect hydropower utilisation Outputs Targets relative to January Assumptions 2013 baseline Design and Supervision 1. PPL PPL installs capacity of 6 MW at PPL Annual Report Consultants provide rehabilitates Rouna 1 by end 2016 adequate detailed design hydropower PPL rehabilitates Sirinumu Toe- PPL Annual Report Risks capacity of-dam hydropower plant to 1.6 PPL reassign key technical MW by end 2015 staff CO2 emissions reduced by PPL Annual Report Land ownership and 12,000 tCO2e annually by end environmental issues delay 2016 due to displaced diesel project implementation generation Shortage of civil works contractors Local civil works contractors have inadequate technical capacity 2. PPL Upgrade and installation of PPL Annual Report upgrades 30km of 11 kV distribution grid distribution to open loop mesh by end 2016 system on Port PPL connects 3,000 additional PPL Annual Report Moresby grid low-income customers, including female headed households, to electricity by January 2017 Conduct community workshops PPL Annual Report (with at least 50 % female participation) for all newly connected communities by December 2013 for capacity building on electricity safety, operation of prepayment meters, energy efficiency measures, and household utility budgeting Undertake workshops (at least PPL Annual Report 50 % female participation) in 5 communities by December 2013 on using electricity for increased income generation
109 Measured by Customer Average Interruption Duration Index (CAIDI).
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Data Sources and Design Performance Targets and Reporting Assumptions Summary Indicators Mechanisms and Risks 3. PPL Construction of one new PPL Annual Report upgrades substation by end 2016 substation Construction of 6.1 km double PPL Annual Report capacity circuit 66 kV transmission line by end 2016 Construction of either substation PPL Annual Report capacitors or statcom on two existing substations by end 2015 4. Efficient PMU meets annual target PPL Annual Report project contract awards and management disbursements services Conduct training activities for PMU staff and PPL PPL Annual Report management, including gender awareness training by Jan 2014 Activities with Milestones Inputs PPL rehabilitates hydropower capacity Asian Development Bank 1.1 Prepare design and bid documents by month 9 of each subproject (ADF) $15.0 million 1.2 Undertake community consultations, including at least 30 % women, Asian Development Bank by month 9 of each subproject (OCR) $51.7 million 1.3 Update the Rouna 1 due diligence report prior to award of civil works Government $16.3 million contract 1.4 Tender and award of civil works contracts by month 16 of each subproject 1.5 Commence construction activities by month 16 of each subproject 1.6 Equipment delivered to site by month 27 of each subproject 1.7 Completion of civil works construction by month 42 of each subproject
PPL upgrades distribution system on Port Moresby grid 2.1 Preparation of design and bid documents by month 4 2.2 Tendering and award of equipment packages by month 8 2.3 Contractor commence construction of distribution upgrades by month 12 of each subproject 2.4 Conduct community training workshops on electricity safety, operation of repayment meters, energy efficiency measures, and household utility budgeting by month 12 2.5 Undertake workshops (at least 50 % female participation) in 5 communities by month 12 on using electricity for increased income generation 2.4 Contractor complete construction of distribution upgrades by month 30 of each subproject
PPL constructs new substation capacity 3.1 Preparation of design and bid documents by month 7 3.2 Update the land acquisition/resettlement plan prior to contract award for Kilakila substation 3.3 Tendering and award of design, procure and construct packages by month 12 of each subproject 3.4 Contractor commence construction by month 15 of each subproject 3.5 Contractor complete construction by month 36 of each subproject
Efficient project management services 4.1 PMU established within PPL by month 2 4.2 Short-listing of consultants by month 2 4.3 Establish grievance redress mechanism (including at least one women member) by month 4 4.4 Award consulting contract by month 5 4.5 Fielding of consultants by month 6 ADB = Asian Development Bank, MWh = megawatt-hour, PMU = Project Management Unit, PPL = PNG Power Ltd.
Source: Asian Development Bank.
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Appendix B Individual Feasibility Studies (with IEEs) – refer Volume II
CONTENTS
Full Feasibility Reports follow for each of the six (6) subprojects. In addition a report on PSS/E studies covered as addition to Consultant scope is included.
B1: Subproject 1: Kilakila Substation and Transmission line B2: Subproject 2: Substation Capacitors or Statcom B3: Subproject 3: Upgrade of 11 kV System to Open Loop Mesh B4: Subproject 4: Loss Reduction Programme (LRP) and Energy Access B5: Subproject 5: Rouna 1 Hydropower Rehabilitation B6: Subproject 6: Sirinumu Toe of Dam Upgrade B7: PSS/E Planning Studies report:
Appendices in Volume IIA and IIB [Separate PDF Files including IEEs]
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Final Report | 30 November 2012 Page | 86 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix C - Sector Assessment
Appendix C Sector Assessment (Summary): Energy
Problem Tree for Energy
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Sector Results Framework (Energy)
Country Sector Outcomes Country Sector Outputs ADB Sector Operations Outcomes with Indicators with Outputs Indicators with Planned and Main Outputs ADB Targets and with ADB Incremental Ongoing ADB Expected from Contribution Baselines Contribution Targets Interventions ADB Interventions Improved Additional Improved Additional power Planned key activity Planned key conditions for power power supply generation areas activity areas commercial generation in provincial capacity by Construction of Upgraded activity through capacity to towns hydropower (GWh power generation transmission and provision of meet per year) in five to supply demand distribution systems reliable, anticipated Improved provincial urban in provincial towns sustainable, demand power supply centers (from 0 and the main grids Clean energy and more increases for the Port GWh in 2011 to Upgrades to generation affordable (additional 100 Moresby grid 120 GWh in 2015) distribution power in urban MW by 2015) systems areas Improved Additional Construction of Improved demand side hydropower clean energy conditions for management generation for the generation commercial and Port Moresby grid Improved demand- industrial power (additional 7.6 side and supply- customers MW by 2016) side efficiency (reduced self- generation by Improved Pipeline projects 50% by 2015 in efficiency in Port Moresby target towns) power usage Power Grid (improved Development Improved demand-side Project (US$ 83 reliability of efficiency by 50 million) power supply MWh by 2015) by reduced Ongoing projects power outages Town Electrification in target urban (US$ 150 million) areas (measure Improved Power to be Supply to Poor determined) Communities (US$ 5 million) TA 6485-REG: Promoting Energy Efficiency in the Pacific TA-7329 REG: Promoting Renewable Energy in the Pacific (US$ 1 million) Improved Reduced Increased Increased number Planned key activity Planned key access to power household number of of households areas activity areas supplies for expenditure on Households with access to Provision of power households energy services connected to power (40,000 Pipeline projects and lighting (10% reduction power supply additional by Port Moresby services to un- in target group 2015) Power Grid serviced by 2015) Development households Project (US$ 83 Increased million) household income (20% Ongoing projects increase target Town Electrification group by 2015) (US$ 150 million) Improved Power Supply to Poor Communities (US$ 5 million) GWh = gigawatt-hour, MW = megawatt, MWh = megawatt-hour, REG = regional, TA = technical assistance Source: ADB estimates.
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Appendix D Development Coordination
Major Development Partners – Energy Sector Activities Amount Period of Development Partner Project Name (US$ million) Implementation Asian Development 1. ADTA 4932-PNG Power Sector Development Plan. 0.5 Completed Assisted Department of Petroleum and Energy in (2009) Bank preparation of national power sector development plan.
2. Town Electrification Investment Programme. 120 2012-2016 US$ 120 million Multitranche Financing Facility (MFF) to support PNG Power with renewable energy (hydropower) supply to provincial centers (Total project costs US$ 150 million). Tranche 1 includes (i) Divune Hydropower Plant, (ii) Ramazon Hydropower Plant, and (iii) Lake Hargy Interconnection. MFF approved by ADB Board December 2010. Project start up activities ongoing (land acquisition, site surveys, geotechnical analysis, detailed design).
3. Improved Energy Access for Rural Communities. 5.0 2012-2016 US$ 5 million grant (co-financed by the Government of New Zealand and the Government of Japan through the ADB administered Japan Fund for Poverty Reduction). Approved by the ADB Board April 2012. Will support distribution grid extensions through trialing of community based civil works contracts and rural prepayment meters.
4. PATA. Implementation of the Electricity Industry 1.0 2013-2016 Policy. Proposed 2012 policy and advisory technical assistance project.
5. RETA: 7329-REG: Promoting Renewable Energy in 1.0 2010-2013 the Pacific. Regional technical assistance which is supporting renewable energy in 3 countries, including PNG. Proposed support for Rouna hydropower cascade development plan and capacity building. Consultant recruitment ongoing.
6. Promoting Energy Efficiency in the Pacific – Phase 2: 12.5 (5 2012-2015 US$ 12 million project across 5 countries to upscale energy countries) efficiency. Funding approved, project has commenced and initial scoping studies are being undertaken in all countries, including PNG.
World Bank 1. Technical assistance in the areas of policy and strategy in the electricity sector, with a focus on rural and renewable energy;
2. Capacity building to assist the Government in preparing for its role in new hydropower projects;
3. Technical assistance in developing the Naoro Brown hydropower project to supply the Port Moresby grid and setting the stage for further hydropower developments in the Port Moresby area.
4. Enhanced Legal Administration of Petroleum License Database Management System
5. Petroleum Sector Technical Assistance
6. Teachers’ Solar Lighting
European Investment 1. Ongoing discussions with PNG Power Ltd on Bank Naoro/Brown hydropower scheme. 2. Discussions with private sector for development of geothermal power schemes to supply the Ramu/Highlands grid.
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Amount Period of Development Partner Project Name (US$ million) Implementation
Ramu Transmission System Reinforcement Project: Japan International st Cooperation Agency Completed the 1 preparatory survey in mid-March 2011. The proposed scope is to reinforce the Ramu-Lae 132kV transmission line, which transports 2/3 of the total demand on the System. Proposed components include (i) duplicating the Ramu-Lae 132kV single circuit, (ii) upgrading the line protection system, and (iii) Upgrading the communication system at selected substations
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Appendix E PPL Financial Analysis & Management Assessment
CONTENTS
Section I: Introduction Section II: PNG Power Limited (PPL) Historical Financial Performance Section III: PPL Financial Projections & Impact of the Proposed Project on PPL Finances Section IV: Assessment of PPL Financial Management
Annexure 1: Financial Management Assessment Questionnaire
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PAPUA NEW GUINEA: PORT MORESBY POWER GRID DEVELOPMENT PROJECT FINANCIAL ANALYSIS OF PPL
I. INTRODUCTION
1. Background and Objective of Study. The Implementing Agency (IA) for the proposed Port Moresby Power Grid Development Project (POM_PGDP) is PNG Power Limited (PPL). The Terms of Reference (ToR) under TA7783-PNG requires the Consultant to, inter alia, (i) conduct a detailed review of the financial statements for the past 5 years and assess PPL’s historical financial performance, tariffs, capital structure and capability to service debt at present and in the future (iii) prepare financial projections and (ii) conduct a financial management assessment of PPL. 2. The analysis examines the current financial status and historical financial performance of the Project Implementing Agency (IA), PPL, during the past five years. Financial projections are then carried out for PPL based on a series of assumptions to assess its financial sustainability and ability to service the proposed ADB loan. Furthermore, a financial management assessment of PPL was carried out using the ADB’s Financial Management Assessment Questionnaire (FMAQ)110. The results of the assessment and the completed FMAQ’s are presented in this appendix.
II. PNG POWER LIMITED (PPL) HISTORICAL FINANCIAL PERFORMANCE
3. Introduction. PNG Power Limited (PPL) is a public corporation of the Papua New Guinea Government. It was incorporated in 2002 to take over the assets and liabilities of the then Papua New Guinea Electricity Commission (ELCOM). PPL is a vertically integrated utility which is responsible for generation, transmission and distribution of electricity throughout PNG. During the last reported financial period ending 31 December 2011, PPL had a turnover of K629 million made a net profit of K12.5 million had an asset base of K1.3 billion and employed 1,705 people. The PPL service area covers almost all urban centres throughout the country and where possible extends the coverage to rural communities adjacent to these urban centres. 4. According to PPL’s Production Report included with its Management Accounts for December 2011, PPL’s generation comprises 337 MW of installed capacity of which 159 MW (47 %) is hydro based and 178 MW (53 %) is thermal based. Its operations centre around three isolated systems in Port Moresby (147 MW), Ramu (129 MW), Gazelle (17 MW). There are also 14 regional centres (44 MW) throughout the country. In the year 2011, 1,017 GWh of electricity was generated, of which 66 % was from the PPL hydro system, 18 % from the PPL thermal systems, 15 % from the thermal based Independent Power Producer (IPP) at Kanudi and 1 % from PNG Forest Products Limited which operates the hydro plant at Baiunne. Sales of electricity were 801 GWh and the resultant system loss factor was 21 %111. The Port Moresby system generated 494 GWh in 2011 (49 % of total generation) of which 60 % was from hydro generation. The transmission system comprises of 1,068 km of 132 kV, 66 kV and 33 kV lines of which 66 kV accounts for 786 km (74 %). PPL also has over 4,500 km of distribution lines connected to the transmission system. The PPL has some 90,000 electricity consumers of which about half of them are in Port Moresby. 5. PPL Experience with Implementing Donor Funded Projects. PPL has implemented four loans for the ADB, the last as far back as in 1986112. The Towns Electrification Investment Programme (TEIP) has been processed by the ADB but loan at July 2012 not yet effective, thus disbursement is yet to commence. In addition to these Bank funded projects, PPL also implemented the World Bank funded Teachers Solar Lighting Project (US$ 1 million), 2003-2010 and the Sustainable Energy Financing Project. 6. PPL Historical Financial Performance. PPL’s revenues from the sale of electricity and related activities (new meters, meter testing and reconnection) account for 99 % of all revenues. During the past five year period (2007-2011), largely as a result of the significant hydropower in PPL’s generation mix, it has been in a position to report positive operating and net profits in all
110 Financial Management and Analysis of Projects, ADB 2005. 111 The 21 % is based on total system financial records. When adjusting for end of year meter reading timing actual system losses in the Port Moresby area for 2011 was 22 %. 112 ADB Loan 0805: Ramu Grid Reinforcement Project for $19.5 million. Loan 0965 for the Divune Hydropower Project in 1989 failed to proceed.
Final Report | 30 November 2012 Page | 92 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix E - PPL Financial Analysis years. The operating expenses are roughly split equally among fuel expenses, expenses for purchased power and other operating expenses that include repairs and maintenance and direct staff expenses. 7. PPL Audit Report. The Consultant was provided with a set of financial statements by PPL for 2007-2011. Whilst 2007 and 2009 (and consequently the previous years 2006 and 2008) are in the form of an Annual Report the others are not. An Audit Report is not published in the Annual Report as is the generally accepted practice. The Consultant was informed that the Audit Reports for 2010 and 2011 have still not been issued and a request was made to furnish the Audit Reports from 2007-2009. As at issue of this report PPL had not provided requested data for review. The analysis below is based on the financial statements submitted. 8. Re-statement of Previous Year Account Balances. PPL financial statements for 2006, 2008 and 2009 have been re-stated in subsequent years. The 2008 re-statement relates to fuel account where fuel expenses for the year ended 31 December 2008 were under-stated by K13 million. In 2010, electricity rebates to consumers amounting to K7.7 million were not accounted resulting in an understatement of expenditure. Furthermore, cost of projects commissioned but still reported under works-in-progress at a cost of K10.9 million and the related depreciation charge of K8 million were not transferred to fixed assets. The re-statement of financial statements after finalisation of accounts is a matter of concern and it is not acceptable practice to adjust finalised financial statements subsequently when errors and omissions become known, especially if this is a regular occurrence. 9. Tariff Setting. The PPL retail tariff is subject to economic regulation by the regulator, the Independent Consumer and Competition Commission (ICCC)113. An Electricity Regulatory Contract (ERC) for a period of 10 years to 31 December 2011 was established between ICCC and PPL. The period of the ERC has been extended up to 31 December 2012 and from 2013 it is expected that a new ERC will be put in place for a period of 5 years. 10. The ERC provides the mechanism for establishing and changing retail tariffs and sets out the required service and performance levels. The ERC takes into account the revenue requirement of PPL in terms of operating expenses and in terms of assets, by allowing a return on its initial and new assets. Under the ERC, changes in costs are not immediately passed on to the consumer through the retail tariff, but only passed on in the next financial year after a recalculation at the year end. This has resulted in a rather erratic financial performance of PPL, especially in 2008 and 2009. In 2008, when international fuel prices rose rapidly but PPL was not able to pass on that increase to the consumer until 2009, at which time the fuel prices had reduced from its peak the previous year. As a result a huge increase in profits is reported in 2009 and almost breakeven profits in 2008, although there has been no change in PPL operating efficiencies. 11. There has been verbal agreement with ICCC to change the price re-set mechanism on a quarterly basis in the new ERC. 12. ICCC has approved a 14.59 % tariff increase114 (nominal terms) for 2012, based on submissions by PPL on their revenue requirement. This relatively large increase is due to the large capital expenditure budgeted for 2012 (K82 million) and the resultant return on assets in the revenue requirement. During the period 2007-2011, ICC approved price increases in nominal terms of 12 %, 0 %, 13.8 %, -4.8 % and 9.9 % respectively averaging 3.5 % annual increase. These large swings, significantly influenced by the fuel price volatility, contributed to the PPL profit volatility. Table 30: PPL - Key Historical Financial Data (Kina millions) Year ending 31 December 2007 2008 2009 2010 2011 Sales in GWh 671 765 707 754 801 Gross Production GWh 820 851 898 965 1,018 Operational Revenue Electricity Sales 385 435 500 530 622 Related Sales 2 1 2 2 2 Other 11 5 6 6 4 Total Operating Revenue 398 442 508 538 629
113 ICCC established under the Independent Consumer and Competition Commission Act, 2002 and consists of two Commissioners and a five member executive management team. 114 ICCC, Office of the Commissioner and CEO, 1 December 2011.
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Year ending 31 December 2007 2008 2009 2010 2011 Operating Expenses Fuel 79 143 97 125 152 Purchased Electricity 84 99 78 98 100 Other Operating Expenses 60 103 92 118 174 Administration Expenses 86 53 118 136 105 Depreciation 27 30 30 35 52 Total Operating Expenses 336 428 415 512 583 Operating Profit / (Loss) 62 14 92 26 46 Finance Cost 6 6 6 14 29 Profit before Tax 56 8 86 12 17 Taxation (16) (2) 12 (3) (5) Net Profit / (Loss) for Year 40 6 97 9 13 Source: PPL 13. PPL’s sales volume grew by 6 % per annum on average during the last five years, over 2007-2011. PPL has increased it hydro based generation from 65 % of total generation in 2007 to 67 % by 2011. In the Port Moresby system which accounts for 49 % of generation the hydro generation has increased significantly from 50 % to 60 % whilst in the Ramu system which accounts for 38 % of generation hydro based generation has decreased from 99 % to 90 %.The increased hydro in the generation mix should have contributed to an improved financial result year on year. However, the sharp rise in fuel costs in 2008 and the delayed tariff re-set under the ERC have partly obscured this impact. 14. PPL’s fuel cost has increased by 18 % per annum on average over the last five years. As a result the fuel cost of thermal generation which was K0.60 /kWh in 2007 was K0.83 /kWh in 2011. The average delivered price of fuel to PPL was K2.50/litre in 2007 and in 2011 it was K2.96/litre (peaking in 2008 at K3.35/litre) an increase of 4.3 % on average per annum. According to PPL statistics, fuel consumption increased from 31.5 million litres in 2007 to 51.3 million litres in 2011 an average annual increase of 13 % whilst thermal generation increased from 131 GWh in 2007 to 182 GWh in 2011, an average annual increase of only 9 %.. 15. PPL purchases electricity from the Hanjung Kanudi IPP with a capacity of 24 MW which has consistently delivered approximately 153 GWh (15 % of total generation) energy into the Port Moresby system. The PPA will expire in 2014 and PPL has the option of extension of the PPA or buy back of the plant. This PPA is based on a two part tariff; a Capacity Charge which is based on a fixed rate for capacity and fixed O&M and a part of which varies according to USCPI and a variable O&M charge which recovers the fuel cost. Approximately 97 % of the Purchased Electricity cost is from this IPP and the average cost to PPL is K0.64/kWh. The average fuel cost alone for PPL plants is K0.83 /kWh and it is only blended with the hydro generation costs that PPL cost of production is K0.57/kWh. 16. PPL has entered in to a PPA with PNG Forest Products Limited (PNGFP). PNGFP generates power from its Biaunne Hydropower Plant (existing 4 MW and new up to 9 MW by 2013) and supplies power that is in excess of its requirements into the Ramu power system. In 2011, PPL purchased 10 GWh of energy from PNGFP at an average cost of K0.27/kWh. Up to 30 GWh of energy will be available with the commissioning of the new plant by PNGFP in 2013. This is a profitable arrangement for PPL considering that its average cost of production is K0.57 /kWh and average tariff K0.78/kWh. 17. PPL has an arrangement to supply power to the Morobe Mining Joint Venture (MMJV) / Hidden Valley, within the Ramu power system. Under this agreement, PPL agreed to supply 14 MW to Hidden Valley and any shortfall has to be paid by PPL on the basis of a rebate calculated on a quarterly basis. PPL is paid by the mining company on the basis of a base purchase price of K0.38 /kWh adjusted for inflation. The rebate paid by PPL to the mining company is based on the average quarterly price of diesel and an agreed heat rate. For the year 2011, there was an energy shortfall of 60 GWh and the corresponding rebate paid by PPL was a K22 million. During that year, PPL earned revenues from Hidden Valley of K13 million. It is expected that the rebate will substantially reduce or cease with the completion of the Yonki Toe of Dam Project in 2013 which will supply the Ramu system and Hidden Valley. 18. Other operating costs comprise of operating salaries and wages, repairs and maintenance, consumables and other expenses. Taken together, these expenses have increased substantially by
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31 % on average during the period 2007-2011. The reasons for this are twofold. First, is that the rebate paid by PPL to Hidden Valley of K 22 million is also included as an operating cost in 2011. Furthermore, direct salaries have increased significantly in real terms during this period due to re- organisation at PPL. 19. The interest charge to the Income Statement has increased from K6.2 million in 2007 to K28.6 million by 2011. Borrowings which were about K120 million in 2007 have also increased to K270 million by 2011. 20. The Table below presents some key PPL statistics over the period 2007-2011. The overall system has had a load growth of 6 % per annum on average and the Port Moresby System has also grown by about 6 % per annum on average. System losses, both technical and non-technical are high at 22 %115 and any reduction in the level of losses (as envisaged under POM_PGDP) will have an immediate impact on PPL profits. Hydropower generation in both the Port Moresby system and overall country-wide has increased over the last 5-year period. Table 31: PPL Key Technical Statistics Year ending 31 December 2007 2008 2009 2010 2011 Gross Generation (GWh) 820 851 898 965 1,018 Total Sales (GWh) 671 765 707 754 801 System Loss (%) 18 % 10 % 21 % 22 % 22 % Overall System Hydro Generation 65 % 65 % 66 % 66 % 67 % Overall System PPL Generation 81 % 81 % 83 % 83 % 84 % Gross Generation Port Moresby System (GWh) 393 418 441 485 494 Sales in Port Moresby System (GWh) 322 377 348 376 394 Hydro Generation in Port Moresby System 50 % 52 % 58 % 58 % 60 % Source: PPL 21. Tariffs and Cost Recovery. The ERC uses the Annual Revenue Requirement methodology for PPL (including a return on assets) to determine its starting average tariff, termed as the Maximum Average Price (MAP) in the ERC. The MAP would be adjusted in subsequent years according to the movement in the cost elements based on a weight-age for those elements. However, price re-sets are at the end of the financial period and as a result PPL has to finance any fluctuations in its cost structure during the year. This is especially relevant for the fuel price a period of rapidly rising prices. 22. Fuel is the most volatile factor in the MAP. The ERC takes into account the average fuel price for preceding 12 months up to September. This increase (or decrease as the case may be) is then applied to the MAP for the next 12 months up to the subsequent September. However, since it is an average of the preceding 12 months that is applied forward to the next year, this will create a significant lag in monetary terms as price rapidly rises. This is exactly the situation that took place in 2008, with serious financial consequences for PPL. As a result there is now a verbal agreement with ICCC to use the price reset mechanism on a quarterly basis. 23. During the ERC period 2002-2011, MAP has increased by 8.5 % per annum on average in nominal terms. Table 32: Tariff and Cost Recovery Year ending 31 December 2007 2008 2009 2010 2011 Average Tariff ($/kWh) after losses 0.57 0.57 0.71 0.70 0.78 Average Tariff ($/kWh) before losses 0.47 0.51 0.56 0.55 0.61 Fuel Cost ($/kWh) before losses 0.10 0.17 0.11 0.13 0.15 Cost of Production ($/kWh) before losses 0.41 0.50 0.45 0.53 0.57 Cost Recovery % 115 % 102 % 125 % 103 % 107 % Source: PPL and PPTA Consultant 24. As shown in the above table, PPL’s cost of production is being recovered through its tariff. Also in 2011, PPL lost K0.17 /kWh due to power losses for technical or non-technical reasons. Any reduction in losses will have a direct impact on its profitability.
115 The financial calculation at 21 % is at variance to the tabulated 22 % due to technical adjustments for timing of meter readings and incidences of major customer back billing due to metering error adjustments
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25. The cost recovery percentage although positive does not leave much of a margin since it is from this difference that finance costs and taxation is recovered. The profits after deduction of the above costs are then available for investment. 26. Affordability of Current Tariff. During the PPTA, a socioeconomic survey was carried out in the project area which, inter alia, also elicited responses to questions on the average electricity bill and household income. Findings from this survey indicate that the average monthly domestic electricity bill was K100 and the average monthly household income K 786. Therefore the cost of electricity is 13 % of the monthly income on average, which is high. As a general rule of thumb, utilities payments accounting for 5 % of income is considered affordable. 27. PPL’s Financial Position. Table 33 summarises PPL’s financial position presenting the changes in its assets and liabilities. The following paragraphs describe PPL’s assets and liabilities and their changes in greater detail. Table 33: PPL - Financial Position (Kina millions) As at 31 December 2007 2008 2009 2010 2011 Non-Current Assets Property, Plant and Equipment 612 719 852 1,017 1,050 Deferred Income Tax Assets 23 23 60 89 116 Total 635 742 913 1,106 1,165 Current Assets Inventories 57 62 42 35 40 Trade and Other Receivables 55 51 74 82 107 Funds in Trust for Rural Electrification 52 27 28 35 33 Cash and Cash Equivalents 1 1 1 1 1 Total 165 141 145 153 181 TOTAL ASSETS 800 882 1,058 1,260 1,346 Capital and Reserves Share Capital 151 151 151 151 151 Revaluation Reserve 158 158 158 158 158 Retained Earnings 182 187 284 294 306 Total 491 497 594 603 615 Non-Current Liabilities Employee Provisions 15 36 38 32 36 Borrowings 118 138 176 - - Deferred Income Tax Liability 56 57 89 121 152 Total 189 231 303 153 188 Current Liabilities Trade and Other Payables 63 79 120 164 208 Bank Overdraft 14 33 11 21 49 Income Tax Payable 12 13 6 6 6 Employee Provisions 26 12 5 19 7 Other Provisions 2 1 1 1 1 Current Portion of Borrowings 4 18 17 292 271 Total 120 155 161 503 543 TOTAL LIABILITIES 800 882 1,058 1,260 1,346 Source: PPL 28. Fixed Assets. PUC’s gross fixed assets increased from K968 million in 2007 to K1,472 million by 2011 an annual average increase of 11 %. PPL has averaged K140 million of capital expenditure each year from 2007-2011. These includes major projects undertaken during this period such as Rouna 2 Rehabilitation, Ramu 1 upgrade (on-going), substation and transmission line at Hidden Valley (on-going), Yonki Toe of Dam project (on-going) and the installation of 2x10 MW Gas Turbines at Kanudi. These investments in assets have been funded by long term loans and from operational cashflows. 29. Deferred Tax. The Deferred Tax asset and liability on PPL’s Balance Sheet reflects the temporary differences between the tax and accounting bases of assets and liabilities and attempts to smooth out the tax charge on a year by year basis. It is an accounting adjustment. 30. Inventory. The level of inventory has reduced from K57 million in 2007 to K40 million by 2011. This comprises of general stores, fuel oil, transformers and others. Of this fuel oil accounted
Final Report | 30 November 2012 Page | 96 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix E - PPL Financial Analysis for K10 million (24 days stock) as at the end of 2011 whilst it was K15 million (69 days stock) in 2007. General stores are the significant item of inventory and accounted for 70 % of total inventory in 2011. (2007: 66 %), i.e., K37 million at the end of 2007 and K25 million at the end of 2011. As a result the stock holding period for general stores has come down from 226 days in 2007 to 56 days by 2011. This has a favourable financial impact on PPL. In 2011, PPL has made a provision for stock obsolescence of about 5 % of value of the general stores held and over the period 2007- 2011. 31. Receivables. Trade receivables account for K55 million (51 %) of total receivables at 2011. (2007: 83 %). This amounts to 32 days outstanding billing (2007:42 days) which is satisfactory. The main reason for this is the prepayment for electricity due to the Easipay system. PPL has also provided for about 30 % of its receivables. An age analysis of receivables indicate that about 51 % are over 90 days and of this 34 % are in the Highlands which has proven difficult to collect for PPL. Furthermore, more than half the outstanding receivables exceeding 90 days are domestic consumers and 35 % are private sector general supply consumers. Unlike other developing countries, the outstanding government debtors are minimal. PPL has written off K9 million of receivables in 2008 and K6 million in 2011 and is of the view that a further K11 million needs to be written off from the provision as these accounts have been outstanding for over 5 years. Therefore a total of K26 million of sales (1 %) are uncollectible in a total turnover of K2.4 billion for 2007- 2011. Other receivables in the form of a prepaid Bank Draft have increased from K20 million in 2010 to K30 million by 2011. This is the advance payment required by overseas suppliers due to large capital expenditure being undertaken. 32. Funds in Trust for Rural Electrification (RE). These funds have been received from provincial governments and earmarked for RE and are deposited in separate bank accounts. 33. Employee Provisions. PPL has provided for several employee related costs such as leave encashment, e-gratia payments on their financial statements. These provisions are not externally funded, meaning that if PPL ceases business these will have to be paid - PPL also contributes to an external Superannuation Fund in compliance with PNG law. 34. Trade and Other Payables. Payables have increased substantially since 2007, from a total K63 million (103 days cost of sales) to K208 million(178 days). The Consultant has requested PPL to provide detailed account information to enable further analysis of this aspect. 35. Borrowings. In 2007, PPL entered into a credit facility with a consortium of banks for a total of K331 million, which was further increased to K418 million in 2009. These funds were designated to finance key projects in the coming years such as the purchase of 2X10 MW Gas Turbines at Kanudi, substation and transmission line in Hidden Valley, Yonki toe of dam project, Ramu 1 rehabilitation and Ramu fibre optics. The facility had a grace period of two years with repayments from February 2009 until 2015 and carried a lending rate of 9.45 %-1 % per annum. At the end of 2010, PPL experienced significant delays with its contractor for the Yonki project which resulted in the contract being terminated bringing the project work to a standstill. The financiers were informed and this resulted in further due diligence on their part. As a result, the financiers realised that PPL was not in compliance with all the financial covenants of the facility and disbursements were suspended for several months. This resulted in severe cashflow difficulties for PPL, which had to resort to short term high cost Bank Overdraft to finance some of the capital expenditure. Disbursements from this facility have re-commenced after negotiations with its bankers. The financial covenants of the facility and the PPL results are set out in Table 34 below. Table 34: PPL Financial Covenants of the Existing Consortium Lending Facility
Financial Covenant As Agreed Actual 31 December 2011 Interest Cover 4 times 2.89 times Debt Level Not Greater than 3.5 4.34 Equity Ratio Not Less than 45 % 51 % Source: PPL 36. Due to the suspension of disbursements under this facility for several months, PPL had to rely on its internal cashflow and its Bank Overdraft to finance some of this expenditure. PPLs’ Bank Overdraft rose to K49 million at the end of 2011 from K20 million at the end of the previous year. The Overdraft has since come down to K34million by the end of May 2012, with the disbursement of funds from the consortium facility commencing after a lapse of several months. Clearly some of
Final Report | 30 November 2012 Page | 97 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix E - PPL Financial Analysis the Overdraft was used to finance long term assets which is not prudent financial management but was unavoidable due to the curtailment of the long term facility. 37. PPL Cashflow Position. PPL has been financing its capital expenditure programme with both debt and operational cashflow and as a result has had very little funds available at the end of each year. In 2011, it also had to resort to its overdraft facilities for funding. Table 35: PPL Cashflows (Kina millions)
Year ending 31 December 2007 2008 2009 2010 2011 Cashflow from Operations 46 63 155 99 99 Cashflow from investing activities (112) (137) (172) (198) (78) Cashflow from financing activities 89 29 38 98 (50) Net Change in Cash and Cash Equivalents 23 (44) 22 (2) (30) Cash and Cash Equivalents at Beginning of Year 17 40 (5) 17 15 Cash and Cash Equivalents at end of Year 40 (5) 17 15 (15) Source: PPL 38. PPL Key Financial Ratios. PPL’s EBITDA (Earnings before interest, tax, depreciation and amortization) as well as its Profit Margin has fluctuated widely between 2007-2011, as a result of its peak in 2009 as a result of the tariff re-set mechanism. Nevertheless, PPL’s Profit Margin has been rather low at 2 % for both 2010 and 2011 due to increased depreciation, interest and taxation due to the large capital expenditure in these years. PPL’s Debt Service Coverage Ratio (DSCR), which is an indicator of its ability to service its debt stood at 1.8:1 at the end of 2011, indicating sufficient profits to service its current level of debt. PPL debt to equity ratio stood at 31:69 indicating capacity to take on more debt in its capital structure provided it can be serviced. Furthermore, PPL’s Current and Quick ratios, at 0.3:1, are well below the acceptable level since all debt is reported as current due to the non-compliance with loan covenants. Even if adjusted for this, the current (which should be about 1.3:1 and 1.1 respectively) the current ratio and quick ratios are 0.7:1 and 0.6:1. Table 36: PPL Key Financial Ratios
Year ending 31December 2007 2008 2009 2010 2011 EBITDA to Sales 22 % 10 % 24 % 11 % 16 % Profit Margin % 10 % 1 % 19 % 2 % 2 % Debt Service Coverage Ratio (DSCR) 6.8:1 4.4:1 6.5:1 1.6:1 1.8:1 Debt Equity Ratio 20:80 24:76 25:75 33:67 31:69 Current Ratio 1.4:1 0.9:1 0.9:1 0.3:1 0.3:1 Quick Ratio 0.9:1 0.5:1 0.6:1 0.2:1 0.3:1 Source: PPTA Consultant
III. PPL FINANCIAL PROJECTIONS & IMPACT OF PROJECT ON PPL FINANCES
39. The objective of preparing financial projections is to present the impact of the proposed project on PPL’s finances and also ascertain PPL’s financial sustainability if the proposed project is undertaken. The total cost of the project consists is estimated to be $83 million. 40. Financial projections have been prepared and presented in two scenarios for period 2012- 2020. Scenario 1 relates to without the project situation i.e., assuming the status quo to remain, Scenario 2 is based on the “with” project situation, on the basis that PPL undertakes the proposed project. Load forecast based on PPL projections which includes a long term load growth at 4 % per annum; Fuel price based on a 1.85 % per annum real price increase as advised by the Asian Development Bank; Local and Foreign Inflation rates based on Asian Development Bank forecasts which is 6.5 % for local inflation in 2012, 6 % in 2013 and 5 % thereafter and 0.5 % for international inflation;
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A nominal tariff increase estimated by PPL in their submission to ICCC for the second ERC (2013-2017) of 10.8 % in 2013, 9.8 % in 2014 and 9.5 % 2015-2017. This significant tariff increase is due to the intensive capital expenditure programme planned and the return on assets under the required revenue formula. However, these tariff increases are yet to be approved by ICCC. PPL long term tariff increase is assumed to increase at 5 % in nominal terms after the end of the second ERC; Generation mix based on PPL submission to ICCC for the second ERC, pending approval by ICCC and takes into account new hydropower plants of 3 MW each at Divune and Ramazon under the ADB TEIP expected to be commissioned in 2016, 10 MW additional capacity at Ramu I, on-going and expected to be commissioned in 2014 and 19 MW from Yonki Toe of Dam, on-going and expected to be commissioned in 2014; IPP cost for Kanudi assumed to be on the same terms as the current PPA, which is due to expire in 2014. Energy purchases from PNGFP PPA based on an energy purchase as determined by PPL, currently at 10.3 GWh but increasing to 31 GWh by 2014 with the increase of their capacity from 4 MW to 9 MW. There is also a planned purchase of up to 4.8 GWh from Rue Creek (2 X 0.5 MW), which is expected to be rehabilitated under a Rehabilitate Operate and Transfer (ROT) arrangement; It is assumed that the rebate paid for the under-supply of energy to Morobe Mining Joint Venture (MMJV) or Hidden Valley will cease by 2014 with the commissioning of the Yonki Toe of Dam which will supply that demand; System losses including both technical and non-technical losses amounted to 21 % financial at the end of 2011. It is assumed that losses will reduce by 0.5 % per annum based on general system improvements included in capital expenditure; The proposed ADB OCR116 loan will be for a 25-year period inclusive of 5 years grace. The interest rate will be based on the London Inter-bank Offered Rate (LIBOR) with a spread of 40 basis points117 and a maturity based premium of 0.1 %. It is assumed that the ADB funds will be on-lent by the government to PPL at the same rate. The proposed ADB ADF118 loan will be for a 40-year period inclusive of an 8-year grace period. The interest rate is 1 % per annum during the grace period and 1.5 % per annum thereafter. ADF loans do not have Commitment Charges but there is a charge of 0.15 % of the undisbursed balance on the OCR loan; The interest rate of the current BSP Consortium facility is assumed at 11 % with tenure of 10 years and it is assumed that JICA funding will be available for Ramu I upgrade, at the cost of 3 % and tenure of 20 years. 41. “With” Project Scenario. Under the “with” project scenario, the cost of the project, both capital and operational and as well as the benefits are taken into account. The results of the “with” and “without project” scenarios, in terms of revenue, net profit, net assets and net cash generation is presented in the paragraphs below. 42. Projected Electricity Revenue. Figure 4 presents the electricity revenue projections under the two scenarios. The total electricity revenues under both scenarios are very similar although it is slightly higher under the “with” project scenario due to sales of un-served energy as a result of system improvements with the project.
116 Ordinary Capital Resources. 117 The 15-year USD swap rate is used which was 2.36 % on 20 August 2012. 118 Asian Development Fund.
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Figure 4: Projected Electricity Revenue (K ‘000s)
43. PPL Net Profit or Loss. Figure 5 presents the profitability of PPL under the two scenarios. The net profits of PPL under the “with” project scenario is higher by approximately 4 % as compared to the “without” project. This is mainly due to cost savings from reduced thermal generation as a result of the proposed hydro expansion projects and improvements to the transmission and distribution system. Figure 5: Projected PPL Net Profit / (Loss) (K ‘000s)
44. PPL Net Assets. Net assets are defined as net Fixed Assets (net of accumulated depreciation) and Current Assets less Current and Long Term Liabilities, i.e. represented by capital and reserves. The higher profits under the “with” project scenario impact on the reserves and therefore net assets are higher than under “without” project. However, the liabilities taken on in earning those higher profits, i.e. the ADB loans result in the increase in net assets “with” project being approximately 2 % higher than those ‘without” the project.
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Figure 6: Projected Net Assets (K ‘000s)
45. Annual Net Cash Generation. Annual net cash generation relates to cash generated by PPL from operations and investments net of financing. Cash generation is the best indicator of financial sustainability. The net cash generation in the years up to 2015 is low due to a significant proportion of PPL capital expenditure being funded from its own operational cash flow. However, once this “heavy” capital expenditure period ends by 2015, the annual net cash generation increases very significantly. Figure 7: Projected Annual Net Cash Generation (K’000s)
46. Projected Financial Ratios. Table 37 below presents some key ratios based on the financial projections for the two scenarios.
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Table 37: Summary of PPL Financial Projections Year ending 31 December 2012 2013 2015 2019 2020 Operating Margin % Scenario 1 : “without” project 21 % 20 % 31 % 39 % 41 % Scenario 2 : “with” project 21 % 20 % 31 % 40 % 42 % Profit Margin % Scenario 1 : “without” project 6 % 5 % 13 % 22 % 23 % Scenario 2 : “with” project 6 % 5 % 13 % 23 % 25 % Debt Service Coverage Ratio (DSCR) Scenario 1 : “without” project 2.5:1 2.5:1 3.5:1 6.7:1 7.9:1 Scenario 2 : “with” project 2.5:1 2.5:1 3.4:1 6.3:1 7.3:1 Debt Equity Ratio Scenario 1 : “without” project 36:64 41:59 37:63 15:85 11:89 Scenario 2 : “with” project 36:64 43:57 43:57 19:81 15:85 Current Ratio Scenario 1 : “without” project 0.29:1 0.27:1 0.65:1 2.22:1 2.75:1 Scenario 2 : “with” project 0.29:1 0.25:1 0.61:1 2.26:1 2.81:1 Quick Ratio Scenario 1 : “without” project 0.22:1 0.2:1 0.50:1 2.05:1 2.57:1 Scenario 2 : “with” project 0.22:1 0.18:1 0.46:1 2.09:1 2.64:1
47. Projections reveal that PPL operating margin (defined as EBITDA / Sales) continues to remain healthy. During 2007-2011, PPL had an average operating margin of 17 % which is expected to improve with the proposed tariff increases and higher generation from hydro through the planned investments. The profit margin, which averaged 7 % during 2007-2011 continues to remain at the same level until 2015 with increased depreciation and finance charges, but then increases thereafter with benefits accruing from the capital projects. Under “with” project scenario these ratios improve in the later years. 48. The projected DSCR and debt to equity ratios remain acceptable during the period of projection. The DSCR improves to 2.5:1 in 2012 from 1.8:1 due to stronger tariff levels119 and continues to improve thereafter even with the higher debt service cost. The debt equity ratio which was 31:69 increases to 41:59 by 2013 and reduces thereafter due to servicing of debt. Even at its peak of 41:59, the debt equity ratio is acceptable and the DSCR indicates no issues in servicing that debt. Under the “with” project scenario, DSCR is marginally lower than “without” project but at 3.4:1 in 2015 and 7.3:1 by 2020 is acceptable. 49. The current ratio and quick ratios continue to remain at the 0.3:1 level which is due to all debt being reported under current liabilities due to non-compliance with BSP consortium loan covenants. However with improved profitability after 2017 these ratios improve to acceptable levels. However, by 2015 it is projected that this situation will pass and both ratios will well above 2:1 under both “with” and “without” project scenarios. This is acceptable. 50. Compliance with BSP Consortium Loan Covenants. The financial projections reveal that PPL will not be in compliance with the requirement that equity ratio (defined as equity to total assets) exceeds 45 % until 2015. In the case of the “with” project scenario, the level will not be reached until 2016. The equity ratio is between 41 % and 43 % until 2015. Feedback from PPL is that the consortium is aware of this fact but continues to disburse funds for earmarked projects.
IV. ASSESSMENT OF PPL FINANCIAL MANAGEMENT
51. Introduction. The financial management assessment will be carried out with the aid of the ADB FMAQ. The assessment covers a broad range of issues ranging from its legal status and statutory reporting requirements, fund flow arrangements, staffing, accounting policies and procedures, budgeting, internal controls and internal audit. The FMAQ will be administered primarily to the finance department of PPL. 52. Brief Description of PPL. PPL is a public corporation established in 2002 to take over the assets and liabilities of the then Papua New Guinea Electricity Commission (ELCOM).
119 ICCC approved a tariff increase of 14.59 % in nominal terms for PPL for the year 2012
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53. PPL is governed by a four member Board of Directors appointed by the government. The Chief Executive Officer (CEO) reports to the Board and is assisted by a Deputy Chief Executive Officer. There are General Managers for functional departments such as technical, operations, human resources, finance, commercial and corporate services. The General Manager Finance or the Chief Finance Officer (CFO) is an expatriate position has several Managers responsible separately for payments and accounts payables, receipts and accounts receivables, debt control, management accounting and reporting working under him. The accounting system is computerized on Oracle11 Database software, which operates on-line and in real time. PPL uses the inventory, purchases, cash and fixed assets modules/applications of Oracle although three separate software packages are interfaced with the Oracle database. Customer and billing data is maintained on Gentrack software; data from Easipay customers is captured via Suprema software; Chris 21 software is used for payroll. There are plans to migrate from the Gentrac system on to the Customer Services application on Oracle Database thus reducing the need for maintaining different software and reducing the cost of licenses for Gentrac. 54. Financial Reporting. Financial results are reported on a monthly basis to the PPL Board and the Executive Management Board. The monthly reporting is detailed and includes profit and loss, balance sheet and cashflow for the month and year-to-date, a commentary and other reports such as debtors’ analysis, overtime, annual leave and manpower report and the production report. These reports are produced off-system on MS Excel spread sheets using the Trial Balance from the Oracle Database. 55. Budgeting and Management Accounting. The annual budget is prepared off-system on Microsoft Excel and then uploaded on to the Oracle Database. Oracle then compares actual results with the budget and calculates variances on a monthly basis. Management accounts are prepared on a monthly basis using output from the database but input separately into MS Excel sheets. The budget is re-forecast mid-year in June and again uploaded on to the Database. 56. Internal Auditing. PPL has a separate Internal Audit unit consisting of 12 staff. The Senior Manager position, which is head of the unit, is vacant at present. The internal audit division in centralised within the PPL national office but conducts audits of the larger regional centres at least once every year. A work plan for each member is prepared annually together with systems documentation (for the system such as revenue or payments being audited), audit plan and transaction audit. The transaction audit is carried out on sampling basis and a higher sample is audited for high risk areas such as revenue. 57. External Auditing. The external auditor is the Auditor General of Papua New Guinea who assigns audit work to a private auditor on a rotational basis. The present auditor is PricewaterhouseCoopers whilst the previous auditor was KPMG, both based in Papua New Guinea. The Consultant has called for the Audit Reports of PPL, but such were not provided. 58. Results of the Financial Management Assessment. PPL financial management is generally satisfactory. Their financial statements are regularly audited by a professional firm with international affiliation. Annual budgets are prepared and compared against actual performance and any significant variances highlighted and reported on a monthly basis. The accounting system is computerized on an Oracle based integrated system. 59. PPL financial statements for 2006, 2008 and 2009 have been re-stated in subsequent years. The 2008 re-statement relates to fuel account where fuel expenses for the year ended 31 December 2008 were under-stated by K13 million. In 2010, electricity rebates to consumers amounting to K7.7 million were not accounted resulting in an understatement of expenditure. Furthermore, cost of projects commissioned but still reported under works-in-progress at a cost of K10.9 million and the related depreciation charge of K8 million were not transferred to fixed assets. The re-statement of financial statements in the subsequent year after finalisation of accounts for the period concerned is not good accounting practice and many of these errors and omissions have arisen due to lack of communication with other divisions. 60. The Management Letter issued by the auditor has raised several issues related to the non- reconciliation of general ledger balances with sub ledger balances. This is been looked into by PPL with the assistance of a Consultant with Oracle expertise. 61. Although PPL operates Oracle based integrated software, there are several other software packages that are used in conjunction, mainly as a result of the other software being in use prior to the transition to Oracle. PPL is considering integrating these functions into the Oracle database as
Final Report | 30 November 2012 Page | 103 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix E - PPL Financial Analysis far as possible and this should be pursued. There are also issues raised in the auditor’s Management Letter regarding non-reconciliation of account balances in these systems prior to transfer to Oracle general ledger. The Oracle database should be used to the full extent in financial reporting not only up to the Trial Balance stage but the final financial statements themselves. At present the financial statements are produced in MS Excel which is time consuming and error prone. The same holds true for bank reconciliations and preparation of the budget. It is important that the system is used to its full potential. 62. A number of internal control related issues highlighted by the auditors should have been resolved through the on-going internal auditing process. 63. Recommendations Arising from PPL Financial Management Assessment. As the IA, ADB would require PPL to maintain Statements of Expenditure (SoE) to support Withdrawal Applications and the maintenance of separate project accounts within the framework of the overall PPL financial statements. Assuming the project approvals precede as planned in the early part of 2013, the commencement of the project will be very close to the commencement of the ADB TEIP which was delayed. Therefore, this will be a new experience for the finance staff at PPL and it is important that they receive proper training prior to project implementation. 64. The finance staff must liaise with other relevant divisions of PPL during year-end finalisation of accounts to ensure that the proper cut-off procedures are followed, especially in the areas of inventory, capital works in progress and customer services where prior year adjustments have been made in the past. It is not acceptable practice to adjust finalised financial statements subsequently when errors and omissions become known, especially if this is a regular occurrence. 65. Once the reconciliation of the general ledgers and sub ledgers is completed by the Oracle consultant, it is necessary that this reconciliation process is carried out monthly in the future by PPL. Such reconciliations should be checked and signed off by the relevant managers. This is also important in areas where the outputs from other systems (Gentrack, Chris 21 and Suprema) are inputs to the Oracle based general ledger system. 66. The Oracle based system should be used to its full potential by limiting off-system work to a minimum. This applies to areas of financial reporting, bank reconciliations, budget preparation in particular. 67. The internal audit division must note the reconciliation and other internal controls highlighted in the auditor’s Management Letter and ensure that staff audit programmes capture work related to these areas.
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Annexure 1: Financial Management Assessment Questionnaire Topic Response Remarks 1. Implementing Agency 1.1 What is the entity’s legal status / Public Corporation set up in registration? 2002 as a successor company to the PNG Electricity Commission (ELCOM) 1.2 Has the entity implemented an externally- PPL has implemented four financed project in the past (if so, please ADB Loans the last being in provide details)? 1989. ADB TEIP project approved in 2012 1.3 What are the statutory reporting Annual audited financial requirements for the entity? statements 1.4 Is the governing body for the project Governance by a Board of Since the Board is independent? Directors appointed by the government there is some government influence 1.5 Is the organisational structure appropriate Yes for the needs of the project? 2. Funds Flow Arrangements 2.1 Describe (proposed) project funds flow ADB funds will flow to the It is assumed that the on- arrangements, including a chart and PNG government and will be lending rate will be the explanation of the flow of funds from ADB, on-lent to PPL same as the ADB to Govt government and other financiers. lending rate as in the TEIP 2.2 Are the (proposed) arrangements to Yes, This will need to be further transfer the proceeds of the loan (from the discussed with MoF. government / Finance Ministry) to the entity satisfactory? 2.3 What have been the major problems in the No past in receipt of funds by the entity? 2.4 In which bank will the Imprest Account be Bank of South Pacific opened? 2.5 Does the (proposed) project implementing No However, the ADB TEIP will unit (PIU) have experience in the commence implementation management of disbursements from ADB? shortly and PPL will be able to use that experience for the proposed project 2.7 Does the entity have/need a capacity to No. There are no exchange manage foreign exchange risks? risks as the funds will be on-lent in the local currency 2.8 How are the counterpart funds accessed? Through government budget There may also be some contribution from PPL. 2.9 How are payments made from the To be decided on counterpart funds? implementation 2.10 If part of the project is implemented by No communities or NGOs, does the PIU have the necessary reporting and monitoring features built into its systems to track the use of project proceeds by such agencies? 2.11 Are the beneficiaries required to contribute No to project costs? If beneficiaries have an option to contribute in kind (in the form of labour), are proper guidelines formulated to record and value the labour contribution?
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Topic Response Remarks 3. Staffing 3.1 What is the (proposed) organisational Headed by a CFO with PPL has an expatriate structure of the accounting department? managers for reporting, CFO. Attach an organisation chart. expenditure, revenue and debt collection. Each of the managers has team leaders, supervisors and officers. 3.2 Identify the (proposed) accounts staff, The project will have a including job title, responsibilities, separate Project educational background and professional Implementation unit experience. Attach job descriptions and CVs of key accounting staff. 3.3 Is the project finance and accounting Will be. Project staff will need to be function staffed adequately? identified and recruited. Some existing PPL staff may be seconded. 3.4 Is the finance and accounts staff Yes The majority are graduates adequately qualified and experienced? and there are 3 CPAs. 3.5 Is the project accounts and finance staff No However, they will also gain trained in ADB procedures? experience through ADB TEIP . 3.6 What is the duration of the contract with the There are some long term finance and accounts staff? contract staff 3.7 Indicate key positions not contracted yet, There are positions yet to be and the estimated date of appointment. filled and sometimes filled by casual staff in the Management Accounting division. 3.10 Does the project have written position Will have prior to descriptions that clearly define duties, implementation responsibilities, lines of supervision, and limits of authority for all of the officers, managers, and staff? 3.11 At what frequency are personnel Rarely transferred? 3.12 What is training policy for the finance and Mainly on the job training accounting staff? 4. Accounting Policies and Procedures 4.1 Does the entity have an accounting system Yes, see section under that allows for the proper recording of Accounting System below project financial transactions, including the allocation of expenditures in accordance with the respective components, disbursement categories, and sources of funds? Will the project use the entity accounting system? 4.2 Are controls in place concerning the Yes. Yes, the accounting preparation and approval of transactions, software requires ensuring that all transactions are correctly authorization for made and adequately explained? transactions at each level 4.3 Is the chart of accounts adequate to Yes properly account for and report on project activities and disbursement categories?
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Topic Response Remarks 4.4 Are cost allocations to the various funding Yes sources made accurately and in accordance with established agreements? 4.5 Are the General Ledger and subsidiary Yes, entries from subsidiary The auditor has raised ledgers reconciled and in balance? ledgers for Payroll, payables, some issues where certain receivables, fixed assets and balances are not inventory journalised into the reconciled. PPL has General Ledger and recruited a Consultant with reconciled Oracle expertise working for them to clear all non- reconciling items 4.6 Are all accounting and supporting Yes documents retained on a permanent basis in a defined system that allows authorized users easy access? Segregation of Duties 4.7 Are the following functional responsibilities Yes. Authorization to execute performed by different units or persons: (i) a transaction generally from authorization to execute a transaction; (ii) Engineering Division through recording of the transaction; and (iii) a duly authorized Purchase custody of assets involved in the Order and recording of transaction? transaction by finance and stores responsible for custody of assets 4.8 Are the functions of ordering, receiving, Yes, between the Ordering accounting for, and paying for goods and division, finance division and services appropriately segregated? stores. 4.9 Are bank reconciliations prepared by Yes, done by an officer who Bank reconciliation someone other than those who make or does not make or approve currently done by manually approve payments? payments. off-system but in future will be done through the Oracle System software Budgeting System 4.10 Do budgets include physical and financial Mainly financial targets targets? 4.11 Are budgets prepared for all significant Budget prepared in line with Budget could be prepared activities in sufficient detail to provide a financial statements format on the accounting system meaningful tool with which to monitor to facilitate comparison with but done off system on subsequent performance? actual Excel and then uploaded on to the Oracle database. 4.12 Are actual expenditures compared to the Yes, monthly. The budget is Although variances budget with reasonable frequency, and also re-forecast at mid-year. highlighted and explanations required for significant explanations given variations from the budget? 4.13 Are approvals for variations from the Generally in advance budget required in advance or after the fact? 4.14 Who is responsible for preparation and Prepared by finance and approval of budgets? approved by Board. However finance obtains data from all divisions 4.15 Are procedures in place to plan project Yes activities, collect information from the units in charge of the different components, and prepare the budgets?
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Topic Response Remarks 4.16 Are the project plans and budgets of project Yes Generally based on an activities realistic, based on valid increase of previous year assumptions, and developed by budget. knowledgeable individuals? Payments 4.17 Do invoice-processing procedures provide Yes It is important that supplier for: (i) Copies of purchase orders and statements are first receiving reports to be obtained directly reconciled with the supplier from issuing departments? (ii) Comparison balances in the general of invoice quantities, prices and terms, with ledger before payments are those indicated on the purchase order and made as recommended by with records of goods actually received? the auditor. This practice is (iii) Comparison of invoice quantities with being implemented by the those indicated on the receiving reports? payments section. (iv) Checking the accuracy of calculations? 4.18 Are all invoices stamped PAID, dated, Yes reviewed and approved, and clearly marked for account code assignment? 4.19 Do controls exist for the preparation of the Yes there is a separate payroll and are changes to the payroll payroll module on the properly authorized? accounting system in charge of separate officer. Policies And Procedures 4.20 What is the basis of accounting (e.g., cash, Accruals accrual)? 4.21 What accounting standards are followed? International Financial Reporting Standards 4.22 Does the project have an adequate policies Yes and procedures manual to guide activities and ensure staff accountability? 4.23 Is the accounting policy and procedure Yes, prepared by the This was prepared in 1993. manual updated for the project activities? auditors. No amendment has since been made. 4.24 Do procedures exist to ensure that only Yes authorized persons can alter or establish a new accounting principle, policy or procedure to be used by the entity? 4.25 Are there written policies and procedures Yes, detailed in the covering all routine financial management accounting policy manual and related administrative activities? 4.26 Do policies and procedures clearly define No conflict of interest and related party transactions (real and apparent) and provide safeguards to protect the organisation from them? 4.27 Are manuals distributed to appropriate Yes personnel?
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Topic Response Remarks Cash and Bank 4.28 Indicate names and positions of authorized James Kuma, Manager signatories in the bank accounts. Treasury & Expenditure, Brendon Raferty, CFO, Grant Hoffmeister, General Manager, Corporate Services, Esmond Pereira, Upaninga, Customer Services Manager 4.29 Does the organisation maintain an The Cash book in maintained adequate, up-to-date cashbook, recording on the Oracle system itself. receipts and payments? 4.30 Do controls exist for the collection, timely PPL has 21 collection deposit and recording of receipts at each centres and all collections collection location? are banked daily. 4.31 Are bank and cash reconciled on a monthly Yes basis? 4.32 Are all unusual items on the bank Yes The external auditor has reconciliation reviewed and approved by a noted some unusual items responsible official? in the Bank Reconciliation. These should be fully investigated by PPL. 4.33 Are all receipts deposited on a timely Yes basis? Safeguard over Assets 4.34 Is there a system of adequate safeguards Yes Fixed Assets Register is to protect assets from fraud, waste and maintained on the system abuse? using the fixed assets module 4.35 Are subsidiary records of fixed assets and Yes stocks kept up to date and reconciled with control accounts? 4.36 Are there periodic physical inventories of There is a bi-annual stock- . fixed assets and stocks? take and asset verification and also one at the year end 4.37 Are assets sufficiently covered by The major generation This is generally prudent insurance policies? complex assets are covered and accepted practice. by external insurance. Transmission and distribution equipment are not Other Offices and Implementing Entities 4.38 Are there any other regional offices or No executing entities participating in implementation? 4.39 Has the project established controls and Not applicable procedures for flow of funds, financial information, accountability, and audits in relation to the other offices or entities? 4.40 Does information among the different Not applicable offices/implementing agencies flow in an accurate and timely fashion? 4.41 Are periodic reconciliations performed Not applicable among the different offices/implementing agencies?
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Topic Response Remarks Other 4.42 Has the project advised employees, No beneficiaries and other recipients to whom to report if they suspect fraud, waste or misuse of project resources or property? 5. Internal Audit 5.1 Is there an internal audit department in the Yes 12 staff, head of division entity? currently vacant. Based at national office but conducts audits on regional centres as well. 5.2 What are the qualifications and experience Graduates some taking CPA of audit department staff? courses 5.3 To whom does the internal auditor report? The Board of Directors 5.4 Will the internal audit department include Yes the project in its work programme? 5.5 Are actions taken on the internal audit Yes findings? 6. External Audit 6.1 Is the entity financial statement audited Yes by the Auditor General regularly by an independent auditor? Who who assigns it to an Audit is the auditor? firm on rotation. Current auditors are KPMG and previous auditors were Deloitte 6.2 Are there any delays in audit of the entity? Audit conducted but audit 2010 audit has still not When are the audit reports issued? report not sighted been signed off by the AG. Audit report and opinion for any year not available which generally is published in the Annual Report. 6.3 Is the audit of the entity conducted International Standards according to the International Standards on Auditing? 6.4 Were there any major accountability issues Audit report not sighted brought out in the audit report of the past three years? 6.5 Will the entity auditor audit the project Same auditor will audit accounts or will another auditor be appointed to audit the project financial statements? 6.6 Are there any recommendations made by PPL in the process of However, some internal the auditors in prior audit reports or responding to the issues control issues highlighted in management letters that have not yet been raised by the auditor the auditor’s Management implemented? Letter. The issue of non- reconciliation of sub ledgers and the general ledger in the Oracle system is being addressed through the recruitment of a Consultant to clear all such balances.
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Topic Response Remarks 6.7 Is the project subject to any kind of audit As set out earlier. from an independent governmental entity (e.g., the supreme audit institution) in addition to the external audit? 6.8 Has the project prepared acceptable terms Will do of reference for an annual project audit? 7. Reporting and Monitoring 7.1 Are financial statements prepared for the International standards entity? In accordance with which accounting standards? 7.2 Are financial statements prepared for the Yes will be implementing unit? 7.3 What is the frequency of preparation of Monthly reporting. Financial financial statements? Are the reports statements and key indictors prepared in a timely fashion so as to useful published for Board and to management for decision making? senior management review 7.4 Does the reporting system need to be Yes The Chart of Accounts can adapted to report on the project be updated with project components? account details 7.5 Does the reporting system have the No capacity to link the financial information with the project's physical progress? If separate systems are used to gather and compile physical data, what controls are in place to reduce the risk that the physical data may not synchronise with the financial data? 7.6 Does the project have established financial Will have management reporting responsibilities that specify what reports are to be prepared, what they are to contain, and how they are to be used? 7.7 Are financial management reports used by Yes management? 7.8 Do the financial reports compare actual Yes, with variance analysis expenditures with budgeted and programmed allocations? 7.9 Are financial reports prepared directly by The system prepares up to System being updated to the automated accounting system or are Trial Balance. Thereafter off- enable production of they prepared by spread sheets or some system through spread financial statements in their other means? sheets final form
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Topic Response Remarks 8. Information Systems 8.1 Is the financial management system Yes. Oracle 11 Database The IT department has computerized? integrated software on-line plans to move away from real time system. The Gentrac (as it is costly to Easipay transactions are use with user license and captured using Suprema annual license costs) into software which is then the Customer Service transferred real time to the module of Oracle. This also Oracle Database. The sales will reduce efforts at and customer data is in reconciling balances at software called Gentrac each point of transfer which is again transferred to Oracle. The payroll transactions are maintained using software called Chris21 and transferred to the Oracle on a fortnightly basis. 8.2 Can the system produce the necessary Yes project financial reports? 8.3 Is the staff adequately trained to maintain Yes. They also have support the system? from a full time Consultant and also on-line support from Oracle Australia 8.4 Does the management organisation and Yes. There is password The Chris 21 and Oracle processing system safeguard the protection at every level for systems are not configured confidentiality, integrity and availability of data entry into the system to test for age of password the data? and authorization to process and therefore there is no the transactions. Passwords requirement to change are changed regularly. Data passwords. is backed up daily and PPL is looking at an off-site Disaster Recovery System. RSCG August 2006
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Appendix F Subproject and Overall Financial Analysis
CONTENTS Section I: Introduction Section II: Framework for Financial Analysis and Assumptions used Section III: Weighted Average Cost of Capital (WACC) Section IV: Financial Analysis of the Subprojects 1. Subproject 1: Kilakila Substation and Transmission Line 2. Subproject 2: Capacitor Banks or Statcom 3. Subproject 3: 11 kV Mesh 4. Subproject 4: Loss Reduction and Energy Access 5. Subproject 5: Rouna 1 Refurbishment 6. Subproject 6: Sirinumu Rehabilitation Section V: Financial Analysis Overall Project
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PAPUA NEW GUINEA: PORT MORESBY POWER GRID DEVELOPMENT PROJECT SUBPROJECT FINANCIAL ANALYSIS
I. INTRODUCTION
1. The Project. Financial analysis has been prepared in accordance with Asian Development Bank (ADB) Financial Management and Analysis of Projects.120 The financial analysis was conducted to determine the financial viability and sustainability of the proposed project consisting of six subprojects; (i) new substation at Kilakila, (ii) installation of capacitor or Statcom banks, (iii) 11 kV mesh, (iv) loss reduction and energy access, (v) refurbishment of 6 MW hydro plant at Rouna 1, and (vi) replacement of equipment at Sirinumu hydro plant. The implementation of these activities is expected to be carried out by the state-owned power utility, PNG Power Limited (PPL). The financial analysis was conducted separately for each subproject and for the project as a whole. 2. Methodology. The analysis was done using a cashflow analysis by projecting future revenue and cost streams from the project based on certain assumptions. Two streams of cashflows were developed, “with” and “without” project and the incremental cashflow determined. This stream of incremental cashflow is then discounted to its present value and financial indicators such as the Financial Internal Rate of Return (FIRR) and Financial Net Present Value (FNPV) calculated. The Weighted Average Cost of Capital (WACC) is determined based on the source and cost of financing which is then used as a benchmark to compare with the FIRR and FNPV.
II. FRAMEWORK FOR FINANCIAL ANALYSIS AND ASSUMPTIONS USED
3. Framework for financial analysis. The framework for the financial analysis consists of (i) the project cost estimates / investment plan (ii) project operating plan (iii) project financing plan. The project cost estimates include information from the technical analysis of expected annual capital expenditure during project implementation including civil works, equipment, consultancy services, project management and physical contingencies. The project operating plan provides projections of expected revenues and operating costs throughout implementation. The financing plan identifies sources of debt and equity financing of the project which includes the amount of equity contribution from the Government. 4. Financial Indicators. The profitability of the project to its owner, PPL, is indicated by its FIRR. The FIRR indicates the rate of return the project is returning to its investor. The FIRR is compared to the WACC, another financial indicator, which indicates the cost of funds from the sources from which the project is financed. 5. General Assumptions used in the Financial Analysis. (i) a 30 year project economic life (ii) no residual value assumed at the end of the 30 year period (iii) all costs based on 2012 constant prices (iv) corporate taxation at 30 % (v) the average cost of production based on 2011 actual of K0.57 /kWh and has been projected based on the generation mix and other cost assumptions used for PPL financial projections (vi) average tariff based on 2011 actual of K0.78 /kWh adjusted for losses and projected by the real tariff increase submitted by PPL for approval by the regulator. This involves a nominal tariff increase of 14.59 % for 2012 (already approved by the regulator), 10.8 % for 2013, 9.8 % for 2014 and 9.5 % each for 2015 and 2016 and 2017. 2013- 2017 covers the period of the second regulatory contract for which and these tariff increases have been submitted by PPL to the regulator based on its annual revenue requirement. The long term nominal tariff increase is assumed to be 5 %, in line with inflation.
III. WEIGHTED AVERAGE COST OF CAPITAL (WACC)
6. The WACC has been calculated in real terms for the project. The funding sources are the ADB and Government / PPL Funds. Two sources of ADB funding will be used. US$ 15 million from ADB’s concessionary lending window, ADF121, and the other from ADB’s commercial lending window, OCR122. The ADF will carry will have a tenure of 40 years inclusive of a grace period of 8
120 ADB. 2005. Financial Management and Analysis of Projects. Manila. 121 Asian Development Fund. 122 Ordinary Capital Resources.
Final Report | 30 November 2012 Page | 114 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix F - Financial Analysis years and carry an interest rate of 1 % per annum during the grace period and 1.5 % per annum during the repayment period. The OCR loan will be at the 15-year LIBOR USD swap rate, currently at 2.36 %123 to which the ADB will add a spread of 0.4 % and a maturity based premium of 0.1 %124, and the resultant cost to the borrower will be 2.86 %. It is assumed that the PNG government will relend to PPL on a back-to-back basis, at the same rate as its borrowing rate. Government equity rate is assumed at 10 %, the opportunity cost of funds. ADB forecasts a long term annual local inflation rate of 5 % and foreign inflation of 0.5 %. Table 38: Weighted Average Cost of Capital
ADB ADF ADB OCR Govt Total A. Amount (USD million) 15.0 51.7 16.3 83.0 B. Weighting (%) 18 % 62 % 20 % 100 C. Nominal cost (%) 1.40 % 2.86 % 10 % D. Tax rate 30 % 30 % - E. Tax-adjusted nominal cost [C*(1-D)] 1.0 % 2.0 % 10 % F. Inflation rate (%) 0.5 % 0.5 % 5 % G. Real Cost [(1+E)/(1+F)-1)] 0.5 % 1.5 % 5 % H. Weighted component of WACC 0.1 % 0.9 % 0.9 % Weighted Average Cost of Capital (Real) 1.9 %
IV. FINANCIAL ANALYSIS OF SUBPROJECTS
1. Subproject 1: Financial Analysis of the Kilakila Substation and Transmission Line.
7. The objective of this subproject is to improve capacity, reduce loading on adjacent substations at Boroko and Konedobu and improve system reliability. The substation capacity will be 2x 15/20 MVA or 20/30 MVA serviced by a 6.1 km double circuit 66 kV transmission line. The incremental energy due to this project intervention has been estimated in terms of un-served energy (USE) and reduction of losses using system studies. The USE benefit has been estimated starting from 0.7 GWh in 2015 on project completion and 1.3 GWh by 2035. The loss reduction benefit has been estimated at 1.4 GWh in 2015 and 4.2 GWh by 2035. 8. The USE has been valued at the average tariff less the average cost of production (excluding depreciation). The loss reduction has been valued at the cost of displaced medium speed diesel generation. 9. The incremental FIRR of this component is 7.0 % and the FNPV is US$ 15.2 million when discounted at the WACC. The WACC is 1.9 % and since the FIRR is greater than the WACC, this component is financially viable. The detailed analysis is presented in Table 40. 10. Sensitivity Analysis. Sensitivity analysis of the FIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 39. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve a FIRR greater than the WACC. This indicates the project’s resilience to adverse impacts. Table 39: SP1 FIRR and FNPV Base Case and Sensitivity Analysis
Scenario FIRR (%) FNPV (US$ m) Base Case 7.0 % 15.2 10 % increase in costs 6.2 % 13.6 10 % reduction in revenues 6.1 % 12.8 10 % increase in costs and 10 % reduction in revenues 5.4 % 10.5 Source: PPTA Consultant
123 As at 20 August 2012. 124 Based on PPL preferred repayment period which is 13.7 years.
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Table 40: SP1 Detailed FIRR Computation - Kilakila Substation & Transmission Line (Constant 2012 US$ millions) Year Capital O&M Total Cash Revenue Net Benefit Income Net Benefit Cost Outflow Before Tax Tax After Tax 2012 2013 (1.4) (1.4) (1.4) - (1.4) 2014 (4.9) (4.9) (4.9) - (4.9) 2015 (7.6) (0.1) (7.8) 0.7 (7.1) - (7.1) 2016 (0.1) (0.1) 0.8 0.7 (0.2) 0.5 2017 (0.1) (0.1) 0.9 0.8 (0.2) 0.5 2018 (0.1) (0.1) 1.0 0.8 (0.3) 0.6 2019 (0.1) (0.1) 1.1 0.9 (0.3) 0.7 2020 (0.1) (0.1) 1.2 1.0 (0.3) 0.7 2021 (0.1) (0.1) 1.3 1.2 (0.3) 0.8 2022 (0.1) (0.1) 1.4 1.3 (0.4) 0.9 2023 (0.1) (0.1) 1.5 1.4 (0.4) 1.0 2024 (0.1) (0.1) 1.7 1.5 (0.5) 1.1 2025 (0.1) (0.1) 1.8 1.7 (0.5) 1.2 2026 (0.1) (0.1) 1.9 1.7 (0.5) 1.2 2027 (0.1) (0.1) 2.0 1.8 (0.6) 1.3 2028 (0.1) (0.1) 2.1 2.0 (0.6) 1.4 2029 (0.1) (0.1) 2.2 2.1 (0.6) 1.4 2030 (0.1) (0.1) 2.3 2.2 (0.6) 1.5 2031 (0.1) (0.1) 2.4 2.3 (0.7) 1.6 2032 (0.1) (0.1) 2.5 2.4 (0.7) 1.7 2033 (0.1) (0.1) 2.6 2.5 (0.7) 1.7 2034 (0.1) (0.1) 2.7 2.6 (0.8) 1.8 2035 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2036 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2037 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2038 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2039 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2040 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2041 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2042 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2043 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 2044 (0.1) (0.1) 2.9 2.7 (0.8) 1.9 SUBPROJECT 1: FIRR 7.0 % FNPV US$ 15.15
2. Subproject 2: Financial Analysis of Capacitor Banks or Statcom
11. The objective of this subproject is to improve power system quality and reduce transmission losses across Port Moresby. The incremental energy due to this project intervention has been estimated in terms of un-served energy (USE) and reduction of losses using system studies. The USE has been estimated starting from 0.4 GWh in 2015 on project completion and 0.8 GWh by 2035. The loss reduction has been estimated at 0.5 GWh in 2015 and 0.9 GWh by 2035. The USE has been valued at the average tariff less the average cost of production (excluding depreciation). The loss reduction has been valued at the cost of displaced medium speed diesel generation. 12. The incremental FIRR of this component is 8.4 % and the FNPV is US$ 4.6 million when discounted at the WACC. The WACC is 1.9 % and since the FIRR is greater than the WACC, this component is financially viable. The detailed analysis is presented in Table 42. 13. Sensitivity Analysis. Sensitivity analysis of the FIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 41. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve a FIRR greater than the WACC. This indicates the project’s resilience to adverse impacts.
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Table 41: SP2 FIRR and FNPV Base Case and Sensitivity Analysis
Scenario FIRR (%) FNPV (US$ m) Base Case 8.4 % 4.6 10 % increase in costs 7.5 % 4.2 10 % reduction in revenues 7.4 % 3.7 10 % increase in costs and 10 % reduction in revenues 6.6 % 3.4 Source: PPTA Consultant Table 42: SP2 Detailed FIRR Computation - Capacitor Banks or Statcom (Constant 2012 US$ millions) Year Capital O&M Total Cash Revenue Net Benefit Income Net Benefit Cost Outflow Before Tax Tax After Tax 2012 2013 (0.3) (0.3) (0.3) - (0.3) 2014 (2.6) (2.6) (2.6) - (2.6) 2015 (0.3) (0.0) (0.4) 0.3 (0.1) - (0.1) 2016 (0.0) (0.0) 0.3 0.3 (0.1) 0.2 2017 (0.0) (0.0) 0.3 0.3 (0.1) 0.2 2018 (0.0) (0.0) 0.3 0.3 (0.1) 0.2 2019 (0.0) (0.0) 0.4 0.3 (0.1) 0.2 2020 (0.0) (0.0) 0.4 0.3 (0.1) 0.2 2021 (0.0) (0.0) 0.4 0.4 (0.1) 0.3 2022 (0.0) (0.0) 0.4 0.4 (0.1) 0.3 2023 (0.0) (0.0) 0.4 0.4 (0.1) 0.3 2024 (0.0) (0.0) 0.5 0.4 (0.1) 0.3 2025 (0.0) (0.0) 0.5 0.5 (0.1) 0.3 2026 (0.0) (0.0) 0.5 0.5 (0.1) 0.3 2027 (0.0) (0.0) 0.5 0.5 (0.1) 0.3 2028 (0.0) (0.0) 0.5 0.5 (0.2) 0.4 2029 (0.0) (0.0) 0.6 0.5 (0.2) 0.4 2030 (0.0) (0.0) 0.6 0.6 (0.2) 0.4 2031 (0.0) (0.0) 0.6 0.6 (0.2) 0.4 2032 (0.0) (0.0) 0.6 0.6 (0.2) 0.4 2033 (0.0) (0.0) 0.7 0.6 (0.2) 0.4 2034 (0.0) (0.0) 0.7 0.6 (0.2) 0.5 2035 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2036 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2037 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2038 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2039 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2040 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2041 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2042 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2043 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 2044 (0.0) (0.0) 0.7 0.7 (0.2) 0.5 SUBPROJECT 2 FIRR 8.4 % FNPV US$ 4.55
3. Subproject 3: Financial Analysis of 11 kV Mesh
14. The objective of this subproject is to enhance reliability of power supply, enhance system capacity for future load growth and reduce system losses. The incremental energy due to this project intervention has been estimated in terms of un-served energy (USE) and reduction of losses using system studies. The USE has been estimated starting from 1.6 GWh in 2015 on project completion and 2.9 GWh by 2035. The loss reduction has been estimated at 1.4 GWh in 2015 and 4.2 GWh by 2035. The USE has been valued at the average tariff less the average cost of production (excluding depreciation) and the loss reduction at the cost of medium speed diesel generation displaced.
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15. The incremental FIRR of this component is 10.7 % and the FNPV is US$ 21.9 million when discounted at the WACC of 1.9 %. Since the FIRR is greater than the WACC, this component is financially viable. The detailed analysis is presented in Table 44. 16. Sensitivity Analysis. Sensitivity analysis of the FIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 43. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve a FIRR greater than the WACC. This indicates the project’s resilience to adverse impacts. Table 43: SP3 FIRR and FNPV Base Case and Sensitivity Analysis Scenario FIRR (%) FNPV (US$ m) Base Case 10.7 % 21.9 10 % increase in costs 9.8 % 20.9 10 % reduction in revenues 9.7 % 18.7 10 % increase in costs and 10 % reduction in revenues 8.9 % 17.7 Source: PPTA Consultant Table 44: SP3 Detailed FIRR Computation - 11 kV Mesh (Constant 2012 US$ millions) Year Capital O&M Total Cash Revenue Net Benefit Income Net Benefit Cost Outflow Before Tax Tax After Tax 2012 2013 (1.8) (1.8) (1.8) - (1.8) 2014 (7.2) (7.2) (7.2) - (7.2) 2015 - (0.1) (0.1) 0.8 0.7 (0.2) 0.5 2016 (0.1) (0.1) 0.9 0.8 (0.2) 0.6 2017 (0.1) (0.1) 1.0 0.9 (0.3) 0.6 2018 (0.1) (0.1) 1.1 1.0 (0.3) 0.7 2019 (0.1) (0.1) 1.1 1.0 (0.3) 0.7 2020 (0.1) (0.1) 1.2 1.1 (0.3) 0.8 2021 (0.1) (0.1) 1.3 1.2 (0.4) 0.8 2022 (0.1) (0.1) 1.4 1.3 (0.4) 0.9 2023 (0.1) (0.1) 1.5 1.4 (0.4) 1.0 2024 (0.1) (0.1) 1.6 1.5 (0.5) 1.1 2025 (0.1) (0.1) 1.8 1.7 (0.5) 1.2 2026 (0.1) (0.1) 1.9 1.8 (0.5) 1.3 2027 (0.1) (0.1) 2.0 1.9 (0.6) 1.3 2028 (0.1) (0.1) 2.1 2.0 (0.6) 1.4 2029 (0.1) (0.1) 2.2 2.1 (0.6) 1.5 2030 (0.1) (0.1) 2.3 2.3 (0.7) 1.6 2031 (0.1) (0.1) 2.5 2.4 (0.7) 1.7 2032 (0.1) (0.1) 2.6 2.5 (0.8) 1.8 2033 (0.1) (0.1) 2.8 2.7 (0.8) 1.9 2034 (0.1) (0.1) 2.9 2.8 (0.9) 2.0 2035 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2036 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2037 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2038 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2039 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2040 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2041 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2042 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2043 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 2044 (0.1) (0.1) 3.1 3.0 (0.9) 2.1 SUBPROJECT 3 FIRR 10.7 % FNPV US$ 21.95
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4. Subproject 4: Financial Analysis of Loss Reduction and Energy Access
17. The objective of this subproject is to improve power factor and loss reduction in the distribution network. It is difficult to quantify the benefits attributable to this component per se and therefore, no FIRR has been carried out. 18. The Loss Reduction Programme is a small investment of US$ 500,000 in metering and specialised equipment to support identification of system losses and to then develop a programme for on-going loss reduction. Thus no FIRR can be calculated at this time. 19. The energy access programme will be carried out using government funds and is designed to provide connections to 3000 households who cannot afford the cost of a connection. The average cost of a basic minimum supply connection estimated at K1,250 where supply is from existing LV and is for provision of an MSK (Minimum Supply Kit: a fused panel with 2-3 power outlets), service cable, ground connections and LV mains fusing. The cost excludes metering. Low cost 5 Amp pre-paid metering is estimated to cost a further K330 but other options of using current limiting devices and local transformer bulk metering to account for total energy sales may avoid the bulk of the metering cost. No internal house wiring is required with an MSK unit thus households avoid this considerable cost. It is assumed that these households will consume electricity at or below 30kWh/month and therefore, the lifeline tariff of K0.47 /kWh will apply. Since the cost of production of electricity is greater than this amount, PPL will make a loss of every unit provided although it will be part of its community service obligation. 20. The FNPV of the energy access programme is negative US$ 5.1 million meaning PPL will be making a financial loss on this component. The detailed analysis is presented in Table 46. 21. Sensitivity Analysis. Sensitivity analysis of the FIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 45. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve a FIRR greater than the WACC. This indicates the project’s resilience to adverse impacts. Table 45: SP4 FIRR and FNPV Base Case and Sensitivity Analysis
Scenario FIRR (%) FNPV (US$ m) Base Case NA (5.1) 10 % increase in costs NA (6.5) 10 % reduction in revenues NA (6.0) 10 % increase in costs and 10 % reduction in revenues NA (7.4) Source: PPTA Consultant Table 46: SP4 Detailed FIRR Computation - Energy Access (Constant 2012 US$ millions) Year Capital O&M and Total Cash Revenue Net Benefit Income Tax Net Benefit Cost COP Outflow Before Tax After Tax 2012 2013 (0.4) (0.1) (0.5) 0.1 (0.5) - (0.5) 2014 (0.7) (0.2) (0.9) 0.2 (0.7) - (0.7) 2015 (0.7) (0.4) (1.0) 0.3 (0.8) - (0.8) 2016 (0.8) (0.5) (1.3) 0.4 (0.9) - (0.9) 2017 - (0.5) (0.5) 0.4 (0.1) - (0.1) 2018 - (0.5) (0.5) 0.4 (0.1) - (0.1) 2019 - (0.5) (0.5) 0.4 (0.1) - (0.1) 2020 (0.5) (0.5) 0.4 (0.1) - (0.1) 2021 (0.5) (0.5) 0.4 (0.1) - (0.1) 2022 (0.5) (0.5) 0.4 (0.1) - (0.1) 2023 (0.5) (0.5) 0.4 (0.1) - (0.1) 2024 (0.5) (0.5) 0.4 (0.1) - (0.1) 2025 (0.5) (0.5) 0.4 (0.1) - (0.1) 2026 (0.5) (0.5) 0.4 (0.1) - (0.1) 2027 (0.5) (0.5) 0.4 (0.1) - (0.1) 2028 (0.5) (0.5) 0.4 (0.1) - (0.1) 2029 (0.5) (0.5) 0.4 (0.1) - (0.1)
Final Report | 30 November 2012 Page | 119 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix F - Financial Analysis
Year Capital O&M and Total Cash Revenue Net Benefit Income Tax Net Benefit Cost COP Outflow Before Tax After Tax 2030 (0.5) (0.5) 0.4 (0.1) - (0.1) 2031 (0.5) (0.5) 0.4 (0.1) - (0.1) 2032 (0.5) (0.5) 0.4 (0.1) - (0.1) 2033 (0.5) (0.5) 0.4 (0.1) - (0.1) 2034 (0.5) (0.5) 0.4 (0.1) - (0.1) 2035 (0.5) (0.5) 0.4 (0.1) - (0.1) 2036 (0.5) (0.5) 0.4 (0.1) - (0.1) 2037 (0.5) (0.5) 0.4 (0.1) - (0.1) 2038 (0.5) (0.5) 0.4 (0.1) - (0.1) 2039 (0.5) (0.5) 0.4 (0.1) - (0.1) 2040 (0.5) (0.5) 0.4 (0.1) - (0.1) 2041 (0.5) (0.5) 0.4 (0.1) - (0.1) 2042 (0.5) (0.5) 0.4 (0.1) - (0.1) 2043 (0.5) (0.5) 0.4 (0.1) - (0.1) 2044 (0.5) (0.5) 0.4 (0.1) - (0.1) SUBPROJECT 4 FIRR NA FNPV (US$ 5.12)
5. Subproject 5: Financial Analysis of Rouna 1 Refurbishment
22. The existing nameplate capacity at Rouna 1 is 5.5 MW, of which two 1 MW plants are already decommissioned; therefore the actual capacity is 3.5 MW. However the remaining plant has a limited life of <3 years without major rehabilitation and will thus be replaced by the new unit. The plant generated 7.3 GWh of energy during 2011 and during the period 2007-2011, generated on average 9.9 GWh each year. The operating costs (excluding depreciation) are available at PPL for the entire Rouna complex (66 MW) which has been proportionately reduced to estimate those applicable to Rouna 1. The average tariff of K0.78 /kWh as reported in 2011 has been projected using the real tariff increase expected to be approved by the regulator. 23. In the “with project” situation, new 6 MW plant will be installed alongside the existing equipment and is expected to generate 18.5 GWh of electricity. Construction is expected to take three years. The new equipment will take over the existing revenue attributable to Rouna 1 and since it has more capacity than the existing unit will displace more expensive diesel generation. The value of such displacement has been taken at the operating cost of the PPL diesel complex at Moitaka supplying Port Moresby at K0.80 /kWh and projected using a real increase of 2 % per annum to mirror the expected increase in fuel cost. 24. The incremental FIRR of this component is 15.0 % and the FNPV is US$ 95.9 million. The WACC is 1.9 % and since the FIRR is greater than the WACC, this component is financially viable. The detailed analysis is presented in Table 48. 25. Sensitivity Analysis. Sensitivity analysis of the FIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 47. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve a FIRR greater than the WACC. This indicates the project’s resilience to adverse impacts. Table 47: SP5 FIRR and FNPV Base Case and Sensitivity Analysis Scenario FIRR (%) FNPV (US$ m) Base Case 15.0 % 95.9 10 % increase in costs 13.8 % 93.0 10 % reduction in revenues 13.0 % 81.8 10 % increase in costs and 10 % reduction in revenues 12.0 % 78.8 Source: PPTA Consultant
Final Report | 30 November 2012 Page | 120 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix F - Financial Analysis
Table 48: SP5 Detailed FIRR Computation - Rouna 1 Refurbishment (Constant 2012 US$ millions) Year Capital O&M Total Cost Revenue Savings in Net Benefit Income Net Benefit Cost alternative Before Tax Tax After Tax Generation 2012 0 0.0 ------2013 (6.1) - (6.1) - - (6.1) 0.9 (5.2) 2014 (15.3) - (15.3) - - (15.3) 1.0 (14.3) 2015 (9.2) - (9.2) - - (9.2) 1.0 (8.1) 2016 - (0.1) (0.1) - 3.6 3.5 (1.1) 2.5 2017 - (0.1) (0.1) - 3.7 3.6 (1.1) 2.5 2018 - (0.3) (0.3) 3.9 3.8 7.4 (2.2) 5.2 2019 - (0.3) (0.3) 3.9 3.9 7.5 (2.2) 5.2 2020 - (0.3) (0.3) 3.9 4.0 7.6 (2.3) 5.3 2021 - (0.3) (0.3) 3.9 4.0 7.6 (2.3) 5.3 2022 - (0.3) (0.3) 3.9 4.1 7.7 (2.3) 5.4 2023 - (0.3) (0.3) 3.9 4.2 7.8 (2.3) 5.5 2024 - (0.3) (0.3) 3.9 4.3 7.9 (2.4) 5.5 2025 - (0.3) (0.3) 3.9 4.4 8.0 (2.4) 5.6 2026 - (0.3) (0.3) 3.9 4.4 8.1 (2.4) 5.6 2027 - (0.3) (0.3) 3.9 4.5 8.1 (2.4) 5.7 2028 - (0.3) (0.3) 3.9 4.6 8.2 (2.5) 5.8 2029 - (0.3) (0.3) 3.9 4.7 8.3 (2.5) 5.8 2030 - (0.3) (0.3) 3.9 4.8 8.4 (2.5) 5.9 2031 - (0.3) (0.3) 3.9 4.9 8.5 (2.6) 6.0 2032 - (0.3) (0.3) 3.9 5.0 8.6 (2.6) 6.0 2033 - (0.3) (0.3) 3.9 5.1 8.7 (2.6) 6.1 2034 - (0.3) (0.3) 3.9 5.2 8.8 (2.6) 6.2 2035 - (0.3) (0.3) 3.9 5.3 8.9 (2.7) 6.2 2036 - (0.3) (0.3) 3.9 5.4 9.0 (2.7) 6.3 2037 - (0.3) (0.3) 3.9 5.5 9.1 (2.7) 6.4 2038 - (0.3) (0.3) 3.9 5.6 9.2 (2.8) 6.5 2039 - (0.3) (0.3) 3.9 5.8 9.4 (2.8) 6.6 2040 - (0.3) (0.3) 3.9 5.9 9.5 (2.8) 6.6 2041 - (0.3) (0.3) 3.9 6.0 9.6 (2.9) 6.7 2042 - (0.3) (0.3) 3.9 6.1 9.7 (2.9) 6.8 2043 - (0.3) (0.3) 3.9 6.2 9.8 (3.0) 6.9 2044 - (0.3) (0.3) 3.9 6.4 10.0 (3.0) 7.0 2045 - (0.3) (0.3) 3.9 6.5 10.1 (3.0) 7.1 SUBPROJECT 5 FIRR 15.0 % FNPV U$ 95.96
6. Subproject 6: Financial Analysis of Sirinumu Rehabilitation
26. The project intervention is to rehabilitate and optimise generation capacity at Sirinumu. The plant is rated at 1.6 MW but is limited to 1.1 MW due to excessive leakage through valves and turbine gates leading to generation inefficiencies. The plant generated 1.4 GWh of energy during 2011 and during the period 2007-2011, generated 1.0 GWh on average. The operating costs for Sirinumu are not reported separately at PPL, rather included within the Rouna complex, which has been pro-rated by capacity to estimate costs applicable to Sirinumu. The average tariff of K0.78 /kWh as reported in 2011 has been projected using the real tariff increase expected to be approved by the regulator. 27. In the “with project” situation, the plant will be restored to its original capacity of 1.6 MW and is expected to generate 4.5 GWh of electricity. Rehabilitation is expected to take three years and the existing operations will be shut down during this period. The new equipment will take over the existing revenue attributable to Rouna 1 and since it has more capacity than the existing unit will displace more expensive diesel generation. The value of such displacement has been taken at the operating cost of the PPL diesel complex at Moitaka supplying Port Moresby at K0.80 /kWh and projected using a real increase of 2 % per annum to mirror the expected increase in fuel cost.
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28. The incremental FIRR of this component is 13.3 % and the FNPV is US$24.9 million. The WACC is 1.9 % and since the FIRR is greater than the WACC, this component is financially viable. The detailed analysis is presented in Table 50. 29. Sensitivity Analysis. Sensitivity analysis of the FIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 49. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve a FIRR greater than the WACC. This indicates the project’s resilience to adverse impacts. Table 49: SP6 FIRR and FNPV Base Case and Sensitivity Analysis
Scenario FIRR (%) FNPV (US$ m) Base Case 13.3 % 24.9 10 % increase in costs 12.1 % 23.8 10 % reduction in revenues 11.9 % 21.2 10 % increase in costs and 10 % reduction in revenues 10.8 % 20.2 Source: PPTA Consultant Table 50: SP6 Detailed FIRR Computation - Sirinumu Rehabilitation (Constant 2012 US$ millions) Year Capital O&M Total Revenue Savings in Net Benefit Income Net Benefit Cost Cost alternative Before Tax Tax After Tax Generation 2012 - 0.1 0.1 (0.3) - (0.3) 0.1 (0.2) 2013 (1.9) 0.1 (1.8) (0.3) - (2.2) 0.1 (2.1) 2014 (4.8) 0.1 (4.7) (0.4) - (5.1) 0.1 (5.0) 2015 (2.9) - (2.9) - 1.4 (1.4) 0.1 (1.3) 2016 - (0.0) (0.0) - 1.5 1.4 (0.4) 1.0 2017 - (0.0) (0.0) - 1.5 1.5 (0.4) 1.0 2018 - (0.1) (0.1) 0.4 1.5 1.8 (0.6) 1.3 2019 - (0.1) (0.1) 0.4 1.6 1.9 (0.6) 1.3 2020 - (0.1) (0.1) 0.4 1.6 1.9 (0.6) 1.3 2021 - (0.1) (0.1) 0.4 1.6 1.9 (0.6) 1.4 2022 - (0.1) (0.1) 0.4 1.7 2.0 (0.6) 1.4 2023 - (0.1) (0.1) 0.4 1.7 2.0 (0.6) 1.4 2024 - (0.1) (0.1) 0.4 1.7 2.0 (0.6) 1.4 2025 - (0.1) (0.1) 0.4 1.8 2.1 (0.6) 1.5 2026 - (0.1) (0.1) 0.4 1.8 2.1 (0.6) 1.5 2027 - (0.1) (0.1) 0.4 1.8 2.1 (0.6) 1.5 2028 - (0.1) (0.1) 0.4 1.9 2.2 (0.7) 1.5 2029 - (0.1) (0.1) 0.4 1.9 2.2 (0.7) 1.6 2030 - (0.1) (0.1) 0.4 1.9 2.3 (0.7) 1.6 2031 - (0.1) (0.1) 0.4 2.0 2.3 (0.7) 1.6 2032 - (0.1) (0.1) 0.4 2.0 2.3 (0.7) 1.6 2033 - (0.1) (0.1) 0.4 2.1 2.4 (0.7) 1.7 2034 - (0.1) (0.1) 0.4 2.1 2.4 (0.7) 1.7 2035 - (0.1) (0.1) 0.4 2.1 2.5 (0.7) 1.7 2036 - (0.1) (0.1) 0.4 2.2 2.5 (0.8) 1.8 2037 - (0.1) (0.1) 0.4 2.2 2.5 (0.8) 1.8 2038 - (0.1) (0.1) 0.4 2.3 2.6 (0.8) 1.8 2039 - (0.1) (0.1) 0.4 2.3 2.6 (0.8) 1.8 2040 - (0.1) (0.1) 0.4 2.4 2.7 (0.8) 1.9 2041 - (0.1) (0.1) 0.4 2.4 2.7 (0.8) 1.9 2042 - (0.1) (0.1) 0.4 2.5 2.8 (0.8) 1.9 2043 - (0.1) (0.1) 0.4 2.5 2.8 (0.8) 2.0 2044 - (0.1) (0.1) 0.4 2.6 2.9 (0.9) 2.0 2045 - (0.1) (0.1) 0.4 2.6 2.9 (0.9) 2.0 SUBPROJECT 6 FIRR 13.3 % FNPV US$ 24.88
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V. FINANCIAL ANALYSIS OF THE OVERALL PROJECT
30. The FIRR for the entire project is 10.2 % and the FNPV US$ 146.2 million. Since the FIRR is greater than the WACC of 1.9 % and there is a positive FNPV, the project overall is financially viable, as is each of its components with the exception of the loss reduction and energy access programmes. The detailed analysis is presented in Table 52. 31. Sensitivity Analysis. Sensitivity analysis of the FIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 51. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve a FIRR greater than the WACC. This indicates the project’s resilience to adverse impacts. Table 51: Overall FIRR and FNPV Base Case and Sensitivity Analysis Scenario FIRR (%) FNPV (US$ m) Base Case 10.2 % 146.2 10 % increase in costs 9.3 % 137.3 10 % reduction in revenues 9.2 % 122.6 10 % increase in costs and 10 % reduction in revenues 8.2 % 113.7 Source: PPTA Consultant Table 52: Overall Detailed FIRR Computation - Overall Project (Constant 2012 US$ millions) Year Capital O&M Total Cost Revenue Net Benefit Income Net Benefit Cost Before Tax Tax After Tax 2012 0.1 0.1 (0.3) (0.3) - (0.3) 2013 (16.7) (0.0) (16.8) (0.3) (17.1) - (17.1) 2014 (36.4) (0.2) (36.5) (0.2) (36.7) - (36.7) 2015 (21.8) (0.6) (22.4) 3.5 (18.9) - (18.9) 2016 (1.1) (1.0) (2.1) 7.5 5.4 (1.6) 3.8 2017 (0.9) (0.9) 7.9 6.9 (2.1) 4.8 2018 (1.2) (1.2) 12.5 11.3 (3.4) 7.9 2019 (1.2) (1.2) 12.7 11.5 (3.5) 8.1 2020 (1.2) (1.2) 13.0 11.8 (3.6) 8.3 2021 (1.2) (1.2) 13.4 12.2 (3.7) 8.5 2022 (1.2) (1.2) 13.7 12.5 (3.8) 8.8 2023 (1.2) (1.2) 14.1 12.9 (3.9) 9.0 2024 (1.2) (1.2) 14.5 13.3 (4.0) 9.3 2025 (1.2) (1.2) 14.9 13.7 (4.1) 9.6 2026 (1.2) (1.2) 15.2 14.1 (4.2) 9.8 2027 (1.2) (1.2) 15.6 14.4 (4.3) 10.1 2028 (1.2) (1.2) 15.9 14.8 (4.4) 10.3 2029 (1.2) (1.2) 16.3 15.1 (4.5) 10.6 2030 (1.2) (1.2) 16.7 15.5 (4.7) 10.9 2031 (1.2) (1.2) 17.1 15.9 (4.8) 11.2 2032 (1.2) (1.2) 17.5 16.3 (4.9) 11.4 2033 (1.2) (1.2) 18.0 16.8 (5.0) 11.7 2034 (1.2) (1.2) 18.4 17.2 (5.2) 12.1 2035 (1.2) (1.2) 18.9 17.7 (5.3) 12.4 2036 (1.2) (1.2) 19.0 17.8 (5.3) 12.5 2037 (1.2) (1.2) 19.2 18.0 (5.4) 12.6 2038 (1.2) (1.2) 19.3 18.1 (5.4) 12.7 2039 (1.2) (1.2) 19.5 18.3 (5.5) 12.8 2040 (1.2) (1.2) 19.6 18.5 (5.5) 12.9 2041 (1.2) (1.2) 19.8 18.6 (5.6) 13.0 2042 (1.2) (1.2) 20.0 18.8 (5.6) 13.2 2043 (1.2) (1.2) 20.1 19.0 (5.7) 13.3 2044 (1.2) (1.2) 20.3 19.1 (5.7) 13.4 2045 (0.4) (0.4) 13.4 13.0 (3.9) 9.1 OVERALL FIRR 10.2 % FNPV US$ 146.19
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Appendix G Subproject and Overall Economic Analysis
CONTENTS Section I: Introduction Section II: Framework for Economic Analysis and Assumptions used Section III: Economic Analysis of the Subprojects 1. Subproject 1: Kilakila Substation and Transmission Line 2. Subproject 2: Capacitor Banks or Statcom 3. Subproject 3: 11 kV Mesh 4. Subproject 4: Loss Reduction and Energy Access 5. Subproject 5: Rouna 1 Refurbishment 6. Subproject 6: Sirinumu Rehabilitation Section IV: Economic Analysis of Overall Project
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PAPUA NEW GUINEA: PORT MORESBY POWER GRID DEVELOPMENT PROJECT SUBPROJECT ECONOMIC ANALYSIS
I. INTRODUCTION
1. The Project. Economic analysis has been prepared in accordance with Asian Development Bank (ADB) Guidelines for the Economic Analysis of Projects125. The economic analysis was conducted to determine the economic viability of the proposed project consisting of six subprojects; (i) new substation at Kilakila, (ii) installation of capacitor or Statcom banks, (iii) 11 kV mesh, (iv) loss reduction and energy access, (v) refurbishment of 6 MW hydro plant at Rouna 1, and (vi) replacement of equipment at Sirinumu hydro plant. The implementation of these activities is expected to be carried out by the state-owned power utility, PNG Power Limited (PPL). The economic analysis was conducted separately for each subproject and for the project as a whole. 2. Methodology. The analysis was done using an inflow/outflow analysis by projecting future benefit and cost streams from the project based on certain assumptions. Two streams of inflow/outflow were developed, “with” and “without” project and the incremental inflow/outflow determined. This stream of incremental inflow/outflow is then discounted to its present value and economic indicators such as the Economic Internal Rate of Return (EIRR) and Economic Net Present Value (ENPV) calculated. The Economic Opportunity Cost of Capital (EOCC) is determined based on the ADB threshold of 12 % which is used as a benchmark to compare with the EIRR and ENPV.
II. FRAMEWORK FOR ECONOMIC ANALYSIS AND ASSUMPTIONS USED
3. Framework for economic analysis. The framework for the economic analysis consists of (i) the project economic cost estimates and (ii) project economic benefits. The project base cost estimates include information from the technical analysis of expected annual capital expenditure during project implementation including civil works, equipment, consultancy services, project management and physical contingencies. The project operating plan provides projections of expected revenues and operating costs throughout implementation. 4. Economic Indicators. The EIRR indicates the rate of return the project is returning to the country’s economy. The EIRR is compared to the EOCC. 5. General Assumptions used in the Economic Analysis. (i) a 30 year project economic life (ii) no residual value assumed at the end of the 30 year period (iii) all costs based on 2012 constant prices which include 10 % physical contingencies but exclude price contingencies, taxes, and financial charges during construction; traded components are converted into economic prices using a shadow exchange rate factor (SERF) of 1.08 and a shadow wage rate factor (SWRF) of 0.67126 is used to convert financial into economic wage rates for unskilled labour (iv) the average cost of production based on 2011 actual of K0.57 /kWh and has been projected based on the generation mix and other cost assumptions used for PPL economic projections (v) average tariff based on 2011 actual of K0.78 /kWh adjusted for losses and projected by the real tariff increase submitted by PPL for approval by the regulator. This involves a nominal tariff increase of 14.59 % for 2012 (already approved by the regulator), 10.8 % for 2013, 9.8 % for 2014 and 9.5 % each for 2015 and 2016 and 2017. 2013-2017 covers the period of the second regulatory contract for which and these tariff increases have been submitted by PPL to the regulator based on its annual revenue requirement. The long term nominal tariff increase is assumed at 5 %, in line with inflation.
III. ECONOMIC ANALYSIS OF THE SUBPROJECTS
1. Subproject 1: Economic Analysis Kilakila Substation and Transmission Line
6. The objective of this subproject is to improve capacity, reduce loading on adjacent substations at Boroko and Konedobu and improve system reliability. The substation capacity will be 2x 15/20 MVA or 20/30 MVA serviced by a 6.1 km double circuit 66 kV transmission line. The incremental energy due to this project intervention has been estimated in terms of un-served
125 Guidelines for the Economic Analysis of Projects, ADB, Manila, 1997. 126 Based on “ADB Town Electrification Investment Programme Report, 2011”.
Final Report | 30 November 2012 Page | 126 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix G - Economic Analysis energy and reduction of losses using system studies. The un-served energy benefit has been estimated starting from 0.7 GWh in 2015 on project completion and 1.3 GWh by 2035. The loss reduction benefit has been estimated at 1.4 GWh in 2015 and 4.2 GWh by 2035. 7. The economic value of the un-served energy (USE) is estimated based on running costs of backup generators. USE was calculated to be 2.85 K /kWh as a conservative value as the overall cost of standby generation was estimated at 5 K /kWh in prior reporting127. The loss reduction has been valued at the cost of displaced medium speed diesel generation. 8. The incremental EIRR of this component is 15 % and the ENPV is US$ 2.45 million when discounted at the EOCC. The EOCC is 12 % and since the EIRR is greater than the EOCC, this component is economically viable. 9. Sensitivity Analysis. Sensitivity analysis of the EIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 53. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve an EIRR greater than the EOCC. This indicates the project’s resilience to adverse impacts. The detailed computation is presented in Table 54. Table 53: SP1 EIRR and ENPV Base Case and Sensitivity Analysis
Scenario EIRR (%) ENPV (US$ m) Base Case 15.0 % 2.45 10 % increase in costs 13.7 % 1.5 10 % reduction in benefits 13.6 % 1.3 10 % increase in costs and 10 % reduction in benefits 12.4 % 0.3 Source: PPTA Consultant Table 54: SP1 Detailed EIRR Computation - Kilakila Substation & Transmission Line (Constant 2012 US$ millions) Capital Benefits (USE, Year O&M Total Cost Net Benefit Cost Loss reduction) 2012 - - - 0.0 - 2013 (1.3) - (1.3) 0.0 (1.3) 2014 (4.4) - (4.4) 0.0 (4.4) 2015 (7.0) (0.1) (7.1) 1.3 (5.8) 2016 (0.1) (0.1) 1.4 1.3 2017 (0.1) (0.1) 1.5 1.4 2018 (0.1) (0.1) 1.7 1.5 2019 (0.1) (0.1) 1.8 1.6 2020 (0.1) (0.1) 1.9 1.8 2021 (0.1) (0.1) 1.9 1.8 2022 (0.1) (0.1) 2.0 1.9 2023 (0.1) (0.1) 2.2 2.0 2024 (0.1) (0.1) 2.3 2.2 2025 (0.1) (0.1) 2.4 2.3 2026 (0.1) (0.1) 2.5 2.4 2027 (0.1) (0.1) 2.6 2.5 2028 (0.1) (0.1) 2.7 2.6 2029 (0.1) (0.1) 2.8 2.7 2030 (0.1) (0.1) 2.9 2.8 2031 (0.1) (0.1) 3.0 2.8 2032 (0.1) (0.1) 3.1 2.9 2033 (0.1) (0.1) 3.1 3.0 2034 (0.1) (0.1) 3.2 3.1 2035 (0.1) (0.1) 3.3 3.2 2036 (0.1) (0.1) 3.3 3.2 2037 (0.1) (0.1) 3.3 3.2 2038 (0.1) (0.1) 3.3 3.2
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Capital Benefits (USE, Year O&M Total Cost Net Benefit Cost Loss reduction) 2039 (0.1) (0.1) 3.3 3.2 2040 (0.1) (0.1) 3.3 3.2 2041 (0.1) (0.1) 3.3 3.2 2042 (0.1) (0.1) 3.3 3.2 2043 (0.1) (0.1) 3.3 3.2 2044 (0.1) (0.1) 3.3 3.2 SUBPROJECT 1: EIRR 15.0 % ENPV US$ 2.45
2. Subproject 2: Economic Analysis of Capacitor Banks or Statcom
10. The objective of this subproject is to improve power system quality and reduce transmission losses across Port Moresby. The incremental energy due to this project intervention has been estimated in terms of un-served energy and reduction of losses using system studies. The un- served energy has been estimated starting from 0.4 GWh in 2015 on project completion and 0.8 GWh by 2035. The loss reduction has been estimated at 0.5 GWh in 2015 and 0.9 GWh by 2035. 11. The economic value of the un-served energy (USE) is estimated based on running costs of backup generators. USE was calculated to be 2.85 K /kWh as a conservative value as the overall cost of standby generation was estimated at 5 K /kWh before128. The loss reduction has been valued at the cost of displaced medium speed diesel generation. 12. The incremental EIRR of this component is 32.9 % and the ENPV is US$ 4.45 million when discounted at the EOCC. The EOCC is 12 % and since the EIRR is greater than the EOCC, this component is economically viable. 13. Sensitivity Analysis. Sensitivity analysis of the EIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 55. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve an EIRR greater than the EOCC. This indicates the project’s resilience to adverse impacts. The detailed computation is presented in Table 56. Table 55: SP2 EIRR and ENPV Base Case and Sensitivity Analysis
Scenario EIRR (%) ENPV (US$ m) Base Case 32.9 % 4.45 10 % increase in costs 30.2 % 4.2 10 % reduction in benefits 30.0 % 3.8 10 % increase in costs and 10 % reduction in benefits 27.5 % 3.6 Source: PPTA Consultant Table 56: SP2 Detailed EIRR Computation - Capacitor Banks or Statcom (Constant 2012 US$ millions) Benefits Capital Year O&M Total Cost (USE, Loss Net Benefit Cost reduction) 2012 - - - 0.0 - 2013 (0.3) - (0.3) 0.0 (0.3) 2014 (2.3) - (2.3) 0.0 (2.3) 2015 (0.3) (0.03) (0.3) 0.9 0.5 2016 (0.0) (0.0) 0.9 0.9 2017 (0.0) (0.0) 1.0 0.9 2018 (0.0) (0.0) 1.0 1.0 2019 (0.0) (0.0) 1.1 1.0 2020 (0.0) (0.0) 1.1 1.1 2021 (0.0) (0.0) 1.1 1.1 2022 (0.0) (0.0) 1.2 1.2
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Benefits Capital Year O&M Total Cost (USE, Loss Net Benefit Cost reduction) 2023 (0.0) (0.0) 1.2 1.2 2024 (0.0) (0.0) 1.3 1.3 2025 (0.0) (0.0) 1.3 1.3 2026 (0.0) (0.0) 1.4 1.3 2027 (0.0) (0.0) 1.4 1.4 2028 (0.0) (0.0) 1.4 1.4 2029 (0.0) (0.0) 1.5 1.4 2030 (0.0) (0.0) 1.5 1.5 2031 (0.0) (0.0) 1.5 1.5 2032 (0.0) (0.0) 1.6 1.5 2033 (0.0) (0.0) 1.6 1.6 2034 (0.0) (0.0) 1.6 1.6 2035 (0.0) (0.0) 1.7 1.6 2036 (0.0) (0.0) 1.7 1.6 2037 (0.0) (0.0) 1.7 1.6 2038 (0.0) (0.0) 1.7 1.6 2039 (0.0) (0.0) 1.7 1.6 2040 (0.0) (0.0) 1.7 1.6 2041 (0.0) (0.0) 1.7 1.6 2042 (0.0) (0.0) 1.7 1.6 2043 (0.0) (0.0) 1.7 1.6 2044 (0.0) (0.03) 1.7 1.6 SUBPROJECT 2: EIRR 32.9 % ENPV US$ 4.45
3. Subproject 3: Economic Analysis of 11 kV Mesh
14. The objective of this subproject is to enhance reliability of power supply, enhance system capacity for future load growth and reduce system losses. The incremental energy due to this project intervention has been estimated in terms of un-served energy and reduction of losses using system studies. The un-served energy has been estimated starting from 1.6 GWh in 2015 on project completion and 2.9 GWh by 2035. The loss reduction has been estimated at 1.4 GWh in 2015 and 4.2 GWh by 2035. 15. The economic value of the un-served energy (USE) is estimated based on running costs of backup generators. USE was calculated to be 2.85 K /kWh as a conservative value as the overall cost of standby generation was estimated at 5 K /kWh129. The loss reduction has been valued at the cost of displaced medium speed diesel generation. 16. The incremental EIRR of this component is 25.7 % and the ENPV is $8.8 million when discounted at the EOCC. The EOCC is 12 % and since the EIRR is greater than the EOCC, this component is economically viable. 17. Sensitivity Analysis. Sensitivity analysis of the EIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 57. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve an EIRR greater than the EOCC. This indicates the project’s resilience to adverse impacts. The detailed computation is presented in Table 58. Table 57: SP3 EIRR and ENPV Base Case and Sensitivity Analysis
Scenario EIRR (%) ENPV (US$ m) Base Case 25.7 % 8.8 10 % increase in costs 23.8 % 8.2 10 % reduction in benefits 23.6 % 7.4
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10 % increase in costs and 10 % reduction in benefits 21.8 % 6.8 Source: PPTA Consultant Table 58: SP3 Detailed EIRR Computation - 11 kV Mesh (Constant 2012 US$ millions) Benefits Capital Year O&M Total Cost (USE, Loss Net Benefit Cost reduction) 2012 - - - - - 2013 (1.5) - (1.5) - (1.5) 2014 (6.0) - (6.0) - (6.0) 2015 - (0.1) (0.1) 1.6 1.5 2016 (0.1) (0.1) 1.7 1.7 2017 (0.1) (0.1) 1.9 1.8 2018 (0.1) (0.1) 2.0 1.9 2019 (0.1) (0.1) 2.0 2.0 2020 (0.1) (0.1) 2.2 2.1 2021 (0.1) (0.1) 2.3 2.3 2022 (0.1) (0.1) 2.5 2.4 2023 (0.1) (0.1) 2.6 2.6 2024 (0.1) (0.1) 2.8 2.7 2025 (0.1) (0.1) 3.0 2.9 2026 (0.1) (0.1) 3.1 3.1 2027 (0.1) (0.1) 3.3 3.2 2028 (0.1) (0.1) 3.4 3.3 2029 (0.1) (0.1) 3.6 3.5 2030 (0.1) (0.1) 3.7 3.6 2031 (0.1) (0.1) 3.9 3.8 2032 (0.1) (0.1) 4.0 4.0 2033 (0.1) (0.1) 4.2 4.2 2034 (0.1) (0.1) 4.4 4.3 2035 (0.1) (0.1) 4.6 4.5 2036 (0.1) (0.1) 4.6 4.5 2037 (0.1) (0.1) 4.6 4.5 2038 (0.1) (0.1) 4.6 4.5 2039 (0.1) (0.1) 4.6 4.5 2040 (0.1) (0.1) 4.6 4.5 2041 (0.1) (0.1) 4.6 4.5 2042 (0.1) (0.1) 4.6 4.5 2043 (0.1) (0.1) 4.6 4.5 2044 (0.1) (0.1) 4.6 4.5 SUBPROJECT 3: EIRR 25.7 % ENPV US$ 8.83
4. Subproject 4: a) Economic Analysis of Loss Reduction and b) Energy Access
18. The objective of Subproject 4a) is to improve power factor and loss reduction in the distribution network. It is difficult to quantify the benefits attributable to this component per se. The Loss Reduction Programme is a small investment of US$ 500,000 in metering and specialised equipment to support identification of system losses and to then develop a programme for on-going loss reduction. Thus no EIRR can be calculated at this time. 19. Under Subproject 4b) the energy access programme will be carried out using government funds and is designed to provide connections to 3000 households who cannot afford the cost of a connection. The average cost of a basic minimum supply connection estimated at K1,250 where supply is from existing LV and is for provision of an MSK (Minimum Supply Kit: a fused panel with 2-3 power outlets), service cable, ground connections and LV mains fusing. The cost excludes metering. Low cost 5 Amp pre-paid metering is estimated to cost a further K330 but other options of using current limiting devices and local transformer bulk metering to account for total energy sales may avoid the bulk of the metering cost. No internal house wiring is required with an MSK unit thus households avoid this considerable cost. It is assumed that these households will
Final Report | 30 November 2012 Page | 130 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix G - Economic Analysis consume electricity at or below 30kWh/month and therefore Willingness to Pay at 1.32 K/kWhr for domestic consumers was used to value the benefit. 20. The incremental EIRR of this component is 10.6 % and the ENPV is negative US$ 0.13 million when discounted at the EOCC which is below the ADB Economic hurdle rate of 12 % which indicates marginal economic viability. 21. Sensitivity Analysis. Sensitivity analysis of the EIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 59. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve an EIRR greater than the EOCC. This indicates the project’s resilience to adverse impacts. The detailed computation is presented in Table 60. Table 59: SP4 EIRR and ENPV Base Case and Sensitivity Analysis
Scenario EIRR (%) ENPV (US$ m) Base Case 10.6 (0.13) 10 % increase in costs 7.8 (0.4) 10 % reduction in benefits 7.6 (0.4) 10 % increase in costs and 10 % reduction in benefits 4.7 (0.7) Source: PPTA Consultant Table 60: SP4 Detailed EIRR Computation - Energy Access (Constant 2012 US$ millions) Capital Year O&M Total Cost Benefits Net Benefit Cost 2012 - - - - - 2013 (0.4) (0.0) (0.4) - (0.4) 2014 (0.6) (0.0) (0.6) - (0.6) 2015 (0.6) (0.0) (0.6) 0.2 (0.4) 2016 (0.7) (0.02) (0.7) 0.4 (0.3) 2017 - (0.33) (0.3) 0.5 0.2 2018 (0.3) (0.3) 0.5 0.2 2019 (0.3) (0.3) 0.5 0.2 2020 (0.3) (0.3) 0.5 0.2 2021 (0.3) (0.3) 0.5 0.2 2022 (0.3) (0.3) 0.5 0.2 2023 (0.3) (0.3) 0.5 0.2 2024 (0.3) (0.3) 0.5 0.2 2025 (0.3) (0.3) 0.5 0.2 2026 (0.3) (0.3) 0.5 0.2 2027 (0.3) (0.3) 0.5 0.2 2028 (0.3) (0.3) 0.5 0.2 2029 (0.3) (0.3) 0.5 0.2 2030 (0.3) (0.3) 0.5 0.2 2031 (0.3) (0.3) 0.5 0.2 2032 (0.3) (0.3) 0.5 0.2 2033 (0.3) (0.3) 0.5 0.2 2034 (0.3) (0.3) 0.5 0.2 2035 (0.3) (0.3) 0.5 0.2 2036 (0.3) (0.3) 0.5 0.2 2037 (0.3) (0.3) 0.5 0.2 2038 (0.3) (0.3) 0.5 0.2 2039 (0.3) (0.3) 0.5 0.2 2040 (0.3) (0.3) 0.5 0.2 2041 (0.3) (0.3) 0.5 0.2 2042 (0.3) (0.3) 0.5 0.2 2043 (0.3) (0.3) 0.5 0.2 2044 (0.3) (0.3) 0.5 0.2 SUBPROJECT 4: EIRR 10.6 % ENPV (US$ 0.13)
Final Report | 30 November 2012 Page | 131 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix G - Economic Analysis
5. Subproject 5: Economic Analysis of Rouna 1 Refurbishment
22. The existing nameplate capacity at Rouna 1 is 5.5 MW of which two 1 MW plants are already decommissioned, therefore the actual capacity is 3.5 MW. However the remaining plant has a limited life of <3 years without major rehabilitation and will thus be replaced by the new unit. The plant generated 7.3 GWh of energy during 2011 and during the period 2007-2011, generated on average 9.9 GWh each year. The operating costs (excluding depreciation) are available at PPL for the entire Rouna complex (66 MW) which has been proportionately reduced to estimate those applicable to Rouna 1. The average tariff of K0.78 /kWh as reported in 2011 has been projected using the real tariff increase expected to be approved by the regulator. 23. In the “with project” situation, new 6 MW plant will be installed alongside the existing equipment and is expected to generate 18.5 GWh of electricity. Construction is expected to take three years. The new equipment will take over the existing revenue attributable to Rouna 1 and since it has more capacity than the existing unit will displace more expensive diesel generation. The value of such displacement has been taken at the operating cost of the PPL diesel complex at Moitaka supplying Port Moresby at K0.80 /kWh and projected using a real increase of 2 % per annum to mirror the expected increase in fuel cost. 24. The incremental EIRR of this component is 18.3 % and the ENPV is US$ 14.8 million. The EOCC is 12 % and since the EIRR is greater than the EOCC, this component is economically viable. 25. Sensitivity Analysis. Sensitivity analysis of the EIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 61. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve an EIRR greater than the EOCC. This indicates the project’s resilience to adverse impacts. The detailed computation is presented in Table 62. Table 61: SP5 EIRR and ENPV Base Case and Sensitivity Analysis Scenario EIRR (%) ENPV (US$ m) Base Case 18.3 % 14.8 10 % increase in costs 16.9 % 12.5 10 % reduction in benefits 16.8 % 11.0 10 % increase in costs and 10 % reduction in benefits 15.6 % 8.8 Source: PPTA Consultant Table 62: SP5 Detailed EIRR Computation - Rouna 1 Refurbishment (Constant 2012 US$ millions) Benefit of Benefit Total Total Capital Total savings in Net Net Econ Year O&M relating to Econ Econ Cost Cost replacm’t Benefit Benefits exist. Genr. Costs Benefits Genr. 2013 (8.9) (0.19) (9.1) 3.3 - (5.8) (8.9) - (8.9) 2014 (14.9) (0.19) (15.0) 3.4 - (11.6) (14.9) - (14.9) 2015 (5.9) (0.19) (6.1) 3.6 - (2.5) (5.9) - (5.9) 2016 (0.30) (0.3) 3.7 3.6 7.1 (0.1) 3.6 3.5 2017 (0.30) (0.3) 3.9 3.7 7.3 (0.1) 3.7 3.6 2018 (0.30) (0.3) 3.9 3.8 7.4 (0.3) 7.7 7.4 2019 (0.30) (0.3) 3.9 3.9 7.5 (0.3) 7.8 7.5 2020 (0.30) (0.3) 3.9 3.9 7.6 (0.3) 7.9 7.6 2021 (0.30) (0.3) 3.9 4.0 7.6 (0.3) 7.9 7.6 2022 (0.30) (0.3) 3.9 4.1 7.7 (0.3) 8.0 7.7 2023 (0.30) (0.3) 3.9 4.2 7.8 (0.3) 8.1 7.8 2024 (0.30) (0.3) 3.9 4.3 7.9 (0.3) 8.2 7.9 2025 (0.30) (0.3) 3.9 4.4 8.0 (0.3) 8.3 8.0 2026 (0.30) (0.3) 3.9 4.4 8.1 (0.3) 8.3 8.1 2027 (0.30) (0.3) 3.9 4.5 8.1 (0.3) 8.4 8.1 2028 (0.30) (0.3) 3.9 4.6 8.2 (0.3) 8.5 8.2 2029 (0.30) (0.3) 3.9 4.7 8.3 (0.3) 8.6 8.3 2030 (0.30) (0.3) 3.9 4.8 8.4 (0.3) 8.7 8.4
Final Report | 30 November 2012 Page | 132 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix G - Economic Analysis
Benefit of Benefit Total Total Capital Total savings in Net Net Econ Year O&M relating to Econ Econ Cost Cost replacm’t Benefit Benefits exist. Genr. Costs Benefits Genr. 2031 (0.30) (0.3) 3.9 4.9 8.5 (0.3) 8.8 8.5 2032 (0.30) (0.3) 3.9 5.0 8.6 (0.3) 8.9 8.6 2033 (0.30) (0.3) 3.9 5.1 8.7 (0.3) 9.0 8.7 2034 (0.30) (0.3) 3.9 5.2 8.8 (0.3) 9.1 8.8 2035 (0.30) (0.3) 3.9 5.3 8.9 (0.3) 9.2 8.9 2036 (0.30) (0.3) 3.9 5.4 9.0 (0.3) 9.3 9.0 2037 (0.30) (0.3) 3.9 5.5 9.1 (0.3) 9.4 9.1 2038 (0.30) (0.3) 3.9 5.6 9.2 (0.3) 9.5 9.2 2039 (0.30) (0.3) 3.9 5.7 9.4 (0.3) 9.7 9.4 2040 (0.30) (0.3) 3.9 5.9 9.5 (0.3) 9.8 9.5 2041 (0.30) (0.3) 3.9 6.0 9.6 (0.3) 9.9 9.6 2042 (0.30) (0.3) 3.9 6.1 9.7 (0.3) 10.0 9.7 2043 (0.30) (0.3) 3.9 6.2 9.8 (0.3) 10.1 9.8 2044 (0.30) (0.3) 3.9 6.3 10.0 (0.3) 10.2 10.0 2045 (0.30) (0.3) 3.9 6.5 10.1 (0.3) 10.4 10.1 SUBPROJECT 5: EIRR 18.3 % ENPV US$ 14.8
6. Subproject 6: Economic Analysis of Sirinumu Rehabilitation
26. The project intervention is to rehabilitate and optimise generation capacity at Sirinumu. The plant is rated at 1.6 MW but is limited to 1.1 MW due to excessive leakage through valves and turbine gates leading to generation inefficiencies. The plant generated 1.4 GWh of energy during 2011 and during the period 2007-2011, generated 1.0 GWh on average. The operating costs for Sirinumu are not reported separately at PPL, rather included within the Rouna complex, which has been pro-rated by capacity to estimate costs applicable to Sirinumu. The average tariff of K0.78 /kWh as reported in 2011 has been projected using the real tariff increase expected to be approved by the regulator. 27. In the “with project” situation, the plant will be restored to its original capacity of 1.6 MW and is expected to generate 4.5 GWh of electricity. Rehabilitation is expected to take three years and the existing operations will be shut down during this period. The new equipment will take over the existing revenue and since it has more capacity than the existing unit will displace more expensive diesel generation. The value of such displacement has been taken at the operating cost of the PPL diesel complex at Moitaka supplying Port Moresby at K0.80 /kWh and projected using a real increase of 2 % per annum to mirror the expected increase in fuel cost. 28. The incremental EIRR of this component is 16.5 % and the ENPV is US$ 3.0 million. The EOCC is 12 % and since the EIRR is greater than the EOCC, this component is economically viable. 29. Sensitivity Analysis. Sensitivity analysis of the EIRR was carried out using the following scenarios to evaluate the robustness of the investment to changes in major assumptions. The sensitivity analysis is presented in Table 63. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve an EIRR greater than the EOCC. This indicates the project’s resilience to adverse impacts. The detailed computation is presented in Table 64. Table 63: SP6 EIRR and ENPV Base Case and Sensitivity Analysis
Scenario EIRR (%) ENPV (US$ m) Base Case 16.5 % 3.0 10 % increase in costs 15.2 % 2.3 10 % reduction in benefits 15.1 % 2.0 10 % increase in costs and 10 % reduction in benefits 13.9 % 1.3 Source: PPTA Consultant
Final Report | 30 November 2012 Page | 133 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix G - Economic Analysis
Table 64: SP6 Detailed EIRR Computation - Sirinumu Rehabilitation (Constant 2012 $ millions) Benefit Benefit of Total Total Capital Total relating to savings in Net Net Econ Year O&M Econ Econ cost cost exist. rehab. Benefit Benefits Costs Benefits Genr. Genr. 2012 - - - 0.0 - 0.0 2013 (2.6) (2.6) (2.6) (2.6) (0.3) (2.9) 2014 (6.2) (6.2) (6.2) (6.1) (0.4) (6.5) 2015 - (0.1) (0.1) 0.4 1.3 1.6 - 1.3 1.3 2016 (0.1) (0.1) 0.4 1.3 1.6 (0.0) 1.3 1.3 2017 (0.1) (0.1) 0.4 1.3 1.7 (0.0) 1.3 1.3 2018 (0.1) (0.1) 0.4 1.4 1.7 (0.1) 1.8 1.7 2019 (0.1) (0.1) 0.4 1.4 1.7 (0.1) 1.8 1.7 2020 (0.1) (0.1) 0.4 1.4 1.7 (0.1) 1.8 1.7 2021 (0.1) (0.1) 0.4 1.4 1.8 (0.1) 1.9 1.8 2022 (0.1) (0.1) 0.4 1.5 1.8 (0.1) 1.9 1.8 2023 (0.1) (0.1) 0.4 1.5 1.8 (0.1) 1.9 1.8 2024 (0.1) (0.1) 0.4 1.5 1.9 (0.1) 1.9 1.9 2025 (0.1) (0.1) 0.4 1.6 1.9 (0.1) 2.0 1.9 2026 (0.1) (0.1) 0.4 1.6 1.9 (0.1) 2.0 1.9 2027 (0.1) (0.1) 0.4 1.6 1.9 (0.1) 2.0 1.9 2028 (0.1) (0.1) 0.4 1.7 2.0 (0.1) 2.1 2.0 2029 (0.1) (0.1) 0.4 1.7 2.0 (0.1) 2.1 2.0 2030 (0.1) (0.1) 0.4 1.7 2.0 (0.1) 2.1 2.0 2031 (0.1) (0.1) 0.4 1.8 2.1 (0.1) 2.2 2.1 2032 (0.1) (0.1) 0.4 1.8 2.1 (0.1) 2.2 2.1 2033 (0.1) (0.1) 0.4 1.8 2.2 (0.1) 2.2 2.2 2034 (0.1) (0.1) 0.4 1.9 2.2 (0.1) 2.3 2.2 2035 (0.1) (0.1) 0.4 1.9 2.2 (0.1) 2.3 2.2 2036 (0.1) (0.1) 0.4 1.9 2.3 (0.1) 2.4 2.3 2037 (0.1) (0.1) 0.4 2.0 2.3 (0.1) 2.4 2.3 2038 (0.1) (0.1) 0.4 2.0 2.3 (0.1) 2.4 2.3 2039 (0.1) (0.1) 0.4 2.1 2.4 (0.1) 2.5 2.4 2040 (0.1) (0.1) 0.4 2.1 2.4 (0.1) 2.5 2.4 2041 (0.1) (0.1) 0.4 2.1 2.5 (0.1) 2.6 2.5 2042 (0.1) (0.1) 0.4 2.2 2.5 (0.1) 2.6 2.5 2043 (0.1) (0.1) 0.4 2.2 2.6 (0.1) 2.6 2.6 2044 (0.1) (0.1) 0.4 2.3 2.6 (0.1) 2.7 2.6 2045 (0.1) (0.1) 0.4 2.3 2.6 (0.1) 2.7 2.6 SUBPROJECT 6: EIRR 16.5 % ENPV US$ 3.0
IV. ECONOMIC ANALYSIS OF OVERALL PROJECT
30. Economic Internal Rate of Return (EIRR). The EIRR was calculated for each subproject by calculating the discount rate at which the total present value of benefits and the total present value of costs are equalised. The results for subprojects are presented in the subproject sections. Table 66 at the end of this section presents results for the overall Project. 31. It is important to note that this is a conservative estimate of the project’s economic viability as some benefits and externalities such as environmental benefits have not been quantified and included. The incremental EIRR of the overall project is 17.7 % and the ENPV is US$ 29.2 million when discounted at the EOCC. The EOCC is 12 % and since the EIRR is greater than the EOCC, the overall Project is economically viable. 32. Sensitivity analysis. An analysis was undertaken to test the sensitivity of the estimated EIRRs of the proposed subprojects to adverse changes in key variables and to confirm their economic viability and robustness of the investment under unfavourable conditions. One of the major risks is that the cost estimates at this concept phase, if even done conservatively and with typical contingencies, is as broad as about -10 % to +20 % of the best estimates undertaken. To
Final Report | 30 November 2012 Page | 134 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix G - Economic Analysis capture about 70 % of this risk the sensitivity test considers a 10 %130 increase in capital cost. Altogether, four major risks are considered: (i) 10 % increase in capital cost; (ii) 10 % decrease in benefits; (iii) 10 % increase in capital cost and (iv) 10 % decrease in benefits. The sensitivity analysis is presented in Table 65. The results reveal that all the tests, including the worst case scenario, which is a combination of all sensitivity tests, achieve an EIRR greater than the EOCC. This indicates the project’s resilience to adverse impacts. The detailed computation is presented in Table 66. Table 65: Overall EIRR and ENPV Base Case and Sensitivity Analysis Scenario EIRR (%) ENPV (US$ m) Base Case 17.7 % 29.2 10 % increase in costs 16.3 % 23.8 10 % reduction in benefits 16.2 % 20.9 10 % increase in costs and 10 % reduction in benefits 14.9 % 15.5 Source: PPTA Consultant Table 66: Overall Project Detailed EIRR Computation (Constant 2012 US$ millions) Base case Total Econ Year Total Econ Costs Net Econ Benefits Benefits 2012 - - - 2013 (17.3) (0.3) (17.6) 2014 (35.8) (0.4) (36.2) 2015 (15.5) 5.2 (10.3) 2016 (1.0) 9.4 8.3 2017 (0.7) 10.0 9.3 2018 (0.9) 14.7 13.7 2019 (0.9) 15.0 14.0 2020 (0.9) 15.4 14.5 2021 (0.9) 15.7 14.8 2022 (0.9) 16.1 15.2 2023 (0.9) 16.6 15.6 2024 (0.9) 17.1 16.1 2025 (0.9) 17.5 16.6 2026 (0.9) 17.9 17.0 2027 (0.9) 18.3 17.3 2028 (0.9) 18.7 17.7 2029 (0.9) 19.1 18.1 2030 (0.9) 19.5 18.5 2031 (0.9) 19.9 18.9 2032 (0.9) 20.3 19.4 2033 (0.9) 20.7 19.8 2034 (0.9) 21.2 20.3 2035 (0.9) 21.6 20.7 2036 (0.9) 21.8 20.8 2037 (0.9) 21.9 21.0 2038 (0.9) 22.1 21.1 2039 (0.9) 22.2 21.3 2040 (0.9) 22.4 21.5 2041 (0.9) 22.5 21.6 2042 (0.9) 22.7 21.8 2043 (0.9) 22.9 21.9 2044 (0.9) 23.0 22.1 OVERALL: EIRR 17.7 % ENPV US$ 29.20
130 That is estimated as -10 % + 70 % x (+20 % - (-10 %)) = +11 %, meaning that 70 % of the cost risks may be at about 10 % above the best estimate.
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Appendix H Due Diligence / Social Compliance Audit Report
CONTENTS
Section I: Introduction Section II: Methodology Section III: Project Components and Screening of Impacts Section IV: Due Diligence/Social Compliance Audit of Existing Facilities Section V: Consultations, Disclosure and Grievance Redress Section VI: Action Plan: Community Development Package for Rouna 1
Due Diligence / Social Compliance Audit Report follows:
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Final Report | 30 November 2012 Page | 138 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
Due Diligence/Social Compliance Audit Report
December 2012 [Draft as of 30 November]
Papua New Guinea: Port Moresby Power Grid Development Project
Prepared by PNG Power Ltd. for the Asian Development Bank.
Final Report | 30 November 2012 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
Currency Equivalents (as of 29 August 2012)
Currency unit – Kina (K) K1.00 = $0.4855 $1.00 = K2.0597
Abbreviations
ADB – Asian Development Bank AP – affected people APs – affected persons CC – central land claim CEO – chief executive officer CLO – customary land officer DJAG – Department of Justice and Auditor General DD/SCAR – Due diligence/social compliance audit report DLO – district land officer EA – executing agency GAP – gender action plan ha – hectare IA – implementation agency ILG – Incorporated Land Group IPBC – Independent Public Buisiness Corporation kV – kiloVolt LIR – land investigation report m – meter MOA – memorandum of agreement NCD – national capital district NCDC – National Capital District Commission NEC – National Executive Council NLC – National Land Commission PLO – provincial lands officer PMU – project management unit PNG – Independent State of Papua New Guinea POMPGD – Port Moresby Power Grid Development Project PPL – PNG Power Limited PPTA – Project Preparatory Technical Assitance RDC – Rouna Development Company RP – resettlement plan SIDCO – Sirinumu Development Company SPS – safeguard policy statement TB – tuberculosis TL – Transmission Line VG – Valuer General VLGI – Vaga Land Group Incorporation
NOTE
In this report, “$” refers to US dollars
This land acquisition/resettlement plan is a document of the borrower. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. Your attention is directed to the “terms of use” section of this website.
In preparing any country programme or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
Final Report | 30 November 2012 i TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
CONTENTS I. INTRODUCTION ...... 1 II. METHODOLOGY ...... 1 III. PROJECT COMPONENTS AND SCREENING OF IMPACTS ...... 1 A. Subproject 1 - Kilakila Transmission Line (TL) and Substation ...... 1 B. Subproject 2 - Substation Capacitor ...... 1 C. Subproject 3 - Up-grade of 11 kV System to Open-loop Mesh ...... 2 D. Subproject 4 - Power Loss Reduction Programme ...... 2 E. Subproject 5 - Rouna 1 Hydropower Refurbishment ...... 2 F. Subproject 6 - Sirinumu Toe of Dam Up-grade ...... 2 IV. DUE DILIGENCE/SOCIAL COMPLIANCE AUDIT OF EXISTING FACILITIES ...... 3 A. Rouna 1 Hydropower Plant ...... 3 B. Sirinumu Toe-of-Dam Hydropower...... 6 C. Existing Transmission Line from Rouna ...... 6 V. CONSULTATIONS, DISCLOSURE AND GRIEVANCE REDRESS ...... 7 VI. ACTION PLAN: COMMUNITY DEVELOPMENT PACKAGE FOR ROUNA 1 ...... 8 A. Objective...... 8 B. Scope and Activities ...... 8 C. Stakeholder Consultations and Participation ...... 8 D. Implementation Arrangement ...... 8 E. Budget and Financing Plan ...... 9 F. Monitoring and Reporting ...... 9 Appendix 1: List of Documents...... 10 Appendix 2: List of People Contacted ...... 11 Appendix 3: Notice for Public Consultations ...... 12
Final Report | 30 November 2012 ii TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
I. INTRODUCTION
1. The proposed Port Moresby Power Grid Development Project (the project) will assist PNG Power Limited (PPL) to expand renewable energy generation, connect currently un-served customers and significantly improve the quality of electricity supply. The project will (i) upgrade and rehabilitate two hydropower plants (Rouna 1 and Sirinumu Toe-of-dam), (ii) extend the grid to approximately 3,000 additional households, including strengthening the distribution network (11 kV mesh grid), and (iii) construct a new substation (Kilakila) and upgrade the existing substations. 2. This due diligence / social compliance audit report (DD/SCAR) has been prepared following ADB’s Safeguard Policy Statement (SPS) to screen existing facilities that will be upgraded under the project. While the existing facilities are not expected to involve new land acquisition and resettlement impacts, the screening/audit was undertaken to confirm the land ownership of the existing sites and identify any outstanding safeguard compliance issues. A separate resettlement plan (RP) has been prepared to manage impacts of the project components/construction involving land acquisition/resettlement impacts. 3. The Independent Public Business Corporation (IPBC) will be the executing agency (EA) for the project and PPL will be the implementing agency (IA). PPL will update DD/SCAR based on further assessments before or during the detailed design study.
II. METHODOLOGY
4. The methodology adopted for the DD/SCAR involved discussions within the PPTA team to identify potential activities for each subproject, analysis of activities to examine any potential involuntary resettlement (IR) impacts, review of available documents, and discussions with stakeholders. This also involved field visits to Rouna 1, Sirinumu and other existing facilities, meetings with landowners, in-depth interviews and public consultations with local clan leaders of Rouna 1 and Sirinumu. A list of documents reviewed is in Appendix 1. 5. A total of 57 people were contacted for consultations and the information received has been incorporated in this report. The list of people contacted is presented in Appendix 2.
III. PROJECT COMPONENTS AND SCREENING OF IMPACTS
6. In order to improve the reliability and capacity of the Port Moresby power system, the project aims to develop six subprojects. The objectives, planned activities and screening of potential IR impacts for each subproject are summarized below.
A. Subproject 1 - Kilakila Transmission Line (TL) and Substation
7. This subproject will provide benefits to the entire population in Port Moresby area. The objective of the subproject is to construct a new substation near Kilakila village and to connect the substation to the existing TL from Rouna via constructing a new TL link. The substation and new TL will provide a cost-efficient power supply to the City. This subproject is new infrastructure, which involves land acquisition. A RP has been prepared addressing relevant issues. The land ownership issue for the existing TL tower is discussed in the next section on the due diligence/social compliance audit of existing facilities.
B. Subproject 2 - Substation Capacitor
8. The purpose of this subproject is to stabilise power supplied across all of Port Moresby. The benefits of this subproject will in particular be improved stability of power across all customers supplied from the Port Moresby Grid. This will be done by fixing capacitors, switch gear and other fixtures either within PPL’s existing substation premises or along the easements of public roads. No land acquisition is required and no resettlement impacts are expected.
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
C. Subproject 3 - Upgrade of 11 kV System to Open-loop Mesh
9. This subproject is expected to improve the delivery of quality power, minimize power outage distractions, improve capacity to supply more customers and provide significant reliability of power supply. The beneficiaries are all customers within NCD. This will be accomplished by making some changes to power lines and by installation of electrical equipment, mostly confined to existing substations and distribution power line poles sitting on public lands. No additional land acquisition and resettlement impacts are expected.
D. Subproject 4 - Power Loss Reduction Programme
10. Several technical methods and installation of new electrical equipment are being planned to reduce power losses. These will be placed in appropriate locations either within existing facilities already under the control of PPL or within other premises at the invitation of high-power use customers, mainly government, commercial establishments and industries. This subproject is expected to reduce power losses and deliver better quality power to all customers within Port Moresby project area. No land acquisition and resettlement impacts are expected.
E. Subproject 5 - Rouna 1 Hydropower Refurbishment
11. The refurbishment of the existing hydro-power station of Rouna 1 is proposed under this subproject. This includes the decommissioning of Rouna 1, replacement of existing power plant and construction of a new facility beside the existing. All proposed activities will be undertaken within the existing generation facility itself and are entirely confined within the perimeter of the complex owned by the state. There is no necessity to acquire new land. The issue of landownership of existing site is discussed in the next section on the due diligence/social compliance audit of existing facilities. Map 1 : Location of Sirinumu, Rouna 1 and Port Moresby
Rouna 1
Sirinumu
F. Subproject 6 - Sirinumu Toe of Dam Up-grade
12. The purpose of this subproject is to repair and refurbish an existing generator and power house that will improve efficiency of power generation. All proposed activities will be confined within the existing power house. No land acquisition and IR impacts are expected from this subproject. The land ownership of existing facility is further discussed in the next chapter on the due diligence/social compliance audit of existing facilities. 13. The Table 1 summarizes subproject activities and their potential IR impacts.
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
Table 1 : Subproject Activities and Resettlement Impacts
Subproject Proposed Activities Resettlement Impacts 1. Kilakila Transmission Construction of a new substation and Involves land acquisition. A Line (TL) and Substation transmission line resettlement plan has been prepared. 2. Substation Capacitors Fixing switching gear, transformers, Land acquisition is not required. or Statcom etc. to existing power poles and inside No resettlement impact. substations owned by PPL 3. Upgrade of 11kV Install electrical and engineering Land acquisition is not required. system equipment No resettlement impact. Build new transmission/distribution lines that follow existing alignment and/or confined to existing facilities of PPL or over existing power poles, or on public land or underground cables All activities confined to road easement and/or PPL properties 4. Loss Reduction Fixing new equipment within existing Land acquisition is not required. Programme substations and facilities No resettlement impacts. 5. Rouna 1 Hydro-power Dismantling of existing generator No land acquisition/resettlement refurbishment house/turbines and fixing new units. impacts. Demolition of existing buildings and build new and/or extensions. Removal of existing TL from Rouna and replacing with new lines All activities confined to existing and The TL alignment is on already functional power stations government land. 6. Sirinumu Toe of Dam Removal of turbine, generator and No land acquisition/ resettlement Up-grade other power equipment impacts. Installing new equipment All activities confined to existing and currently functioning (partly) hydro- power station
IV. DUE DILIGENCE/SOCIAL COMPLIANCE AUDIT OF EXISTING FACILITIES
14. All upgrading/rehabilitation works under the project are expected to be confined within the existing facilities/locations without new land acquisition and resettlement impacts. This section examines landownership issues identified and reviewed by PPTA for the following existing facilities: (i) Rouna 1 hydro-power plant; (ii) Sirinumu hydro-power plant, and (iii) Existing TL that conveys power from Rouna to the City.
A. Rouna 1 Hydropower Plant
15. The Rouna hydro-power complex was built on land that was acquired from customary landowners by the Colonial administrators between 1890 and 1900. The subject land was registered by the State in about 1900. This land is known as Portion 2542 with a total area of 2,216 ha that formerly belonged to four clans namely, Omani, Nadeka, Nareme and Ianari. All these clans belong to the Koiari main clan. The land does not have Central Claim Number (commonly known as cc.xx-number) as it is not customary land. 16. The land owners received a sum of K27,333.14 on 14 January 1978 for Rouna 2 installation area and another payment of K650,000 on 20 February 1983 for Rouna 4 installation area. In addition, the National Executive Council (NEC) made several decisions in the past to provide various financial and technical supports, including providing an ex-gratia payment in the sum of K600,000 to the former land owners of Rouna 4 hydro-power plant to address their demands. Accordingly, PPL paid a sum of K24,000 annually from 1984 to 2009 totalling K600,000. 17. However, the four clans (Omani, Narime, Nadeka and Ianari) of Rouna 1 claimed that the land in fact belonged to them and they had not received adequate compensation. The verbal claims by former landowners were also expressed during the consultations attended by PPTA team, including the public consultation on 22 August 2012. Concerns were also expressed that
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR some clans did not receive the compensation provided earlier by the government, indicating an existence of inter-clan disputes on distribution of the compensation amount. 18. The National Land Commission (NLC) inquired into the claims of the four clans in 2010 and 2011 and provided its decision on 14 December 2011. The NLC’s findings/decisions included: The claim over Portion 2542 land consisting of 2,216 ha belonged to the four clans of Omani, Nerime, Nadeka and Ianari; The land was acquired and is now owned by the state; The settlement payment be calculated subject to Schedule 2 of National Land Registration Act, and the payment be made to four clans namely, Omani, Narime, Ianari and Nadeka; The distribution of payment be apportioned in accordance to size of portions or parcels of land areas owned by each clan; The land is categorised as outside of town boundary. Therefore, the settlement payment would be a total of K236,600; Increase the payment by 50% that will increase the above award by K118,300 and the total award is K354,900; and The distribution of the settlement payment amongst persons is left to the discretion of the clan leaders taking into account of customary land tenure system as practised locally. 19. The payment order issued by the NLC was not settled by the State until 2012. This agitated the former landowners and on 2 April 2012 the Rouna Incorporated Land Group (ILG) submitted a petition to the Prime Minister demanding from the State a sum of 290,756,736 Kina for the occupation of the land, the payment of rental arrears for that land, etc. The State did not take any action on this and the Chairman of Rouna ILG demanded on 12 June 2012 in a letter that the government resolved the matter within 14 days and stated that failure to do so would make land owners to take action to stop water supply to Rouna 1 to 4. As their demand was not attended to by the State within the time period mentioned in the letter, the former landowners stopped water flow into the generator house of Rouna complex on 21 June 2012. This deprived Port Moresby City of water supply and there were interruptions in power supply.1 20. After the closure of water supply to Rouna complex, the government appointed a team to discuss with landowners to resolve the dispute. The two parties (the government team and landowners) which met on 21 June 2012 reached an agreement in the interim to accept/provide a sum of K500,000 against the K354,900 awarded by the NLC.2 The agreed amount has been given by the government in three separate cheques where the government has contributed K300,000, and PPL and Eda Ranu a sum of K100,000 each making the total amount of K500,000. The PPTA team has seen the documentation in support of landowners accepting the cheques issued by the government agencies. 21. In the meantime, the Government sought and received a legal opinion from the Department of Justice and Auditor General (DJAG) on the claim dated 2 April 2012 submitted by the Rouna ILG demanding a sum of K290,756,736. The DJAG has provided the following legal opinion in a letter dated 29 June 2012 addressed to the Chief Secretary of the Government (Appendix 4): It is an undisputed fact that the subject land (portion 2542) has been acquired. This land is now State land; The previous landowners no longer own this land. The Independent State of PNG is the legal owner of this land;
1 This year was not the only time former land owners obstructed power generation and deprived City residents with water. Similar incidents had occurred in 2011 and 1991.
2 It is to be noted that the agreed amount is K145,100 in excess of NLC’s Order.
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
The subject land is not owned by Rouna ILG. The former owners of this portion of land are four Clans namely: Omani, Narime, Ianari and Nadeka. If these 4 clans constitute members of Rouna ILG, then this ILG will be legitimate. If not, there will be a serious legal issue of legitimacy; NLC has already provided its decision, including a payment of K354,900 to the four landowner clans who previously owned the land. The NLC’s decision has not been reviewed or appealed. The claim for K290,756,736 is totally fictitious and illogical because the State as owner of the Portion of land cannot pay the rent for using the land; If parties wish to seek compensation or damage for any loss of land use rights, then they must go to a normal court of law and seek specific remedial measures; There is no basis in either statute law, common law or equity for the total claim of K290,756,736 by the Rouna ILG. This claim must therefore be rejected outright. Should the former landowners insist, they must be asked to pursue their claim through the normal court of law and prove their claim. As it is, the State and its agents and instrumentalities must not entertain the present claim; The State and the claimants need to design a development package or an ex-gratia fund for assistance to former land owners as an act of good will. 22. One of the demands by former landowners is that PPL should provide an equity and share of profits to them made by the PPL. PPL has clarified that (i) it is not possible to meet this demand as there is no basis for this; (ii) it is also unfair for other landowners in other locations who have provided their land to establish installations by PPL in the past; and (iii) the issue of development package to uplift the socio-economic development is clearly in the domain of the government. However, the PPL confirms that work in this area is in progress both by PPL and the government. 23. It appears that the poor quality of services in the Rouna area is one of the reasons for frequent agitations by local people/landowners and the government is concerned about it. Therefore, the government has drafted a development package that will include various services to the local people, such as education, health, and youth and social activities. The funding for the development package is expected to come from the government counterpart funds whilst PPL will provide assistance in the area of setting up a land owner company which will form the basis for former landowners and PPL to discuss and finalize the package. 24. The government plans to establish Rouna Development Company (RDC) along the lines of the Sirinumu Development Company (SIDCO) with an injection of capital of K3.25 million over a period of five years from 2013 to 2017 by PPL. The proposals are currently being finalized by the government. A constitution for the RDC has been drafted. 25. The purpose of RDC and development package is to address concerns expressed by the previous landowners. More specifically, the aim is to improve the standard of living of Rouna people and thereby to create a healthy and self-sufficient community for them. It is the government’s view that the establishment of RDC is the preferred alternate vehicle in channelling development assistance rather than providing periodic cash hand-outs to address the local concerns. 26. Majority of the Rouna 1 participants in the public consultation held on 22 August 2012 demanded local services from the government. While one clan leader at the consultation said that the land is owned by them and the State should pay compensation for the use of their land, there were several other clan members including women who expressed that they were interested more on receiving development benefits than compensation money. All they wanted was that the government provides important services for their benefits. PPL responded positively to demands for local/community development activities and advised local clan leaders to form ILG(s) to partner with PPL and the government for such initiatives. After this discussion, neither the leader who wanted paid compensation nor other clan leaders and/or members raised any further concern on land ownership or compensation for Rouna 1 subproject.
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
27. PPTA has concluded that the land occupied by the Rouna complex is confirmed to be State owned land. However, the government and PPL will finalize and implement a development package to address the local concerns.
B. Sirinumu Toe-of-Dam Hydropower
28. The land at Sirinumu dam and reservoir known as Waharo in local language (Sirinumu in English) has an extent of 54 acres. The previous owners of this land are 14 clans from around the area. This land was purchased by the Australian Administration for a total compensation price of £56,274 between 1961 and 1962. An additional compensation totalling A$5,778 was paid to the local people in 1972 for their gardens covered by water when the spill way level was raised. 29. The former landowners of Sirinumu (together with Rouna people) forced the closure of Rouna power station on 20 November 1991 and petitioned the Minister for Lands and Physical Planning to address their demands (compensation, etc.). To address their demands, NEC approved in 1993 the establishment of Sirinumu Development Authority (SIDA). The SIDA was subsequently converted to the Sirinumu Development Company (SIDCO) in 1996 with the financial allocation of K125,000 approved by NEC. The PPL has provided a package of development assistance amounting to K9,200,000 from 1996 to 2008 since the formation of SIDCO. A further package of K6.0 million for the period covering from 2009 to 2013 has been agreed and is under implementation. 30. SIDCO has been utilizing the development package to provide community and livelihood development assistance to land owners in the area. The relationship between PPL and SIDCO is cordial and rewarding to both parties. The 12 Directors of SIDCO represent the 12 major clans in Sirinumu area. Two Directors one each representing PPL and Ed Rouna are ex-officio members. 31. The study team did not note any demands for land compensation from the Sirinumu people during the PPTA study. This was further confirmed by deliberation of the fully publicised and well attended public consultations held in August 2012 where none of the 50 participants raised any land issue. However, there was a consensus among the government and local participants with regard to the current poor condition of basic services and the need to extend the development assistance beyond 20133. The local participants suggested that the access road be sealed. The government participants agreed that government funds will be sought for the rehabilitation of this road. PPL has agreed that the current development assistance will be continued. 32. The PPTA has concluded that there are no landownership issues. However, the government and PPL will continue and extend the development package.
C. Existing Transmission Line from Rouna
33. The power generated in Rouna complex is transmitted to the Boroko substation in the City via an existing TL. This TL has been built around 1960s. It is proposed that the power is taken off at tower 56, near Magi Highway (Map 2) and transmitted to the new substation at Kilakila via the new TL to be built under the project. 34. An unresolved land ownership issue was noted with regard to the land occupied by tower 56 at existing TL from Rouna to the city. The land where tower 56 is built is owned by 2 clans namely, Iarogaha and Uhadi Iarogaha. This is recognized as CC.79 and is registered in the name of two ILGs Iarogaha and Uhadi Iarogaha. Meetings4 held with clan leaders during the study indicated that the government is yet to acquire and compensate the two clans for the land occupied by tower 56. The affected clan leaders have agreed to sell the portion of affected land to PPL. Accordingly, the PPL is working on a memorandum of agreement (MOA) to acquire land occupied by tower 56 as well as for the erection of additional and new towers on their customary land. The
3 The basic services such as water, power, schools, health, etc. Do not extend to all households in the Sirinumu area. Interviews revealed that several households are without power and the majority have no potable water supply. The farming is traditional without the benefit of modern techniques to increase productivity. The road that leads to Sirinumu dam requires maintenance while the schools and health posts are away from the villages. The state of roads makes their access to social services such as health, schools and markets difficult. 4 Meetings were held with relevant clan leaders/land owners on 2, 15, 23 and 28 August 2012.
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR resettlement plan (RP) prepared for the new substation and transmission line covers the land issue related to tower 56 as well. PPL will update the RP after the detailed design. While updating the RP and DD/SCAR, PPL will update the land ownership status of the existing TL from Rouna to the city by an examination of land ownership records at the provincial/district land administration offices. 35. The Map 2 shows the location of existing TL, the tower 56 and the path of proposed new connection before joining with Kilakila TL. Map 2 : Location of Affected Land of Iarogaha ILG
V. CONSULTATIONS, DISCLOSURE AND GRIEVANCE REDRESS
36. PPL has consulted local community/landowner groups and other stakeholders during preparation of the proposed project in several ways, including (i) social assessments; (ii) community meetings; (iii) focus group discussions with clan leaders, households and women groups; (iv) public consultations; and (v) site visits and observations. 37. There were well publicised and well informed public consultations conducted with local communities/landowner groups from Rouna 1, Sirinumu, and the substation/transmission sites. The PPL presented project details, elaborated on assessment of impacts and sought the participants’ feedback on the proposed project design. In addition, there has been several other contacts and meetings held between the communities and PPTA team/representatives from PPL between July – August 2012. A detailed list of consultation activities undertaken is included in the RP and social analysis report. 38. A consultation and participation plan incorporating both social and environmental issues for implementation phase has been prepared and attached in the PAM. The PPL will organise further consultations during project implementation following this plan. Participants will include traditional and clan leaders, ward councillors, and all other interested members of the community. Separate
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR meetings will also be organised with women to continue to understand and discuss their preferences and concerns at that stage. PPL will be joined during meetings by representatives from relavant government agencies. The outcome of the further consultations will be reflected in the updated DD/SCAR and other relevant safegaurd reports. 39. The project will establish a grievance redress mechnism (GRM). The details of the GRM are described in the RP. The same GRM will be utilized to address any grievances related to existing facilities as well. 40. In compliance with ADB requirements, PPL will publicly disclose draft and final DD/SCAR. The draft and final DD/SCAR will be also disclosed on the ADB website upon submission by the PPL.
VI. ACTION PLAN: COMMUNITY DEVELOPMENT PACKAGE FOR ROUNA 15
A. Objective
41. The objective of this action plan or development package6 is to engage previous landowners / local communities and provide them with a development assistance to improve their living standards. It is expected that this will also ensure their support to the project, minimize disturbance to project implementation, and avoid other risks.
B. Scope and Activities
42. The government/PPL has drafted a development package of K3.25 m to be granted to the communities/previous landowners at Rouna 1 through proposed Rouna Development Company (RDC). The grant assistance will cover the period from 2013 to 2017. The list of proposed activities is as follows: a. Economic investments b. Community services i. Education projects ii. Health services iii. Youth and social activities c. Administration support d. Machinary (transport), maintenance and repair 43. This package will be further discussed and detailed activities finalized during the detailed design. The updated plan will provide details on the number and types of beneficiaries, specific outputs, detailed activities, implementation schedule, updated cost estimate, and arrangements for implementation and monitoring.
C. Stakeholder Consultations and Participation
44. PPL will further consult with the local communities/landowner groups to solicit their views on and finalize the proposed development package and its implementation arrangements. The outcome of the consultations, including any formal memorandum of agreement with the community leaders will be included in the updated report. The approach and process for consultations are described in the project’s consultation and participation plan.
D. Implementation Arrangement
45. IPBC, as Executing Agency for the project will have overall responsibility of planning, implementation and monitoring of activities related to the the proposed development package as well as the overall project. As the Implementing Agency, PPL has the responsibility to carry out
5 The land ownership issue at the transmission line has been addressed by the RP. PPL have already been providing a development package to Sirinumu. This section covers the proposed activities for Rouna 1 only. 6 “Action plan” and “development package” are used interchangeably in this section.
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR day-to-day activities related to this. The relevant government agencies will support IPBC and PPL in implementation of the development package. 46. A Project Management Unit (PMU) will be established within PPL for implementing the project activities. PPL will provide several full-time PPL staff, including a lands officer. The project will finance consultants, etc. to support the PMU for implementing the project activities. The consultants will include social/resettlement safeguard specialists, who will assist PPL to update and implement safeguard plans, including this development package.
E. Budget and Financing Plan
47. The proposed development package is currently being drafted and will be finalized during the detailed design. The cost of the development package will be financed by the government.
F. Monitoring and Reporting
48. PPL will monitor the project activities including the development package. The scope of monitoring includes: (i) performance of the activities; (ii) approval, allocation and disbursements of funds; and (iii) remedial actions, as required. PPL will report the progress in implementation of the action plan through its semi-annual monitoing reports to ADB.
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
Appendix 1: List of Documents
1. Asian Development Bank (2009). Safeguard Policy Statement, Manila 2. A1 Business & Community Development Consultants (April, 2012). Submission to Prime Minister of Papua New Guinea by Rouna Incorporated Land Group, Sogeri, NCD 3. Department of Lands & Physical Planning (2003). Provincial Land Data 4. Independent State of Papua New Guinea (19th April, 2012). Report of the National Land Commission Enquiry on Rouna 1 & 3 5. Independent State of Papua New Guinea (2012). Rouna ILG Petition, Office of the Prime Minister, 12th June 2012 6. Independent State of Papua New Guinea (2nd July 2012). Establishment of Rouna Development Company and its Development Assistance Package for the Rouna Koiari Landowners, Policy Submission to the National Executive Council 7. Independent State of Papua New Guinea (29th June 2012). Legal Opinion and Advice Re: Rouna Landowner Claims, Department of Justice & Attorney General, Office of the Secretary. 8. Independent State of Papua New Guinea (21st June 2012). Record of Discussion between the government team and Representatives of Rouna Incorporated Land Group, Office of the Chief Secretary. 9. Independent State of Papua New Guinea (2007). National Land Registration Act (Chapter 357). Declaration Notice under Section 9, No. G10, Minister for Land & Physical Planning. 10. Kuwimb Consultancy Services Limited (19th July 2012). Issues Relating to Rouna ILG Petition & Legitimate Beneficiaries, Department of Prime Minister & National Executive Council, NCD. 11. National Statistical Office (2012). Summary of Census 2011 Report. 12. PNG Power Ltd (2012) Brief on Sirinumu Dam, Rouna 1,2,3, and 4 and Development Assistance 13. PNG Power Ltd (May 2004). Brief on the Sirinumu Dam, Rouna Power Stations Land & Development Assistance 14. PNG Power Ltd (no date). Rouna Development Company Constitution 15. PNG Power Ltd (no date). Development Assistance Package for Rouna Development Company for the years 2013 to 2017 16. PPTA (August, 2012). Summary of Socio-economic Assessment of Project Area 17. Rouna Incorporated Land Group (22nd June, 2102). Acknowledgement of Receipt of Payment of K500,000 18. Territory of Papua (22nd June 1961). Transfer of Land by Natives to the Crown.
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
Appendix 2: List of People Contacted
1. Lawrence Solomon Director (Strategy & Marketing) PNG Power Ltd 2. K Salo Manager, Land & Community Services, PNG Power Ltd 3. S. Sasenu Surveyor, PNG Power Ltd 4. E Pereira Manager, Revenue & Customer Services, PNG Power Ltd 5. R Kila Pat Deputy Secretary (Customary Land), Department of Lands & Physical Planning 6. O Tolopa Deputy Secretary (Corporate Affairs), Department of Lands & Physical Planning 7. Dr Angelica Braun Director, Department of Prime Minister & National Executive Council 8. S B Isu Manager (Development Control), National Capital District Commission 9. K Kaugla (F), Gender Officer, NCDC 10. Robert Williams Coordinator LLG, NCDC 11. Paul Abba Liaison officer, NCDC 12. Vincent Manukayasi LLG Division, NCDC 13. Win Lokalyo Councillor Ward NE 12 B 14. Wilfred Aukiri Councillor Ward 3 15. Francis Kanasi Councillor NW Ward 8 16. Pepsi Kekei Councillor NE Ward 9 17. Josephine Aniong Councillor 18. Joe Vali Councillor MS Ward 3 19. Jonathan Afuti Councillor NW Ward 10 20. Keimelo Gima Councillor MS 21. Moses Susuve Councillor MNW 22. Elizabeth Dibela Councillor MS LLG Ward 2 23. Cathy Watai Councillor 24. Genevieve UG 25. Sennifgl Kivia Councillor 26. Grace Yame Councillor Dy President, NE LLG 27. Madline Poo Councillor Moresby South LLG 28. David Waula Councillor Ward 6 29. Elizabeth Maso Councillor Ward 2 30. Etrel Eandery Councillor 31. Susan Kais Councillor Ward 3 32. Anna Kate Councillor Ward 9 33. A Gene Regional Coordinator, Department for Community Development 34. G Geita Secretary, Vaga Land Group Incorporation 35. S Pabura Atg Chairman, Vaga Land Group Incorporation 36. S John Chairman, SIDCO, NCD 37. P Camilus Director, SIDCO 38. I Bali SIDCO 39. Moses Seni SIDCO 40. Jack Oga SIDCO 41. T Maiva SIDCO 42. Marks Okki SIDCO 43. Levi Geita SIDCO 44. A Ano SIDCO 45. A Ata Paramount Chief, Omani Clan 46. A Ugunnie Chairman,Omani Clan 47. W Bore Deputy Chairman, Omani 48. S Beredi Chief & Chairman, Narime Clan 49. R Berei Urori (F) Committee Member, Narime Clan 50. G Gorogo Kova (F) Committee Member, Narime Clan 51. Victor Nuwana Ward councillor/leader, Iarogha Clan 52. Senior Lands Officer Motu Koita Assembly 53. Martin Tabu Leader, Iarogha clan 54. Tabu Gaudi (Iarogha clan) 55. Harry Geze Leader, (Ehenako Clan) 56. Vaibu Gariya (Ehenako Clan) 57. Dirona Lohia Chief, Hanubara Clan
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TA7783-PNG: Port Moresby Power Grid Development Project: Appendix H - DD/SCAR
Appendix 3: Notice for Public Consultations
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix I - PRSS
Appendix I Poverty Reduction and Social Strategy
CONTENTS
Two documents are included: 1. SPRSS prepared as a Linked Document for the RRP 2. Social and Poverty Assessment and Mitigation Plan Section I: Introduction Section II: Socio-Economic Profile of the Project Area Section III: Gender Analysis Section IV: Social Impact Section V: Mitigation Measures and Plans Annexure 1: List of People Contacted by Study Team
ADB Linked Document LD10 Summary Poverty Reduction and Social Strategy.
SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY
Country: Papua New Guinea Project Title: Port Moresby Power Grid Development Project
Lending/Financing Project Loan Department/ PARD (Pacific Department) Modality: Division: PATE (Transport, Energy and Natural Resources)
I. POVERTY ANALYSIS AND STRATEGY A. Links to the National Poverty Reduction Strategy and Country Partnership Strategy 131 Vision 2050 is the overarching framework for PNG’s development over the next 40 years. The PNG Development 132 Strategic Plan (PNGDSP) 2010-2030 is the Government’s strategy to realise Vision 2050 over the first 20 years. The Government of PNG’s Medium Term Development Plan (MTDP) 2011-2015 is the first of four five-year action plans to implement the PNGDSP which sets out the Government’s development policies and priorities for the next five years. The focus is to build the foundations for prosperity through capacity building in the following priority areas: (i) unlocking land for development, (ii) improving law, order and justice, (iii) establishing national transport corridors that connect rural populations to markets and services, (iv) higher and technical education to redress severe skills shortage within PNG’s labour force, (vi) universal access to quality primary and secondary education, (vii) provision of key utilities of electricity, clean water and sanitation and communications, and (x) improving health. In line with the PNG Vision 2050 and the MTDP 2011-2015 as well as the Country Partnership Strategy of the Asian Development Bank (ADB) for PNG (2011- 2015), the proposed Port Moresby Grid Development Project will support inclusive economic growth and poverty reduction by identifying and connecting 3,000 households in poorer areas in peri-urban areas of Port Moresby, and improving Port Moresby’s power supply system which will benefit residential consumers as well as commercial businesses. The improvement in power supply will facilitate enhanced livelihoods, incomes, greater production and employment in Port Moresby, leading to socio-economic development and poverty reduction in the project area. B. Poverty Analysis Targeting Classification: General Intervention 1. Key issues. Papua New Guinea (PNG) has no official definition of poverty. However, the concept of “poverty” is often used, referring to a lack of access to education, water and health services and to income-earning opportunities. There are two different types of poverty in the country namely, urban poverty and rural poverty. Rural poverty relates to lack of access to services such as education, health, transport, employment and market. What is relevant to the current analysis is the urban poverty. Between 1996 and 2003, the number of Papua New Guineans living below US$1 per day is estimated to have doubled from 1.1 to 2.2 million133. The poverty headcount index, for the US$1 poverty line, was about 39.4% in 2003, up from 24.6 % in 1996. An estimated 70% of the population now live on less than US$2 per day which was up from 54% in 1996134.
As it is shown in the table below, the Human Poverty Index (HPI) in the National Capital District (NCD) 14.5% is indicated, with the national HPI at 39.4%, however the incidence of poverty is greater in peri-urban areas of Port Moresby. In addition to low incomes, a 2001 participatory poverty assessment (funded by ADB) clearly indicates the non- income dimensions of poverty in PNG: specifically, people consider they are poor when they lack (i) jobs and money, (ii)
131 Insert reference 132 Insert reference 133 World Bank. 2009. The World Fact Book (Papua New Guinea). Washington. 134 World Bank, Papua New Guinea: poverty assessment. 30 June 2004.
Final Report | 30 November 2012 Page | 139 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix I - PRSS land, (iii) animals, and (iv) services such as energy, health and water; the most pressing needs even in an urban setting such as NCD are drinking water and power. While available data is limited and in need of updating, the risks of rapidly rising poverty levels in PNG are clear.
Province Human Poverty Index Human Development Gender-Related (HPI) Index (HDI) Development (GRD) National Capital 14.5 0.758 0.506 Western Highlands 55.5 0.282 0.261 East Sepik 47.3 0.304 0.282 West New Britain 31.9 0.394 0.388 Milne Bay 31.4 0.420 0.387 Source: Simon Feeny (2003). Asia-Pacific Development Journal, vol.10, No.2 December 2003
For NCD, 72% of households have access to power and 28% are without it while 56% households have water connections whereas 28% collect water supplied by Eda Ranu from street stand posts. With regard to quality of housing, 78% have permanent houses, 15% live in semi-permanent and 6% have impoverished houses. The perceptions of study respondents on their poverty level suggest that 4% consider themselves as very poor while 21% perceive to be poor. The total proportion of non-poor households is 59%. And the remainder of 16% consider themselves to be wealthy135.
The poverty among city dwellers is a result of both lack of services i.e. water supply, power, lack of sanitation and access to education facilities and, lack of cash to purchase life necessities, particularly among residents in settlements. The majority settlers have neither water nor power while crowded living itself is another issue that affects their outlook. Opportunities for household cash generation such as small markets where fruits, local produce including beverages and snack food items are sold have been reported throughout the city. Almost every other household has a market that generates some money at the end of the day. This is a great source of income for women many of whom depend on this income source to provide education to their children. These sellers are many; so are the customers. This informal market system is considered as an effective mechanism to cushion against income shocks experienced by the majority of city residents. Another important characteristic of poverty in NCD is the large geographical disparities, which exist between and within Wards. The incidence of poverty within traditional villages in the city is different in that the social system tends to share what they have with other members in the community; which is a blessing, particularly for those without adequate means. The project will target peri-urban villages and poorer households within the urban area who cannot afford the connection fees.
Design features. The project is targeting connection of 3,000 households in the poorer peri-urban villages of Port Moresby. Access to electricity will (i) reduce household chores (mainly women) for collecting firewood, (ii) replace kerosene lighting with a cheaper form of energy, thereby freeing household expenditure, (iii) enable household income generation, (iv) improve children education, (v) reduce indoor health and safety issues associated with burning firewood and kerosene, and (vi) enable street lighting which will reduce crime. The project is also expected to provide more reliable power supply to broader residential areas, including poor areas, in Port Moresby. Improved power supply will enhance quality of life of Port Moresby residents by: (i) reducing the regular power outages to residents, (ii) facilitate low- income families to engage in small-scale income generation activities, i.e. sale of cooked and refrigerated items (which is currently not possible due to the regular extended power outages which sometimes last for 2-3 days), (iii) improve street illumination to reduce crimes, and (iv) improve water supply to residents which is disconnected during regular extended power outages.
II. SOCIAL ANALYSIS AND STRATEGY A. Findings of Social Analysis Key issues. Households in urban areas within Port Moresby have access to power while those in the fringes of the City do not have access to power due to restricted network coverage. There are also households within Port Moresby who are not connected to power as they cannot afford the connection fee (but can afford the ongoing cost of power as generally it is replacing more expensive kerosene). There are also poor areas in the illegal settlements surrounding Port Moresby; however the project is not targeting these areas, due to the reluctance of the landowners to legitimize the settlements, and the Governments proposals to formally develop these areas. The survey indicated that households use power mainly for domestic purposes though 35% of survey respondents use it for income generation activities such as preparation of and storage of food/ beverages for sale. Project beneficiaries are households, organisations such as government, religious and private agencies and industries. B. Consultation and Participation 1. Provide a summary of the consultation and participation (C&P) process during project preparation. A stakeholder consultation and participation plan was prepared, approved by ADB and then implemented satisfactorily. Consultation and participation activities undertaken during project design phase include: identifying and conducting meetings with over 150 key-informants and many officials, carried out a socio-economic assessment including a household survey in the City, and to have completed 3 well-publicised and informed public consultations. A record number of about 140 participants attended the consultations, to whom information was provided about the project as well as to seek their feedback on project activities.
135 The Household survey undertaken as part of the project preparation included a 75 household sample.
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2. What level of C&P is envisaged during the project implementation and monitoring? Information sharing Consultation Collaborative decision making Empowerment 3. Was a C&P plan prepared for project implementation? Yes No Consultation and participation plans are built in the safeguard documents for the project: environment management plan and resettlement plan. A separate consultation and participation plan has been prepared for implementation phase covering both social and environmental aspects. Affected landowners and local communities will be consulted throughout the project cycle. The communities’ support for the subproject will be documented in the form of an agreement with landowners on use of land. Safeguard plans will be publically disclosed to affected peoples and subproject communities. Consultation with local communities including affected people and women will be continued during detailed design, implementation and monitoring through surveys, focus groups, and community meetings. C. Gender and Development Gender Mainstreaming Category: Some gender benefits 1. Key issues. In an urban community such as Port Moresby, most of the household activities (80%) are carried out by women. This includes food preparation, serving and finding food, cleaning and fetching water, and making gardens. Women without power and clean water often live in poverty and consequently their health and access to education is very limited. Access to improved power supplies will improve their livelihoods in venturing into small-self generating activities such as baking, sewing, and running a small-scale business, access to credit to sustain their livelihoods and have access to better health and education. Literacy rates vary from house to house in the Port Moresby area depending on the females’ access to education. In the settlement areas literacy rates are low compared to middle and high income areas. In general females in low income areas and communities have low literacy rates. Hardships specific to women in these locations include: (i) lack of power and clean water; (ii) performing strenuous and time consuming tasks of finding firewood and food; (iii) lack of access to health and educational facilities; (iv) cooking in poorly lit and smoky kitchens; (v) lack of empowerment to access better livelihoods; (vi) prone to illegal activities such as gambling, drugs, and prostitution. Violence against women and girls is epidemic in PNG. It contributes to the spread of HIV/AIDS, negatively impacts women and children’s mental health, and undermines women’s social freedoms, productivity, and contributions to national development.
2. Key actions. Gender action plan Other actions or measures No action or measure Key gender action items to be included under the project include, (i) prioritize female headed households for connection to the grid, (ii) undertake training workshops in newly connected communities (at least 50% female participation) on electricity safety, operation of prepayment meters, energy efficiency, and household utility budgeting, (iii) undertake training workshops in 5 communities (at least 50% female participation) on using electricity for increased income generation, (iv) women participation in community consultations (at least 40%), (v) include at least one women member on the grievance redress mechanism committee, (vi) require contractors to pay equal wages to men and women for work of equal value, provide female workers with sanitation facilities, and include women in their labour-based work (at least 20% women workers), (vii) women’s wages will be paid directly to them, (viii) gender awareness training to contractors, PMU and PPL management, and (ix) inclusion of international social/gender specialist to support the PMU. III. SOCIAL SAFEGUARD ISSUES AND OTHER SOCIAL RISKS Significant/Limi Plan or Other Measures Issue ted/ No Impact Strategy to Address Issue Included in Design Involuntary Resettlement Limited (Cat B) Resettlement plan Indigenous Peoples Limited (Cat C) Indigenous peoples plan Labor Limited Works contracts will prioritize hiring Plan local labour. Project will ensure equal Other action Employment opportunities for women, equal wages No action opportunities to men and women for work of equal Labor retrenchment value, women’s wages will be paid directly to them, and not employ child Core labour standards or forced labour. Affordability Limited The project will improve affordability Action through downward pressure on tariffs No action Other Risks and/or All contractors will provide awareness Plan Vulnerabilities training on HIV/AIDS for construction Other action HIV/AIDS personnel and community members. No action IV. MONITORING AND EVALUATION Are social indicators included in the design and monitoring framework to facilitate monitoring of gender and social development activities and/or social impacts during project implementation? Yes No Source: Asian Development Bank
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Appendix I: Social and Poverty Assessment and Mitigation Plan Follows:
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Project No 5036211
Papua New Guinea Project Number: TA 7783-PNG September 2012 [Minor editorial update 30 November 2012]
TA N° 7783-PNG: Port Moresby Power Grid Development Project
Appendix I: Social and Poverty Assessment and Mitigation Plan
Final Report
Prepared by SMEC International Pty Ltd:
TA7783-PNG: Port Moresby Power Grid Development Project: Appendix I - SPAMP
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Final Report | 30 November 2012 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix I - SPAMP
CONTENTS Page I. INTRODUCTION 1 A. Introduction 1 B. Project Background 1 C. Subprojects and Activities 2 D. Purpose 2 E. Methodology 2 II. SOCIO-ECONOMIC PROFILE OF THE PROJECT AREA 4 A. Target beneficiaries 4 B. Population and Households 4 C. Electric Power Issues in Project Area 11 III. GENDER ANALYSIS 15 IV. SOCIAL IMPACT 16 V. MITIGATION MEASURES AND PLANS 17 A. Involuntary Resettlement 17 B. Indigenous Peoples' Issue 17 C. Poverty 17 D. Gender 18 Annexure 1 List of People Contacted by Study Team 19
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List of Abbreviations ADB Asian Development Bank APs affected parties (peoples) AusAID Australian International Development Agency CRM conflict redress mechanism CSDP community support and development Programme EMP environmental management plan GAP gender action plan GII gender inequality index HIES household income and expenditure survey HIV/AIDS human immunodeficiency virus / acquired Immune deficiency syndrome HHs households IP DDR indigenous peoples' due diligence report IPP indigenous people plan IPPF indigenous people planning framework kV kilovolt MDGs millennium development goals MW megawatt NCD national capital district NCDC national capital district commission NGO non-government organisation NRI National Research Institute (PNG) NSO National Statistical Office of PNG PNG Independent State of Papua New Guinea POMPGDP Port Moresby Power Grid Development Project PPL PNG Power Limited PPTA project preparatory technical assistance RP resettlement plan SMEC SMEC International Pty Ltd SPAMP Social and Poverty Assessment and Mitigation Plan SPS safeguard policy statement (2009) SC&PP stakeholder consultation and participation plan TML transmission main line
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I. INTRODUCTION
A. Introduction
1. This report is prepared by SMEC International Pty Ltd (SMEC) on behalf of Asian Development Bank (ADB) as part of TA N° 7783-PNG: Port Moresby Power Grid Development Project. The Project includes project preparation due diligence of transmission, distribution and generation subprojects. This report covers the Social and Poverty Assessment and Mitigation Plan.
B. Project Background
2. In Port Moresby, reliability and system capacity factors seriously impact on economic growth. It is estimated that 31% of Port Moresby potential household customer base cannot access power connection. Access is limited in wards in the fringe of the National Capital District (NCD) and on long 22 kV feeders with poor reliability indices. 3. Port Moresby secures its power from medium speed diesel engines at Kanudi and Moitaka, gas turbine peaking units at Kanudi and Moitaka operating on diesel but convertible to gas, and the Rouna Hydropower cascade system (total 66.75 MW installed capacity, but with a number of decommissioned generators at Rouna 1) complimented with generation from a small hydropower Toe of Dam at Sirinumu (1.5 MW) that is in poor condition. 4. Power transmission is predominantly via double circuit 66 kV transmission towers to 66/11 kV substations located at Boroko, Konedobu, Waigani and Bomana. There is a small section of single circuit 66 kV pole construction. MV distribution is predominantly 11 kV with two only 22 kV rural feeders. LV is at 415 V. Reliability indices on all feeders are poor and are below acceptable international benchmarks. 5. In order to improve the reliability and capacity of the Port Moresby power system, this Project aims to conduct necessary feasibility studies and thereby develops six (6) subprojects. The primary objective of Port Moresby Power Grid Development (POMPGD) project investment is to close the radial lines into loops (open loop mesh) to improve system reliability. Network losses at the Port Moresby system peaked at 21.8% in 2005 but improved to 17.9% in 2007. The network loss national average was 18.6% in 2005 and 12.7% in 2008. However in the Port Moresby system network losses (technical and non-technical) have deteriorated and now stand at approximately 22%. 6. The target project area is the Port Moresby City, covered by the National Capital District (NCD) with an area of 260 m2 (Department of Land & Physical Planning, 2003). The NCD is carved into 4 districts, namely Moresby north-east, Moresby north-west, Moresby south and Motu Koita. Included within the 4 districts are 12 wards within which a large number of settled (titled) land, unsettled (without land title) and traditional villages are located. The total population in NCD according to 2011 census is 318,128 in 57,741 households. The average household size works out to be 5.51 persons. 7. As revealed in the socio-economic assessments undertaken as part of the current Project Preparatory Technical Assistance (PPTA), power supply limitations and interruptions make the life of households difficult and frustrating, business activities are frequently interrupted, affects manufacturing activity and the delivery of goods and services is disrupted. Government entities such as schools, hospitals, etc. are unable to function efficiently due to electric power interruptions and low supply quality. As a result, many businesses and industries are compelled to use diesel generators which are costly, has logistic concerns and other issues. The new TML, the sub-station and other planned improvements will provide an assured and quality power supply to above entities and thereby facilitate domestic, commercial, government and industrial activities, when managed properly. It will no doubt make life of all current consumers comfortable leading to a rise in the standard of living of people in the target area.
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C. Subprojects and Activities
8. The Project consists of six inter-connected subprojects. The implementation of all subprojects contributes to the overall improvement of the transmission grid which in turn enables the delivery of quality power supply to customers in NCD. Table 1 summarises main activities planned and the objective of each subproject. Table 1: Subproject Purpose, Activities and Beneficiaries Subproject Activity Description Purpose Beneficiaries 1. Erection of TML & About 20 towers to be Cost-effective power All customers in building a substation constructed and transmission supply to the city with Port Moresby lines of 6,100 m to be erected the minimum number of people impacted by land acquisition 2. Substation capacitors Installation of capacitors at Stabilise power supply All customer base existing substations. throughout project area 3. Upgrade 11 kV Installation of new switching Improve reliability of All customers system to open loop gear either in existing or new power supply to all power poles customers 4. Loss reduction Installation of electrical switch Reduce power losses All customers. gear and stations and up- and deliver better quality High-power users grading of distribution system power to all customers. will be benefitted in by new cables either on top of particular existing poles or underground. 5. Rehabilitation of Dismantling of existing power Increase power All customers Rouna 1 Hydro-plant station and installation of new generation as the facility within target area turbines and other fixtures. All operates at a very low activities confined to existing level at present facility located on government land. 6. Refurbishment of Refurbishment of turbines, Increase power All customers Sirinumu hydro-plant penstock, generators, etc. All generation within target area activities confined within existing facility
9. It is clear that the project helps improve and stabilise power supply within the target area of Port Moresby city. The project beneficiaries are all customers i.e. households, businesses, industries and organisations in the city.
D. Purpose
10. The purpose of this assessment is to provide socio-economic information on project beneficiaries and to present a detailed assessment of their poverty and social conditions. Socio- economic profiles of target beneficiaries and the manner by which they benefit from the project are also analysed. Based on the analysis, mitigation measures are proposed to minimise adverse impacts and to further enhance potential benefits. A special attention is paid to analyse and propose to make the project pro-poor so that many of the poor households will be made to benefit from the proposed investments. 11. The above purpose is achieved though the collection of data and information using a variety of methods while consultation with target beneficiaries has benefitted project design. The incorporation of ideas and suggestions made by target beneficiaries into project design makes project implementation more sensitive to the needs of customers. The details of methods employed in this study are presented in the next section.
E. Methodology
1. Study area 12. The target area of the project is Port Moresby city which is in the National Capital District. The NCD itself is equivalent to a province. The target area for the project is the same as the NCD.
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The local government activities within NCD are undertaken by the National Capital District Commission (NCDC) which has the responsibility for local government activities in entire area under the city. 13. The target area of the project includes parts of the Central province where Rouna 1 and Sirinumu are located. Hence, the total target area of the project includes NCD as well as parts of Central province in which Rouna and Sirinumu are located. The former has 10 villages while the latter has 13 villages. 2. Study methods 14. A variety of methods have been employed by the study team1 to undertake the poverty and social assessment. The specific methods adopted were collecting secondary data for review, primary data collection and analyses. The review of existing literature and data sources provided a backdrop to the study. The techniques utilised to collect primary information are focus groups, in- depth interviews, key-informant interviews and public consultations targeted at collecting mainly qualitative information while a sample survey of households produced mainly quantitative and primary data. In addition, field observations throughout the target area undertaken by the study team provided additional insights into data analysis, interpretation and drawing conclusions. 3. Sample size 15. Table 2 summarises approach on specific methods, sample profile and locations. Table 2: Study Method’s Purpose, Sample Size and Profiles Study Method Purpose Sample Size Sample Profile Total Females Males Focus Group Understand poverty and 59 34 25 Households (men, Discussions- 9 power-related issues of study women, poor, squatters) sessions population and to collect their Clan leaders suggestions to improve project design Key-informant Collect detailed information 34 2 32 Clan leaders, officials, interviews covering social structure, ward councillors, village poverty, community magistrate, community information and specific laws, leaders policies, programmes and procedures In-depth Collect industry-related 15 2 13 Large, medium and Interviews power use information from small businesses, businesses and government organisations departments, NGOs and religious establishments Meetings Information sharing 51 Land owner company, ward councillors and villagers Public Information sharing, feed- 134 Land owners Consultations back and to reach consensus Other discussions Collect village/community 5 1 4 Villagers, clan leader information and community leader Household Collect qualitative data to 79 23 56 Sample of households Survey construct profiles of target beneficiaries
16. A total of 243 individuals representing households, clans, businesses, industries, government agencies, NGOs and religious establishments have been contacted to collect information as appropriate. The list of individuals (except for the household survey) contacted by the study team is in Annexure 1. The literature reviewed is listed in the reference section.
1 Study team comprised of an international social and gender specialist, national gender specialist (part-time basis) and 3 research assistants
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II. SOCIO-ECONOMIC PROFILE OF THE PROJECT AREA
17. This section presents detailed information and analyses of socio-economic data collected. Data collection itself has been undertaken from mid-July through to end of August 2012.
A. Target beneficiaries
18. The target project beneficiaries are in three main groups namely, households, industries and businesses. Included in the business category are organisations such as government and non- government organisations (NGOs) and religious establishments. The households are the largest single category of beneficiaries which are spread out over the entire landscape of NCD. The households connected to electric power are 95 % of total connections (2011). The households in Sirinumu and Rouna in Central province are also project beneficiaries, of which the number and the power connections are unknown. The density of households is higher in settlements such as Koki, 6-mile, 4-mile, 9-mile, etc. compared to residential areas such as Boroko, Ela Beach, Waigani and Gordons, where land titles are well established. The household density is low in Rouna and Sirinumu areas. 19. The industries consist of large, medium and small units of which details are unknown. The former two are mainly concentred in urban locations of the city. The industries such as coca cola factory, large super markets and SP Brewery are heavy power users while there are hundreds of medium to small-scale power using industries spread out over the city landscape. Business customers include government organisations, private establishments, NGOs and religious institutions that are located almost all over NCD’s landscape. 20. Table 3 shows distribution of power use customers between 2010 and 2011 in NCD area. Table 3: Distribution of Power Customers in NCD Area
Customer Category 2009 2011 Domestic, easy-pay 38,962 38,962 Domestic, credit 734 684 Domestic, total 39,696 39,646 General supply, credit 1,261 1,305 General supply, easy-pay 674 674 General, total 1,935 1,979 Industrial 37 36 Grand Total 41,668 41,661
Source: PPL Records
21. The above data shows that in general the customer base has been consistent (except for minor variations) between the two years of 2009 and 2011. The already connected customers and those without power at present who will be connected after the project form the target beneficiaries. Assuming all households in the city are connected to power after the project, the total project beneficiary households are expected to be 57,741. Working on an average household size of 5.51 persons and a rate of city’s population growth of 5%2, the individual beneficiaries in 2012 can be estimated as 334,061.
B. Population and Households
22. According to the 2011 Census, the city has a population of 318,128 persons in 57,741 households. The population comprises of 170,112 males and 148,016 females, giving the male to female ratio of 115 males to 100 females. Comparison with census of 2000, the current population in the city is an increase of 25%. Table 4 shows the city population for the two most recent censuses.
2 The figure used by NCDC
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Table 4: City Population and Households in 2000 and 2011 Census Year Total Population Females Males Household Size (persons) 2000 254,158 115,184 138,974 5.99 2011 318,128 148,016 170,112 5.51 Source: NSO, PNG
23. The above figures indicate a growth rate of 25%, or an annual growth rate of 2.5%. However, according to NCDC, the annual growth rate of the population is 5%. Using the NCDC growth rate, the current population in the city is estimated as 334,061. 1. Ethnicity 24. The ethnic composition of the country is diverse. It is reported that the country’s population belongs to some 1,000 different ethnic groups (Encyclopaedia of the Nations). The city population comprises of a mixture of different ethnic groups that have migrated from almost all provinces of the country. This makes the ethnic composition of the target area diverse. However, there are no statistics to show the ethnic composition of the city population. 25. The city population includes one specific indigenous group of people known as Koari people3. Over the years, the Koari have been increasingly mixed up with other ethnic people. The Koari and all other ethnic groups share the same resources, facilities and social infrastructure. 2. Family structure 26. In PNG, family structure consists of several related family members living within the same household. This is known as the extended system of living where members pool their resources and share cooking. The social organisation is based on patriarchy where males have the primary authority and the dominant role within the family. The household survey has revealed an average household in the city has 2.15 families with the largest number of as many as 9 families per household. The extended style of living is seen as a social safety net to ensure continuity of poor families in particular. 3. Life Expectancy 27. The Papua New Guinea is off track against all of the Millennium Development Goals (MDGs), and its health and education indicators are the worst in the Pacific (Pacific Islands Forum Secretariat, 2012). Life expectancy at birth has increased from 56 years in 1992 to 62 years in 2010 (World Bank). However, in 2011 Papua New Guinea was ranked 153 out of 187 countries on the Human Development Index4, placing it well below the East Asia and Pacific regional average5. According to NRI (March, 2010), the life expectancy in NCD population is 59.2 years split as 58.5 for males and 59.9 for females. 4. Literacy 28. The three main languages of the target population are Pidgin, English and Motu. English is widely spoken while the Koari people communicate mainly in their own Motu language. Pidgin is spoken by almost everyone, except for Koari people many of whom are less fluent in this language. There are no statistics available on literacy rate of NCD population in the three languages. One study indicates 90.7% of the study area population as literate with the break-down of 92.3 males and 88.7% females. However, the study does not indicate the language in which the literacy level is measured. 29. The Household Income and Expenditure Survey (2009/10) provides data on literacy rate6 of the population for several regions and metro areas. The metro results include the two cities of NCD
3 Koari literally means people associated with river. Traditionally, they are hunters and fishermen 4 The Human Development Index provides a composite measure of three basic dimensions of human development: health, education and income 5 http://hdrstats.undp.org/en/countries/profiles/PNG.html 6 Measured in any language
Final Report | 30 November 2012 Page | 5 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix I - SPAMP and Lae, which are relevant to the present study. The literacy rates produced by the HIES are provided in the Figure below.
Figure 1: Literacy Rate of Population 100 90 80 70 60 country 50 metro 40 30 20 10 Percent population, 8 yearsand older 0 male females total
30. Data shows that the literacy rate in Metro area is higher than for the country as a whole. This trend is seen for both males and females, although the literacy rate for the former is higher than for the latter. 31. The PPTA’s household survey data has collected literacy levels of population in the 3 main languages. The highest literacy rate (94%) is seen in Pidgin followed by English (77%). The literacy in Motu was the lowest with 44%. Table below provides relevant data. Table 5: Target Area Literacy Level by Language Language Literate (%) Pidgin 94 English 77 Motu 44 Source: PPTA Household Survey (2012)
32. The Motu language is spoken by Motuan who are confined mainly to traditional villages of which there are 7 in NCD area. These villages are in a separate local government entity called Motu Koitan Assembly.
C. Education
33. The education facilities in Port Moresby consist of elementary, community, primary, provincial high school, secondary schools and vocational schools. The numbers of schools in the NCD are provided in the Table below. Table 6: Educational Facilities within NCD Area Facility Number Elementarya school 45 Community school 1 Primaryb school 42 Provincial High school 1 Secondaryc school 11 Vocationald school 5 Source: NRI (2012) Notes: a From school year primary through school year 2 b School Grade 3 to Grade 8 c School Grade 9 to 12 d After completion of Grade 10 or 12
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34. The Gross school enrolment rate for NCD is 75.5% while the Net enrolment rate is 66.4% (NRI, 2012). The HIES data shows that the highest level of education achieved by the metro population is 27.2% (26.8% for males and 27.6% for females) for elementary level. The primary, secondary and tertiary education levels achieved by the metro area population are respectively, 27.2%, 26.4 % and 25.7%. 1. Housing 35. The housing data described below has been collected by SMEC’s sample survey. The NCD area consists of four main locations where conditions for human living are different. The up-market area consists of properly built houses with land titles where facilities such as water and electric power are provided to each household. The example locations are Waigani, Borokko, Ela Beach, Paga Hill and similar areas. The second locality is traditional villages of which there are 7. The land in traditional villages (except in part of Pari village) is under customary ownership. Many houses in Pari village are built out in the sea. The villages (including those off shore) have power and water supplied by Eda Ranu. The settlements with land titles have water and electricity similar to traditional villages. However, the area of land owned by each household is much smaller compared to the two previous locations. The worst living conditions are in settlement without land titles. Many of them are squatters mainly on government land. They have neither water nor power where the housing units are semi-permanent or even impoverished. Table 7: Distribution of House Type in Study Area
Location House Type (% units) Permanent a Semi-permanent b Impoverished c Up-market 100 Traditional Villages 78 22 Settlements with titled land 80 20 Settlements, no land title 70 5 25 All 79 15 6 Source: PPTA Studies (2012) Notes: a where roof, walls and floor is constructed using permanent materials b A combination of materials used in the construction of roof, walls and floor. At least one house component is built using permanent materials c Roof, walls and floor are all built using impoverished materials
36. The above data reveals that 79% of beneficiaries live in permanent houses, 15% in semi- permanent houses while 6% are in impoverished units. The poor housing is severe in settlements without land titles, where settlers are mainly migrants from other provinces of the country. 37. Each house unit has an average of 3 rooms. The number of occupants per room is 2.90. Ninety-four per cent of houses are owner-occupied whereas 5% of surveyed people live in communal houses. About 1% of the study population lives in rented houses, which is reported only in settlements without land title. 2. Water supply 38. All households within NCD obtain water one way or the other from Eda Ranu supply. Households located on titled and on customary land are provided with individual supply to their houses. They pay for this service. Those in settlements do not have their own supply who depend either on stand posts or from others who have their own supply pipes. These customers do not pay for water when collected from stand posts. There are others who purchase water from land lords. Lack of water for domestic activities is a severe problem faced by households in city fringes such as in Ward 10 (Morata 1 to 5), 9 (wildlife 1 to 3). 39. The water sources in study area as revealed in the survey are summarised in Table 8.
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Table 8: Distribution of Water Sources for Domestic Use Location Domestic Water Source (% respondents) House Supply Stand Posts Purchased Other Houses on private land with titles 100 Villages (customary land owners) 94 6 Settlements, with land title 20 47 33 Settlements without land title None 75 25 All 57 28 13 2 Source: PPTA Studies (2012)
40. Above data shows that households in up-market locations and traditional villages have their own in-house water supply while many households in settlements do not have in-house water. Instead, they resort to different methods such as stand posts and some even have to purchase water. It was noted during the survey that households in Wards such as 9 and 10 undergo severe difficulty without a regular supply of this life-support commodity. Women in particular undergo a huge level of inconvenience to collect water from outside, often from dripping street stand posts. 3. Health 41. The health facilities for Port Moresby residents include government sources such as hospital, health centres and aid posts and a number of private facilities. The latter is accessible only by those who have financial means and hence not for the average household. 42. NCD has 14 health centres and 54 Aid posts. All households in the survey have reported using government clinic or the hospital as their place of health facility. The average distance travelled to access health facility is 2.78 km. Households in wards 9 and 12 have reported as travelling as much as 20 km to access their health facility. 43. The common health issues faced by study area population are Malaria, scabies, Tuberculosis, diarrhoea and other common sicknesses such as flu. The incidence of HIV/AIDS is overwhelming in PNG (Country Health Information Profiles, 2008). It has been estimated that there are 23,000 to 91,000 HIV-positive individuals in the sexually active population of 15-49 years (February 2006). Every month, 20 new people in the age group 15-29 get infected with AIDS (World Vision7). Discussions also revealed that a large number of people in Ward 4/B in particular are infected with HIV. The HIV prevalence among women attending antenatal clinics is between 0.6% and 3.7% (2005) and AIDS is the leading cause of death in adult inpatients at the Port Moresby Hospital (Country Health Information Profiles). The main mode of transmission is heterosexual. The incidence of other sexually transmitted infections (STI) is also rising. 4. Land ownership 44. Being an urban area, the average land area per household in NCD is small. The survey estimates the land holding size of 1.33 ha per household. The holding size is slightly larger in the city fringes and in traditional villages. The Motu Koitan households have reported a higher ownership of about 3 ha of land per household. 5. Livestock 45. The three main types of livestock reported by households in the target area are dogs, poultry and pigs. Dogs were reported by 70% households, followed by poultry reported by 22%. About 9% households have reported pigs. Poultry is mainly for home consumption while pigs are both for consumption at the time of feast and sale. It was reported that buyers visit the villages in search of pigs and the sale is quite an easy operation. Only 3% households have reported income from the sale of animals, mainly pigs. 6. Income Sources 46. The main income sources are salaries, wages and pensions, service contracts such as transport, delivery, cleaning, etc., and small markets. The income from sale of crops, animals and fish is small. Being an urban area, it is expected that many households in NCD depend on salaries,
7 Personal communication of PPTA study team with World Vision, 2012
Final Report | 30 November 2012 Page | 8 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix I - SPAMP wages, pensions and the provision of various services to businesses as their income source. The sale of crops and animals, as expected contribute to a small proportion of household income. Few households engaged in agriculture and fishing are using the produce for own consumption. A study Table 9 has shown that only less than 50% of the agricultural produce is in fact sold in the market. 47. Mini-markets provide a significant contribution to household income. It was observed that almost every house has its own mini-market where betel nut, cigarettes, grocery items, cooked food, snacks and beverages are sold to local people. This is an important source of income for women and elderly people who have passed their working age. Table 9: Production and Sale of Agricultural Stuff within NCD Area Item Engaged in Proportion Selling Production (%) for Cash (%) Food crops 75.3 13.7 Betel nuts 57 27.6 Coconut 53 10 Fishing 36.3 9.5 Livestock 34.7 7.7 Source: NRI (2010) 48. The figure below shows income sources for households as enumerated by the survey.
Figure 2: Income Composition (% Households) 14% Other
35% Markets 41% Salary/wages
3% Fish sale 2% Animal 5% Crop sale sale
7. Household Income and Expenditure 49. As shown above, the small markets form an important source of income for the majority from which women, the retired men and girls in particular benefit, which are found in almost every street. This is the second main income source, after salaries and wages. The sales suggest that there is a greater demand for products sold in mini-markets. The average household income from all sources is estimated as K32,277. This works out to a monthly income level of K2,690. An average of 2% of household income is spent on power. Twelve per cent households have reported to be saving money to be used in future investments. 50. The break-down of household expenditure by important components is shown in Figure 3 below. The review of data in the Figure reveals that food takes on the largest share of expenditure of 53% followed by 16% for transport. Other items contributing to household expenditure in descending order are education, power, clothing, health and social. The share of power bill in total household expenditure is 7% while water represents 5%. The average household expenditure is estimated as K18,852 per annum, that provides a monthly income of K1,571.
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Figure 3: Household Expenditure Profile (per cent)
5% Clothes 13% Education 3% Health 7% Power 2% Water
2% Repair
16% Transport
53% Food 3% Social 3% Other
8. Poverty and Vulnerability 51. Papua New Guinea (PNG) has no official definition of poverty. However, the concept of “poverty” is often used, referring to a lack of access to education, water and health services and to income-earning opportunities. There are two different types of poverty in the country namely, urban poverty and rural poverty. Rural poverty relates to lack of access to services such as education, health, transport, employment and market. According to the World Bank8, poverty was substantially higher in rural areas, where 87 per cent of the population lives. What is relevant to the current analysis is the urban poverty. An estimated 18 per cent (about 1 million people in 2009) live in poor, remote and marginalised areas, with limited to no access to cash income, health and education services, markets, transport and food security9. 52. Between 1996 and 2003, the number of Papua New Guineans living below US$1 per day is estimated to have doubled from 1.1 to 2.2 million. The poverty headcount index, for the US$1 poverty line, was about 39.4% in 2003, up from 24.6 % in 1996. An estimated 70% of the population now live on less than US$2 per day which was up from 54% in 1996. 53. The data collected in the household survey reveals that the incidence of poverty due to low education, poor living conditions and large number of household members is higher in settlements compared to the traditional villages and in up-market areas. The income poverty was found to be not high because the majority of people in urban centres has access to work opportunities than elsewhere. The mini markets are making a huge contribution to push income poverty low. The social net among Papuan where income earned by different family members is pooled to feed all those living under one roof is yet another feature that may have contributed to low poverty incidence in the study area. This practice has a substantial contribution to securing enough food for all household members. 54. The survey asked respondents to indicate how poor or non-poor each household is in comparison to others in their neighbourhood, based on four categories. They are extremely poor, poor, non-poor and wealthier. The responses are in the Table below.
8 World Bank, Papua New Guinea: poverty assessment. 30 June 2004 9 L. W. Hanson, B. J. Allen, R. M. Bourke, and T. J. McCarthy, Papua New Guinea rural development handbook. Canberra, Land Management Group, Department of Human Geography, Research School of Pacific and Asian Studies, The Australian National University, 2001
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Table 10: Household’s Perceptions on Poverty Category Per Cent Households Extremely poor 4 Poor 21 Not poor 59 Wealthier 16 Source: PPTA Studies
55. Only 4% households are extremely poor while there are 21% who are poor. This makes the overall poor household to be 25%. On the other hand, 75% households consider themselves to be out of poverty (59% non-poor and 16% wealthier). The majority of households in up-market areas and traditional villages have identified themselves as non-poor. 56. Vulnerability in PNG is caused due to several reasons such as sick, elderly, diseased, disabled or even extreme poverty. Sample survey asked each respondent to state whether they are a vulnerable household and if so the reasons for being vulnerable. Eleven per cent respondents have reported as vulnerable while the majority (89%) are non-vulnerable. The reasons for vulnerability are very poor (80%) and widow (20%).
D. Electric Power Issues in Project Area
57. This section describes the current power supply, its spatial variation, main issues faced by households and businesses, willingness to connect and pay and, impacts from an improved power supply. 1. Network Coverage 58. The current distribution network does not cover the entire area of NCD which is the project target area. It was observed that the distribution network is absent in several settlements in Wards 9, 10 and 12. Because of the limited network coverage, a large number of households and some organisations i.e. churches, cannot benefit from city power supply. The number of households and organisations within the city not served by the distribution network are unknown. It was noted that some wealthier households and a few Churches in above Wards, upon payment to PPL, have extended the distribution network to include their houses and businesses. 2. Power Connection Rate 59. As already discussed earlier, the gross connection rate in project area is 69% 10 for households. Although data is unavailable, discussion indicates that almost all businesses are connected already. Ninety-eight per cent of households are on easy-pay while the remainder of 2% are on credit. The easy-pay was found to be the preferred option of all interviewed households as it affords them to consume power based on cash resources available. In case the household has a lower cash flow, they can either reduce power use or even refrain from using it altogether until such time financial position is improved. According to households, this is an important flexibility offered to them via the easy-pay system which is preferred by all households interviewed. 3. Illegal Connections and Free Power 60. It was noted that some households and few businesses too have obtained illegal power connections from the grid. These connections are concentrated in Wards such as 3, 10 and 12 where errant activities are reported to be high. The statistics on illegal power connections (households and businesses) are not available due to the obvious reasons of “closed” nature of this activity. Discussions11 reveal that about 10% of customers obtain their power illegally. It has been a hard job to track down on illegal power users as this activity itself is hidden and it is difficult to apprehend these errant power users due to the risk of personal injury or even death of staff who visits these areas.
10 The gross connection rate does not include those who have obtained power illegally. It was reported that about 10% of customers obtain their power through illegal means 11 Personal communication with PPL’s Revenue Manager
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61. On the other hand, there are some land owners in Rouna and Sirinumu12 areas who are provided with power connections but do not pay for their electricity charges. Discussions indicate that the unpaid power bills are written off from time to time. PPL has repeatedly asked land owners to pay power bills which are not honoured by them. It is a dilemma for PPL as power supply disconnection to them will have the consequence of land owners revolting against PPL’s action by stopping power generation in hydro-plants. 4. Power Supply Reliability and Quality 62. A large number of problems relating to power supply and its quality were identified via field assessments. The main problems reported by all power users i.e. households, businesses and industries are (proportion reporting is within parentheses): power shut-downs (100%), black-outs (100%), low / unstable voltage (79%), power surges; slow-lighting and tripping. Some business customers who have measured voltage levels reported to the study team that it fluctuates from a low of 140 to as high as 260. This a serious problem faced by some businesses and households as this fluctuation causes damage to equipment and appliances. Several households have already had burnt out electrical appliances and computers caused by power surges, costing them large sums of money and inconveniences too. 63. According to customers, power shut-downs are more frequent during rainy season especially when power lines spark, that forces PPL to shut down the entire feeder. The shut-downs and black-outs can be short and/or for lengthy time periods, that sometimes lasts even up to 3 days, until repairs are undertaken. Some business customers said that at times as many as 3-4 black-outs occur within a single day. The un-noticed power shut-downs are a huge problem faced by businesses in particular as this problem interferes with their business planning. 64. There are also other customers who do not have power available during the entire night resulting from power outages. In general, power is available for 24-hours, unless interrupted by shut-downs and/or black-outs. Power problems are more frequent in city fringes compared to locations within the centre. 65. The perceptions of households on current power supply are graphically presented in Figure 4 below. The data show that the majority are neither satisfied nor unsatisfied whereas 25% are least satisfied with the current power supply. The data shows that about 35% are satisfied with the current power situation.
Figure 4: Customer Perceptions on Power Supply (% households) Least Fairly satisfied satisfied 18% 11% Mostly 14% unsatisfied
18%
Fully satisfied 39% Neither
5. Power Cost 66. Based on household interviews, the power cost is estimated as K113 per month. This level of power use corresponds to 7% of household expenditure. About 2% of household income is spent on power bill.
12 About 20 households are reported not paying the power bills
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67. The user perceptions on power bill reveal that the majority (77%) consider the power cost is just too high for their level of income whereas 18% state that it is the right amount. There were 5% respondents who said the power bill is too low. 6. Impact on Households 68. The power outages, supply variations and low-quality have caused adverse impacts on households which are several. They are absence of and/or lack of home lighting, safe use of computers and appliances, problems in cooking, boiling water and cleaning, watching television. Power problems also interrupt studies by students. Unavailability of street lighting causes unsafe home and neighbourhood and makes night walk unsafe. The improperly illuminated or absence of street lighting encourages criminal activities too. 69. Because of lack of lighting, home owners are either forced to use kerosene lamps or depend on lighting of their neighbours which is inadequate, according to survey respondents. The kerosene lamps are also a cause for fire hazards. 70. Table 11 summarises important impacts of households resulting from the present power supply and its variations. Table 11: Impacts of Power on Household Living Power Issue Impacts on Households Power shut-down, Domestic activities can’t be accomplished due to poor/no lighting black-out and low- Affects night marketing by households who have own markets voltage Children unable to accomplish reading, studies, home-work and learning Unable to watch television Food preparation (cooking and baking) is affected Waste of half-cooked food Power problems affect preparation (includes home-baking) /storage of food and beverages for local sale Affects household income Spoils refrigerated food and beverages Cause financial losses Low-voltage and power Burnt out equipment and appliances cause financial losses tripping Frustration No street lighting Unsafe home and neighbourhood environment
7. Willingness to Connect and Concerns 71. It is to be emphasised that all survey respondents who do not have power at present are willing to connect to power. This includes all (25%) of the poor households in the survey sample. 72. However, poor households have a financial difficulty that deprives them from being connected. The connection fee charged by PPL and material cost comes to K20213 to K23014 per household. This heavily subsidised already by PPL with true costs approaching K600 excluding meter costs. On top of the above fee is the house wiring cost (varies from K500 to K1,200) which is unaffordable to all low-income households interviewed. PPL also supply MSK (Minimum Supply Kits) for the poor at a heavily subsidised K230 even though total true cost is K1250. This option avoids need to wire up houses. Even if the supply and reliability of power is improved, it is unlikely that poor are unable to access this service unless they are supported in house wiring or in the MSK supply. It is to be highlighted that about 70% of households that do not have power at present are unable to connect to power for the same reason. However, all households are able to pay the present subsidised connection fee and the on-going easy-pay power bill, the latter after connection. This suggests that unless house wiring fee or MSK is provided under some easy terms, the poor are not able to benefit from the project. Further discussions indicate that respondents are willing to pay back connection fee in instalments if the house wiring fees are paid up front under a loan agreement between PPL and the household, which is to be repaid in full on
13 During week-day and office hours 14 After hours and week-ends
Final Report | 30 November 2012 Page | 13 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix I - SPAMP an instalment basis. In the past PPL did provide the option of terms but repayment was very poor thus PPL stopped further endeavours due to the very high debt incurred. 8. Willingness to Pay 73. When respondents were asked to indicate their willingness to pay more if the power supplied to them was improved, 81 % said that they are willing to do so. On the other hand, 19 % are not willing to pay more even if the current supply problems are resolved. The reasons given by this group of respondents is that they are already paying more for power and that they do not want to subsidise illegal power users. 9. Power Use 74. The majority (65%) of households who have access to power use it entirely for domestic purposes such as lighting, watching television and to operate electric fans. Cooking energy comes mainly from fuelwood collected from around their gardens and/or purchased in local markets. However, 35 % households are using power for small-scale income generation activities, in addition to basic household uses. 75. The income generation activities supported by power are preparation of beverages, ice blocks, cold drinks, baked food, snack food and fried items for sale in their local markets. The households using power for income generation are scattered throughout target area and the activity itself is much popular. It was reported however, that many have undergone financial losses due to spoilt food as power has not been available for long periods and/or burnt out electrical appliances caused by low quality of power. The study team cited a number of households who had their cookers, stoves, deep fryers, bottle coolers and refrigerators damaged by power fluctuation. The improved power supply and affordable access to power will therefore have a significant impact on poverty reduction in the target area. 76. Focus group discussions suggest that local people are willing to invest on appliances such as deep fryers, refrigerators, rice cookers, etc. and thereby to actively engage in the preparation of food and beverages for sale. The income is expected to be an important component for household livelihood. Several women told the study team that they have supported education of their children entirely from the proceeds of their local markets. In the meantime, there were few men who have generated capital for house building from proceeds coming from their mini-markets. 77. The main concerns of local people with regard to current power distribution as revealed through assessments and field observations are sparking wires particularly in wet weather, safety concerns as sagging electric wires in some areas pose a threat to movement of people including children, broken cross bars of power poles, delays in mobilising repair crew, weak monitoring of transmission system and electrical equipment, deferred maintenance work, power tapping, lack of supervision, inefficient field staff who are corrupted too. Safety risks such as exposed live wires and sagging distribution wires that can entangle with the movement of people and vehicles were also reported. 10. Power Issues of Businesses 78. Supply variations, shut-downs and low-quality of power create several problems for business operations. Frequent shut-downs and black-outs interrupt with both production and sale of goods by businesses. It also affects production scheduling and business planning. Many of the businesses interviewed are concerned about damage to their tools, equipment and computers as a result of using city power. Some businesses have incurred equipment and data losses in tens-and- thousands of Kinas. The Port Moresby General Hospital has suffered heavy losses resulting from burnt out 3-4 sterilisers15 that have been installed recently. 79. All interviewed businesses, industries and government organisations reported that power shut-downs, black-outs and low-voltage issues are frequent in the area. They are concerned that instances such as shut-downs and black-outs are uninformed. The long time to fix supply problems is yet another issue raised by business customers. All businesses and industries have at least one stand-by generator each as it is impossible to operate entirely on city power due to power
15 Each steriliser costs K800,000
Final Report | 30 November 2012 Page | 14 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix I - SPAMP variations and unreliability in supply. Few religious organisations which cannot afford to purchase their own generator sets have resorted to hire a generator unit when required. There were still other religious organisations which have had either to postpone or cancel planned events due to unreliable power supply. There were others which have had to close down operations and send away staff due to power supply interruptions. These organisations reported that on an average, their business is closed down 2-3 times per month due to power problems. 80. All businesses that use sensitive equipment have reported to have installed power guards costing several hundreds of Kinas. Several business owners indicated that it is more convenient and profitable in the long-run to have their own power generation plan instead of relying on PPL power. However, the installation cost of own generation system is very high that has made this option less attractive to many businesses. 81. All businesses (7) and organisations (8) interviewed said that power problems in NCD are growing steadily, heavily affecting their operations. All interviewed businesses and organisations use at least one stand-by generator (some use more) as public supply is unreliable and risky (can damage their expensive equipment) too. Businesses have heavily invested on generator sets and other gadgets to reduce impacts on their equipment, as they have suffered heavily in the past by way of equipment blow out. All businesses but two said that they like to see power problems in NCD are resolved. The two businesses said that NCD’s power problems help them to make more money, by way of selling generators and attending to service them. One business engaged in alternative power systems said that PPL need to think on alternative power sources such as solar and wind, not relying entirely on fuel and hydro-power for NCD, the latter is limited anyway.
III. GENDER ANALYSIS
82. The sex ratio in NCD, based on 2011 Census is 115 males to 100 females. About 12 % households in the country are female-headed while the relevant figure for NCD is about 13 % (HIES, 2011). The above figures suggest that there are more female-headed households in NCD compared to the whole country. 83. Papua New Guinea (PNG) is one of the poorest performers in the Pacific with regard to both the human development index (142 out of 182 countries in 2007) and the gender-related development index (124 out of 157 countries) of the United Nations Development Programme. The HDI value for PNG in 2011 is 0.466, positioning the country at 153 out of 187 countries and territories16. A combination of poor infrastructure, low levels of human resource capacity, and prevalent gender-based violence constrain women's opportunities to realise their productive and economic potential. Maternal mortality is the highest in the Pacific (733 per 100,000 live births). 84. The Gender Inequality Index (GII) reflects gender-based inequalities in three dimensions – reproductive health, empowerment, and economic activity. Reproductive health is measured by maternal mortality and adolescent fertility rates; empowerment is measured by the share of parliamentary seats held by each gender and attainment at secondary and higher education by each gender; and economic activity is measured by the labour market participation rate for each gender. Papua New Guinea has a GII value of 0.674, ranking it 140 out of 146 countries in the 2011 index17. 85. A large gender gap exists in gross primary enrolment rates in Metro areas (81.6% for females and 88.1% for males in grades 1–6), and secondary enrolment rates are very low for both females (58.6%) and males (69%)18. The adult literacy rate in Metro areas is lower for women (85.9%) than for men (91%). The highest educational achievement for male population (6 years and over) in Metro areas is 28.6% on tertiary education. Whereas the same figure for female population (6 years and over) is 27.6% only on primary level. 86. The women in NCD area are predominantly engaged in household activities. The males are active in employment and in other income generation activities outside home. The main problem
16 UNDP, 2011 17 Ibid, 2011 18 HIES, 2011
Final Report | 30 November 2012 Page | 15 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix I - SPAMP faced by women living in city fringes is fetching water where it was observed that some women walk long distances and wait hours for their turn to collect water from dripping taps. They are also actively engaged in preparation of food and beverages for sale and running their own mini- markets. Majority of women find it difficult to cook, their completion of home-making tasks are badly hindered due to severe power problems. The improvement of power supply will therefore impact women in particular. They will find their tasks easier and rewarding with an improved and reliable power supply. 87. Women participation and leadership in community development activities are spurred by their engagement in Ward Development and Community Development Committees. It was noted that few women are in leadership positions in the above committees. There are also few women in executive positions of Incorporated Land Groups. On the other hand, there is a superb gender balance in Ward Councillor positions where the women number (18) is equal to that of men (18). These are positive developments with regard to women position in the target area that will be capitalised by this project. 88. Several women participants at public consultations expressed their concern with regard to power safety, prevention of HIV infections, employment opportunities for women during project construction and the need to invest in community development activities. The women were keen to get more investments on roads, water supply, education and health facilities in Rouna and Sirinumu areas. These valuable proposals have already been incorporated into project’s Gender Action Plan (GAP), RP and Community Support and Development Programme (CSDP). The GAP in particular will be implemented to address concerns of women, secure their active participation in project implementation and to ensure women benefit as much as men from project investments.
IV. SOCIAL IMPACT
89. The project will create social impacts on target beneficiaries in two main directions. The obvious beneficial social impacts are improved and reliable power supply that will lead to better lighting, facilitate domestic tasks and support income generation activities. Improved street lighting will contribute to reduction in unlawful activities which is a huge benefit for the entire population. The improved and reliable power will benefit businesses and organisations by way of efficient operation and reduction of losses. The saving in equipment, appliances and computers is a huge gain to all 3 types of beneficiaries. 90. It is to be highlighted that the beneficial social impacts are not automatic following project implementation. It is necessary that some activities are implemented in order to create beneficial impacts on all target beneficiaries, especially the poor people. One such activity as described earlier is to make affordable power connection to poor households. As already discussed, many poor households are unable to benefit from project investments given the high cost of access to power, which has two components namely, the PPL’s connection fee which can be paid by all potential customers. However the cost of house wiring which ranges from K500 to K1,200 is beyond reach by the majority (about 70%) of poor households. Their suggestion is that PPL pays for the wiring cost to be paid back in full in instalments. 91. Many target beneficiaries require information, awareness and education assistance in order to benefit from the project. Customer knowledge on PPL products and services is low and incorrect too. This applies to both HH and business customers. Households do not know the procedure, requirements to be fulfilled and how much does it cost to obtain a new power connection. They are also unaware of whom to contact in order to secure a power connection. They also have low level of understanding on whom to contact to: a) provide training on safe power use, b) safe working beneath power lines, c) lodge a complaint with regard to project implementation, etc. They also need education on the use of power-operated appliances and safety methods. Without training and awareness on above mentioned issues, the household beneficiaries are not able to benefit fully from project investments. The perceptions of business customers on PPL’s services are not good where there seem to be a huge scope for improvement. 92. Land owners have requested that the government allocates more investment on community development in Rouna and Sirinumu areas. The people in the two above areas need assistance to develop water, health, education, marketing, agricultural production, road and other facilities. The
Final Report | 30 November 2012 Page | 16 TA7783-PNG: Port Moresby Power Grid Development Project: Appendix I - SPAMP area has received little attention by the government. These issues have been highlighted by participants at 2 public consultations held in August. 93. In order to enhance project benefits to all target beneficiaries including the poor, it is necessary to implement a community support and development programme (CSDP). The CSDP has incorporated several suggestions to manage issues raised in paragraphs 92, 93 and 94 above. This has been prepared as a separate document. 94. The limited network coverage is an issue that restricts project benefits to the people within the existing network. Several areas in the fringes of the city that do not have the network coverage will not benefit. Therefore, extension of the distribution network to cover the total area under the target area is required that will provide benefits to a large number of households. This includes many poor households who are in the fringe of the city. 95. The negative social impacts that may arise from the project are land acquisition, potential HIV/AIDS trigger from contractor’s labour force, noise, pollution and inconveniences that may be caused by construction activities and cultural impacts that may be caused by the contractor staff engaged in project implementation activities.
V. MITIGATION MEASURES AND PLANS
96. The project has prepared several plans and programmes to mitigate adverse impacts and to further enhance beneficial impacts described above. Presented in this section is a brief summary of plans and programmes that have been prepared to manage adverse impacts.
A. Involuntary Resettlement
97. The Kilakila TML and substation subproject will trigger SPS’s involuntary land acquisition impacts. The affected people (APs) are 744 persons in 198 households. They will have both restricted access to the use of their customary land beneath transmission lines while the land area occupied by towers will be permanently acquired from the APs. They will also not be able to use land that will be acquired for the purpose of building a substation. Although the land does not have productive benefits to local people, the acquisition by the project will make it impossible for them to lease land for other commercial purposes and thereby refrain them from being benefitted. A RP has been prepared by PPL and already submitted to ADB for approval. The implementation of RP will manage social impacts that may be caused by the acquisition of land.
B. Indigenous Peoples' Issue
98. The entire project area comprises of the mainstream population commonly known as Papuan. The target area does not have specific population or groups that will benefit disproportionately from the proposed project. The entire Papuan population in the city would benefit. Accordingly, it is to be highlighted that there are no outstanding or unresolved issues that trigger IP impacts as per ADB’s SPS. 99. A separate IP DDR has been submitted confirming that there is no requirement to prepare an IPP.
C. Poverty
100. Sample survey reveals that 25% of the target households are poor and very poor. The poor people are not able to benefit from project as much as the non-poor are. In particular, the poor are unable to connect their house to power due to the high cost of house wiring. Hence, benefits from the project will be disproportionate on poor and non-poor households where the latter will gain more benefits. To address this issue, the project has prepared a CSDP that is expected to mitigate this problem faced by the poor. The CSDP has proposed several activities for funding and implementation whereby poor people could benefit as much as the non-poor from project investments.
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D. Gender
101. The gender impact of the project is expected to be managed via the implementation of the GAP. 1. Disputes Management 102. The disputes that may arise during project implementation will be resolved via the Conflicts Redress Mechanism (CRM). The CRM provides all details and processes to manage project- related conflicts. 2. Consultation and Participation Plan 103. A stakeholder consultation and participation plan (SC&PP) has been prepared for the project implementation phase. The active and on-going consultation with all stakeholders (include beneficiaries) will be supported. These events will provide a good opportunity for beneficiaries to know about project, progress of implementation and to participate in activities. There will be several well-publicised and informed consultations that will be arranged from time to time during the process of project implementation. 3. Contract Management 104. The other potential adverse impacts such as HIV/AIDS minimisation, provision of unskilled employment opportunities for local people, minimisation of constriction-related disturbances and the management of the alien work force are to be managed through the implementation of the Environmental Management Programme (EMP). The EMP includes best practices in management of transport, health and safety, environmental sanitation, waste minimisation and disposal and staff. The contract has specific clauses whereby the contractor has a binding to implement good practices in labour recruitment, health and safety standards, the requirement that staff are screened for HIV/AIDS.
References 1. AusAID (June 2012). Papua New Guinea Annual Programme Performance Report 2011. 2. Department of Land Management & Physical Planning (2003). Area of Provinces and Districts, PNG. 3. Encyclopaedia of the nations (web edition). http://www.nationsencyclopedia.com/Asia-and- Oceania/Papua-New-Guinea-ETHNIC-GROUPS.html 4. National Statistical Office (2012). Household Income and Expenditure Survey 2009/10, Port Moresby. 5. The National Research Institute (March 2010). Papua New Guinea District and Provincial Profiles 6. Pacific Islands Forum Secretariat, 2012 MDG Tracking Report (forthcoming). 7. http://data.worldbank.org/country/papua-new-guinea?display=default 8. Papua New Guinea. Country Health Information Profiles (2008). http://www.phrha.org/files/CHIPS/Papua%20New%20Guinea%2008.pdf 9. United Nations Development Programme (2011). Papua New Guinea Human Development Report 2011.
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Annexure 1 List of People Contacted by Study Team
1. Lawrence Solomon Director (Strategy & Marketing) PNG Power Ltd 2. J Tangitban Atg General Manager (Operations), PNG Power Ltd 3. K Salo, Manager Land & Community Services, PNG Power Ltd 4. E Lloyd Manager, Corporate Relations, PNG Power Ltd 5. U R Minga Senior Manager, Customer Services, PNG Power Ltd 6. S. Sasenu Surveyor, PNG Power Ltd 7. E Pereira Manager, Revenue & Customer Services, PNG Power Ltd 8. J Kako HR Policies & Procedures, PNG Power Ltd 9. R Kila Pat Deputy Secretary (Customary Land), Department of Lands & Physical Planning 10. Tolopa Deputy Secretary (Corporate Affairs), Department of Lands & Physical Planning 11. Dr Angelica Braun Director, Department of Prime Minister & National Executive Council 12. T Siaguru Atg Principal Advisor, Department of Prime Minister & National Executive Council 13. K Atasoa Deputy City Manager (Regulatory Services), National Capital District Commission 14. H Kiap Deputy City Manager, NCDC 15. S B Isu Manager (Development Control), National Capital District Commission 16. K Kaugla (F) Gender Officer, NCDC 17. Robert Williams Coordinator LLG, NCDC 18. Paul Abba Liaison officer, NCDC 19. Vincent Manukayasi LLG Division, NCDC 20. Win Lokalyo Councillor, Ward NE 12 B 21. Wilfred Aukiri Councillor, Ward 3 22. Francis Kanasi Councillor, NW Ward 8 23. Pepsi Kekei Councillor, NE Ward 9 24. Josephine Aniong Councillor 25. Joe Vali Councillor, MS Ward 3 26. Jonathan Afuti Councillor, NW Ward 10 27. Keimelo Gima Councillor, MS 28. Moses Susuve Councillor, MNW 29. Elizabeth Dibela Councillor, MS LLG Ward 2 30. Cathy Watai Councillor, 31. Genevieve UG 32. Sennifgl Kivia Councillor 33. Grace Yame Councillor, Dy President, NE LLG 34. Madline Poo Councillor, Moresby South LLG 35. David Waula Councillor, Ward 6 36. Elizabeth Maso Councillor, Ward 2 37. Etrel Eandery Councillor 38. Susan Kais Councillor, Ward 3 39. Anna Kate Councillor, Ward 9 40. Pon Ross Saleh Head (administrator), Maintenance Division, PM office 41. P Patatrea PM’s office 42. H Beruda admin assistant, PM’s office 43. A Gene Regional Coordinator, Department for Community Development 44. H Suve Deputy Director (Policy), National Economic & Financial Commission 45. S Conway Branch Manager, BISHOP BROTHERS, Waigani, NCD 46. G Magyari Manton Group Ltd, Konedobu, NCD 47. W. Mininga Divisional Manager, U MW Niugini Ltd, NCD 48. C Fitzgibbon Area Manager, Caterpillar Engine Sales, PNG 49. Menardo Lucido Director, Goldie Tech Investment Co Ltd 50. Derick Lucido Director, Goldie Tech Investment Co Ltd 51. Wong See Wee The WOK Cafeteria, NCD 52. S. Manasseh 53. O. Kelly Health Nurse 54. Peter Aupika TB Advocacy Coordinator (NCD), World Vision 55. E Salo Provincial Technical Coordinator, World Vision 56. Nicholas Posanai Architect, Health Facility 57. Ben Illas Electrical Technician, Health Department, Port Moresby 58. Graham Private electrician 59. Charley Xu Tokorora Trade Centre 60. G Geita Secretary, Vaga Land Group Incorporation 61. S Pabura Atg Chairman, Vaga Land Group Incorporation
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62. S John Chairman, SIDCO, NCD 63. P Camilus Director, SIDCO 64. I Bali SIDCO 65. Moses Seni SIDCO 66. Jack Oga SIDCO 67. T Maiva SIDCO 68. Marks Okki SIDCO 69. Levi Geita SIDCO 70. A Ano SIDCO 71. A Ata Paramount Chief Omani Clan 72. A Ugunnie Chairman, Omani Clan 73. W Bore Deputy Chairman, Omani 74. S Beredi Chief & Chairman, Narime Clan 75. R Berei Urori (F) Committee Member, Narime Clan 76. G Gorogo Kova (F) Committee Member, Narime Clan 77. Victor Nuwana leader, Iarogaha Clan 78. Martin Tabu leader, Iarogaha clan 79. Tabu Gaudi (Iarogaha clan) 80. Harry Geze leader, (Ehenako Clan) 81. Vaibu Gariya (Ehenako Clan) 82. Dirona Lohia Chief, Hanubara Clan
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Appendix J Community Support and Consultation
CONTENTS
Two documents follow: 1. Community Support and Development Programme (CSPP) 2. Consultation and Participation Plan (C&PP)
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PAPUA NEW GUINEA: PORT MORESBY POWER GRID DEVELOPMENT PROJECT
COMMUNITY SUPPORT AND DEVELOPMENT PROGRAMME
I. INTRODUCTION
1. This Community Support and Development Programme (CSDP) document summarises the PNG Government and PPL intent to provide additional community support complimentary to ADB procedural criteria. Funding of this CSDP is the responsibility of PPL and the Government of PNG.
II. BACKGROUND
2. Papua New Guinea has a population of 7.06 million. Growth rate is 2.8 % for the period 2009-2011. The population living below the poverty line is estimated as 28%. Adult literacy rate is 57.8% which is split as 53.4 % for females and 62.1 % for males. Primary school gross enrolment rate is 69.8% which drops down to 23.7% for the secondary school enrolment (2007). In 2008, 40% of the population has access to safe drinking water while 45% of the population has access to sanitation. 3. Port Moresby is the National Capital of Papua New Guinea. The Capital itself is located in a district of its own called the National Capital District (NCD). The population in the NCD according to the 2011 Census is 318,128 people in 57,741 households. The male population of 170,000 is slightly over the female population of about 147,000. The data covering socio-economic status of the population for POM is not available136. Hence, data collected by the socio-economic assessment conducted as part of the current PPTA is used in this report. 4. The total power customers served by PPL within project area in 2011 was 41,661, slightly down from 41,668 in 2009. Of this, 39,646 are households. Comparing the latter figure with the actual number of households in the City, it is seen that 69 % have access to electric power. Table 67: Power Customers of PNG Power Customer Category 2009 2011 Domestic, easy-pay 38,962 38,962 Domestic, credit 734 684 Domestic, total 39,696 39,646 General supply, credit 1,261 1,305 General supply, easy-pay 674 674 General, total 1,935 1,979 Industrial 37 36 Grand Total 41,668 41,661 Source: PPL 5. The field assessment indicates that all the businesses and government agencies within NCD have access to power. However, each agency whether business, industry or office, has a stand-by generator as back-up power supply source because the city supply is plagued with several problems including shut-downs, frequent back-outs, low-voltage and other concerns leading to low-quality of supply. Many religious organisations which cannot own a generator rely on hiring of a generator to run their business. In the meantime, the assessment identified several religious organisations that have to stop their activities as these organisations do not have an access to a generator. It is in the above back ground that the assessment finds it that sale of generators and associated services are in high demand within the city. Several businesses that are involved in the sale of generators have asserted the profitability of their operations as the city does not have a reliable system of power supply and that the quality of power supplied itself is low. 6. Access to power is a basic requirement for socio-economic development. That said, field assessments indicate that the supply of power has a positive impact on livelihoods of the population. The improvement of power supply and the extension of service area will help a large
136 The 2011 Census data is not yet available for reporting. Contacts were made with other relevant agencies namely, the National Capital District Commission, Community Development Department, Department of Land Management and Physical Planning. None of the agencies have the relevant data for NCD area. The NCDC is currently planning to conduct a socio-economic survey within the City aimed at collecting the vital statistics.
Final Report | 30 November 2012 Page | 144 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix J - Community Support and Consultation number of households and household-based businesses both in their domestic and commercial activities. The potential socio-economic impacts of improved power supply including poverty reduction of the population in NCD are presented in another report.
III. PURPOSE
7. The purpose of Community Support and Development Programme (CSDP) is primarily to make project investments pro-poor and thereby to increase the number of direct beneficiaries assisted by the project. The programme is also developed to facilitate participatory socio-economic development in the city. It also has the strategic objective to engage land owners on a continuous basis that may help minimize disturbance to hydro power generation by land owner action.
IV. METHODOLOGY
8. The CSDP is developed after making a thorough assessment of the current situation in NCD with regard to power supply and utilisation and, land owner issues in the power generation frontier. In-depth discussions were conducted with relevant staff of PPL as well as other agencies. Field visits were undertaken to representative sites within the target area to engage stakeholders in discussions and assessments. In this process, about 150 stakeholders representing a cross- section of project beneficiaries were contacted and interviewed by the survey team. The assessment includes a sample survey of over 75 households selected from different areas of NCD. Appendix 1 lists people contacted during the PPTA (does not include respondents in survey and focus groups) as part of development of the CSDP. 9. The review of relevant literature provides a good understanding of the past issues, programmes and their performance, and policy directives. The documents reviewed are listed under references.
V. POWER SUPPLY ISSUES
10. This section presents a brief analysis of the current power supply and utilisation within the city. This is followed by a discussion on land owner issues. The two issues provide a backdrop to the programme that is described in the subsequent section. A. Connection rate 11. As mentioned earlier, 69% of households are connected to power supply. The actual rate is little higher than above because about 10-15 % of households and some businesses obtain their power illegally137. These households and businesses do not have formal connections to the network. Total HHs within NCD not having power connection is about 30%. Of the unconnected households, the numbers within and outside the current network coverage are unknown. The household connection rate outside NCD area (i.e. Rouna and Sirinumu in Central Province) where service facilities are located is also unknown. Field studies indicate that out of 10 villages in and around Rouna complex, only 4 have electric power while few others with power have different coverage levels, the details are unknown. For instance, the village of Furimuti has 25 Koiari land owner houses. None of them are connected to electric power while the electricity generated at Rouna is conveyed to the city across their land. This creates frustration among land owners. 12. According to sample survey, 28% households in the city are without power. All of them expressed their willingness to connect to the system and obtain power. This includes all land owners interviewed. The women were more enthusiastic in connection to power as it will illuminate their life while reducing their drudgery substantially. Similarly, all HHs that have informal power are also interested in having their own personal and formal connection. B. Spatial distribution of power supply 13. The power distribution within the project area varies in that wards within the centre of the city have reasonable supply levels while those in the fringes have either no power or have more problems. In general, all households within the City have similar problems with regard to power access. The main problems of households are shut-downs, black-outs, low and fluctuation voltage
137 Personal communication with Revenue and Customer Services Manager, PPL.
Final Report | 30 November 2012 Page | 145 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix J - Community Support and Consultation level, tripping and power surges. Table 68 presents relevant data with regard to current power problems faced by project beneficiaries. Table 68: Power-related Problems of Households in NCD Power Supply Issue Reporting HHs (%) Frequent shut-downs 100 Black-outs 100 Low / fluctuation voltage levels 79 Source: PPTA Studies (2012) 14. The assessment sited several households that have had adverse impacts from the erratic power supply. Several of them had their electrical appliances burnt out due to power surges. Others complain not being able to get lights on if they fail to switch on at least 2-3 hours before they need light. Still others complain of problems with regard to food preparation due to sudden supply break-downs. On many occasions, food is half-cooked leading to frustration and financial losses. 15. It is expected that the present project when fully commissioned, will improve power supply in the NCD. However, it is important to note that the implementation of the project as it is planned will not provide a sustained solution to thousands of households as they are not in a position to benefit from the planned investment due to three main reasons. 16. First, a large number of households within the current service area cannot afford to pay for power connection charges. Included in the charges are the cost of internal wiring of their households, service line and the connection fee itself. The latter is about K200 which includes a service line of 20 m; anything over the 20 m will add on to the connection fee. The main problem lies with the cost of internal wiring which ranges from K750 to as much as K1500 which is beyond reach of many households. Field studies reveal that charges by local electricians for internal wiring are substantial. Even when wiring is done, the workmanship is weak leading to other problems such as electric shocks, power sockets not working, etc. It is necessary to regulate charges by electricians and to inspect standards of house electric wiring. 17. Second, still a substantial number of houses within the city are made of either impoverished materials or are in tent accommodations. The current PPL policy does not make it possible to provide a connection for houses that do not have a permanent structure. Therefore, the category of households who do not have permanent housing units are likely to be not availed of electric power, even if the power supply is improved. The suggestion was made that people living in temporary accommodations are provided with access to power by fixing the meter and connection socket to a permanent (and covered) structure to be installed near the house. Household is able to obtain power via the power socket fixed to the structure. 18. Third, the power distribution network has a limited coverage within the City. It does not cover the entire area within NCD. Large sections in City fringes do not currently have service lines. It is to be noted that though the project is named as Port Moresby Power Grid Development, the supply network does not cover the entire City. 19. It was also noted that correct information on connection fees, the process to obtain power including whom to be contacted are not known by the majority of interviewed households. 20. Power is used mainly for domestic activities. However, there are 35 % households that use power for small-scale income generation activities such as preparation of meals and snack, soft drinks, ice blocks, bakery products, etc. for sale in the local area. It is to be highlighted that all areas visited by the team have large numbers of informal markets that are actively engaged in selling consumable products within the local area. The income generated is a good addition to the household income. The majority of small-scale sellers are women, girls and retirees. 21. The households which prepare various types of food and beverages for sale are badly affected by the power problems described above. Many households have suffered financial losses when the food stored has got rotten due to power shut-downs and low-voltage level that does not keep the refrigerator running. There are several people whose refrigerators have been damaged beyond repair due to power supply problems. Assessment reveals that improvement of power supply within the city will have a significant impact on livelihoods of small-scale food processers and sellers.
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C. Street lighting 22. Certain areas within the city such as Wards 3, 5 and 10 are unsafe for pedestrians where criminal activities are reported. Interviewed women in these areas said that they do not walk out in night due to potential threats, injuries and other problems. The supply of street lighting is considered as an effective way to curb down on violence and criminal activities.
VI. LAND OWNER ISSUE
23. The actions by land owners affect the proper functioning of power generation in Rouna complex. On several occasions in the past, they have stopped water into the turbines and have taken actions to deprive the city with power. They have also deprived water as it comes from Rouna area. According to land owners, there are some unresolved issues on compensation for land where hydro-power facilities are built. They are also demanding that they should be part and parcel of the PPL and that they should be allowed to share part of profits generated by the business. The view of PPL is that it will create an imbalance as land owners of other power generation facilities will be disadvantaged. It is also unreasonable to provide preferential benefits to land owners in hydro-power areas as against others who have donated their land for other types of generation facilities. 24. A review of past activities of land owners was conducted as part of the due diligence of existing facilities. The analysis reveals that all land in Rouna and Sirinumu belong to the State. Former land owners have been compensated for the land they owned before. However, there are frequent claims by land owners in that they have not been compensated properly and adequately for their land. There are also unverified claims by land owners for of land improvement cost and environmental damage which have not yet been proved in a court of law. It is important that these claims are proved in a court of law before they can claim for compensation which they have not done yet. 25. The issue of transmission lines crossing over customary land is yet another concern of land owners. They are demanding compensation for the use of their land to run transmission main lines and possibly other distribution facilities across their customary land. 26. Part of land owner agitation stems from the fact that there is low level of government support for socio-economic development in the areas occupied by Sirinumu reservoir and hydro- power stations of Rouna and Sirinumu. According to resident land owners, the national road leading to the Sirinumu dam urgently requires substantial improvements. It is not possible to travel on wet weather as the road is slippery, risky for vehicles and sometimes become totally impassable for several days. When this happens, transport to and from Sirinumu is at a standstill. Many participants at the public consultation held on 10th August 2012 raised their concern about the poor state of this national road. They urged that government takes urgent action to rehabilitate and seal the road. Several representatives of government agencies assured that the road will be rehabilitated which was happily received by all participants. 27. Among other demands by local residents are improvement to schools, supply of materials to and up-grading of health facilities, provision of rural water supply schemes, assistance to develop local agriculture, lack of employment opportunities and, credit and marketing facilities, the latter to sell what is produced locally. . The local people state that quality of water in the Sirinumu reservoir is unfit for consumption. During rainy season, due to heavy silt loads that originate in the un-surfaced roads, reservoir water turns into grey colour which is unfit for consumption. 28. As stated earlier, several households are without power although power itself is generated in their resident villages. In Rouna area, there are only 5 out of 10 villages with power. A similar situation with regard to power supply prevails in the Sirinumu area too. 29. The government from time to time has attempted to resolve above problems by undertaking various measures on an ad-hoc basis. The government has established the Sirinumu Development Company in 1996 as a mean to provide assistance for community development. The company is provided with about K 1 million per year during the past 5 years. The proposal to establish the Rouna Development Company (RDC) is before the government. The constitution for the proposed company has been prepared which is presented in Appendix 2. A development package of K 3.25 million to be funded by PPL is to be awarded to RDC, after its formation (Appendix 3). However, health, education and water facilities remain to be improved while the dilapidated road is the main concern of land owners in Sirinumu area.
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30. The Koiari land owners in June this year have demanded K 291 million in damages from the government. Their claim includes compensation for land, development cost and environmental damage caused by power production in the past. The Auditor General (AG) made an enquiry into the matter and resolved that there are no outstanding land compensation dues or any other matter before court of law. The AG has further recommended that government should not accommodate claims by land owners as there is no basis for such claims. The Involuntary Due Diligence report prepared under the PPTA has further information on land owner claims and concerns. 31. As there had not been response to their demand, land owners of Rouna on several occasions have stopped water into the generators and deprived power generation. The most recent incidence took place in June 2012 and the city was deprived of power and water for 2 days. In response to this action, the government summoned a meeting of land owners to discuss and come to an agreement. As a result of this negotiation, K500,000 was given to land owners as a partial solution for their grievances. 32. It appears that the formation of SIDCO in 1996 is an example of government’s response to their demands. The SIDCO is provided with an annual grant of about K600,000 which is expected to be utilised in the provision of community services. Following the same model, the government is currently planning to form Rouna Development Company which has not yet been approved by the NEC. Data Needs for Planning 33. In order to develop a well-conceived development assistance package, it is important that relevant data are collected and up-dated on a regular basis. Without a reliable and an accurate database, it is impossible to undertake development interventions to improve socio-economic status of the community in an appropriate manner. At present, there is no database covering any of the issues described above. Among the issues where there are no data include the total households and the population in the affected area, households without power, with temporary power and on illegal power connections and their spatial distribution with the city, households with and without water supply, income profiles, credit needs, current debt profiles of households, etc. The number of households and their population affected by transmission main lines in different areas of the city and Central Province are unknown. Moreover, the genealogy for most of the land owner clans in Sirinumu and Rouna which is the basis for payment of cash grants is also not available. Even the numbers of people who are expected to receive benefits from SIDCO are unknown. In the absence of data as mentioned above, it is to be pointed out that PPL’s cash grants to SIDCO and to RDC in the future can’t be put to the best use. 34. Although PPL policy states that data pertaining to affected land owners and about their socio-economic development are collected, there has not been any activity in this area. The Land Management and Community Services within PPL is responsible for data collection, storage and analysis. However, this entity neither has a plan for data collection nor resources required for this purpose. As is expected, there is no data both on land owner issues as well as on power-related issues. Engagement of land owners 35. The PPL has engaged Sirinumu land owners under the development package provided to SIDCO since 1996. On an average, the company each year has received K1.45 million. The analysis of SIDCO financial reports indicates that PPL grant has been the main form of income of the company of which its contribution alone accounts for 95 % of total revenue of the company. The company in the past has invested on machinery which according to records are idling. Only in 2010 (out of 3 consecutive years), K107,000 has been earned by machinery hire. The company does not yet have a business plan and other elements of a business entity such as vision, mission, etc. The SIDCO has formed two subsidiary companies to facilitate community development in upper and lower parts of the reservoir. The analysis of operating expenses of the two subsidiaries reveals that only 4 - 6% of total expenditure of the two subsidiaries is in fact devoted for community development. There does not seem to be investment on income-generating and profit making assets and ventures. 36. The interviews with villagers indicate that company is not helping them to develop their socio-economic status. Even after formation of land owner companies, the situation has not improved compared to expectations. This was clear when a woman participant at the public
Final Report | 30 November 2012 Page | 148 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix J - Community Support and Consultation consultation held on 21 August 2012 requested that PPL should pay attention to socio-economic development of Rouna area rather than making grant funds available to ILG on an annual basis. 37. PPL has several other lease arrangements in place. The company has an agreement to use the land owned by Dabunari ILG to access the Kanudi power plant. This lease is K2,500 per month. The Manumure ILG has an agreement with PPL to provide access to telecommunication station via their land for the payment of K600 per month. These lease arrangements at present are confined to PPL providing cash grants to relevant ILGs without a long-term engagement and participation strategy in place. 38. Apart from development package and other form of cash grants to land owners, there is hardly any dialogue and engagement with land owners. This was clearly evident from the recently concluded 3 public consultations organised as part of the current PPTA. At the conclusion of consultations, all land owners appreciated regular meetings between PPL and land owner ILGs. The land owner contacts should be active, on a long-term basis and on-going. This engagement with land owners should move beyond the provision of cash injections. Strategies to provide power to those without it and the dissemination of information should stand out in dialogues and consultations. 39. In view of the complex issues involved and the time it has taken to provide an appropriate solution to land owner problems, it is suggested that PPL develops a Community Support and Development Programme (CSDP) for implementation. The proposed CSD programme should have a wider scope and be funded by several sources, not entirely by the PPL. Accordingly, under the programme, there are some activities to be implemented by PPL, some by other agencies and still others by the government. It is important that all agencies and land owner groups should become partners of the programme. It is emphasized that ILGs should not just be the recipients of the development package but become active partners of the programme.
VII. PROGRAMME DETAILS
40. As mentioned above, the proposed programme consists of several sets of activities to be implemented by different partner agencies. The partner agencies are PPL, other line agencies responsible for sectors such as roads, agriculture, health, education and water and, the Office of Prime Minister/NEC. These activities and the role of relevant agencies are briefly described in this section. A. Activities within PPL’s domain 41. The activities proposed for PPL are educational and awareness creation, community outreach to engage local groups and committees, affordable power connection method and the support to SIDCO and the proposed RDC. The geographical coverage of PPL’s component should spread over the whole of NCD and the villages in Sirinumu and Rouna area. 42. Table 69 provides information on CSDP activities proposed to be implemented by PPL. Table 69: Development Activities and Cost for PPL Operations Activity Description Unit Cost Total Cost (Kina) for 5 years Education, PPL to organise lectures at schools, K40,000 x 2 x 5 – staff 650,000 awareness & deliver talks at clubs & community salaries + K10,000 x 5 Training groups to provide information on x 5yrs products and services. Site visits for school children and group members to strengthen awareness. Re-allocate 2 staff members to work full-time basis on this activity. Material support for strengthening education and awareness are proposed Community An on-going work programme with K2,000 per group x 10 100,000 Outreach identified committees spread over NCD. units x 5 yrs Focus is on education & to develop a long-term partnership with community. Staff salaries already provided above
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Activity Description Unit Cost Total Cost (Kina) for 5 years Community An on-going programme of collection, Education & Training Support strengthening and storage of a staff will be deployed. Database community development database No extra cost Development Affordable HHs be given option to pay power 12,500 HH x K500 6.25 million power connection fee in instalments to be (house wiring). (totally repayable. connection recovered. The cost of house wiring is Not a grant) estimate as K750. Only K500 is provided by PPL as a loan while the remainder and the PPL fee of K200 is expected to be provided by house owner Partnership Review all ILGs where PPL facilities are 10,000 + 5 ILGs x 5 yrs 250,000 with ILGs built. Collect relevant data, discuss, develop and agree on a partnership strategy. Staff salaries already provided above. Details are to be worked out SIDCO Help develop a business plan for the Business Development 150,000 company and support implementation. Specialist (consultant) Conduct training SIDCO and subsidiary x 6 months x K25,000 company staff on business planning and plan execution. Encourage SIDCO to provide more support to local community. SIDCO be assisted to develop an eco- tourism project in their area to finance through its own profits. The project is to be operated as a viable business operation RDC Provide funding for the establishment of PPL/PNG Govt has 3,250,000 company and its operation. already prepared development package RDC Facilitate a business plan for the Business Development 75,000 company Specialist x 3 months initially. The need to be reviewed in the second year. K25,000 x 3 Miscellaneous 10% 1,072,500 Total 11,797,500 Note: 1. Above budget does not include the cost of social /community development specialists which will be funded within the PMU 2. Budget for SIDCO is not included
43. It is suggested that the components outlined above are reviewed, amended and further developed by PPL and the Government of PNG in the detailed design phase. 44. The SIDCO development package will continue but substantial re-direction is proposed. At present, PPL grant is utilised mainly as operational expenses and some investments in assets that unfortunately do not generate sufficient cash. In the meantime, amount of funds devoted for community development is very small. At the same time, SIDCO has shown a profit of about K829,000 in 2010. It is an urgent necessity that PPL facilitates SIDCO to develop a business plan, its mission, the vision and time plan for the implementation of a new business plan. 45. PPL has already proposed a development package of K3.25 m to be granted to the proposed RDC. The grant assistance is from 2013 to 2017. Appendix 3 provides further details of this package. It is suggested that this package is further reviewed and amendments made as appropriate during detailed design. 46. It is also proposed that LMCS’s capacity to manage community development and associated services pertaining to power utilisation is enhanced. For this purpose, technical assistance is proposed to PPL under the project. Accordingly, 2 social/community development specialists, one international and the other national, are proposed. The international specialist will work together with the national specialist and LMCS’s key-contact for 5 months while the national
Final Report | 30 November 2012 Page | 150 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix J - Community Support and Consultation specialist will continue to work for a further period of 3 months. The TOR for the 2 specialists is given in Appendix 4. The gender specialist that is proposed for PMU will work together with other specialists on the CSDP. 47. The capacity development programme will focus to enhance the management of PPL and community interface. It is necessary to identify potential community groups, develop a programme to work with such groups in a pro-active manner. Vigilant community groups can advise and provide information to PPL on key-areas of assets protection and management. Such groups can also work with designated PPL staff to reduce the number of illegal connections through awareness creation, education and providing useful information. Working with community groups and networks is also an opportunity for PPL to organise community events including competitions and other educational activities. 48. The implementation of CSDP will benefit PPL in a number of ways. It will increase household connections, create and manage opportunities for community groups to participate in the management of assets and more importantly to provide assistance to PPL in protecting its assets. Proactive community groups can also be vigilant and inform PPL with regard to vandalism in their areas. The groups can also work with PPL staff to reduce illegal connections through improved awareness, education and by providing information to designated staff of PPL. Working with community networks is also an opportunity for PPL staff to conduct talks, deliver presentations and to organise events such as competitions involving groups and schools. 49. The LMCS at present does not have a database on community groups, land owners and other information pertaining to the management of community and PPL interface. One of the important tasks of the proposed capacity development programme is to establish a database and the development of other tools and methods to collect, store and disseminate relevant data. All required information will be collected and utilised for planning and management of PPL operations. B. Activities for other agencies 50. Activities for other agencies include support to schools, aid (health) posts, develop community water supply schemes and assistance to develop agriculture (crops and livestock). Given the high volume of rainfall, roof-based water harvesting appears to be a good option for domestic water. It is proposed that Agriculture Department allocates 2 extension officers to work in Rouna villages and the other one in Sirinumu villages. 51. It is proposed that TA is provided to develop details of the development package proposed for other agencies. 52. It is an urgent request of people in the Sirinumu area to rehabilitate the national road leading to the dam. It is believed that rehabilitation of the road may attract tourists into the area which had been popular among city dwellers in the past. This was the main request of participants in the recently concluded public consultation. 53. It is necessary that other agencies are directed to take part in the CSDP focussing on Sirinumu and Rouna areas. This directive has to come from the Office of PM /NEC. C. Activities for the Office of Prime Minister / NEC 54. PPL will work with office of PM/NEC for the approval of the establishment of RDC. The development package already proposed will be implemented when the company is formed. 55. The Office of Prime Minister / NEC has a vital role in the management of CSDP. The tasks suggested to this office are advice on programme implementation, progress monitoring, and the coordination of all other agencies which have their own stake in the programme. PPL will work closely with the PM’s office to establish a committee to coordinate CSDP’s activities to be chaired by a nominated senior official from the office of PM. Details are to be worked out under the proposed TA for the programme.
D. Time Plan 56. The CSDP is proposed to be revised and amended at the time of detailed project design. The organisational arrangements, funding by other agencies and responsibilities will also be worked out in detail at design phase. Once agreed by parties concerns and finally approved the overall responsibility for programme coordination and management lies with the PM/NEC. The time plan following provides details for the design phase of CSDP.
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Table 70: Time Plan for Implementation of Community Support & Development Programme
Year - 1 Year - 2 Activity Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 PPL recruits/ re-assigns staff members to work on CSDP
Recruit National Gender specialist of PMU PMU recruits international community development specialist Establish community development Team
Develop / activate links with other relevant agencies Establishment of programme coordination arrangements Start work on database development
Training
Database & Assessments
Public consultations
PMU recruits business development specialist
Identify, collect & monitor data
Develop and implement community outreach activity
Identify and develop links / working arrangements with community groups / societies/ committees
Monitoring & progress reporting Note: Training, consultations, assessments and database development, community outreach and monitoring are continuous activities.
References 1. Independent State of Papua New Guinea (29th June 2012). Legal Opinion and Advice Re: Rouna Landowner Claims, Department of Justice & Attorney General, Office of the Secretary. 2. PNG Power Limited (17 May 2012). Standard Operating Procedures - Existing Transmission Line Easements. 3. Sirinumu Development Company Ltd (2009). Financial statements for the year ended 31st December 2009 4. Sirinumu Development Company Ltd (2010). Financial statements for the year ended 31st December 2010 5. Sirinumu Anaka Ltd (2009). Financial statements of the subsidiary of SIDCO for the year ended 31st December 2009. 6. Sirinumu Derihe Ltd (2009). Financial statements of the subsidiary of SIDCO for the year ended 31st December 2009. 7. National Statistical Office of Papua New Guinea (April, 2012). Papua New Guinea Census 2012. Preliminary Figures.
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Appendix 1: List of People contacted
1. Lawrence Solomon Director (Strategy & Marketing) PNG Power Ltd 2. Kalip Salo Manager, Land & Community Services, PNG Power Ltd 3. S. Sasenu Surveyor, PNG Power Ltd 4. E Pereira Manager, Revenue & Customer Services, PNG Power Ltd 5. R Kila Pat Deputy Secretary (Customary Land), Department of Lands & Physical Planning 6. O Tolopa Deputy Secretary (Corporate Affairs), Department of Lands & Physical Planning 7. Dr Angelica Braun Director, Department of Prime Minister & National Executive Council 8. S B Isu Manager (Development Control), National Capital District Commission 9. K Kaugla (F) Gender Officer, NCDC 10. Robert Williams Coordinator LLG, NCDC 11. Paul Abba Liaison officer, NCDC 12. Vincent Manukayasi LLG Division, NCDC 13. Win Lokalyo Councillor Ward NE 12 B 14. Wilfred Aukiri Councillor Ward 3 15. Francis Kanasi Councillor NW Ward 8 16. Pepsi Kekei Councillor NE Ward 9 17. Josephine Aniong Councillor 18. Joe Vali Councillor MS Ward 3 19. Jonathan Afuti Councillor NW Ward 10 20. Keimelo Gima Councillor MS 21. Moses Susuve Councillor MNW 22. Elisabeth Dibela Councillor MS LLG Ward 2 23. Cathy Watai Councillor 24. Genevieve UG 25. Sennifgl Kivia Councillor 26. Grace Yame Councillor Dy President,NE LLG 27. Madline Poo Councillor Moresby South LLG 28. David Waula Councillor Ward 6 29. Elisabeth Maso Councillor Ward 2 30. Etrel Eandery Councillor 31. Susan Kais Councillor Ward 3 32. Anna Kate Councillor Ward 9 33. A Gene, Regional Coordinator, Department for Community Development 34. G Geita Secretary, Vaga Land Group Incorporation 35. S Pabura Atg Chairman, Vaga Land Group Incorporation 36. S John Chairman, SIDCO, NCD 37. P Camilus Director, SIDCO 38. I Bali SIDCO 39. Moses Seni SIDCO 40. Jack Oga SIDCO 41. T Maiva SIDCO 42. Marks Okki SIDCO 43. Levi Geita SIDCO 44. A Ano SIDCO 45. A Ata Paramount Chief Omani Clan 46. A Ugunnie Chairman, Omani Clan 47. W Bore Deputy Chairman, Omani 48. S Beredi Chief & Chairman, Narime Clan 49. R Berei Urori (F) Committee Member, Narime Clan 50. G Gorogo Kova (F) Committee Member, Narime Clan 51. Victor Nuwana Ward councillor/leader, Iarogha Clan 52. Senior Lands Officer Motu Koita Assembly 53. Martin Tabu Leader, Iarogha clan 54. Tabu Gaudi (Iarogha clan) 55. Harry Geze Leader, (Ehenako Clan) 56. Vaibu Gariya (Ehenako Clan) 57. Dirona Lohia Chief, Hanubara Clan
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Appendix 2 & 3: Other Documents Available
2. Rouna Development Ltd – Constitution Draft 3. Rouna Development Company Development Package
Appendix 4: TOR for Social/Community Development Specialists
A. International Social / Community Development Specialist (4.0 p.m.) The specialist will have a degree or relevant qualification in social and/or community development or any other discipline relating to social science with over 10 years of work experience in social and community development work. The specialist should also have experience in design, implementation and analysis of socio-economic data and the establishment of database. Recent experience in preparing and implementation of community development plans and/or conducting social development studies for ADB projects, and familiarity with the sections of ADB’s social assessment are highly regarded. The specialist will lead the national social/community and gender specialists to accomplish the tasks as outlined in the CSDP. The specialist will also undertake any other necessary work assigned by the team leader.
The specific tasks of the international social/community development specialist are as follows: 1) Provide the overall leadership to PMU in the planning, up-dating and implementation of CSDP; 2) Review all available information and data with regard to PPL’s community agreements and advise for improvement; 3) Plan and conduct social assessments in identified villages through participatory methods including but not limited to focus group discussions, meetings, in depth interviews and key0informant surveys and in close consultation with APs and in collaboration with PPL’s relevant staff, with a view to develop the community outreach component of CSDP; 4) Design methods for public consultations, advice relevant parties within PMU, participate in consultations and document the outcome; 5) Train staff of PMU and other relevant agencies in close collaboration with the national social/community and gender specialists; 6) Participate in relevant meetings and provide advice on social / community development as appropriate; 7) Conduct presentations to PPL, other agencies and PM/NEC office with regard to details of CSDP and on other appropriate issues; and 8) Design database, identify data and provide assistance and advice to relevant staff in populating database.
B. National Social/ Community Development Specialist (6.0 p.m.) The national specialist will have a Degree in Social Science and over 5 years of experience in social and community development programme design, implementation, monitoring and public consultation. The candidate should be field-oriented and conduct all assessments in consultation with the international specialist in a proactive manner. The tasks of the national specialist are basically to work in collaboration with the international specialist. In particular, s(he) will assess field situation, develop and pursue contacts with clan leaders, involve in testing and implementation of assessment questionnaires, methods and tools, conduct interviews and assessments and analyse information for reporting. A key task of the national specialist is to provide local knowledge of persons and resources and bring such knowledge into the project.
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PAPUA NEW GUINEA: PORT MORESBY POWER GRID DEVELOPMENT PROJECT
STAKEHOLDER CONSULTATION AND PARTICIPATION PLAN
I. INTRODUCTION
1. This document describes the purpose, method and outputs of consultation and participation with stakeholders during the process of implementation of Port Moresby Power Grid Development Project (the Project), inclusive of all six subprojects. It also presents the budget and other relevant information. This plan covers the requirements for consultation and participation in implementation phase as prescribed in Asian Development Bank (ADB) Safeguard Policy Statement (SPS) 2009 and Public Communications Policy (PCP) 2011.
II. PURPOSE
2. The consultation and participation plan (C&PP) provides a mechanism whereby PNG Power Ltd (PPL) and other relevant government agency staff, implementation and supervisory consultants, primary beneficiaries and other stakeholders (such as civil society organisations and the like) can exchange their views, ideas and suggestions with regard to project implementation including monitoring. It is hoped that the implementation process is streamlined and further facilitated through stakeholder consultation while the participation of primary beneficiaries in the process will secure a wider community support in project implementation. More specifically, the C&PP is aimed at achieving compliance requirements as per PNG law, ADB’s SPS, PCP and that of PPL’s Policy statement on management of transmission lines. The C&PP activities will also provide inputs in the preparation of compliance documents, monitoring and progress reports for circulation to PPL, Independent Public Business Corporation as the executing agency and ADB. 3. The C&PP will be checked, verified and fully up-dated by PPL after finalisation of subproject designs as well as time plan for their implementation which will be forwarded for approval by ADB before project commencement. The process of up-dating of the C&PP will be the responsibility of safeguard consultants and officials working in PPL’s Project Management Unit (PMU), who will undertake comprehensive checks to determine whether all stakeholders (both types and numbers) have been included in the plan, costing and timelines for implementation.
III. OUTPUTS
4. The C&PP has three main outputs. First, it provides a basis to inform stakeholders about project, its activities, how they benefit from project, potential impacts and other relevant information. This will help them to understand the nature and output of the project and thereby they may develop a sense of ownership and belonging to the project. Their engagement will also facilitate a wider community support to the project and will also avoid unnecessary delays in project implementation. 5. Second, C&PP is a mechanism whereby stakeholders are able to provide feedback with regard to social and environmental impacts, mitigation measures and other issues relating to project implementation. The stakeholders may also identify impacts and sensitivities not recognised -during preparation or propose alternative or new mitigation measures that will be useful. The objective of the interaction is to obtain effective feedback to facilitate an improved project implementation process avoiding costly implementation delays and frustration for everyone involved in the project. 6. Third, C&PP is a mechanism to check and verify environmental and socio-economic data and information from stakeholders to support the up-dating and implementation of land acquisition and resettlement plan (LARP), initial environmental examinations (IEE), other plans and strategies, thereby facilitate project implementation. 7. The C&PP is integrated with other related documents such as LARP, grievance redress mechanism (GRM), and the environmental management plan (EMP) developed from the IEEs and gender action plan (GAP). 8. The PPL will make appropriate arrangements to disclose the C&PP in an accessible place and language to stakeholders in advance prior to construction work commencing. All ward councillors will be given a briefing on C&PP and copies made available to them for information and
Final Report | 30 November 2012 Page | 155 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix J - Community Support and Consultation own follow up with beneficiaries. The safeguard cell that will be established within PMU of PPL will make arrangements to also disclose the GRM and its details to for stakeholders to resolve their grievances. 9. There will be at least one well-informed and widely publicised public consultation event in respect of each of the six sub-projects. Follow-up events will be undertaken in the areas of the sub- projects which are expected to have a higher level of impacts i.e. sub-project 1: Kilakila substation and transmission line, sub-project 5 installation of a new substation at the existing Rouna 1 hydro- power plant, and sub-project rehabilitation of turbine and generator and other upgrades at the Sirinumu toe of dam. Although the subprojects will not have any significant impacts on the community or the environment, the people will be adequately informed of planned upgrading and rehabilitation works so that there will be a wider community understanding and support to subprojects. It will be the responsibility of PMU to assess requirements for public participation and thereby take the leadership to organise events. The consultations will also be made use of as an opportunity to inform the people and to seek their feedback on activities that will be implemented either by the subproject or by other government agencies, to improve their livelihoods.. 10. The consultation events will be well-publicised using both notices displayed to community posts as well as notice published in the Newspapers for information of affected people including women and organisations. PPL will also use electronic mass media such as radio and television to broadcast events. Appendix 1 provides a notice for publication in Newspaper and posting to community notice boards. The PPL will use its own funds for publication of notices in print media.
IV. THE STAKEHOLDERS AND IMPACTS
11. The purpose of all six subprojects is to improve reliability and deliver quality power to customers in Port Moresby. It is to be highlighted that improvement in quality and reliability is a result of activities under all of six subprojects and it is therefore not necessary to identify beneficiaries of any individual subproject. Rather, it is the combined investments of all the subprojects that will lead to the improvement in quality of power delivered in Port Moresby. It is however, to be noted that some subprojects such as loss reduction and open-loop mesh will be beneficial to commercial and heavy power users such as big industries, hospitals, etc. 12. The broad categories of stakeholders within the project area who will benefit from the six subprojects are listed below. PNG Power Limited (the main stakeholder); Government agencies / facilities including the EA, schools, hospitals, Municipality, etc. who will benefit from improved power supplied to them Private businesses, small, medium and large, all of which will benefit Householders including female-headed, throughout National Capital District (NCD) area who will have access to quality and reliable source of power Civil society and mass organisations such as churches and other religious organisations, NGOs, aid agencies AusAID, etc. who will also benefit from power improvement 13. In addition, all households including women-headed households and organisations in and around Sirinumu and Rouna are an important group of stakeholders for this project. The public consultations and other assessments conducted during project design clearly indicate the necessity to engage householders, clan leaders and other organisations in the above mentioned areas. These stakeholders belong to the Central Province. 14. The land owners along transmission line (TL) from the new Kilakila substation are the first affected party. They belong to three clans namely, Vaga, Iarogaha and Uhadi Iarogaha. The Vaga clan occupies land in TL and substation while the other two are owners of the land where the angle-tower is located. The RP includes measures to address land acquisition and compensation aspects. The other affected party are urban people around Port Moresby who may experience travel disturbances and other inconveniences during construction. As noted in the Initial Environment Examinations (IEEs) dust, noise, and transport difficulties, etc. will be a nuisance. Such will be temporary and can be mitigated through implementation of the measures set out in the EMP. The final group of people who will experience adverse impacts are previous land owners and other households in and around Rouna and Sirinumu who will also undergo temporary
Final Report | 30 November 2012 Page | 156 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix J - Community Support and Consultation disturbances similar to those living in the City. In addition to the LARP required, the Environment Management Plans (EMPs) will include various measures – including health and safety plans and traffic management plans – to address negative impacts.
V. STAKEHOLDER ENGAGEMENT
15. It is a requirement of the SPS and PCP that the borrower/client involves affected communities, groups, or persons through information disclosure, consultation and informed participation. It is expected that borrower/client conducts meaningful consultation with affected persons for subprojects identified as having involuntary resettlement impacts. The meaningful consultations begun during project preparation stage will be continued throughout project implementation process. The consultations will involve affected people, other interested parties i.e. civil society groups and representatives of community organisations, PPL and government agencies as listed earlier. 16. Each consultation will be well-informed and notified in advance, properly planned and will follow through a comprehensive agenda. After introducing participants, subproject activities will be presented clearly and in a manner they understand easily. The discussion forum will be open where participants are encouraged to air their questions and concerns. A particular emphasis is made to engage and air views and concerns of affected and beneficiary women. A summary of the issues raised and agreement reached together with future steps will be presented at the end. All questions, concerns and comments raised and answers given by resource persons will be documented. An example of the agenda for public consultation is presented in Appendix 2. 17. It is proposed to conduct public consultations both just prior to (detailed design of subprojects) and prior to and during the construction and rehabilitation works. The consultations will focus on informing affected people details about project, including what is being planned, potential impacts from the activities and how PPL proposes to mitigate and/or avoid the impacts. The consultation will also inform people on the GRM and highlight where they can get further assistance with regard to project implementation issues, as well as how issues they raise will be responded to. 18. The consultations have the purpose of informing affected people of progress of work, issues affecting implementation and to obtain their feedback and/or suggestions to further strengthen the mitigation of adverse impacts as well as to solicit their support for project implementation. This second round of consultation will be undertaken in respect of subprojects 1, 5, 6 where considering the existing land owner issues, there will be intensive public consultation work. For all other subprojects, there will be 1-2 consultation events as the work itself will be confined to existing facilities owned by PPL and that the engagement of the public is not expected to be high. Hence, public consultations during implementation will consist of about 5 events, one for each subproject 1 (has 2-3 consultations), 5 and 6 and, 1-2 for all other subprojects. 19. Accordingly, there will be a total of at least 8 well-publicized public consultations, split as 4 prior to and 4 and, 1-2 smaller events (for other subprojects) during the process of project implementation. Additional consultations as required will be planned for by the safeguard team attached to the PMU. Each round of consultation will engage a minimum of 50 direct beneficiaries, a good number of which should be women. There can also be other less formal events such as discussions and meetings with community representatives, ward councillors, etc. The details of such events will be developed at the time of implementation by safeguard staff. 20. The participants for consultations with regard to Sirinumu toe of Dam include 12 Directors of the Sirinumu Development Company138, clan leaders in the area and households from about 10 villages around the reservoir who may have some impacts on them. The affected people belong to about 15 clans. Households from two villages near the dam namely Manamero and Nainumu-2, will be invited to attend the consultation as the impacts on them would be the most. The Kilakila substation and TL will include land owners of Vaga, Iarogaha and Uhadi Iarogaha clans. 21. The consultations for Rouna 1 should include the paramount chief of Omani clan, clan leaders and households from the 10 villages around the area. The consultations will also be platform for raising awareness of, and educate people about, the impacts from burning vegetation
138 Sirinumu Development Company is an entity entrusted with community development in the area. The Company receives a cash grant from PPL on an annual basis.
Final Report | 30 November 2012 Page | 157 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix J - Community Support and Consultation growing on steep slopes. It is therefore important to include representatives of households from and around Rouna 1 where there is extensive burning taking place. 22. Discussions with clan leaders and the consultations undertaken during the project preparation suggest that stakeholders require PPL to consult them and they would be happy to engage with the project, and actively participate in subproject implementation, if they are consulted and are given the opportunity. It is to be noted that the need for consultation with villagers around Sirinumu reservoir is one of the main recommendations of the study on Sirinumu Valley by the National Research Institute. 23. There will likely be only minor adverse environmental impacts from subprojects 2, 3 and 4 and these can be managed and mitigated to insignificant levels. If there are additional impacts from additional activities identified during design, they will be analysed via the process of social and environmental assessment which will include consultations. 24. The type of public consultations and the number of participants are summarised in Table 71. Table 71: Participants and Locations of Consultations by Subproject SP N° Subproject Participants 1 Kilakila substation Affected land owners of Vaga, Iarogaha and Uhadi Iarogaha clans and TL Others i.e. Christian Group, Kilakila Development Association, youth leader, women leader 5 Rouna 1 Omani and Nareme Clan leaders Village leaders Households Others i.e. pastor, youth leader, women leader Households living around Rouna 1 areas 6 Sirinumu SIDCO Directors Clan leaders Households Others, i.e. reps of youth/women/ pastor 7 Other subprojects Community representatives Civil society groups Households
VI. STAKEHOLDER ENGAGEMENT IN ASSESSMENT
25. Several assessments as appropriate will be undertaken to ensure that national and ADB’s safeguards are met. These assessments will be undertaken by the PMU. The assessments will follow work undertaken during project preparation. The purpose of assessment during implementation is to check, verify and confirm information collected during preparation, disclose the finalised/updated documents and ensure they are properly implemented and then monitored. The assessments will produce the up-dated C&PP itself, RP, IEE, GAP and other compliance documents prepared during design phase. 26. In the case of subprojects with resettlement impacts, the RP prepared during PPTA will be updated. For updating the IEEs, consultations will follow the format established during the preparation and can be held in conjunction with those being arranged for the RP and social assessment. The type of respondents for social and environmental assessments and the proposed sample size are summarised in Table 72. Table 72: Details of Stakeholders for Assessments Stakeholder Who & Where Type of Assessment Category HHs with Affected families in Census of all affected land owners along TML and substation resettlement Kilakila village (Vaga clan) Socio-economic survey of affected HHs impacts Affected families near Detailed Measurement survey of all affected land (structures Magi H’way are not affected) FGDs involving affected land owners, one each clan inclusive of gender IEE HHs and Sirinumu (about 10 Meetings and FGDs with leaders and HHs, inclusive of women groups with villages); Rouna (about 20 IEE other impacts villages)
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VII. ROLES AND RESPONSIBILITY
27. The details of affected people and environments by their locations will be identified. Assessments as appropriate will be conducted of the affected parties. The PPL will be responsible for conducting public consultations including their arrangement, inform participants (APs and officials), provide publicity, provide the venue and facilitate the meetings and discussions etc. The PMU’s safeguard team will assist and facilitate the entire process, including but not limited to prepare agenda for the meeting, keep a record, and clarify any relevant matters in keeping with ADB’s policies and guidelines on conducting public consultations. The safeguard team members will also maintain a record of attendance and capture a few photographs of each event for record. The meeting will discuss subproject activities, impacts, mitigation measures and the GRM. 28. A full record on assessment and consultations will be prepared for inclusion in progress reports, updated assessments (RP and IEEs) as well as for future reference. The safeguard team members will also develop and present to PPL for approval all guidelines, questionnaires and check-lists. 29. The government agencies that will be actively engaged in the capacity of resource persons during consultation and their roles are presented in Table 73. Table 73: PPL and Government Agencies and their Role in Consultation Process Agency Participants (suggested) Role IPBC Representative Answer policy questions as project EA PPL Manager, Strategic Main role for public consultation lies with PPL. It Planning; Manager, Land includes: safeguards requirements, consultative process & Community Service and procedures, invite participants (affected people and Division agencies), organise venue, publicity, chair and conduct Safeguards specialists proceedings, answer implementation questions, close the meeting, and disseminate outcome among participants and follow up; closing the consultation includes a summary of recommendations for further action Lands & Physical Deputy Secretary Provide information, clarifications, answer specific Planning (Customary Lands) or questions on customary land matters Department representative Department of Representative(s) from Clarify permit processes, clarify water resources issues, Environment & Environmental Protection publicise assessments and facilitate discussion on Conservation Division assessments and permitting National Capital Deputy City Managers or Advice on relevant processes for acquisition of land and District representative other regulatory matters. Ward councillors will advise Commission (Regulatory & Community and inform all affected people and organisations on an Services), relevant Ward on-going basis councillors Central Province, Administrator (or Advice on land issues relating to Central province Lands & Physical Representative) (Consultations for Sirinumu and Rouna only) Planning Department Provincial Affairs Director or representative Answer questions, follow up matters (Consultations for (LLG) Sirinumu and Rouna only) PMU Safeguard team Present details of subprojects (engineering and safeguard) already completed, potential benefits, impacts and proposed mitigation measures; facilitate consultation process; documentary outcome; photos
VIII. THE BUDGET
30. The budget for the implementation of C&PP excludes salaries of safeguard specialists as they are included either through PPL salaries or as part of the consultants’ costs. The budget includes estimates for vehicle hire, publicity, hire of venue and refreshments. The approximate cost for consultations is estimated as 21,500 kina as presented in Table 74. The cost does not include salaries of safeguard team members and PPL staff as these costs will be included in the overall project budget.
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Table 74: Cost for Implementation of Consultation & Participation Plan Item Unit Cost Item Cost (Kina) Transport 300 kina139 x 25days 7,500 Refreshments for participants140 in public 10 kina x 600 (rounded) 6,000 consultations and FGDs (10 Consultations x 50 people people+7 FGD sessions x 6 participants) Fuel cost Allow 3,000 Newspaper advertisements 7 events x 500 kina 3,500 Miscellaneous (stationery, phone, Internet) 1,500 Total 21,500
IX. TIME-FRAME FOR CONSULTATIONS
31. The proposed timeframe for public consultations and assessments is shown in Table 75. Table 75: Time Plan for Public Consultations in Implementation Phase
Year 1 Year 2 Activity Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Census and assessment of APs with resettlement impacts
Assessment to confirm non- resettlement impacts
Public consultation 1 - Kilakila
Public consultation 2 - Rouna
Public consultation 3 - Sirinumu
Public consultation 4 - Kilakila
Public consultation 5 - Rouna
Public consultation 6 - Sirinumu
2x Consultations & FDG meetings for
all other subprojects
32. The actual time for each consultation depends on the time plan for implementation of each subproject. An up-dated plan will be produced when details of implementation of each subproject is finalised. 33. In addition to formal public consultations described in C&PP, stakeholders including beneficiaries are encouraged to air their concerns and raise issues on an on-going basis via other mechanisms such as GRM, EMP, and GAP and to contact with PMU staff, if required. Staff of safeguard cell will explain these mechanisms to participants at the time of public consultations and assessments for their information and follow up.
139 This is the rate used in the design phase. The actual cost may be cheaper as all cost is provided by PPL. 140 Two public consultations each for Sirinumu, Rouna and Kilakila and 2 more consultations for all other subprojects. Each consultation to include 50 participants, resource persons + APs + facilitators. Each FGD to include a maximum of 6 participants. Rouna will have one FGD with each of the 2 main clans, Sirinumu one, Kilakila three, one each with Vaga, Iarogaha and Uhadi Iarogaha clans, and the 7th FGD with affected parties on any other subproject if required.
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Appendix 1: Format for Newspaper Advertisement
NOTICE
Public Consultation for xxxxxxx (name of subproject)
Notice is hereby provided for the attention of people in and around xxxx for a consultation on the proposed xxxxx activities in respect of xxxxxx. The consultation is an opportunity for concerned communities to understand proposed activities, potential impacts, express their concerns and provide ideas and suggestions to minimize and avoid adverse impacts.
Venue: xxxxx, at xxxx Time: xxxx am to xxxx pm Date: xxx (date) xxx (Month) 2012
Kalip Salo, Manager, Land and Community Services PNG Power Limited Boroko NCD Phone: 72014015
For any questions or clarifications, please contact above.
Xxx (date) xxx Month) 2013
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Appendix 2: Agenda for Public Consultation
Serial N° Time Item Remarks i.e. responsible person 1 9:00 to 9:30 Registration 2 9:30 to 9:45 Introduction 3 9:45 to 9:50 Purpose of consultation 4 9:50 to 10:20 Planned activities 5 9:50 to 10:15 ADB safeguard requirements 6 10:45 to 11:00 Refreshments 7 11:00 to 11:30 Potential issues 8 11:30 to 12:15 Discussion issues/concerns and Participants remedial measures 9 12:15 to 12:30 Conclusions
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Appendix K Gender Action Plan
ADB Linked Document LD11 Gender Action Plan (GAP) follows.
GENDER ACTION PLAN
Components and Performance Targets and Activities Primary Outputs Responsibility Output 1. Hydropower upgrade and rehabilitation (a) upgrade of During design and implementation, all community PMU, CDGS Rouna 1 consultations will have a target of 40% female participation. hydropower plant Encourage the employment of women in labor-based work PMU (6MW), and (at least 20%) and provide necessary institutional support (b) rehabilitation for female labor-based workers such as separate sanitation and upgrade of facilities. Contractors appointed for construction will be Sirinumu Toe-of- informed of the required facilities before bidding. dam hydropower Contractors will be required to pay equal wages to men and PMU plant (1.6MW) women for work of equal value. Women’s wages will be paid directly to them. PMU Construction workers and community members of project PMU, CDGS sites will be provided training on HIV/AIDS issues. Output 2. Upgraded distribution grid (a) extension of Female headed households will be prioritized for PPL, PMU, CDGS the grid to an connection in areas targeted for connection to the grid. estimated Undertake training workshops in newly connected PMU, CDGS additional 3,000 communities (at least 50% female participation) on households, electricity safety, operation of prepayment meters, energy (b) upgrade of the efficiency, and household utility budgeting. existing Undertake training workshops in 5 communities (at least PMU, CDGS distribution grid 50% female participation) on using electricity for increased (11 kV) to an open income generation. loop mesh design During design and implementation, all community PMU, CDGS and, consultations will have a target of 40% female participation. (c) implementation Encourage the employment of women in labor-based work of a loss reduction (at least 20%) and provide necessary institutional support PMU programme. for female labor-based workers such as separate sanitation facilities. Contractors appointed for construction will be informed of the required facilities before bidding. Contractors will be required to pay equal wages to men and PMU women for work of equal value. PMU Women’s wages will be paid directly to them. Output 3. Upgraded substation capacity (a) one new During design and implementation, all community PMU, CDGS Kilakila substation, consultations will have a target of 40% female participation. (b) 6.1km Encourage the employment of women in labor-based work transmission line (at least 20%) and provide necessary institutional support PMU (66kV), and for female labor-based workers such as separate sanitation (c) retrofits to facilities. Contractors appointed for construction will be existing informed of the required facilities before bidding. substations Contractors will be required to pay equal wages to men and PMU women for work of equal value. Women’s wages will be paid directly to them. PMU Output 4. Project Management Unit (PMU) Project Provide gender awareness training to all PMU/project staff. PMU, CDGS management Enhance capacity by PPL to include gender perspective services for into its operations through gender awareness training for PPL, PMU, CDGS efficient and PPL management: at least 50% of PPL management staff (international) effective project
Final Report | 30 November 2012 Page | 163 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix K - GAP implementation. receives gender awareness training by 2016. Includes capacity Provide training on gender awareness and HIV/AIDS for PMU, CDGS development main contractors. PMU, CDGS activities through Establish all project performance indicators disaggregated the design and by sex, collect them regularly, and include them in the supervision baseline, progress, monitoring, and evaluation reports. consultants. Establish a project performance system that includes PMU, CDGS indicators measuring implementation and progress of the gender action plan, together with all indicators in the DMF. Include community development/gender specialist(s) in the PPL, PMU project team who will manage implementation of the gender action plans. Include at least one women member on the grievance redress mechanism committee. PPL, PMU Implementation Arrangements: The Project's GAP will be implemented by the project management unit (PMU) which will hire an international community development/gender specialist in the Project team. PPL will allocate a national specialist to assist on community development and gender issues. The specialists will be responsible for incorporating the GAP into project planning, implementation, and monitoring frameworks, including community consultations, awareness training, and establishment of sex-disaggregated indicators for project performance and monitoring. The PMU will include reporting on progress of GAP activities in quarterly progress reports on overall project activities to the ADB and the Government.
ADB = Asian Development Bank, CDGS = community development/gender specialist, DMF = design and monitoring framework, GAP = gender action plan, PMU = Project Management Unit.
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Appendix L Resettlement Plan
CONTENTS
Land Acquisition / Resettlement Plan follows:
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Land Acquisition/Resettlement Plan
September 2012 [Minor editorial update 30 November 2012]
Papua New Guinea: Port Moresby Power Grid Development Project
Prepared by PNG Power Ltd. for the Asian Development Bank.
Final Report | 30 November 2012 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan
Currency Equivalents (as of 29 August 2012)
Currency unit – Kina (K) K1.00 = $0.4855 $1.00 = K2.0597
Abbreviations
ADB – Asian Development Bank AP – affected people APs – affected persons CC – central land claim CEO – chief executive officer CLO – customary land officer DLO – district land officer EA – executing agency GAP – gender action plan ha – hectare IA – implementation agency ILG – Incorporated Land Group kV – kiloVolt LIR – land investigation report m – meter MOA – memorandum of agreement NCD – national capital district NCDC – National Capital District Commission PLO – provincial lands officer PMU – project management unit PNG – Independent State of Papua New Guinea POMPGD – Port Moresby Power Grid Development Project PPL – PNG Power Limited RP – resettlement plan SPS – safeguard policy statement TB – tuberculosis VG – Valuer General VLGI – Vaga Land Group Incorporation
NOTE
In this report, “$” refers to US dollars
This land acquisition/resettlement plan is a document of the borrower. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. Your attention is directed to the “terms of use” section of this website.
In preparing any country programme or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
Final Report | 30 November 2012 i TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan
CONTENTS
I. EXECUTIVE SUMMARY 1 II. INTRODUCTION 2 III. PROJECT DESCRIPTION 2 IV. SCOPE OF LAND ACQUISITION AND RESETTLEMENT 2 A. Due Diligence on Existing Sites 6 V. SOCIOECONOMIC INFORMATION AND ASSESSMENT OF IMPACTS 7 A. General Socio-economic and Demographic Features of Project Area 7 B. Enumeration of Affected Persons 7 C. Socio-economic Profile of Affected Households 7 D. Likely Impacts of Land Acquisition on Affected Persons 8 E. Indigenous Peoples 9 F. Gender Impacts, Needs and Priorities of Women APs 9 VI. INFORMATION DISCLOSURE, CONSULTATIONS, AND PARTICIPATION 10 A. Project Stakeholders 10 B. Consultation with APs and Communities During Project Preparation 10 C. Arrangements for Consultation During Updating and Implementing RP 11 D. Disclosure of Resettlement Plan 12 VII. GRIEVANCE REDRESS MECHANISM 12 VIII. LEGAL FRAMEWORK 13 IX. ENTITLEMENTS, COMPENSATION AND ASSISTANCE 16 A. Eligibility for Compensation and Other Assistance 16 B. Entitlement Matrix 17 X. INCOME RESTORATION, REHABILITATION AND ASSISTANCE TO VULNERABLE GROUPS 17 XI. RESETTLEMENT BUDGET AND FINANCING PLAN 17 A. Land Acquisition and Compensation Costs 17 B. Payment of Compensation 18 C. Compensation Rates for Calculation of Budget 18 D. Land Compensation Process 18 E. Source of Resettlement Funds 18 XII. INSTITUTIONAL ARRANGEMENTS 18 A. Roles and Responsibilities 18 B. Capacity Building Programme 19 XIII. IMPLEMENTATION SCHEDULE 20 XIV. MONITORING AND REPORTING 20 Appendix 1: PPL Memorandum of Agreement with Vaga ILG 21 Appendix 2: Notice for Public Consultation 26 Appendix 3: Land Investigation Report for Kilakila 27 Appendix 4: Disclosure of Information on Kilakila Land Acquisition 41
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I. EXECUTIVE SUMMARY
1. The Port Moresby Power Grid Development Project is planned for the improvement of power supply in the National Capital District of Papua New Guinea. The project will assist PNG Power Ltd. (PPL) to expand renewable energy generation, connect currently un-served customers and significantly improve the quality of electricity supply. The Project will (i) upgrade and rehabilitate two hydropower plants (Rouna 1 and Sirinumu Toe-of-dam), (ii) extend the grid to approximately 3,000 additional households, including strengthening the distribution network (11kV mesh grid), and (iii) construct a new substation (Kilakila) and upgrade the existing substations. 2. The project does not require relocation of households or businesses. However, it requires the acquisition of a total of 5.47ha of customary land (0.64ha for the new Kilakila substation and about 4.83ha for transmission line). The subject land is covered in scrub with some small bushes. The owners have not used this land for decades as the land is in hilly terrain with minimum capacity for crop production. There are no trees nor does the land produce any other useful or edible products. Annual burn offs affect the existing vegetation which leads to the regeneration of tussock grasses and bushes. 3. The affected people (APs) belong to 3 clans namely, Vaga, Iarogaha and Uhadi Iarogaha. The total numbers of families are 198 with a population of 744 individuals. All members of the first clan (Vaga) are residents of Kilakila village while the latter 2 clans (Iarogaha and Uhadi Iarogaha) are residents of another village called Korobosea. The two pieces of land are registered in 3 Incorporated Land Groups (ILGs).The proposed land for acquisition is not currently utilized by the AP’s for purposes such as growing food. The APs include several who live overseas. Fuelwood is collected from around their resident villages and from other land parcels held by clan members. Studies indicate that the AP’s have sufficient land available nearby for food gardens and to collect fuelwood. Hence, the loss of land earmarked for acquisition for the project does not affect livelihoods, nor does it create any other socio-economic impacts. 4. APs have been consulted and were engaged in assessments during feasibility and preparation of the resettlement plan (RP). PNG Power Limited ( PPL) will further consult with APs and engage them during the process of up-dating the RP once detailed designs are completed. Vaga ILG officials have expressed their support to the project by signing a memorandum of agreement (MOA) to proceed with the acquisition of land in Kilakila village. The PPL is proceeding with signing a MOA with Iarogaha and Uhadi Iarogaha ILG leaders in the second village. They have already expressed their willingness to sell the land so that PPL can proceed with project implementation. The matrix shown below summarises eligibility and entitlements of APs. Entitlement Matrix
Impacts Persons Entitlements Permanent acquisition of land Customary land Customary land owners will be provided with cash owners compensation at replacement cost Temporary use of land Customary land Rent will be negotiated with landowners before owners commencing to be paid for the entire period of use Health and employment All APs Bid documents will include HIV/AIDS awareness and prevention programmes in construction camps and surrounding communities Unforeseen or unintended Concerned APs Determined as per PPL’s policies and ADB's impacts safeguard policy
5. This resettlement plan (RP) includes a grievance redress mechanism and a monitoring and reporting activity. PPL will recruit adequate and competent staff including 2 social development specialists in the Project Management Unit (PMU) as key-persons responsible for RP implementation. PPL will provide adequate resources to implement the RP including making arrangements for the payment of direct land acquisition costs, staff and consultant salaries and other expenses. A PMU will be established for project implementation that will conduct regular monitoring and reporting to the execution agency as well as the Asian Development Bank (ADB). A consultation and participation plan is included in the Project Administration Manual.
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II. INTRODUCTION
6. This land acquisition/resettlement plan (RP) describes principles, entitlements, procedures, and implementation arrangements with regard to acquisition of land for the Port Moresby Power Grid Development Project. Out of the 6 subprojects that make up the project, land acquisition is relevant only in the case of Kilakila subproject, which requires some customary land for the construction of Transmission Lines (TL) and a power substation. Accordingly, this RP has been prepared for the project covering the impacts under the Kilakila subproject. The RP is aligned with relevant laws and regulations of the Independent State of Papua New Guinea (PNG) and the guidelines of Safeguard Policy Statement (2009) of the ADB. Where PNG laws have differences with ADB policy, the latter will be applied. The footprint of the piece of land required to be acquired will be confirmed at the time of the detailed project design at which time further data will be collected and the RP will be up-dated.
III. PROJECT DESCRIPTION
7. The purpose of the project is to improve the reliability and capacity of Port Moresby power system to facilitate greater access to electric power by households, businesses and industries and thereby promote socio-economic development. In order that the power grid can be developed as envisaged, six subprojects have been planned. The combined effort of all of them is to stabilise current power supply, minimise interruptions including black-outs, frequent shut-downs and surges, improve the delivery of quality power through the installation of reliability enhancing equipment and the rehabilitation of power transmission and distribution system and increase energy access. The project will also support development of renewable power generation through the rehabilitation of Sirinumu hydro-power plant, and upgrading of the existing Rouna 1 hydropower plant. The upgrade and rehabilitation of generator and power house of existing Sirinumu and Rouna 1 hydro- plants will improve efficiency of power generation. The measures proposed to improve power distribution include construction of new substation, rehabilitation of distribution network, placement of capacitors, installation of equipment, processes and methods for power loss reduction. The execution agency (EA) for the project is Independent Public Business Corporation (IPBC) while PNG Power Ltd. (PPL) is the Implementing Agency (IA).
IV. SCOPE OF LAND ACQUISITION AND RESETTLEMENT
8. A description of activities planned and the need for acquisition of land is summarised in Table 1. Table 1: Subproject Activities and Land Acquisition Impacts Subproject Activity Description Need for Land Current Land Ownership Acquisition 1. Rouna 1hydropower Dismantling of existing power None Confined to government plant station and installation of turbines land. Formerly customary and other fixtures. All activities land previously acquired by confined to existing facility located Government on government land. 2. Refurbishment of Refurbishment of turbines, None. Confined to government Sirinumu hydro-plant penstock and generators. All land. Formerly customary activities confined within existing land previously acquired by facility Government 3.Up-grade 11 kV Installation of new switching gear None. Confined to existing area system to open loop and on power poles. Extension of grid under PPL ownership grid extension to 3,000 households 4. Loss reduction Installation of electrical switch None. All work is confined to program gear and stations and up-grading existing public area and/or of distribution system by new under PPL ownership cables either on existing poles or under ground. 5. Kiliakila substation Construction of a new substation 0.64 ha for substation The entire land for the and transmission line at kilakila and 6.1 km transmission and about 4.83 ha for power line easement and line (including 20 towers) transmission line (total substation is customarily area of 5.47 ha) will owned have to be acquired
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan
Subproject Activity Description Need for Land Current Land Ownership Acquisition 6. Substation capacitors Installation of capacitors at None. Within already fully- existing substations. enclosed existing substations and other public area easements
9. As stated above, land acquisition is expected only in the case of the Kilakila substation subproject. Accordingly, this RP has been developed focusing on Kilakila subproject to manage the project’s land acquisition impacts. The project has followed appropriate engineering designs to minimise land acquisition and resettlement impacts. Among methods adopted to minimise land acquisition are to maximise the use of existing substations and to restrict the number of new substations to one, identifying a new transmission line alignment across the land owned by three clans instead of using a more direct route which would require the acquisition of several land parcels held by many people and clans, follow the new distribution lines along road easements rather than across private land, fix all switch gear to power poles or within properties owned by PPL and accommodate switching stations and capacitors within substations or on power poles. 10. As the project is only at a feasibility stage, the exact extent of the foot print that will be required for acquisition is currently not available. The relevant data will be collected including a detailed land investigation report for the transmission line that will be prepared for inclusion in the updated RP at the time of detailed design. 11. After analysis of currently available information, the approximate land area to be acquired has been determined. The area is in 2 separate land blocks owned by 3 clans. The first block is land situated in the site of substation and transmission is registered in the Vaga Land Group Incorporation (VLGI), known as Portion CC.45. The area required to be acquired is 4.91 ha (4.27 for transmission line + 0.64 for substation) and belongs to 161 families. The total number of APs who own this land is 513. 12. The second block of land known as CC.79 is registered in two ILGs, one named Iarogha originally owned by 5 Head families while the second, Uhadi Iarogha clan originally owned by another 5 Head families. Each of the 5 Head families has subsequently been extended. Accordingly, the 5 Head families of Iarogaha now consist of 20 families whereas the 5 Uhadi Iarogaha families have increased to 17 families. The extent of the second block proposed for acquisition is about 0.56 ha which is jointly owned by a total of 37 (20+17=37) families. The total AP population is 231. 13. The larogha clan owns the land known as CC.79 where the tower 56 is located. The land owners claim that this portion was not acquired from them at the time PPL built the existing TL on their land to facilitate power transmission from Rouna hydro-power station to Boroko substation within the city. It is planned to build new towers on their land as well as towers on Uhadi Iarogaha land to connect TL from tower 56 to the first new tower (approximately 15 new towers) to be built on Vaga land. The PPL is in the process of writing a new MOA to purchase an area of 0.56 ha of land (which will also address the issue of compensation to the existing towers built on their land). The agreement reached between PPL and clan leader was witnessed by the study team on two occasions namely, 23rd and 28th of August 2012. A formal MOA will be signed followed by land investigation in the near future. 14. Accordingly, the entire area of 5.47 ha (both blocks) of land proposed for acquisition is owned by 744 APs giving the average land holding size of 0.007 ha per AP. Table 2: Land Acquisition Summary Reference Proposed Infrastructure Clans Proposed Land Affected Acquisition (ha) Persons CC.45 Kilakila substation and 6.1 Vaga Land Group 4.91 513 km transmission line Incorporation CC.79 0.80 km transmission line Iarogha and Uhadi 0.56 231 Iarogaha Total 5.47 744 Source: PPTA Studies (2012)
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan
15. Maps 1 and 2 show locations of land under the ownership of two villages described above.The transmission tower 56 is located on Iarogaha land. The new transmission line will begin from tower 56 (Iarogaha clan land) and is expected to run parallel to Magi Highway on Iarogaha Uhadi land. The TL will finally join towers erected on Vaga clan land until reaching its destination at the substation. 16. There are no houses or other structures on the proposed land for acquisition. Hence, the acquisition of land will not involve relocation of people and/or businesses. The majority of the land is in the hilly areas (except for substation land) where the vegetation is scrub with occasional bushes. The land earmarked for the substation was used temporarily for crops by other people, but they had already left the site by the time of PPTA. Land is entirely fallow (except for substation) and difficult to cultivate due to not having water and difficult access. Assessments indicate that the last time owners used this land for garden crops was in the late 1960s. Occasionally, people may collect fuelwood from the proposed project area (which will not be impacted by project as they can continue collecting fuelwood beneath transmission line) but this is not done by owners. Land owners do not obtain any income, food, livelihood item, medicine or any other product from the land. It is subject to annual burning. Map 1: Location of Kilakila Substation, Transmission Line and Villages
Korobosia village land
Kirakira village
Substation Transmission Line
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan
Map 2: Location of Affected Land of Iarogaha ILG
17. The subject land (2 blocks) is jointly held by all clan members without any single person being able to claim ownership to any portion of the land. This is done to keep the entire group together which is the customary practice of the clan. The APs do not currently use the land proposed for acquisition. Several APs are living overseas. The AP’s do not grow food on the proposed land for acquisition. Their food is grown in other lands or bought in the market as this is an urban area. Fuelwood is collected from around their resident villages and from other land parcels held by clan members. All APs stated during socio-economic survey that they have sufficient land available for them both in nearby locations as well as in elsewhere to continue their food gardens and to collect fuelwood. The APs of land block known as CC.45 have ownership to 4 other land held by the same clan while APs of CC.79 own 6 other areas. Hence, the loss of land earmarked for acquisition for the project does not have livelihood or any other socio-economic impacts. 18. When asked about the potential future use of the land, the view of clan leaders is that they are waiting for other investors to come in and either lease out or sell their land for commercial activities. The leaders further said that there are several investment opportunities in the NCD. They are looking forward to receiving revenue from their land and investing the proceeds. The Vaga clan has already sold part of their land for two commercial ventures. It is to be noted that land acquired by PPL permits some limited access to APs. They are allowed to use the land for their activities such as fuelwood gathering, according to PPL’s policy. Land beneath transmission lines can also be used to plant annual crops if APs wanted. These opportunities can cushion the impact, if any, of land acquisition under the project. 19. Given the total number of 744 APs , the impacted area per AP is 0.007 ha. In depth interviews with clan leaders suggest that the total area (affected + other lands) held per individual is about 3 ha. Hence, the total area of land held by the 744 APs is about 2,230 ha. Accordingly, the area lost per AP becomes 0.15% of all land held by each. Therefore, land acquisition and resettlement impacts of the subproject are insignificant and classified as Category B following ADB’s SPS.
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A. Due Diligence on Existing Sites
20. Rouna 1. The Rouna 1 hydropower plant to be refurbished by the project is an existing facility built in 1960s. The Rouna facility together with Rouna 1,2,3 and 4 occupy a land area of 2,241 ha which was previously acquired by the government from customary landowners. 21. The land where Rouna hydro-facilities are located was formerly owned by four clans, namely Omani, Nareme, Nadeka and Ianari. The total land area was purchased by the State between 1890 and 1900. While the government has documentary evidence suggesting that this land is now under the full ownership of the State, former land owners have disputed the ownership, boundary and size of the acquired land.1 The National Land Commission (NLC) inquired into these disputes in 2010 and 2011. The NLC concluded that the governement owns the land, but it also provided a settlement payment (K354,900) to the four clans. The NLC also confirmed that the boundary dipute has been resolved. However, the payment order by NLC was not settled on time by the government and this agitated the former landowners resulting in submition of a petition on 2 April 2012 to the Prime Minister demanding a sum of about K291 million and closure of the powerhouse on 21 June 2012. The government appointed a team to resolve the dispute and it was agreed between the parties on 22 June 2012 that a total of K500,000 (more than the NLC award) will be provided to the landowners. The agreed amount has been paid already. 22. The government has received a legal opinion from the Department of Justice and Attorney General, who has reconfirmed that land under the command of the Rouna complex is now fully owned by the State and that there are no outstanding land ownership issues. The Department of Justice and Attorney General has stated that if the former landowners still insist, they should pursue their claims through the court of law to prove the claim. The Department of Justice and Attorney Genernal has also advised that the government need to design a development package for assistance to former landowners as an act of good will. 23. The government is working on a development package that will include various services to the local people. For implementation of the package, the government plans to establish a Rouna Development Company (RDC) along the lines of the Sirinumu Development Company (SIDCO). 24. Majority of the local participants in the public consultation held on 21st August 2012 with Rouna land owners also demanded the local services from the government. While one clan leader at the consultation said that the land is owned by them and the State should pay them compensation for the use of their land, there were several other clan members, including women who expressed that they were interested more on development benefits than compensation money. All they wanted was that the government provide important services such as road rehabilitation, provision of water, school rehabilitation, etc. for their benefit.2 After this discussion, neither the leader who wanted paid compensation nor other clan leaders and/or members raised any further concern on land ownership or compensation for Rouna 1 subproject. 25. Sirinumu. The land area occupied by the Sirinumu hydro-power plant built in 1960s is about 2ha. This hydro-power station is also located on land which was previously acquired from customary landowners. The former customary landowners were compensated for their land between 1961 and 1962. There are no issues or concerns of land ownership by former land owners. 26. The land under Sirinumu reservoir and head works was purchased by the Colonial Government between 1961 and 1962. The government subsequently formed the Sirinumu Development Company (comprizing local clan leaders) and has been providing a development package to the Company to be utilised for local community development activities. The former land
1 The land was purchased by the Colonial Administrators between 1890 and 1900 from forefathers of the people who now claim ownership to the subject land. The original land purchase documents have been either misplaced by former land owners or copies may not have been delivered to them at that time. There is no way to verify the signatures of their ancestors who signed the sale documents at that time. This may be the reason for the present generation to believe that the land is still owned by them. 2 PPL has responded positively to demands for local/community development activities and advised local clan leaders to form ILG(s) to partner with PPL and the government for such initiatives.
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan owners in Sirinumu area have not made any claim for the ownership of this land. The leaders and clan members who attended the public consultation held on 10th August 2012 did not submit any claim for the ownership of this land or compensation. However, the majority requested that the government should seal the national road leading to the Sirinumu dam in addition to the continuation of current develoopment benifits. PPL has agreed that the current development assistance will be continued. 27. Other subprojects. Other subprojects do not involve any land acquisition as all proposed activities will be confined either to public road easements or to existing substations that are already owned by PPL. 28. The detailed assessment on existing sites is documented in a separate Involuntary Resettlement Due Diligence report.
V. SOCIOECONOMIC INFORMATION AND ASSESSMENT OF IMPACTS
A. General Socio-economic and Demographic Features of Project Area
29. The Kilakila substation project is located in the NCD, whose population according to the 2011 Census is 318,128. The area of NCD is 260 km2. The land planned for acquisition is located in National Capital District Commission (NCDC)’s Ward 3 (Kilakila village, Vaga ILG) and Ward 6 (6-mile, Iarogaha and Uhadi Iarogaha ILGs) in Port Moresby. The transmission line area is situated in very rugged terrain and the land is not presently used for any productive purpose. As the land is poorly supplied by any services the owners of the two blocks of land reside in the villages within NCD. 30. The Kilakila village is located about two kilometres from the site of the proposed substation. Whereas the Korobosea village is located about five km away from their land which is expected to be acquired for the project. Both villages are located in Motu Koita Assembly area within the NCD. The population in the project area comprises of mainly urban people who are primarily engaged in different type of employment. In addition, they are also engaged in a large number of small-scale activities such as selling of various items to generate income. All owners of subject land are descendants of Koiari people.
B. Enumeration of Affected Persons
31. There are an estimated 198 extended families and a total population of 744 of affected persons (APs), comprising of 432 children and 312 adults. One hundred and eighty five households are headed by men while thirteen are headed by a woman (widow). Table 3 summarises APs population by clan. Studies revealed that APs have lost their sub-clan identify which is expected given the urban lifestyle of the population. Table 3: Clan and Population in Area Affected by Land Acquisition Item Clan Families Population TL & substation, CC.45 Vaga 161 513 TL, CC.79 Iarogaha 20 99 Uhadi Iarogaha 17 132 Totals 198 744 Source: PPTA Studies
C. Socio-economic Profile of Affected Households
32. Households: The average household size for the APs is 6.24. All of them have extended families, ranging from 2 to 5. 33. Language: The main language spoken by all APs is Motu though English is also widely spoken. Knowledge of Pidgin is weak. As seen in Table 4, English is the main language in Kilakila while the majority in Korobosea are fluent in Pidgin. The reasons are inter-marriages with other clans who do not speak Motu and the urban living where most communications are done in English. All APs at the public consultation requested that presentations are conducted in English.
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Table 4: Language Proficiency by Resident Villages of Affected People (% APs) Village English Pidgin Motu Kilakila 100 57 91 Korobosea 80 83 76 All 88 72 82 Source: PPTA Studies (2012)
34. Education: The majority (50%) of household heads are educated to a primary level while 39% have been educated to a high school level. l. All women-headed households have received primary education only. 35. Housing: Seventy six per cent of APs live in permanent houses while the remainder are in impoverished houses. All interviewed APs or their family members own the houses they live in. 36. Water supply: Both villages have water service provided by Eda Ranu. All APs are connected to water where the supply is regular and continuous. As in several other parts of NCD, none of them pay water charges. 37. Power: Eighty four per cent of APs have electric power supplied by PPL. The remainder (16%) do not have power. They use candles and kerosene lamps for lighting. All the APs who do not have electricity expressed their willingness to connect to power. None of the APs use electricity for cooking and other income generation activities. Cooking and water boiling is done using fuelwood which is collected from their homegardens and other customary lands. 38. Livelihoods: The main source of livelihood for 88% households is employment, either in government or private establishments. Several households were reported to be engaged in providing services such as transport and undertaking contracts for government and private companies. This is expected given the urban lifestyle of the APs. Less than 5 % households reported that produce from their gardens was entirely for home consumption. None of them derive any income from farming or cash crops production although some households reported sale of animals for buyers coming to their villages. A few APs in Kilakila village reported fishing, mainly for personal consumption. About 50% households have reported income from their home-based markets, an activity popular among women and girls. 39. Income and Expenditure: The main income sources are employment, contracts and other casual work. Many of the AP households have the informal market which brings in a regular flow of cash on a daily basis. There are 16 employees for every 10 households. Based on household survey data, the average annual household income is estimated as K18,733. All AP households purchase basic food, food ingredients and have reported social expenses of which their donations to churches are significant. The clothing is mainly simple and often consists of recycled and/or second-hand clothes. The annual household expenditure is K14,245. Some households have reported savings to be used for house building and to finance family feasts. There are no households amongst the APs who are in debt. The social network support APs both in cash, food and other necessities if required. 40. Access to Health: There are 3 disabled persons among the APs. The most common and recent sickness are scabies, malaria , flu and TB. The APs in Korobosea village use either the Port Moresby General Hospital or the urban government clinic at 3-mile while APs in Kilakila use Kilakila government clinic. They have to travel 1-2 km to access health service. 41. Access to Transportation: The majority of APs rely on public motor vehicle (PMV) services while several of them use their clan member’s private vehicles for transport.
D. Likely Impacts of Land Acquisition on Affected Persons
42. As described earlier, the land use in the affected area is scrub vegetation with scattered bushes. The area catches fire annually and the entire vegetation is completely burnt down every year. The continuation of this process has left the area covered in tussock grass and other hardy vegetation. It does not have water and other facilities to grow crops. Hence, there is no risk of loss of any crop production or/animal grazing land. There is also no impact on the level of employment
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan or income as the land is not used for any commercial or small scale activities. The only way the affected land supports livelihood is by the way of hunting which was reported as being infrequent. 43. All APs have land in other areas. The clan leaders revealed the average size of the land held per AP (without the affected land) of about 3 ha. This reveals that the question of becoming landless after acquisition of the subject land does not arise. 44. The proportion of APs using their land elsewhere for crops production is about 5%. AP households have home gardens where tree crops, cassava, fruits, coconut and some vegetables are grown. 45. About 60% households possess dogs, 30% pigs and only 3% chickens. 43% of households have none. The large numbers of houses that own dogs suggest the prevalence of theft and other anti-social activities in these villages. The small proportion of houses conducting animal husbandry is expected due to the urban location of the APs. 46. Negative impacts on the social structure of the APs is not expected. The reasons are that land acquisition will not make APs landless. None of the APs reside in the affected land so the need for relocation does not arise. There is no expected adverse impact on cultural identitiy or heritage of the affected people resulting from land acquisition as all of them have land within the village. There are no sacred sites including burial ground in the land earmarked for acquisition. 47. The clan leaders and ILG chief executives have disclosed to the survey team that they are hoping either to lease or sell their unproductive and unusable land for commercial purposes such as warehouses, pipeline easements, etc. The two groups have already disposed some of their land for commercial activities.
E. Indigenous Peoples
48. The acquisition of customary land is not expected to impact the livelihoods, income and cultural identity of landowners who can be described as descendants of Koiari people. The present population has intermarried with different clans and people from other areas. The APs are able to continue with their land-based customary practices and livelihoods as all of them have similar lands elsewhere. All customary landowners broadly support the sale of their land for power grid development and the construction of the substation as the land does not have any alternative use. In the interim, they will receive cash for the land taken over by PPL. They are hoping to sell additional unproductive land to future investors as this will enable them to generate cash for investment. The acquisition of this land will not either negatively or positively affect their customs, cultural integrity, livelihoods or income.
F. Gender Impacts, Needs and Priorities of Women APs
49. The gender issues among APs are not different in the project area from the overall situation in the country, where women’s position is disadvantaged due to their lower social status affecting their access to basic services (i.e. health services and education), limited participation in decision making and their income earning capacity. Firewood is the major source of cooking fuel for almost all APs, women and children usually collect fuelwood for cooking, a time consuming and back breaking task. Women in the project area travel around their villages to collect fuelwood. They need assistance during the project to increase their participation and engagement in the project design and implementation. The RP will take into account these needs and ensure that women are continuously consulted throughout the project cycle. 50. The main request of women is to provide quality power to their homes that according to their perceptions would add light to their life. The few households that do not have power at present are eager to get connected. The use of electricity for lighting is likely to reduce women’s drudgery. The socio-economic assessment reveals following benefits for women APs: (i) improved living standards brought about by improved lighting and reduced dependence on kerosene lamps, (ii) improved household (i.e. cooking) facilities, (iii) improved access to information technology (i.e. cell phone charging) among others, (iv) enhanced environment for students in high school. The reduced household expenditure on costly and inefficient kerosene lamps may allow the purchase of other non-energy items.
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan
VI. INFORMATION DISCLOSURE, CONSULTATIONS, AND PARTICIPATION
A. Project Stakeholders
51. The primary stakeholders for the subproject are the affected households. They will have restricted access to a small portion of their land. On the positive side, they will all have access to quality power supply with reduced shut-downs, black-outs and low-voltage problems. The second group includes households in Kilakila and Korobosea villages that are not affected by land acquisition. They will have access to an improved power supply as in the case of APs. The final stakeholder category is the provincial and national government agencies including PPL. All of them will be involved in the acquisition of land, valuation, survey, land investigation and in the payment of compensation for land.
B. Consultation with APs and Communities During Project Preparation
52. PPL has consulted APs and other stakeholders during project preparation in several ways, including (i) the socio-economic assessment and inventory of losses; (ii) community meetings; (iii) focus group discussions with clan leaders, households and women groups; (iv) group meetings; (v) public consultations; and (vi) observations. The affected clan leaders have expressed their support to the project through signing of MOA with PPL for the sale of land for the construction of transmission line and substation (Appendix 1). They have agreed to cooperate with the land survey, investigations and valuation officials in their area. They cooperated fully with the survey team during the socio-economic assessments. Table 5 summarises consultations and assessments that were undertaken in their villages. Table 5: Consultations and Assessments in Affected Villages Date Activity APs / Representatives Client/PPTA Team March Land survey and investigation; Actg Chairman & Customary Land Officer, valuation Secretary, Vaga ILG Surveyor, LMCS1 member 15th March Agreement written between ILG officials PPL Land Management team 2011 ILG Vaga and PPL for the sale of land cc.45 19th July Preliminary discussion to find Actg Chairman & Manager, LMCS & ISGS2 2012 out information on ILG, people, Secretary Vaga ILG land and livelihoods 30th July Genealogy and Identify Aps Secretary, Vaga ILG Manager, LMCS & ISGS 2012 2nd August Identify affected land & Councillor/family Head Senior Lands Officer, Motu 2012 preliminary investigation to of Korobosea village Koita Assembly; Manager, identify land owners LMCS; ISGS 15th August Identify land owners; 2 clan leaders, 1 family Manager, LMCS; ISGS 2012 preliminary discussion with head and 2 land owners clan leaders 21st August Further negotiation of Secretary, Vaga ILG Manager, LMCS; ISGS 2012 land/access for socio- economic assessment 23rd August Collected genealogy, checked Chairman, Secretary, Manager & Senior Staff 2012 & verified, discussion on future Treasurer, Executive of Member, LMCS; Safeguard activities including Vaga ILG; Specialist, ADB Manila; ISGS assessments AND to identify Clan leaders / ILG family details and genealogy members of Iarogaha 24th August Public consultation All executives of Vaga Director, PM/NEC; Manager & 2012 ILG; 32 Aps staff, LMCS; ADB staff; PPTA safeguard team 26th August Socio-economic assessment Vaga ILG officials; 20 Manager, LMCS; ISGS, PPTA 2012 APs field staff 28th August Socio-economic assessment Iarogaha and Uhadi Manager, LMCS; ISGS, PPTA 2012 Iarogaha ILG officials field staff 1Land Management & Community Services (LMCS), PPL 2International Social & Gender Specialist (ISGS)
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53. There was a well-publicised and well-informed public consultation conducted on 24th August 2012 to present project details, elaborate on impacts and to seek their feedback on mitigation and other aspects of project design (Appendix 2). In addition, there has been several other contacts and meetings held between the APs and PPTA team/representatives from PPL between July – August 2012 in Kilakila and Korobosea villages. The objective of these meetings were to (i) disseminate information on scope of the proposed project; (ii) identify land users and landowners of the proposed site; and (iii) discuss information on land acquisition procedures under the relevant Acts that will guide land acquisition and compensation process for the subproject. At the conclusion of the public consultation, the memorandum of agreement (MOA) between the landowners and PPL was signed and the cheque of K150,000 for part of the remaining portion was presented to the Vaga ILG. 54. The major issues and concerns raised by the APs and agreements reached during the consultation are summarised below: Executives of Vaga and all APs present agreed to proceed with the sale of the portion of land to PPL Executives agreed to cooperate with the social assessment team All participants appreciated the consultation and expressed their willingness to participate in future events Participants expressed their interest in providing security to the new substation and to seek employment in unskilled work in relation to maintenance of the transmission line. Participants look forward to the remaining portion as the replacement price for their land. PPL/LMCS Manager replied in the affirmative and that the remaining portion will be delivered in due course Health and safety issues of electric transmission were raised by participants. Response provided by PPL staff. Participants requested that construction staff be screened for HIV/AIDS before entering site Several environmental concerns were raised and discussed. 55. Some concerns around health and safety issues have been also raised by the community groups. The danger of electric fires and electrocution were their main concerns. The surveys and assessments revealed that there is a high awareness about HIV/AIDS amongst APs. The women participants of Kilakila requested that construction workers be tested and cleared for HIV/AIDS before working in the project site. 56. The National Capital District Commission (NCDC)’s Ward Councillors and officials of community and social services were consulted in the second week of August 2012 to discuss the project’s potential community and gender issues. The NCDC relevant staff will cooperate in meeting, discussions and awareness raising events during project implementation. Their participation is critical to win the confidence of residents and work in support of the project. Consultations were also conducted with churches which will be continued by PPL during project implementation. PPL will also coordinate with Ward Development Committees and Community Development Committees established within LLGs in the NCD.
C. Arrangements for Consultation During Updating and Implementing RP
57. The PPL will organise consultations with affected two villages during project implementation. Participants will include traditional and clan leaders, ward councillors and APs, and all other interested members of the community. Separate meetings will also be organised with women to continue to understand and discuss their preferences and concerns at that stage. PPL will be joined during meetings by the Provincial Lands Officer (PLO) and/or District Lands Officer (DLO) and representatives of the Provincial and District Administrations, office of the Valuer General, and LLG Ward Councillors. PPL will present the scope of subproject works. In the presence of the landowners, PPL will confirm the affected land; the boundaries of parcels will be marked and recorded.
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan
58. A combined CPP incorporating both social and environmental issues for implementation phase has been prepared and attached in the PAM. 59. PPL will continue discussions with village leaders and affected landowners to up date socio-economic information in order to up-date the RP. 60. PPL will also inform village leaders and affected landowners about the policies and procedures regarding compensation for land. In addition, PPL will inform the community regarding when and how compensation will be paid to eligible APs. 61. PPL together with Customary Lands Officer (CLO) will consult with each of the affected landowners of Korobosea village during land investigation and update relevant information about the affected people and inventory of losses. The land investigation report (LIR) will include signatures of APs witnessed by village leader(s) and LLG Ward Councillor(s). The land investigation report for Kilakila has already been completed and signed off (Appendix 3). 62. Before the completion of the updated RP, PPL will conduct a public meeting and/or provide information in the local language to village leaders and APs summarising the information on affected assets, the compensation rates and entitlements, schedule of compensation payment and monitoring procedures.
D. Disclosure of Resettlement Plan
63. In compliance with ADB requirements, PPL will publicly disclose both draft and final RP in English language which is understood3 by APs. In case of any change in the subproject alignment or location, the RP will be updated and disclosed to the APs. An RP information booklet will be made available in English, the official government language in Papua New Guinea, in an accessible public location. A summary brochure has been prepared for distribution in the project area (Appendix 4). The draft and final RP will be also disclosed on the ADB website upon submission by the PPL.
VII. GRIEVANCE REDRESS MECHANISM
64. A grievance redress mechanism will be established to receive and address project related concerns and to resolve land related disputes that may arise during implementation. APs will be informed by PPL, via methods as appropriate, about the grievance redress mechanism and methods of making use of the same. Other than disputes relating to land ownership rights that will be undertaken by the court of law, most grievances related to compensation calculation and disbursement, and other assistance are expected to be resolved at the PMU level. The community- based and culturally appropriate disputes resolution methods that are in place will be made use of to resolve concerns of APs. For this purpose, executives of three ILGs and ward councillors will be thoroughly briefed by PMU staff about project activities, key-contacts and other relevant information. 65. APs are encouraged to resolve their disputes and grievances at the local level where clan leaders, ward councillors and village magistrates will have an important role. This is the first level available for APs to resolve disputes, especially land disputes other than ownership matters. The community leaders will be requested by PMU to keep a record of all disputes submitted to them by APs for reporting. 66. The second level of disputes resolution is PMU where aggrieved persons are requested to lodge a project-related complaint. The safeguard staff and consultants attached to PMU will assist APs in registering their complaints. The PMU project manager will consider the complaint and within one week will convey a decision to the APs. The safeguard staff as well as local government officials will assist the project manager in reviewing and addressing the complaint. The safeguard team will also facilitate communication between APs and the PMU in this process. If the APs are not satisfied with the PMU’s decision, they may then take the grievance to the Chief Executive Officer (CEO) of the PPL. The CEO has two weeks to consider the complaint and following this
3 All APs speak and understand English. The public consultation was held in English at the request of clan leaders and APs.
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan
(s)he will resolve the complaint. Should APs are not satisfied with the decision of the CEO, they may take the grievance to the PNG judicial system. 67. All non-ownership related land disputes will be resolved by the village mediation process or by village courts. Any matter relating to land ownership will be taken to the District Land Court under the provisions of the Land Disputes Settlement Act (2000) which establishes legal procedures for resolution of disputes on customary land. The ILGs are responsible for dealing with disputes within the group. External mediators will facilitate resolution in case disputes are between different clans or ILGs. 68. An initial step will be for the PMU in coordination with CLO to facilitate procedures to resolve land disputes based on a process of mediation. As required, the participation of appointed and traditional leaders will be encouraged to achieve satisfactory resolution of issues at the local level. If that fails, procedures as set out in the Land Disputes Settlement Act (2000) will be followed. The Act promotes a process for resolution of land disputes through (i) mediation, followed by (ii) appeal to the designated courts. The mediation process is based on the principles of traditional dispute settlement. The steps in the dispute resolution process include: Local Land Mediation: The CLO brings together the disputing parties with the mediator. If this fails, the matter can be referred to the Local Land Court. Local Land Court: The case is heard before the Local Court Magistrate for determination. If the litigants are not successful, they may appeal to NCD land court. 69. In the event of land-related grievances that cannot be resolved through mediation, PPL in consultation with CLO will hold the compensation amounts until the case is settled in courts, after which compensation will be paid in full, in accordance with the entitlements of the affected person. 70. The GRM established for RP implementation is graphically shown in Figure 1. Figure 1: Grievance Redress Flow Chart
AFFECTED PERSON
GRIEVANCE
COMMUNITY LEADERS REDRESSED
UNRESOLVED
PMU / SO REDRESSED
UNRESOLVED
CEO/PPL REDRESSED
UNRESOLVED
GRIEVANCE COURTS REDRESSED
VIII. LEGAL FRAMEWORK
71. The policy framework and resettlement entitlements are based on the laws and regulations of the government and the ADB's safeguard polity. The principal PNG laws include: (i) the 1975
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Constitution; (ii) the 1996 Land Act; (iii) Land Groups Incorporation Act (1974); (iv) Land Groups Incorporation Amendment Act 2009; (v) the 2000 Land Disputes Settlement Act; and (vi) Voluntary Customary Land Registration Act 2009. The relevant ADB policies include Safeguard Policy Statement (2009) and Gender and Development Policy (1998). 72. The PNG Constitution adopts customary practice as part of the underlying law of the country and recognises the property rights attached to customary land. According to the law, customary practice and tradition comprise the informal rules, rights and obligations pertaining to an individual or group. Customary practice is recognised by court where it is not inconsistent with written law. The Constitution also guarantees the right of the citizens to protection from unjust deprivation of property. No land or interest in land may be acquired compulsorily by the government except as it is required for public purposes or other justifiable reasons. In the event of expropriation of land, just compensation must be made by the expropriating authority. 73. The Land Act (1996) deals with ownership and use rights of customary land. It also sets out the procedures for the government to acquire customary land required for public purposes. Based on the Land Act 1996, the PPL follows the following procedures for acquisition of land for its projects:4 The PPL employs private surveyors5 to determine boundaries, location, size and area of the land to be acquired, who works with ILG staff. The surveyor in consultation with land owners determines the boundary and establish peg marks on the ground. After the completion of the survey, it is submitted for the approval and registration by the Surveyor General; The PPL requests the Department of Land and Physical Planning (DLPP) to conduct land investigation for acquisition. The work is implemented by the staff of district’s Land Administration of the Central Province. The CLO is also involved in the process; The District Land Officer (DLO) in the presence of ILG officials conducts the land investigation and prepares a Land Investigation Report (LIR) including ownership genealogy, rights and interests held in the land; and, estimated value of improvements to land in consultation with the landowners and relevant government offices; The PPL employs a private valuer6 to determine the replacement cost of the land; Using the land value determined by the valuer as the basis, PPL in the presence of CLO conducts negotiation with the Executives of ILGs. Once an agreement is reached, it is recorded and signed by ILG officials, CLO and the PPL before presenting to DL&PP; The LIR is submitted to the DL&PP together with all other documents for checking, registration and the issuance of Native Land Number; When the process is completed and the land is transferred by DL&PP, PPL receives the certified title; Once the purchase price is agreed, PPL raises cheques and prepares purchase documents. The signed documents and cheques in the name of the relevant ILG are presented to the Chairman of ILGs. 74. The Land Groups Incorporation Act (1974) recognises the corporate nature of customary groups, which can register as an Incorporated Land Group (ILG) with the Registrar of Incorporated Land Groups. Once registered, an ILG may acquire, hold and dispose of customary land, enter into agreements for its use and management, and distribute any product or profits from the land. This
4 Most of these procedures have been completed and a Land Investigation Report (LIR) prepared for Kilakila land held by Vaga Clan (Appendix 4). Similar procedures will be followed for the acquisition of land held by Iarogaha and Uhadi Iarogaha Clans. 5 This process is adopted to fast-track land survey process. PPL’s experience is that it takes as many as 2-3 years if land survey is to be undertaken by government surveyors. 6 The engagement of a private valuer is done to fast-track the process. The fact that Government valuers are in short- supply takes a much longer period of time to complete the process. All private valuers eligible to undertake this task are members of the Valuation Board of PNG
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Act has been established to encourage greater participation by local people in the national economy through the utilisation of their land with greater certainty of title. The Act attempted to achieve this through the legal recognition of the corporate status of customary groups. The important issues of this law applicable to the RP are as follows: Every ILG must have a constitution and submit this document at the time of registration; ILG must have a dispute-settlement authority, for dealing with disputes between members or between the ILG and a member, including disputes over entitlement to membership; The above authority may be a person or persons specified by name or position, or determined in the manner specified in the ILG’s constitution; ILGs as an entity do not own customary land. Ownership remains with the collective customary landholders and clans; An ILG organises landowners and clans as a corporation recognised by law, so that it can enter into commercial deals. 75. The Land Groups Incorporation Amendment Act 2009 and the Voluntary Customary Land Registration Act 2009 were brought into effect in 2011, following recommendations from the National Land Development Taskforce. The latter Act facilitates the voluntary registration of customary land, to be known as “registered clan land”, and makes that land available for development through the use of ILGs. The intention is to allow landowners who wish to develop their land, an alternative to permanent alienation under the Land (Tenure Conversion) Act 1963. 76. A newly created Director of Customary Land Registration will be established for the registration of clan land. Upon registration, a certificate of title is issued in the name of the ILG and the ILG can then lease or mortgage the land to raise funds for development. Customary law ceases to apply to the land, with the exception of inheritance. The strengthened consultation processes in the legislation are designed to overcome many of the breaches of customary landowner’s free and prior informed consent experienced in past development and land acquisition processes. 77. The land registration (Amendment) Act introduces two main changes to the land registration process. The first is that on receiving an application, the Director must independently verify the membership of the ILG and make a preliminary check of the proposed boundaries to make sure that it is a legitimate application. The second improvement is that once the Director has accepted an application on a preliminary basis, there is a more thorough process to identify any boundary disputes or competing interests over the land before registration occurs. For example, the Director must place the proposed registration plan on public exhibition for up to 90 days, and must call for and resolve any objections before a Certificate of Title can be issued. The success of these more stringent provisions in the reformed process will depend on the ability and commitment of the government to administer and enforce the new laws. Landowners are typically reluctant to engage in land registration of their customary land because of the failings in the land administration systems of the past. 78. The Land Disputes Settlement Act (2000) sets out the procedures for resolution of disputes involving customary land. The Act provides for a land dispute committee at provincial level and land courts at local, district and provincial levels. The committee can appoint land mediators. The Act promotes resolution of disputes through mediation based on the principles of traditional dispute settlement. If mediation fails, it is followed by appeal to the courts. Field studies demonstrate that mediation and local land courts are very active in resolving land disputes. The first step on land dispute is negotiation between the affected party and an experienced negotiator. If this fails, the problem is mediated by a mediator. If this also fails, it goes to the next level which is local land court. In depth interviews with village Magistrates reveals that the majority of land disputes are resolved at the local level. However, disputes relating to land ownership are resolved only at the court. 79. ADB’s Safeguard Requirements on Land Acquisition and Resettlement: ADB's SPS requires ADB assisted projects to: (i) avoid resettlement impacts wherever possible; (ii) minimise
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan impacts by exploring alternatives; (iii) enhance, or at least restore, the living standards of DPs/Aps in real terms relative to pre-project levels; and (iv) improve the living standards of the poor and other vulnerable groups. It covers both physical displacement (relocation, loss of residential land, or loss of shelter) and economic displacement (loss of land, assets, access to assets, income sources, or means of livelihoods) as a result of land acquisition or restriction on land use, or on access to parks and protected areas. 80. The SPS’s key policy principles are: (i) screen early and assess resettlement impacts; (ii) carry out consultations with APs and develop a grievance redress mechanism; (iii) improve/restore livelihoods of APs through land-based strategies, replacement of lost assets, compensation at replacement cost, and additional benefits, as appropriate; (iv) provide appropriate assistance to physically displaced APs; (v) improve living standards of poor APs and other vulnerable groups; (vi) develop transparent procedures for negotiations; (vii) provide assistance and compensation to non-titled APs for loss of non-land assets; (viii) Prepare RP or due diligence reports, with necessary provisions; (ix) disclose RP to APs and other stakeholders and document the consultation process; (x) conceive and execute resettlement as part of the project; (xi) deliver entitlements to APs before their physical or economic displacement; and (xii) monitor and assess resettlement outcomes. 81. Where there are gaps between PNG laws and the ADB SPS requirements on land acquisition and resettlement, the Project will ensure that these gaps are filled by measures to meet the minimum SPS stipulations. For example, PNG law does not specifically require monitoring and assessment of land acquisition or resettlement outcomes, but this RP will include provisions to monitor the impacts on APs. The monitoring reports will also be publicly disclosed, including to those affected by the project. 82. Resettlement Policy Principles for the Project: The project will comply with both ADB’s safeguard requirements and PNG’s laws and regulations applicable to land acquisition and resettlement. The resettlement objectives and policy principles adopted for the project are as follows: Land acquisition and resettlement will be minimised through careful engineering design. In particular there will be no physical relocation of people and/or businesses; APs will be consulted meaningfully over the project cycle, and effective mechanisms will be established for hearing and resolving grievances; The RP will be updated after the detailed design; APs who are customary landowners will receive compensation at replacement cost for their loss of land to ensure that they will be as well off as without the Project; Such compensation will be paid to APs prior to commencement of civil works; Particular attention will be paid to women, women-headed households, the elderly and other vulnerable people’s customary land and property and inheritance rights; Land acquisition will be conceived of as part of the Project and related costs will be included in and financed out of the Project cost; and Resettlement impacts, including any unforeseen losses that may occur during construction will be monitored and remedial steps taken as required
IX. ENTITLEMENTS, COMPENSATION AND ASSISTANCE
A. Eligibility for Compensation and Other Assistance
83. The initial identification of APs and affected land and the negotiation for land acquisition has started at the PPTA phase and LIR completed for Kilakila substation. The PPL will further consult with affected communities and undertake detailed land surveys and investigation for another location in coordination with land administration authorities to collect relevant information. Once all land owners have been identified and confirmed by DLO, the final census date will be determined for PPL to undertake the census. The date of LIR completion will be the “cut-off date”
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan for eligibility for compensation and rehabilitation assistance. Following is the eligibility for compensation to APs: Landowners and/or users that have documented claims to the affected land as of the cut-off date will be eligible for compensation and/or rehabilitation assistance as per the project policy. Any person or group that occupies or uses land identified for project construction after the cut-off date will not be eligible for compensation and/or assistance; they will be required to move from the land as per the provisions of the Land Act. Legally recognised (including customary rights) or titled APs will receive compensation for land acquired by the project. Households headed by women and other vulnerable households will receive further assistance.
B. Entitlement Matrix
84. The eligibility and entitlement are summarised in Table 6. Table 6: Eligibility and Entitlement Matrix Impacts Entitled Person(s) Entitlements Permanent Acquisition of Land Legal owner(s), including Landowners will be provided cash compensation customary land owners at replacement cost. Temporary Use of Land (if required) Legal owner(s) of land and Rent will be negotiated with landowners before customary land owners commencing, to be paid for the entire period of use. Health and employment All APs Bid documents will include HIV/AIDS awareness and prevention programmes in construction camps and surrounding communities. Unforeseen or unintended impacts Concerned Aps Determined as per PPL’s policies and ADB's safeguard policy.
X. INCOME RESTORATION, REHABILITATION AND ASSISTANCE TO VULNERABLE GROUPS
85. PPL will provide following assistance to APs: (i) skills training by contractors particularly for women; and (ii) priority employment for APs (vulnerable APs in particular) in project unskilled jobs. The female-headed households will get priority in these activities.
XI. RESETTLEMENT BUDGET AND FINANCING PLAN
A. Land Acquisition and Compensation Costs
86. The cost for land acquisition and compensation is presented in Table 7. The land acquisition and compensation costs are based on PPTA estimates. The compensation costs will be confirmed by an independent valuer before updating the RP that the negotiated price for both locations represents a fair market price. Table 7: Land Acquisition and Compensation costs Serial N° Item Unit Cost (Kina) Total Cost (Kina) A. Land Acquisition & Compensation 1 Registration & title transfer fee 2,500 x 2 5,000 2 Land survey, valuation, 16,500 x 2 33,000 3 Land compensation To be confirmed Sub-total A 38,000 B. Implementation 3 Consultation and 14,000 implementation 4 Contingency (A+ B) 241,800 Grand Total (A+B) 255,800
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87. The cost of salary and reimbursements for international social safeguard specialist and the relevant cost for national consultant are not included. Similarly, transport costs for investigations, surveys, etc. are also not included. These will be included in the project management costs.
B. Payment of Compensation
88. The PPL is responsible for payment of compensation to ILGs. The procedures to be followed include: Manager, Land Management and Community Services requests PPL’s CEO to authorise compensation amount and the approval of the cheque; The PPL will inform ILGs about the date, time and place as well as documentation required, for payment of compensation; At the time of payment, the Chairman of ILG will sign a compensation document to acknowledge the amount and receipt of payment; and When compensation payments are complete, the MLCS will prepare a report and submit it to CEO who will present this to ADB via IPBC.
C. Compensation Rates for Calculation of Budget
89. The project adopts the principle that all compensation for affected land will be paid at replacement cost or market price. PPL has negotiated with ILG officials at Kilakila substation and transmission line. The price will be confirmed by an independent valuer before updating the RP that the negotiated price for both locations represents a fair market price. 90. It is a requirement that private valuers who undertake valuations are registered with the Valuation Board of Papua New Guinea. The registered valuers are provided with valuation rates by the Valuer-General (VG) of which the latest rates have been released this year. The land price determined by a valuer is an indication which forms a good basis for negotiation with land owners. If compensation rates do not meet fair market price or the payment is delayed, compensation rates will be updated at the time of RP update to ensure APs receive compensation at replacement cost or market price at the time of compensation payment.
D. Land Compensation Process
91. Once the PPL has agreed compensation values with clan leaders/Executives of the relevant ILGs, the PPL raises cheques following the process described in paragraph 85 to be handed over to the land owners. Once the total agreed price for land has been paid, PPL requests a meeting of all land owners where the cheque will be presenetd to the relevant Chief Executives of ILGs. A receipt for the transaction is obtained for presentation to the DL&PP which will complete the land acquisition process. It is up to the ILG officials to disburse compensation amount among all clan members following the accepted customary practice.
E. Source of Resettlement Funds
92. All costs for the project related to land acquisition, compensation and allowances, operation and administration costs, surveys, monitoring and reporting will be financed by PPL using own funds.
XII. INSTITUTIONAL ARRANGEMENTS
A. Roles and Responsibilities
1. Independent Public Business Corporation (IPBC) 93. IPBC, as EA for the project will have overall responsibility of planning, implementation and monitoring of activities related to acquiring land and compensating for losses. It is also authorised to provide approval and key agency to communicate with ADB.
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2. PNG Power Ltd 94. As the Implementing Agency, PPL has the responsibility, delegated by the IPBC, to carry out day-to-day activities related to land acquisition and resettlement. These include: Collaborating with, and assist DLO, CLO, valuer and surveyor in consultation with ILG officials to carry out relevant work in compliance with the POMPGDP policies and ADB requirements; Select, authorise, mobilise and pay for the private valuer and surveyor; Establish PMU and Safeguard Cell within; Recruitment of staff and consultants; Staff training; Providing resources to carry out surveys, investigations, assessments and consultations; Collaborating with DLO and CLO for negotiations and agreements with ILGs; Carrying out consultations with affected communities and, ensuring that all stakeholders are informed about the project, its policies and procedures; ensure that all requirements are carried out concerning public disclosure of the provisions for land acquisition and compensation; and, oversee and monitor the grievance redress process; Reviewing and endorsing the draft RP prior to submitting it to IPBC and, subsequently, to ADB for approval, ensuring that all matters related to land acquisition are complete and properly reported; Monitoring the process of allocation and disbursement of funds for compensation, and ensure that funds are available and compensation is paid in a timely manner; and Carrying out all other activities including internal monitoring of land acquisition activities. 3. Land Administration of Central Province 95. On the advice of PPL, the Land Administration of the Central Province assigns a DLO to conduct relevant land activities. The responsibilities are to visit affected land, conduct surveys of land required for the project in consultation with ILG officials, prepare the LIR and submit to the Department for necessary action. 4. Department of Land Management and Physical Planning 96. DLM&PP will process all reports and following the established procedures, transfer land title to PPL. The new title will be issued to PPL once the entire process is completed and relevant payments have been made. 5. NCDC 97. Ward Councillors will facilitate all consultations with local communities, affected people and other stakeholders. They will be responsible for collaborating with PPL to organise and carry out these consultations on a participatory basis. They will also be assisting to resolve disputes of APs.
B. Capacity Building Programme
98. The capacity building programme focusses on strengthening PMU/SU with regard to RP implementation. There will be one international and one national social safeguard specialists attached to the PMU who will have the pivotal role in the implementation of the capacity building and supporting PPL to address land acquisition and related issues under the project. An independent valuer will be recruited to confirm that compensation rates for land acquisition represent market price or replacement cost. 99. During the initial stages of implementation, a training programme will be implemented for relevant PPL and other agency staff associated with the project. The responsibility for planning and implementation lies with the PMU which will be adequately staffed with safeguard officers and experienced consultants. The training programmes will cover subjects such as: (i) the government policies and procedures for acquisition of land; (ii) ADB policies and procedures on social
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TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix L - Resettlement Plan safeguards; (iii) applying the government and ADB policies in the project; and, (iv) methods on surveys and data collection to up-date RP and conduct community consultations and awareness programmes. The training will target people from PPL, Ward officers, relevant staff of the Valuer General and other organisations involved in land acquisition and compensation activities.
XIII. IMPLEMENTATION SCHEDULE
100. Shown in the Table below are implementation schedule for resettlement activities split by (i) up-dating the RP; (ii) implement the RP; and, (iii) monitoring activities including grievance redress. It is expected that MOA with ILG Iarogaha and ILG Uhadi Iarogaha, survey of their land and LIR will have already completed before the commencement of implementation of RP. Table 8: Timeline for Implementation of Resettlement Plan Serial N° Activity Schedule Up-dating & Approval of Resettlement Plan 1 Confirm land requirements based on detailed design Month 1 2 Training & orientation for staff Month 1 3 Follow up consultation with affected communities on implementation of RP Month 2 4 PMU/SU up-date census, inventory of losses and socio-economic studies as the Month 2 basis for up-dating RP 5 Public consultations Month 2 & 5 6 RP finalised and fully up-dated Month 3 7 PPL work with Councillors and ILG officials to disclose updated RP Month 3 8 PPL submits the updated RP via IPBC to ADB for approval and posting on ADB Month 4 website 9 ADB no-objection to proceed Month 4 10 PPL issues cheques to PLO for execution of land acquisition and payment of Month 4 compensation 11 PLO completes land purchase and report to DLPP for follow up activities Month 4 Implementation of RP 12 PPL submits to ADB the land acquisition completion report Month 5 13 ADB issues notice to proceed Month 5 14 Award of civil works contracts Month 5 15 Clearance of acquired land Month 6 16 Start of civil works Month 6 17 Payment of compensation, as required, for unforeseen damages, losses and Month 7 temporary damages 18 PPL implements community development programme Month 5 onwards Monitoring Plan 19 PPL establishes AP socio-economic baseline Month 2 20 PPL conducts on-going monitoring and submits progress report to ADB Continuous 21 PPL conducts post-resettlement survey and final monitoring report Month 25 Note:Implementation of grievance redress mechanism and consultation and participation and, training activities are continuous
XIV. MONITORING AND REPORTING
101. PPL will monitor all activities associated with land acquisition, disbursement of compensation to ILGs, training and the overall implementation of RP. The scope of monitoring includes: (i) compliance with the agreed policies and procedures for land acquisition; (ii) prompt approval, allocation and disbursements of funds and payment of compensation to APs, including supplemental compensation for additional and/or unforeseen losses; (iv) remedial actions, as required; and progress in the implementation of grievance redress mechanism. The monitoring will also cover social impacts of the subprojects and whether APs improve their pre-project living standards, incomes and livelihoods.The PPL will prepare and submit semi-annual progress reports to ADB as part of project performance monitoring. The PPL will also submit a subproject land acquisition completion report to ADB when compensation has been paid.
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Appendix 1: PPL Memorandum of Agreement with Vaga ILG
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Appendix 2: Notice for Public Consultation
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Appendix 3: Land Investigation Report for Kilakila
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Appendix 4: Disclosure of Information on Kilakila Land Acquisition
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Appendix M Indigenous Peoples Due Diligence Report
The following Indigenous Peoples Due Diligence Report was prepared as per requirements SPS (2009). An Indigenous Peoples Plan (IPP) was not required following review of the IP DDR.
CONTENTS
Section I: Purpose Section II: Methodology Section III: Indigenous People Section IV: Subprojects and Activities Section V: Conclusion Annexure 1: List of People Interviewed
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PAPUA NEW GUINEA: PORT MORESBY POWER GRID DEVELOPMENT PROJECT INDIGENOUS PEOPLES DUE DILIGENCE REPORT 5 September 2012
I. PURPOSE
01. The indigenous peoples due diligence report (IP DDR) of Port Moresby Power Grid Development project is prepared to address following issues: Identify and characterize local people and distinguish them from the definition of indigenous people as described by ADB; Description of subproject activities; Examine whether or not project activities trigger IP impacts as defined in ADB’s SPS (2009).
II. METHODOLOGY
02. The IP DDR was conducted using several methods. First, discussions with team members were undertaken to identify potential activities for each subproject. Analysis was then conducted to examine whether project beneficiaries fall within ADB’s definition of indigenous people. For this purpose relevant literature was reviewed and assessment of project beneficiaries both in NCD area as well as in Rouna and Sirinumu were conducted by way of focus group discussions, in depth interviews and a formal public consultation. 03. A total of 52 people were contacted and their views were analysed in the course of this due diligence (DD) study. The literature reviewed is listed in the reference section while the list of people contacted is in Appendix 1.
III. INDIGENOUS PEOPLE
1. ADB Definition
04. The ADB defines "indigenous peoples" as groups with social or cultural identities distinct from those of the dominant or mainstream society (Reference 1). Significant characteristics of IP would be: descent from population groups present in a given area, most often before modern states or territories were created and before modern borders were defined; and maintenance of cultural and social identities; and social, economic, cultural, and political institutions separate from mainstream or dominant societies and cultures. 05. The analysis below examines whether the project beneficiaries fall into the above definition of IPs. For this purpose, the study analyses the characteristics of people in the project area by their uniqueness, place of residence and attachment to specific geographical areas, languages spoken, their vulnerability and other socio-economic aspects.
2. Ethnic Composition of Papua New Guinea
06. Papua New Guinea is a country comprising of mainly tribal people. The people in the country are collectively known as Papuans who possess different customs, languages and other features. The collective attachment of the people to land they live on has been the basis of their livelihood, culture and survival. It is reported that the country has more than 1,000 different ethnic groups (Reference 2). The indigenous people are Melanesians who are classified by language groups, with Papuans representing the descendants of the original Australoid migration and Austronesian speakers descended from later migrants. The former are generally found in the highlands and the latter in coastal areas and on the islands other than New Guinea. Other groups with significant populations include Negritos, Micronesians, and Polynesians. In all, there are more
Final Report | 30 November 2012 Page | 168 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix M - IP DDR than 700 indigenous languages, most of them spoken by a few hundred to a few thousands of people (reference 3).
3. Ethnic Composition of NCD Residents
07. The project is in an urban setting. In the absence of data on the ethnic composition141 of the population in NCD, field assessments revealed that residents have come from almost all parts of the country. Hence, what is seen as the ethnic composition of people in NCD is a mixture comprising of all ethnic groups of the country as a whole and others who belong to different nationalities. With about 5 % in-migration rate142, the ethnic composition keeps changing. Wards such as number 3, 9, 10 and 12 have a diverse composition of people migrated from other provinces. There used to be 7 villages within NCD inhabited by the original Motuans. However, they have permitted other migrants on their land leading to identity merging with the mainstream population. All 7 villages where Motuans occupied in the past now have a mixed composition of people of different ethnic origins. 08. The social and customary ceremonies of NCD population are mixed. These events tend to be attended by all people living in a particular ward rather than open to any particular clan. The people gather at the time of a death and/or birth on the basis of commonality rather than their cultural that has been lost for many. Several key-informants disclosed to the survey team the composition and the importance of ethnicity in the following words: “The clan is in our traditional village, we have forgotten about our clan. What is more important and relevant to us in this urban environment is neighbours and not the clan. We have many common gatherings involving different clan members who have come from various provinces of the country. Those born in NCD do not have a clan. Our children do not know what clan they belong to. They do not speak our clan language and all our traditional customs and rituals are alien to them. We have inter- marriages that dissolve our original clan identity”. 09. The children in the City share the same school and same facilities, regardless of their original clan. Similarly, services such as health, church, markets and other facilities provided by the State or missionary missions are available for Papuans as a whole, regardless of their ethnic origin. There are no facilities that are exclusively for certain groups as specific ethnic groups do not exist. The sharing of social facilities by all of them living in the same settlement are significant factors that contribute to the loss of distinct cultural identity. 10. Over the years, the younger population in particular has forgotten their ethnic language and now communicates in either English or Pidgin. Field assessments clearly indicated that almost all those who were born in the City speak English and/or Pidgin and not their original ethnic language. It was also observed that the older people communicate in their region’s language and not in the language of the clan they originally belong to. It is to be noted that only a few of older people know about their sub-clans. 11. The data on spoken languages by study area population gives the following information as tabled: People Proficient in Languages (% individuals) Pidgin English Motu 94 77 44 Source: PPTA7783 Studies (2012) 12. The above data indicates that the most popular language in NCD is Pidgin which is not an ethnic language, followed by English. Only 44 % are fluent in Motu which is one of the languages used by tribal people.
141 It is to be noted that identification of the ethnic origin of the population is very difficult as many people, the younger ones in particular do not know their clan and their cultural affiliation to an indigenous group is difficult to verify. 142 The figure used by National Capital District Commission. The 2 % migration rate used by the National Statistical Office is considered to be too low according to NCDC.
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13. Field assessments also indicate that the people in their settlements are grouped informally into regions (or district) where they came from and that there is no any type of grouping by clan. The original customs of ethnic people have been mixed up with new customs. What can be seen in the society today is a mixture of ethnic people who share a common language, food, shelter and other basic necessities in the life. There is a high degree of inter-marriages between clans, which is a significant factor that dissolves their original ethnic identity. 14. A great majority of the resident population are living in areas which are different from their ancestral land. They now belong to the urban society and without their attachment to the traditional land. The land base which is considered as a significant parameter to distinguish ethnic people from main-stream is not relevant in NCD. 15. Vulnerability data collected from the household survey reveals that 11 % of households are vulnerable. Analysis of the cause for vulnerable households reveals that: 20 % are widows 80 % are very poor 16. Data does not associate vulnerable people with their ethnic origin but mainly to the social status within the society. 17. Accordingly, this analysis corroborates that the project area does not comprise of people who have distinct features different from the mainstream population and that there are no vulnerable people because of their original ethnic identity. Hence, it is to be concluded that project area does not have indigenous people in accordance with the definition of IPs in the SPS 2009. All beneficiaries are the main-stream Papuan people with no distinction or vulnerability.
IV. PROJECT DESCRIPTION
18. In Port Moresby, reliability and system capacity factors seriously impact on economic growth. It is estimated that 69 % of Port Moresby potential customer base cannot afford power connection. Access is limited in wards in the fringe of the National Capital District (NCD) and on long 22 kV feeders with poor reliability indices. 19. Port Moresby secures its power from medium speed diesel engines at Kanudi and Moitaka, gas turbine peaking units at Kanudi and Moitaka operating on diesel but convertible to gas, and the Rouna Hydropower cascade system (total 66.75 MW, but with a number of decommissioned and soon to be decommissioned generators at Rouna 1) complimented with generation from a small hydropower Toe of Dam at Sirinumu (1.5 MW) that is in poor condition. 20. Power transmission is predominantly via double circuit 66 kV transmission towers to 66/11 kV substations located at Boroko, Konedobu, Waigani and Bomana. There is a small section of single circuit 66 kV pole construction. MV distribution is predominantly 11 kV with two only 22 kV rural feeders. LV is at 415V. Reliability indices on all feeders are poor and are below acceptable international benchmarks. 21. In order to improve the reliability and capacity of the Port Moresby power system, this Project conducted feasibility studies to develop six (6) subprojects. The primary objective of Port Moresby Power Grid Development (POM PGD) project investment is to close the radial lines into loops (open loop mesh), strengthen tie capacity to transfer load when a section faults and other measures to improve system reliability. Network losses at the Port Moresby system peaked at 21.8 % in 2005 but improved to 17.9 % in 2007. The network loss national average was 18.6 % in 2005 and 12.7 % in 2008. However in the Port Moresby system network losses (technical and non- technical) have deteriorated and now stand at approximately 21 %. 22. The target project area is the Port Moresby City which is the area covered by the NCD. With an area of 260 km2, the NCD comprises 4 districts: namely Moresby north-east, Moresby north-west, Moresby south and Motu Koita. Included within the 4 districts are 12 wards within which are large numbers of settled (titled) land, unsettled, squatters and villages. The total
Final Report | 30 November 2012 Page | 170 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix M - IP DDR population in NCD according to 2011 census is 318,000 in 57,700 households. The average household size is 5.51 persons.
V. SUBPROJECTS AND ACTIVITIES
23. The POM PGD Project consists of six inter-connected subprojects. The implementation of all subprojects contributes to the overall improvement of the transmission grid which in turn enables the delivery of quality power supply to customers in NCD. 24. The project proposes to rehabilitate 2 existing hydro-power generation systems in the adjacent Central Province. The two systems are Sirinumu and Rouna, built in the 1960s. 25. The due diligence analyses issues relating to both existing and new facilities and to examine whether there are any outstanding IP related matters that have not be resolved as yet. The subproject activities are described below beginning from new facilities to be built and existing facilities.
1. Subproject 1 - Kilakila TML and Substation 26. This sub-project provides benefits to the entire population in Port Moresby area. The objective of the subproject is to open a new substation (Kilakila Substation) near Kirakira Village and 1.0 km from Kilakila High School and to connect the substation to the existing transmission main line (TML) from Rouna by constructing a new TML link. The substation and new TML will provide a cost-efficient power supply to the City. The substation and TML will be constructed on customary land.
2. Subproject 2 - Substation Capacitor or Statcom 27. The purpose of this subproject is to stabilise power supplied across all of Port Moresby. This will be done by fixing capacitor or Statcom banks and other related switch gear within PPL’s existing substation premises. The benefits of this subproject will in particular be on improved stability of power across all customers supplied from the Port Moresby Grid and have benefits also in transmission line loss reduction.
3. Subproject 3 - Up-grade of 11 kV System to Open-loop Mesh 28. This subproject is expected to improve the delivery of quality power to customers throughout project area. This will be carried out by rehabilitating and upgrading existing power lines and by fixing additional electrical equipment on poles. All works will be confined to new and existing substations and distribution power line poles, sitting on public lands. The subproject will minimise power outage distractions, improve capacity to supply more customers and provide significant reliability of power supply to the customers connected. The beneficiaries are all customers within NCD.
4. Subproject 4 - Power Loss Reduction Programme 29. Several technical methods and installation of equipment are being planned to reduce power losses. It is expected that these measures will be placed in appropriate locations either within existing facilities already under the control of PPL, on power poles or along road easements. In some cases, specialised equipment will be installed within private premises at the invitation of high-power use customers, mainly government, commercial and industries. The implementation of improvements will follow a detailed loss reduction pilot project. This subproject is expected to reduce power losses and deliver better quality power to all customers within the Port Moresby project area.
5. Subproject 5 - Rouna Hydro-power Refurbishment 30. The purpose of this project was the refurbishment of Rouna 1 hydropower station. In the final analysis the full replacement of Rouna 1 with a facility constructed beside the original station and that station decommissioned was proposed: this being approved by PPL. The proposed activities will be undertaken within the premises of the existing generation facility itself and are
Final Report | 30 November 2012 Page | 171 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix M - IP DDR entirely confined within the perimeter of the complex owned by PPL. In this process, there is no necessity to acquire new land.
6. Subproject 6 - Sirinumu Toe of Dam Up-grade
31. The purpose of this subproject is to repair and refurbish an existing generator and power house that will improve efficiency of power generation. All proposed activities will be confined within the power house owned by PPL. 32. The analyses of activities proposed vis-à-vis their potential impacts on IPs are summarised in Table 76. Table 76: Subprojects Activities and Potential Impacts on People
Subproject Proposed Activities Affected People and IP Impacts Impacts on them SP1: Kilakila Construction of new TML of Two clans of customary No IPs and TML and about 6,100 m long and land owner’s will have therefore no Substation erection of about 20 some restricted access relevant impacts transmission towers on to land. The affected customary land people do not have Building of a new substation in distinctive features nor an area of approx. 6,400 m2 on are vulnerable. They are customary land culturally similar to the Change of land use zoning is main-stream. required as this subproject is located within NCDC. SP2: Substation Fixing electrical equipment onto Beneficiaries are the No IPs (no IP Capacitors or existing power poles and inside Papuan population. No impacts) are Statcom substations owned by PPL IPs are present present in the subproject area. SP3: Up-grade Install electrical and Beneficiaries are the No IPs are present of 11 kV engineering equipment Papuan population. and hence no System Build new transmission and relevant impacts distribution lines that follow existing alignment along public roads and/or confined to existing facilities of PPL or over existing or replacement power poles, or underground All activities confined to road easement and/or PPL properties SP4: Loss Fixing new equipment within Beneficiaries are the No IPs are present Reduction existing substations Papuan population. and hence no Programme relevant impacts SP5: Rouna 1 Construction of replacement Beneficiaries are the No IPs are present Hydropower power house Papuan population. and hence no Refurbishment Installation of new generation relevant impacts equipment Installation of replacement penstock pipeline. All activities confined to existing and already functional power stations facilities SP6: Sirinumu Removal of turbines, Beneficiaries are the No IPs are present Toe of Dam Up- generators and other power Papuan population. and hence no grade equipment relevant impacts Installing new equipment All activities confined to existing and functioning hydro-power station
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33. It is clear from the above Table that subproject activities do not trigger IP impacts as there are no people who can be identified as IPs. All project beneficiaries are members of the Papuan mainstream population. Hence, there are no impacts on indigenous people as stated in ADB’s SPS (2009).
VI. CONCLUSION
34. The entire project area comprises of the mainstream population commonly known as Papuan. The population shares the same schools, health facilities and other infrastructure built by the government for the benefit of all Papuans. Large numbers of the population are born within the City. During the process of migration and their subsequent occupation in the City, they have lost their cultural identity. The attachment their traditional land has been lost. The inter-marriages have also contributed to the loss of their traditional features. They all use the same language, share the same facilities and have the same lifestyles. The majority of households have employed people who share opportunities in businesses, government agencies and other organisations, regardless of their cultural background. The above features do not make them distinct but members of the mainstream population. There are few households that are vulnerable. However, the vulnerability of the City population does not relate to ethnicity but to social features such as widows and poverty. All of them need power regardless of their ethnic origin. They all state that power supply need to be improved and everyone will benefit from such an improvement equally and proportionately.
35. It is therefore to be concluded that project area does not have IP and that there are no specific population or groups that will benefit disproportionately from the proposed project. The entire Papuan population in the City would benefit from the project. Accordingly, it is to be highlighted that there are no outstanding or unresolved issues of Subprojects 1 to 6 that trigger IP impacts as per ADB’s SPS.
List of References
1. Asian Development Bank (2009). Safeguard Policy Statement 2. Encyclopaedia of the nations (web edition). http://www.nationsencyclopedia.com/Asia-and- Oceania/Papua-New-Guinea-ETHNIC-GROUPS.html 3. Wikipedia, the Free Encyclopaedia (web edition). List of Indigenous Peoples. www.wikipedia.com
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Appendix 1: List of People Interviewed
1. K Salo Manager, Land & Community Services, PNG Power Ltd 2. K Kaugla (F) Gender Officer, NCDC 3. Robert Williams Coordinator LLG, NCDC 4. Paul Abba Liaison officer, NCDC 5. Vincent Manukayasi LLG Division, NCDC 6. Win Lokalyo Councillor, Ward NE 12 B 7. Wilfred Aukiri Councillor, Ward 3 8. Francis Kanasi Councillor, NW Ward 8 9. Pepsi Kekei Councillor, NE Ward 9 10. Josephine Aniong Councillor 11. Joe Vali Councillor, MS Ward 3 12. Jonathan Afuti Councillor, NW Ward 10 13. Keimelo Gima Councillor, MS 14. Moses Susuve Councillor, MNW 15. Elisabeth Dibela Councillor, MS LLG Ward 2 16. Cathy Watai Councillor 17. Genevieve UG 18. Sennifgl Kivia Councillor 19. Grace Yame Councillor, Dy President, NE LLG 20. Madline Poo Councillor, Moresby South LLG 21. David Waula Councillor, Ward 6 22. Elisabeth Maso Councillor, Ward 2 23. Etrel Eandery Councillor 24. Susan Kais Councillor, Ward 3 25. Anna Kate Councillor, Ward 9 26. Pon Ross Saleh Head (administrator), Maintenance Division, PM office 27. P Patatrea PM’s office 28. H Beruda PM’s office, Admin Assistant 29. A Gene Regional Coordinator, Department for Community Development 30. G Geita Secretary, Vaga Land Group Incorporation 31. S Pabura Atg Chairman, Vaga Land Group Incorporation 32. S John Chairman, SIDCO, NCD 41. A Ata Paramount Chief, Omani Clan 42. A Ugunnie Chairman, Omani Clan 43. W Bore Deputy Chairman, Omani 44. S Beredi Chief & Chairman, Narime Clan 45. R Berei Urori (F) Committee Member, Narime Clan 46. G Gorogo Kova (F) Committee Member, Narime Clan 47. Victor Nuwana Leader, Iarogaha Clan 48. Martin Tabu Leader, Iarogaha clan 49. Tabu Gaudi (Iarogaha clan) 50. Harry Geze Leader, (Ehenako Clan) 51. Vaibu Gariya (Ehenako Clan) 52. Dirona Lohia Chief, Hanubara Clan
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Appendix N Implementation Schedule
CONTENTS
Implementation Schedule follows:
IMPLEMENTATION SCHEDULE Port Moresby Power Grid Development Project Advance procurement initiated by PPL to ADB requirements '12 2013 2014 2015 2016 ID SP Task Name Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 1 Loan Effective (early by / latest by) * * 2 PPL: DS Consultant procurement (Advance) f f f fff* 3 Design and Supervsion Consultant (DSC) p fffffffffffffffffffffffffffffffffffffff p SP-1 Kilakila Substation and Transmission Line (6.1km) 4 Design, EPC Bids and Contract Award p f f f f f f f p 5 Contract Effectiveness p f f 6 66kV Transmission Line Kilakila f f f f f f f f f f 7 66/11kV Substation Kilakila ffffffffffffffffff 8 Tests, Commissioning 66kV Works p 9 Project Completion p f p SP-2 66kV Capacitor/Statcom 10 PPL/ICS: Transmission protection & stability study f f f f 11 PPL: EPC Bids, Contract Award (Advance procurement) f f f f f f * 12 Plant Delivery (Statcom) f f f f f f f f f f 13 Installation, Commissioning f f f f f f SP-3 11kV Feeder Open Loop Mesh, Capacitors & SP-1 Distribution 14 PPL: design, bid docs, bidding (with ICS suppport) f f f f f f 15 DSC: Evaluation Plant & Materials, Contracts Awarded p f f p* 16 Plant and Materials Delivery p f f f f f f f p 17 Installation Works bid docs, Bids and Contract Award f f f f f f * 18 Contract effectiveness f f 19 11kV Lines: Refurb, New Work, Switchgear, Capacitors p ffffffffffffff p 20 Progressive Commissioning ffffffffffffff SP-4 Loss Reduction Programme 21 PPL: Pilot Study Design, Equipment procurement f f f f f f 22 DSC: Programme reviews and outcomes assessment f f f 23 PPL: Field Assessment (Start existing PPL equipment) f f f f f f f f f 24 PPL: Plant/materials procurement (added to SP3) f f f f f f f 25 PPL: Corrective Action, Pilot Feeder f f f f f f 26 PPL: Plan/design/review POM network corrective action f f f f f SP-5 Rouna Hydro Power Station Replacement (6MW new) 27 PPL: Preliminary Works (incl tendering for services) f f f f f f f f f 28 DSC: Design, ICB Docs Preparation and Approval f f f f f f 29 Tendering Process and Contract Award f f f f f f * 30 Contractor design ffffffffffff 31 Equipment Procurement ffffffffffff p 32 Civil Works ffffffffffffffffffffffff p 33 Water Control Plants Works p f f f f f f f p 34 Power Plant and Substation Works p fffffffffffff p 35 Commissioning p p SP-6 Sirinumu Hydropower Station Rehabilitation (1.6MW) 36 PPL: Preliminary Works p f f f f f p 37 DSC: ICB Docs Preparation and Approval f f f f 38 Tendering Process and Contract Award f f f f* 39 Equipment Manufacture, Supply and Delivery ffffffffffff 40 Intake Gate, Draft tube gate Refurbish p p 41 Guard Valve remove and install new. p f p 42 Turb/Gen Removal, Install new Turbine, Generator & MIV f f f f f 43 Switchgear and C&P equipment installation f f 44 Cone valve removal and install new f 45 Commissioning f
In Appendices B1, B3, B5 and B6 detailed MS-Project schedules are provided for Subprojects 1, 3, 5 and 6 respectively.
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Appendix O Procurement Plan
CONTENTS
Section I: Advance Contracting and Retroactive Financing Section II: Procurement of Goods, Works and Consulting Services Section III: Process Thresholds, Review and 18-Month Procurement Plan Section IV: Indicative List of Packages Required Under the Project Section V: National Competitive Bidding
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PAPUA NEW GUINEA: PORT MORESBY POWER GRID DEVELOPMENT PROJECT PROCUREMENT PLAN
I. ADVANCE CONTRACTING AND RETROACTIVE FINANCING
1. All advance contracting and retroactive financing will be undertaken in conformity with ADB’s Procurement Guidelines (April 2010, as amended from time to time)143 and ADB’s Guidelines on the Use of Consultants (April 2010, as amended from time to time).144 The issuance of invitations to bid under advance contracting and retroactive financing will be subject to ADB approval. The borrower, IPBC and PPL have been advised that approval of advance contracting and retroactive financing does not commit ADB to finance the Project. 2. Advance contracting. PPL will undertake the following advance contracting activities; (i) recruitment of implementation consultants to support the activities of the PMU, (ii) tendering, and bid evaluation for civil works packages, and (iii) preparation of tender documents to procure materials and equipment and bid evaluation. 3. Retroactive financing. PPL has requested retroactive financing of eligible expenditures up to US$ 11.77 million, the equivalent of 18 % of the total ADB loan, incurred before loan effectiveness, but not more than 12 months before the signing of the loan agreement. The following contract packages have been identified for retroactive financing: General Description Contract Value Procurement (estimate US$) Method 11 kV Open Mesh – Goods $6,640,000 ICB Access Road Construction (Sirinumu) $500,000 ICB Works Rouna 1 Geotechnical Survey $40,000 Shopping Spatial Survey for penstock route $35,000 Shopping SinCAL Distribution software $120,000 Direct Contracting Design and Supervision Consultants $4,080,000 QCBS Port Moresby 11 kV Mesh detailed design $100,000 ICS Transient, harmonic, stability and protection studies $250,000 ICS Total $11,765,000
II. PROCUREMENT OF GOODS, WORKS AND CONSULTING SERVICES
4. All procurement of goods and works will be undertaken in accordance with ADB’s Procurement Guidelines. International competitive bidding (ICB) procedures, national competitive bidding (NCB) and shopping procedures will be used within the thresholds listed below. Before the start of any procurement ADB and the Government will review the public procurement laws of the central and state governments to ensure consistency with ADB’s Procurement Guidelines. The procurement plan will be updated on an annual basis and disclosed on the ADB website. An 18- month procurement plan indicating threshold and review procedures, goods, works, and consulting service contract packages and national competitive bidding guidelines is in Section III. All consultants will be recruited according to ADB’s Guidelines on the Use of Consultants (April 2010, as amended from time to time). All shortlists and contract awards for consultancy services and contract awards for goods and works contracts will be publically disclosed. 5. International consulting services are required to (i) facilitate project management and implementation, and (ii) strengthen the institutional and operational capacity of PPL. Consulting firms will be engaged using the quality- and cost-based selection (QCBS) method with a quality: cost ratio of 90:10 (considered justified due to technical complexity of the substation, transmission, distribution and hydropower plant design). Consultants may also be recruited through individual consultant selection (ICS) (considered justified due to difficulties in finding consulting companies with the broad technical spread of required specialists on-staff, and limited pool of consultants with required technical and country expertise). Direct selection is considered justified for purchase of SinCAL software and training as this is the industry standard software.
143 Available at: http://www.adb.org/Documents/Guidelines/Procurement/Guidelines-Procurement.pdf 144 Available at: http://www.adb.org/Documents/Guidelines/Consulting/Guidelines-Consultants.pdf
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III. PROCESS THRESHOLDS, REVIEW AND 18-MONTH PROCUREMENT PLAN
6. Project Procurement Thresholds. Except as the Asian Development Bank (ADB) may otherwise agree, the following process thresholds shall apply to procurement of goods and works. Procurement of Goods and Works Method Threshold (US$) International Competitive Bidding (ICB) for Works >$3,000,000 International Competitive Bidding for Goods >$500,000 National Competitive Bidding (NCB) for Works ≤$3,000,000 National Competitive Bidding for Goods ≤$500,000 Shopping for Works <$100,000 Shopping for Goods <$100,000
7. ADB Prior or Post Review. Except as ADB may otherwise agree, the following prior or post review requirements apply to the various procurement and consultant recruitment methods used for the project. Procurement Method Prior or Post Comments Procurement of Goods and Works ICB Works Prior ICB Goods Prior NCB Works Prior NCB Goods Prior Shopping for Works Post Shopping for Goods Post Recruitment of Consulting Firms Quality- and Cost-Based Selection (QCBS) Prior (80:20) Recruitment of Individual Consultants Individual Consultants Prior
8. Goods and Works Contracts Estimated to Cost More Than US$ 1 Million. The following table lists goods and works contracts for which procurement activity is either on-going or expected to commence within the next 18 months, on the basis of advance procurement of Implementation Consultant and award by 1-Feb-2013. Advance procurement is also recommended for other key aspects of the project in relation to specialist studies and master planning. General Description Contract Procure- Prequal. of Advertise- Value ment Bidders ment Date (estimate US$) Method (y/n) (qtr/yr) 1. Kilakila Substation & Transmission Line $8,590,000 ICB n Q3 2013 - Design, Supply and Install 2. Statcom - Design, Supply and Install $2,700,000 ICB n Q4 2012 3. 11 kV Open Mesh - Goods $8,310,000 ICB n Q1 2013 4. Distribution Installation - Works $4,130,000 ICB n Q4 2013 5. Rouna 1 Hydropower Plant Upgrade - $25,230,000 ICB n Q4 2013 Design, Supply and Install 6. Sirinumu Hydropower Rehabilitation - $7,870,000 ICB n Q3 2013 Design, Supply and Install ICB: International Competitive Bidding Items 3 and 4 include a $2.5 million grant component from counterpart financing for household connections
9. Consulting Services Contracts Estimated to Cost More than US$ 100,000. The following table lists consulting services contracts for which procurement activity is either on-going or expected to commence within the next 18 months.
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General Description Contract Recruitment Advertise- International or Comments Value Method ment Date National (US$) (qtr/year) Assignment 1. Design and Supervision $4,080,000 QCBS Q4 2012 International Consultants and National 2. Port Moresby 11 kV $100,000 ICS Q4 2012 International Mesh detailed design 3. Transient, harmonic, $250,000 ICS Q4 2012 International stability and protection studies QCBS - Quality and Cost Based Selection
10. Goods and Works Contracts Estimated to Cost Less than US$ 1 Million and Consulting Services Contracts Less than US$ 100,000. The following table groups smaller- value goods, works and consulting services contracts for which procurement activity is either on- going or expected to commence within the next 18 months. General Description Value of Number of Procurement/ Comments Contracts Contracts Recruitment (cumulative) Method 1. Access Road Construction (Sirinumu) $500,000 1 NCB Works 2. Loss Reduction Programme $500,000 5 ICB Goods Monitoring equipment 3. Rouna 1 Geotechnical Survey $40,000 1 Shopping 4. Spatial Survey for penstock route $35,000 1 Shopping 5. SinCAL Distribution software (2 $120,000 1 Direct Contracting licences) 6. SinCAL training $35,000 1 Direct Contracting 7. IT equipment $20,000 3 Shopping ICB: International Competitive Bidding
11. Procurement for preliminary investigations for Rouna may be commenced in advance of the Loan approval to expedite the project overall: in particular Geotechnical and land survey for the power-station and penstock routing and foundations preliminary investigations. Such would enable advancement of the Implementation Consultants design and bid documents for the project.
IV. INDICATIVE LIST OF PACKAGES REQUIRED UNDER THE PROJECT
12. The following table provides an indicative list of all procurement (goods, works and consulting services) over the life of the project. Contracts financed by the Borrower and others should also be indicated, with an appropriate notation in the comments section.
General Description Estimated # Procurement Domestic Comments Value Contr Method Preference (cumulative) acts Applicable Works W01: Rouna 1 Hydropower Plant $25,230,000 1 ICB N/A Design, Supply Replacement and Install W02: Sirinumu Hydropower Plant $7,870,000 1 ICB N/A Design, Supply Rehabilitation and Install W03: Kilakila Substation & $8,590,000 2 ICB N/A Design, Supply Transmission Line and Install W04: Distribution Installation $4,130,000 1 ICB N/A W05: Statcom $2,700,000 1 ICB N/A Design, Supply and Install W06: Access Road Construction $500,000 1 NCB N/A (Sirinumu) W07: Rouna 1 Geotechnical $40,000 1 Shopping N/A Survey W08: Spatial Survey for penstock $35,000 1 Shopping N/A route
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General Description Estimated # Procurement Domestic Comments Value Contr Method Preference (cumulative) acts Applicable Goods G01: 11 kV Open Mesh $8,310,000 10 ICB N/A G02: Loss Reduction Programme $500,000 5 ICB N/A G03: SinCAL Distribution $120,000 1 Direct software (2 licences) Contracting G04: SinCAL training $35,000 1 Direct Contracting G05: IT equipment $20,000 3 Shopping N/A Consultants C01: Implementation Consultant $4,080,000 1 QCBS N/A C02: Port Moresby 11 kV Mesh $100,000 1 ICS N/A detailed design C03: Transient, harmonic, $250,000 1 ICS N/A stability, protection studies EPC = Engineering, Procurement and Construction, ICB = International Competitive Bidding, PPL = PNG Power Ltd.
V. NATIONAL COMPETITIVE BIDDING
13. General. National competitive bidding (NCB) shall conform to the provisions set in the Public Financial Management Act (PFMA) as issued in 1995 and amended in 2003, and the specific procedures prescribed in the Financial Instructions (FIs) issued in 2005, with the clarifications and modifications described in the following paragraphs required for compliance with the provisions of ADB Procurement Guidelines. 14. Participation in Bidding (i) State-owned enterprises in Papua New Guinea shall be eligible to bid only if they can establish that they are legally and financially autonomous, operate under commercial law, and are not a dependent agency of the Government/Executing Agency/Implementing Agency. (ii) Foreign bidders shall be eligible to participate in bidding under the same conditions as national bidders. (iii) Bidding shall not be restricted to preregistered firms and such registration shall not be stated in the bidding documents as a condition for the submission of bids. Where registration is required prior to award of contract, bidders: (i) shall be allowed a reasonable time to complete the registration process; and (ii) shall not be denied registration for reasons unrelated to their capability and resources to successfully perform the contract, which shall be verified through post-qualification. 15. Classification of Contractors; Qualification; Post-qualification (i) Post qualification shall be used unless prequalification is explicitly provided for in the loan agreement/procurement plan. (ii) Bidding shall not be restricted to any particular class of contractors, and non- classified contractors shall also be eligible to bid. Qualification criteria (in case prequalification was not carried out) shall be stated in the bidding documents, and before contract award, the bidder having submitted the lowest evaluated responsive bid shall be subject to post-qualification. 16. Conflict of Interest. Bidders may be considered to be in conflict of interest with one or more parties in this bidding process if, including but not limited to: (i) they have controlling shareholders in common; or (ii) they receive or have received any direct or indirect subsidy from any of them; or (iii) they have the same legal representative for purposes of this bid; or
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(iv) they have a relationship with each other, directly or through common third parties, that puts them in a position to have access to information about or influence on the Bid or another Bidder, or influence the decisions of the Employer regarding this bidding process; or (v) a Bidder participates in more than one bid in this bidding process. Participation by a Bidder in more than one Bid will result in the disqualification of all Bids in which the party is involved. However, this does not limit the inclusion of the same subcontractor in more than one bid; or (vi) a Bidder or any of its affiliates participated as a consultant in the preparation of the design or technical specifications of the contract is the subject of the Bid; or (vii) a Bidder or any of its affiliates has been hired (or is proposed to be hired) by the Employer or Borrower as Engineer for the contract. 17. Preferences. No preference shall be given for domestic bidders and for domestically manufactured goods. 18. Advertising, time for bid preparation (i) Invitations to bid shall be advertised in at least one newspaper of national circulation or freely accessible and well-known website, allowing a minimum of 4 weeks for the preparation and submission of bids, such 4 weeks period to begin with the availability of the bid documents or the advertisement, whichever is later. (ii) Bidding of NCB contracts estimated at $500,000 or more for goods and related services, or $1,000,000 or more for civil works, shall be advertised on ADB’s website via the posting of the Procurement Plan. 19. Standard Bidding Documents. Until national standard bidding documents approved by ADB are available, bidding documents acceptable to ADB should be used. 20. Bid Security. If required by the bidding documents, bid security shall be in the form of a bank guarantee from a reputable bank. A bidder’s bid security shall apply only to a specific bid. 21. Bid Opening and Bid Evaluation. (i) Bidders may deliver bids, at their option, either in person or by courier service or by mail. (ii) Bidders shall not be allowed to amend their tenders after the closing date and time for submission of bids. (iii) Bids shall be opened in public, immediately after the deadline for submission of bids. No bid shall be rejected during bid opening. The name of the bidder, the total amount of each bid, and any discounts shall be read aloud and recorded in the minutes of the public bid opening. (iv) Evaluation of bids shall be made in strict adherence to the Qualifications and Evaluation Criteria stipulated in the bidding documents. (v) No bidder shall be rejected merely on the basis of a comparison with the employer’s estimate and budget ceiling without ADB’s prior concurrence. (vi) The Contract shall be awarded to the technically responsive bidder that offers the lowest evaluated price, and meets the qualifying criteria. In determining the lowest evaluated price, the following are to be considered: (i) bid price, as offered, (ii) arithmetical corrections on the bid price, if any, and (iii) monetary value of the evaluation criteria that are stated in the bidding document. 22. Rejection of Bids. Bids shall not be rejected and new bids solicited without ADB’s prior concurrence. 23. Extension of the Validity of Bids. In exceptional circumstances and with prior ADB approval, the procuring entity may, before the expiration of bid validity, request all bidders in writing to extend the validity of their bids. In such a case, bidders shall not be requested nor permitted to
Final Report | 30 November 2012 Page | 182 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix O - Procurement Plan amend the price or any other condition of their bid. Bidders shall have the right to refuse to grant such an extension without forfeiting their bid security, but bidders granting such an extension shall be required to provide a corresponding extension of their bid security. 24. Disclosure on Contract Awards. At the same time that notification on award of contract is given, the Borrower/Executing Agency/Implementing Agency shall publish the following information on contract award on a free and open access website or other means of publication acceptable to ADB: (i) name of each bidder who submitted a bid; (ii) bid prices as read out at bid opening; (iii) name and evaluated price of each bid that was evaluated; (iv) names of bidders whose bids were rejected and the reasons for the rejection; and (v) name of the winning bidder, price it offered as well as the duration and summary scope of the contract awarded. The Executing/Implementing Agency shall respond in writing to unsuccessful bidders who seek explanations on the grounds on which their bids are not selected. 25. No Negotiations. There shall be no negotiations, even with the lowest evaluated bidder, without ADB’s prior concurrence. A bidder shall not be required, as a condition of award, to undertake obligations not specified in the bidding documents, or otherwise, to modify the bid as originally submitted. 26. Inspection and Auditing. Each contract financed from the proceeds of a Loan/Grant shall provide that the contractor/supplier shall permit ADB, at its request, to inspect their accounts and records relating to the performance of the contract and to have said accounts and records audited by auditors appointed by ADB. 27. Member Country Restriction. Bidders must be nationals of member countries of ADB, and offered goods must be produced in and supplied from member countries of ADB.
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Appendix P Procurement Capacity Assessment
CONTENTS
Section I: Overall Assessment Section II: Summary Assessment and Recommendations Section III: Specific Recommendations: Project Implementation Section IV: General Recommendations: EA Capacity Annexure 1: Procurement Risk Assessment Annexure 2: Implementing Agency Procurement Capacity Assessment Questionnaire
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PAPUA NEW GUINEA: PORT MORESBY POWER GRID DEVELOPMENT PROJECT PROCUREMENT CAPACITY ASSESSMENT REPORT
I. OVERALL ASSESSMENT
Proposed Project Name: Port Moresby Proposed Amount: US$ 83 million Power Grid Development Project Executing Agency: Independent Public Source of Funding: ADF (US$ 15.0 million), Business Corporation (IPBC) OCR, (US$ 51.7 million) and PNG Government Implementing Agency: PNG Power Limited (US$ 16.3 million) (PPL) Assessment Date: September 2012
1. Expected Procurement. The procurement primarily consists of international turnkey competitive bidding for construction of hydropower plants, transmission lines and substation and for Goods supply for distribution components. For distribution works installation this shall be a combination of International and National Competitive Bidding and of construction services to be provided direct by PPL with the latter funded by PPL outside of this Loan facility. This will be supported by the procurement of consulting services through international competitive bidding. Advance procurement for some aspects have been recommended. For this it is proposed PPL seek procurement specialist advice in the advance stages. 2. Assessment of the National Environment. The public procurement environment in PNG has improved in recent years. However the overall procurement environment remains weak. The Central Supply and Tenders Board (CSTB) is the main entity responsible carrying for public procurement on behalf of government departments for goods, works and services that exceed PGK 300,000 (US$ 150,000), which must under law be put to public tender. Provincial authorities wishing to undertake procurement which exceeds PGK 3.0 million must also go through the CSTB. Although the CSTB is intended to be an independent body, it falls under the Finance Department and reports to the Minister of Finance. 3. With increasing amounts of public funds being channelled through provincial governments, there is a critical need to improve procurement capacity at this level. Training programmes that are now offered to CSTB staff, and other central, provincial and district-level government procurement staff, has had some impact in improving overall capacity. 4. The CSTB is also developing standard bidding documents which should improve overall document quality; however the quality of specifications is often low, especially when standard specifications cannot be copied, and evaluation and award criteria tend to be poorly defined. Also the CSTB currently lacks the capacity to carry out procurement audits and compliance checks. 5. A draft procurement assessment report was prepared in early 2010 on behalf of CSTB, which identified a number measures that could be taken to strengthen procurement, which included the following: Strengthening existing procurement laws (there is currently no separate procurement law in PNG); Strengthening rules on minor procurement; Extending the legal framework to cover all procurement using public funds (public bodies such as state-owned enterprises such as PPL are currently exempt from public procurement laws); Increasing compliance with existing laws; Consolidating and updating existing procurement manuals; Improving the quality of technical specifications; Improving transparency on bid award decisions; Improving the complaints process;
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Ensuring completeness of procurement records; Providing better support the development of competitive procurement markets; Improving the procurement control mechanism; Increasing independence of CSTB; Improving legal provisions for targeting corruption. 6. Executing Agency Resource Assessment. The Independent Public Business Corporation (IPBC) does not have procurement capacity for major projects. Such responsibilities are delegated to the respective state-owned enterprises such as PPL as the Implementing Agency. IPBC are required to be consulted on all projects in excess of PGK 1.0 million and their approval provided. 7. Implementing Agency Resource Assessment. PNG Power Limited (PPL) has significant experience procuring goods and services required for the generation, transmission and distribution of power around the country, including the preparation of bidding documents and evaluation of technical proposals and monitoring contract performance. Procurement of goods and services has recently been carried out by PPL for three large projects including the Yonki Toe of Dam Hydropower Project, and the Erap to Hidden Valley Project which involves the construction of a 105 km transmission line and associated substations. 8. PPL's procurement section does not currently face any critical human resource or physical resource constraints. Procurement activities are carried out by 34 staff of which 2-3 is part-time in the procurement section located in the PPL's main office and 38 additional staff at PPLs four regional warehouses around the country. The Senior Manager of Procurement holds a degree in business management, has 2 years of direct procurement experience and 5 years prior experience with PPL as Finance Manager. Other senior procurement staff hold diplomas in procurement- related fields. Several other staff are currently undertaking diploma programmes. PPL have recently developed a “Work Force” where by the Human resources division manages over HR training and development of training. Comprehensive on-the-job procurement training programme for staff is yet to commence, but the programme is developed and as approved will be implemented. The procurement section has adequate facilities (IT systems and other office equipment) which allow them to efficiently manage procurement processes. 9. Implementing Agency Procurement Processes: Goods and Works/Consulting Services. PPL's procurement processes for goods, works and consulting services are outlined in manuals on purchasing policy and procedures, and tendering policy and procedures which were last updated in 2010 from the prior 2006 version. 10. Procurement policies require that in most cases, competitive tendering processes be used for purchase of goods, works and services that exceed PGK 300,000 in value. PPL's tendering processes generally follow sound international practices; however, the practices employed will require realignment to comply with ADB standard procedures for ADB or for that matter any international funding agency funded projects. 11. There are three major weaknesses that would require realignment to ADB policies: (i) That PPL use simplified general terms of reference without specific Technical Specification or Bills of Quantity / Price schedules, thus leaving too much scope for the Bidder to misinterpret requirements. This presents problems in the evaluation of bids in comparing bids equitably and objectively. (ii) That the opening of bids is not required to be done in public, as a result, bids are regularly opened behind closed doors. Also, although the details of bids opened are recorded in PPL's tender register, detailed meeting minutes are not taken. (iii) That there have been many cases where single source or restricted tendering are used to expedite a project that exceed PGK 300,000 in value. It is not clear that PPL are achieving cost effective outcomes as a result. This suggests such practices should be more thoroughly scrutinised prior to approval.
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12. Further to item 11(iii) above, PPL practices permit single source and restricted tendering. Such may be used in certain circumstances such as: a) cases of extreme urgency; b) where goods and works to be purchases must meet requirements of compatibility or inter-changeability with existing equipment or services; and c) for tenders under PGK 300,000 to save on administration costs where contractor is determined to be suitable and cost-effective. Depending on the value of goods, works or services, prior approval of the department manager, Chief Operating Officer (COO) or Board of Management is required before single source or restricted tendering can be used to procure goods, works or services. 13. Selective tendering may be used where there is a need to invite tenders for frequently used goods, services and works, and there is good justification for using this type of procurement method. The COO, General Manager of Finance and Chairman of the Tenders and Capital Works Committee must approve the list of qualified contractors and suppliers included on selective tendering list. 14. Prequalification tendering may be used in certain circumstances such as with projects of a highly complex nature, large value or subject to rigid completion programmes, or for projects that require a high level of coordination, technical expertise or non-standard contracts such as design- and-build contracts. 15. The Board of Management is responsible for appointing qualified members to the tenders and capital works committee which is responsible for considering and approving tenders. The COO and Manager of Finance are responsible for appointing qualified members to the bid opening committee which is responsible for opening and registering tenders received. Evaluation committees also exist to evaluate bids, and report directly to the tenders and capital works committee. Standard bidding documents are used to invite tenders, and tender notices for large projects are commonly advertised in Australia and New Zealand as well as locally. Quality and value for money are generally used to evaluate tenders, as well as past performance record. Although two stage bidding is commonly used for procurement where complete technical specifications cannot be prepared in advance, it is not required under procurement policy. 16. In their current form, PPL's procurement policies do not conform to ADB or international funding agency best practices. Transparency could be substantially improved by detailed specification and BOQ/pricing schedules, and requiring all bids submitted through competitive tendering processes to be opened in public, with meeting minutes take and made available upon request. A complaints process could also be introduced, since currently none exist. Also, competitiveness among potential suppliers and contractors could be increased by reducing the number of cases where selective and restrictive tendering can be used under procurement guidelines. 17. Process Control and Oversight, Records Keeping and Audit. All staff are required to comply with PPL's code of ethics and standard of conduct, and are required to sign a conflict of interest statement. Any member of staff with a potential conflict of interest is required to remove themselves from the procurement process. 18. Procurement needs are identified on the basis of business papers prepared by each department. Justifications for procuring goods/works/services are included in the business paper, which is used to obtain the initial approval of purchase. Once the business paper has been approved, the procurement process can be initiated. 19. Established thresholds for financial delegation exist. Above PGK 1.0 million approval must be referred to IPBC. Where purchases exceed PGK 250,000 such must be approved by the COO, and if value exceeds PGK 300,000 management board approval must be received. General Managers have the authority to approve purchases up to PGK 150,000 and Divisional Managers can approve up to PGK 10,000. An established reporting and approval structure also exists for tendering processes as described in the previous section. Tendering committees are responsible for all decisions on contract evaluation and award, where payments authorization is either approved by the Assistant CEO and CEO according to financial delegation thresholds. 20. Detailed records on tenders are required to be kept for up to 5 year. Records include the tenders register, which contains details on all tenders received in response to expressions of
Final Report | 30 November 2012 Page | 188 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix P - Procurement Capacity Assessment interest issued by PPL, evaluation committee reports on reasons for recommending tenders for contract award, and written records on communication with tenders. For restricted or single-source procurement, records include written justification and approvals received for not using competitive tendering processes. [This was not visually validated] 21. Another weakness associated with PPL’s current procurement policies is that they do not include complaints procedures since all decisions on contract award made by tendering committees are final. Contract award transparency could significantly be improved by developing a complaints process.
II. SUMMARY ASSESSMENT AND RECOMMENDATIONS
22. Overall, sufficient resources and capacity exist within PPL to efficiently carry out procurement activities. In addition, adequate control processes and oversight are in place. Current procurement practices carried out according to PPL's procurement policies do not fully conform to international funding agency best practices. This results in reduced transparency and levels of competition between suppliers and contractors in supplying goods, works and services to PPL. This creates an average risk procurement environment. 23. In order to reduce existing procurement risks, it is required that the project management unit adheres to ADB procurement requirements, rather than carrying out procurement activities according to PPL's existing procurement procedures. PPL should consider reviewing and adopting strengthened procedures for all of its procurement activities.
III. SPECIFIC RECOMMENDATIONS: PROJECT IMPLEMENTATION
Capacity Constraint Recommendations Action Responsibility and comment Unacceptable procurement Strengthen existing PPL Board of Management is practices: these include: i) lack of procurement policies and responsible for approving any detailed technical specifications, procedures to meet changes to current procurement BOQ and Pricing schedules; and ii) international funding agency policies and procedures. opening of bids behind closed best practices. doors and not maintaining meeting minutes; and iii) over-reliance on selective tendering practice. Lack of existing complaints Introduce mechanisms for mechanisms: currently all handling complaints to decisions made by tender improve transparency of committees are final, and there are contract award process. no procedures in place to review decisions or lodge complaints.
IV. GENERAL RECOMMENDATIONS: EA CAPACITY
Capacity Constraint Recommendations/Action Responsibility and comment Lack of training opportunities: Expedite plans to introduce Senior Manager Procurement is comprehensive procurement planned comprehensive responsible for organising training programme is not currently training programme under procurement training available to all relevant PPL staff new corporate strategy. programme according to the Work Force planning was recently Work Force Plan coordinating introduced company wide. with HR as needed for Advice during Advance Commission or seek ADB approvals. procurement: to ADB criterion. support for specialist. (i) PPL Director Strategy and (ii) GM Projects.
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Annexure 1: Procurement Risk Assessment
Description Level of Risk 1. Is there a procurement law? Low 2. Are these laws and regulations clear and concise? High 3. What does the law (or regulations applicable to procurement) cover? High 4. Does the law cover the procurement of consulting services? Low 5. Does the law differentiate between processes for consulting services and Goods / Works? High 6. Does the law require advertisement of all procurement opportunities? Average 7. Are contract awards advertised? Average 8. Are there restrictions on goods and works services on the basis of origin? Average 9. Does the law or relevant legislation and regulations proved acceptable provisions for the Low participation of state owned enterprises? 10. Are there restrictions on the nationality of bidders and consulting firms invited? High 11. Are foreign bidders and consultants forced to offer through or with local partners Average 12. Is there a domestic preference scheme? Average 13. Is there a national standards mandated for used for quality control purposed? Low 14. Are agencies exempt from the law? High 15. Is the default method of procurement open competition? No 16. Is open procurement easily avoided? High 17. Do the rules and regulations require pre-qualification? Low 18. Do the rules and regulations require registration? Average 19. Are there systematic procurement process audits? Average 20. Is there a national procurement manual or guide? Low 21. Do the laws and regulations mandate the use of standard documents? Low 22. Have these standards bidding documents been approved for use on ADB projects? Low 23. Do the regulations require the collection of nationwide statistics on procurement? High 24. Is consolidated historical procurement data available to the public? N/A 25. Do procurement laws and regulations contain provisions for dealing with misconducts? Low 26. Is fraud and corruption in procurement regarded as a criminal act? High 27. Have there been prosecutions for fraud and corruption? High 28. Is there an alternative disputes resolution process independent of government and High courts? 29. Does the law allow for sovereign immunity to the EA for claims against it? Low 30. Do the regulations allow for black listing (disbarment) of firms and individuals? High 31. Which body oversees procurement? High 32. What powers does the oversight body have? High 33. Is there a nationwide procurement training plan? Low 34. Is there a procurement accreditation or professional programme? Average 35. Are major projects identified within an agencies appropriation or budget? Average 36. Is the procurement cycle tied to an annual budgeting cycle? Average 37. Once an appropriation or budget is approved will funds be placed with the EA or can the N/A EA draw them down at will? 38. Can an EA draw directly from a loan or imprest account or will it spend budgeted funds N/A with the borrower claiming reimbursement? 29. When an EA is implementing a project using funds from the national budget has a delay Low in funding significantly delayed procurement?
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Annexure 2: Implementing Agency Procurement Capacity Assessment Questionnaire [Assessment updated 3 September 2012] Part A. Agency Resource Assessment Response A.1. Is there a procurement department? Yes, a procurement section exists which is overseen by the Manager of Procurement. A.2. What procurement does it undertake? PPL undertakes a variety of power sector projects. Recent large projects for which procurement has been undertaken include the Yonki-Toe Dam Hydropower Project (PGK90 million), Eratap to Hidden Valley Transmission Line (PGK60 million) and adjacent substations (PGK50 million), which are all currently under construction. A.3. Are staff provided with written job Yes, all staff have a written job description. In addition, under descriptions? PPL's current restructuring programme, all staff job descriptions will be updated to better reflect staff roles according to the needs of the company. A.4. How many years’ experience does the The Senior Manager Procurement has 7 years of experience head of the procurement unit have in a direct with the company, of which 2 years have been in a direct procurement role? procurement role. Prior experience in PPL was as Finance Manager. A.5. How many staff in the procurement There are a total of 34 staff involved in procurement at the department are: company's head office in Port Moresby, and 38 additional i. Full Time? staff that work in the company's four regional warehouses. ii. Part Time? All but 2-3 staff members are full-time. iii. Seconded? A.6. At what level does the department The Senior Manager Procurement reports directly to the report (to head of agency, deputy) Chief Operating Officer (Asset Management). A.7. Do the staff that will be involved with the Yes, all staff are fluent in English. procurement have English language skills sufficient to undertake international procurement? A.8. Is the number and qualifications of the PPL has significant experience procuring goods and services staff sufficient to undertake international from overseas. The Manager of Procurement has a degree procurement? in finance and accounting. 3-4 senior procurement staff hold diplomas in a relevant fields. Several staff are currently upgrading their qualifications. Under the company's recent restructuring plans, Work Force planning was initiated for staff will be provided with training opportunities in order to allow them carry out their jobs according to their written job. A.9. Does the unit have adequate facilities Yes, procurement section facilities are adequate. such as PCs, internet connections, photocopy facilities, printers etc. to undertake the additional procurement that will be required under the proposed project? A.10. Is there a procurement training Currently staff involved in procurement learn on the job and programme? do not undergo formal training. However, the company plans to introduce procurement training programmes as part of its current restructuring process, based on existing skills gaps.
Part B. Agency Procurement Processes, Response Goods and Works B.1. Has the agency undertaken foreign The last externally funded project carried out by PPL was the assisted procurement of goods or works Yonki dam construction project funded by ADB which was recently (last 12 months, or last 36 months)? completed in 1991. In 2008 on the Yonki Toe of Dam project the Agency procured and appointed a contractor for the works. B.2. If the above is yes, what where the The contractor was subsequently terminated on 2-March- major challenges? 2011 for non-performance.
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Part B. Agency Procurement Processes, Response Goods and Works B.3. Is there a procurement process manual Yes, manuals exist which cover purchasing policy and for goods and works? procedures, and tenders policy and procedures. B.4. If there is a manual, is it up to date and Although manuals are supposed to be updated on a regular does it cover foreign assisted procurement? basis, they were last updated in 2010. This manual is not fully aligned to PNG Governmental criteria. B.5. Is there a systematic process to identify Procurement requirements are identified through the procurement requirements (1 year or more)? development of business papers for many categories of purchases. PPL management identifies projects to be funded each year, based on this procurement needs are then identified, which are included business papers. The business paper is the driving document that needs to be prepared to obtain initial approval to purchase goods, works and services. B.6. Who drafts the specifications? Specifications are drafted by department which is procuring goods, e.g. PPL engineering department for capital works projects. B.7. Who approves the specifications? Specifications are approved by the head of department B.8. Are there standard bidding documents Yes, PPL uses standard bidding documents. Since PPL has in use and have they been approved for use not carried out an ADB project for a number of years, they on ADB funded projects? haven't yet been approved by ADB. B.9. Who drafts the bidding documents? Bidding documents are prepared by the department which is procuring the goods/services/works. B.10. Who manages the sale of the Document sale is managed by the procurement section. document? B.11 Are all queries from bidders replied to in Yes, correspondence is written and kept on file. writing? B.12. Is there a minimum period for No, there is no specific policy on this, It is very much preparation of bids and if yes how long? dependant on the size of the project, and can vary from 2 weeks to 2 months. Procurement policy specifies that at least 25 days should be allowed for overseas and local tenders to prepare and submit proposals. B.13. Does bidding document state the date Yes, all bidding documents include this information. and time of opening and how close is it to the deadline for submission? B.14. Is the opening public? Procurement guidelines do not include specific rules on this. With the exception of the ADB-funded Yonki project which was public, PPL tender committees open bids behind closed doors. B.15. Can late bids be accepted? Late bids are not accepted except in exceptional circumstances. For example if bid was sent before closing date and did not arrive on time due to delays with postal or courier services (must be proved with post marked date). B.16. Can bids be rejected at bid opening? All bids opened are evaluated against tender requirements. B.17. Are minutes taken? A tender register is prepared during opening which includes information on bids received and bid amounts, which is endorsed by the tender committee. B.18. Who may have a copy of the minutes? The tender register is not made available to the public B.19. Are the minutes free of charge? N/A B.20. Who undertakes the evaluation Tender evaluation is carried out by the appropriate tender (individual(s), permanent committee, ad-hoc sub-committees depending on the type of goods being committee)? procured (there are separate sub-committees various categories such as capital works and general goods i.e. stationary). Policy requires that no less than 2 people form the sub-committee.
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Part B. Agency Procurement Processes, Response Goods and Works B.21. What are the qualifications of the Evaluators are generally senior staff from relevant PPL evaluators in respect to procurement and the departments. Policy requires that departments ensure that goods and works under evaluation? only properly qualified people are appointed to assess technical submissions. B.22 Is the decision of the evaluators final or Tender sub-committee decisions are final. is the evaluation subject to additional approvals? B.23. Using at least three real examples of Depending on the size of the procurement packages, this how long between the issue of the invitation can vary between one week and one month. for bids and contact effectiveness? B.24. Are processes in place for the Yes, PPL usually uses a logistics company to clear goods collection and clearance of cargo through through customs, and gives instructions storing goods in ports of entry? nominated warehouses. B.25. Are there established goods receiving Yes, there are procedures in place to inspect goods and procedures? check against bill of landing. B. 26 Are all goods received recorded as A Goods Received Note (GRN) must be filled out by the assets or inventory in a register or similar? person who physically receives goods to confirm receipt of these goods. Delivery quantities in the case of fuel must be ticked off and signed as accurate. All goods received are receipted into the system. Stock items are receipted against warehouse inventory, and major goods are included in separate project inventories. B.27. Is the agency/procurement department Yes, PPL frequently uses letters of credit. familiar with letters of credit? B.28. Does the procurement departments Yes, the procurement section is responsible for carrying out registers and track warranty and latent these activities. defects liability periods?
Part C. Agency Procurement Processes, Response Consulting Services C.1. Has the agency undertaken foreign Yes, two international consulting firms have been providing assisted procurement of consulting services services for PPL in the past year (feasibility studies for Yonki recently (last 12 months, last 36 months)? dam project and Brown river hydropower project). The Brown River consultancy was completed in 2011. C.2. If the above is yes what were the major No major challenges encountered. challenges? C.3. Is there a procurement process manual Procurement of consulting services are covered in PPL for consulting services procurement? manuals on purchasing policy and procedures, and tendering policy and procedures. C.4. Is the manual up to date and does it Although manuals are supposed to be updated on a regular cover foreign assisted projects? basis, they were last updated in 2006. Policies include all procurement for all projects including foreign-assisted. C.5. Who identifies the need for consulting Specific PPL departments identify consulting requirement services requirements? needs. C.6. Who drafts the ToR? Departments requesting consulting services prepare ToR. C.7. Do the ToR follow a standard format Yes, although there is no specific policy regarding use of such as background, tasks, inputs, standard formats, in practice standard formats are generally objectives, and outputs? used. C.8. Who prepares the request for Departments requisitioning consultant services prepare proposals? proposals. C.9. Are assignments advertised and When open tendering is used, tender invitations may be expressions of interest called for? published in local press, PPL website or international newspapers in Australia and New Zealand. In cases of selective tendering, selected firms are invited to submit expressions of interest.
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Part C. Agency Procurement Processes, Response Consulting Services C.10. Is a consultants' selection committee Yes, a consultant tender committee is formed and must formed with appropriate individuals in terms include manager of relevant department and manager of of procurement and technical expertise? procurement. C.11. What is the criteria to evaluate EOIs? Criteria are outlined in EOI- these may include quality, value for money, and past performance. C.12. Historically what is the most common The most common method used is QCS. method used (QCBS, QBS, etc.)? C.13. Do firms have to pay for the proposal Yes, a nominal fee is usually charged to cover costs of document? document. C.14. Does the evaluative criteria follow a Yes, evaluation criteria are pre-determined structures based pre-determined structures and is it detailed in on the nature of consulting services required and selection the RFP? criteria are specified in EOI. C.15. Are pre-proposal visits and meetings Yes, these can be arranged for large projects. arranged? C.16. Are minutes prepared and circulated No specific meeting minutes are prepared but, relevant staff after pre-proposal meetings? generally prepare reports on meeting and site visits that are carried out. C.17. To who are the minutes distributed? N/A C.18. Are all of the queries from consultants Yes, in order to provide records that can be kept on file. answered to in writing? C.19. Are financial and technical proposals in It depends on the size of the bid. For larger projects, separate envelopes? separate envelopes are used. For smaller projects, both technical and financial information is included in one envelope. C.20. Are proposal securities required? Not in all cases, the procurement manual outlines procedures for receiving and refunding deposits in cases where they are required. C.21. Are technical proposals opened in Generally not except in the case of one ADB-funded project. public? Although procurement procedures cover public opening. C.22. Do the financial proposals remain Yes sealed until technical evaluation is completed? C.23. Are minutes of technical opening No distributed? C.24. Who determined the final technical The department procuring the consulting services will ranking and how? prepare weightings for ranking technical proposals, final technical rankings will be determined by relevant tender sub- committee and included in tender evaluation report. C.25. Are the technical scores published and No sent to all firms? C.26. Is the financial proposal opening Generally not except in the case of one ADB-funded project. public? Although procurement procedures cover public opening. C.27. Are there minutes taken and No, relevant details are included in a tender register. distributed of financial proposal opening? C.28. How is the financial evaluation Financial evaluations of proposals are carried out by tender completed? sub-committee by members who are qualified to assess financial aspects of the proposal. C.29. Are face to face contract negotiations Yes, face to face contract negotiations are held, but held? negotiations may also take place by email. C.30. How long after financial evaluation is This is dependent on the size and complexity of the the selected firm to negotiate? consultancy services being procured.
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Part C. Agency Procurement Processes, Response Consulting Services C.31. What is the usual basis for Matters that can be discussed during post-tender negotiation negotiation? include additional value adding options, specific contract management arrangements, accountable personnel for various contract stages or commitments, further intellectual property transfer opportunities, warranties, service/supply arrangements. C.32. Are minutes of negotiation taken and Yes, written records of negotiation are maintained. signed? C.33. How long after negotiations until the This varies according to contract. contract is signed? C.34. Are advance payments made? Yes, advance payments are commonly made for mobilisation. C.35. Is there an evaluation system for Yes, performance under contract in delivering agreed measuring the outputs of consultants? outputs are monitored, according to milestones.
Part D. Process and Oversight Control Response D.1. Is there a standards statement of ethics Yes, PPL has a code of ethics that includes procurement and are those involved in procurement which members of staff are required to sign. required to formally commit to it? D.2. Are those involved with procurement Yes, this is required under PPL procurement policies. required to declare any potential conflict of interest and remove themselves from the procurement process? D.3. Is the commencement of procurement Procurement may proceed once it is verified that funds have dependent on external approvals (formal or been budgeted for procurement of particular works, goods or de-facto) outside of the budgeting process? services. D.4. Who approves procurement Transactions are reviewed by the Senior Manager transactions and do they have procurement Procurement who has appropriate qualifications, which are experience and qualifications? then approved by the Chief Operating Officer (Asset Management) in line with financial delegations. D.5. Which of the following actions require Approvals system is currently under review as part of PPL's approval outside of the procurement unit or a current restructuring process. permanent evaluation committee and who grants the approval? a) Bidding document, invitation to prequalify or request for proposal b) Advertisement of an invitation for bids, pre-qualification or call for expressions of interest c) Evaluation of reports d) Notice of award e) Invitation to consultants to negotiate f) Contracts D.6. Is contractual performance Yes, project managers are responsible for monitoring and systematically monitored and reported upon? preparing periodic performance reports. D.7. Does the agency monitor and track its Yes, contractual payment obligations are tracked and contractual payment obligations? monitored. D.8. On average how long is it between Stipulated in contract documents - 14 days (bankers have receiving a firm's invoice and making own independent tech experts). payment? D.9. What is the standard period for payment In theory, payments should be made within 30 days of goods included in contracts? or services delivered. D.10. When payment is made late are Provisions included in the contract. beneficiaries paid interest? D.11. Are payments authorized by the same Engineers’ evaluation - invoice match milestone payment
Final Report | 30 November 2012 Page | 195 TA 7783-PNG: Port Moresby Power Grid Development Project: Appendix P - Procurement Capacity Assessment individuals empowered to approve invitation requirements - sign off - goes to head of department documents, evaluations and contracts? engineering then to Project Finance Manager responsible for all Project expenditure and payments management (follows financial delegation). D.12. Is there a written auditable trail of Yes, decisions made by tender evaluation committees are procurement decisions attributable to recorded and kept on file. individuals and committees? D.13. Are procurement decisions and Tender evaluation committees are required under policy to disputes supported by written narratives keep detailed written records on decisions. such as minutes of evaluation and contracts? D.14. Is there a formal non-judicial No mechanism for dealing with complaints D.15. Is a complaints mechanism described N/A in national procurement documents?
Part E. Records Keeping Response E.1. Is there a referencing system for Yes, procurement documents are stored and filed, and can procurement files? be referenced as needed. E.2. Are original contracts secured in a fire Yes and theft proof location? E.3. Are copies of bids or proposals retained Yes with the evaluation? E.4. Are copies of the original Yes advertisements retained with the pre-contract papers? E.5. Is there a single contract file with a copy Yes of the contract and all subsequent contractual correspondence? E.6. Are copies of invoices included with Yes contract papers? E.7. For what period are records kept? Procurement files must be kept for at least 5 years.
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