Papua New Guinea Appraisal of the Second Power Project
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ReportNo. 327a-PNG FILECOPY PapuaNew Guinea Appraisalof the SecondPower Project (ElectricityCommission of PapuaNew Guinea) Public Disclosure Authorized May 15, 1974 Asia ProjectsDepartment Public Utilities Division Not for Public Use Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the International Bank for Reconstruclionand Development InternationalDevelopment Association Thisreport was prepared for officialuse only by the BankGroup. IL may not he published, quotedor cited without BankGroup authorization. TheBank Group does not acceptresponsibility for the accuracyor completenessof the report. CURRENCY EQUIVALENTS Before September9, 1973 A$ 1 - US$1.42 A$ 1,000 - US$1,420 A$ 1,000,000 - US$1,420,000 From September9, 1973 A$ 1 - US$1.4875 A$ 1,000 ' US$1,487.5 A$ 1,000,000 - US$1,487,500 Weights and Measures Equivalent kW - Kilowatt MW - Megawatt (1,000 kW) kWh - Kilowatt hour MWh - Megawatt hour (1,000 kWh) GWh a Gigawatt hour (1 million kWh) kV = Kilo volt (1,000 volts) cro andrs Abbreviations Commonwealth - Commonwealthof Australia Territory - Territoryof Papua and New Guinea Administration - Administration of Papua and New Guinea PNG - Papua New Guinea ELCOM - Electricity Commission CONWORKS - Commonwealth Department of Works Offshore - Overseas Onshore - Domestic ELCOM's Financial Year - Year beginning July 1 and ending June 30 (Unless otherwise stated, the year quoted in the text refers to the financial year.) PAPUA NEW GUINEA PAPUA NEW GUINEA ELECTRICITY COMMISSION APPRAISAL - SECOND POWER PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ..... ................... i-ii I. INTRODUCTION ........ ................................ 1 II. THE ECONOMY AND THE POWER SECTOR .................... 2 The Country and its Economy ......... 2 Energy Resources ........................... ... 3 The Power Sector ....................... .. ..... 4 III. THE BORROWER AND THE BENEFICIARY .............. ...... 5 Elcom's Management and Organisation .. .......... 5 Existing Facilities ..... ....................... 6 Future Development Plans ...................... 7 IV. THE POWER MARKET . .................................. 7 V. THE PROJECT............................... ....... 8 In-Service Training ..... .............. 8 Distribution Expansion ..... ....................10 Foreign Exchange Shortfall of Loan 737-PNG ..... 10 Procurement and Disbursements ................ .. 11 Construction Schedule ..... .....................11 Consulting Services ............. ...........e. 11 VI. JUSTIFICATION OF THE PROJECT ..... ................... 11 In-Service Training ............ .. .............. 12 Distribution Expansion ..... ....................12 Foreign Exchange Shortfall of Loan 737 PNG ..... 12 This report was prepared by Messrs. E. A. Minnig (Power Engineer) and S. S. Scales (Financial Analyst). -2- Page No. VII. FINANCIAL ASPECTS ...... ............................. 13 Past and Present Earnings...................... 13 Present Financial Position ..... ................13 Sinking Fund .......... 1144......... Insurance ........... ...................... 15 Audit .......................................... 15 Proposed Financial Plan ....................... 15 Future Financial Position ..... .................16 VIII. AGREEMENTSREACHED AND RECOMMENDATION.... ...........18 LIST OF ANNEXES 1.1 Diagram Economic Data - Chart (8026) 1.2 Gross National Product (CurrentPrices) 2. Diagram OrganisationChart - Chart (8027) 3. Power Plant as InstalledJune 30, 1973 4. Overhead Line Statistics at June 30, 1973 5. Supply Point TransformerStatistics at June 30, 1973 6. DistributionSubstation Statisticsat June 30, 1973 7. Future DevelopmentPlans 8.1 Generation,Sales and Maximum Demand 1964-1973 8.2 Generation,Sales and Maximum Demand 1974-1980 9. Consumer Statistics 1966-1972 10.1 Sales and Revenue per Tariff Classifications1964-1968 10.2 Sales and Revenue per Tariff Classifications1969-1972 10.3 Sales and Revenue per Tariff Classifications1973-1976 10.4 Sales and Revenue per Tariff Classifications1977-1980 11. Review of Economic Trends and Prospects in the Area to be served by Upper Ramu HydroelectricProject 12.1 Diagram - Actual & Forecast Maximum Demand (MW) (Chart 8025) 12.2 Diagram - Actual & Forecast Generation (GWH) (Chart 8028) 12.3 Diagram - Actual & Forecast Sales of Energy (Chart 8030) 13. Distribution Expansion Program 1975-1978 14. Upper Ramu No 1 - Hydro Plant Cost Estimates 15 Diagram - Staff and Consumers (Chart 8029) 16. Training 17. Schedule of Estimated Disbursements 18. Schedule of Monthly Tariffs 19. Condensed Balance Sheets for 1970 thru 1980 20. Statement of Outstanding Debt - Repayment of Principal - 1973-1980 21. Source of Applicationof Funds for 1973 thru 1980 22. ConstructionExpenditure for 1973 thru 1980 23. Income Statements for 1970 thru 1980 24. Estimated Interest for 1973 thru 1980 MAP PAPUA NEW GUINEA PAPUA NEW GUINEA ELECTRICITY COMMISSION SECOND POWER PROJECT SUMMARY AND CONCLUSIONS i. This report appraises the Second Power Project for Papua New Guinea and aims at helping PNG to strengthen and localize ELCOM. The project consists of two main items: a) technical assistance for ELCOM's in-service training program during the period 1974-79, and b) expansion of ELCOM's distributionnetwork in 13 different centers. The project will also include financing to cover the cost over-run under the first power project (Loan 737-PNG) which is attributableto exchange rate adjustments. The estimated total cost of the project is US$17.25 million equivalent. A loan of US$10.8 million is proposed. ii. The loan was requested by the Commonwealthof Australia (Guarantor) on behalf of the Government of Papua New Guinea (Borrower)and the Papua New Guinea Electricity Commission (ELCOM) (Beneficiary). iii. ELCOM was establishedin July 1963 as a statutory corporation,with adequate powers to conduct its affairs in accordancewith sound public utility practices. It was responsible to the CommonwealthMinister of External Territories through the Administrator,but the Minister and the Administrator have de facto transferredtheir powers relating to ELCOM to the cabinet of the newly formed PNG Government, and ELCOM now reports to the PNG Minister of Mines and Energy. PNG achieved self-governmenton December 1, 1973. It is expected to become independentin December this year. iv. The country's economy is based essentiallyon primary production. GNP growth declined from a previous annual rate of 11% between 1969 and 1971 to 2.1% in 1972. ELCOM's power market, being susceptible to changing and uncertain economic conditions,is projected to grow at a reduced rate of 8.6% as against 21% forecast in 1970 for the period 1969 through 1978. The factors contributing to the recession are the transient political situation and the uncertaintiesof the future. Because of this ELCOM has eliminated all add- itional generation expansion projects from its 1974-1980 investment program, since available capacity will meet forecast demand. Its expansion program, therefore, includes only the Upper Ramu No. 1 Hydro Project under construction (financed by Loan 737-PNG) and modest distributionfacilities. v. ELCOM has a good record for reliable supply and service. Although the recession is affecting its growth, ELCOM's forecast financial position would continue to be satisfactorywith an operating ratio varying between 59% and 65%; a net debt/equity ratio improving from 76/24 in 1976 to 73/27 in 1980; and internally generated funds after debt service financing 35% of capital requirementsduring 1974/79. - ii - vi. ELCOM presently supplies power to 10 centers of population. It has a generating capacity of 70 MW consisting of 37.6 MW of hydroelectric plant and 32.4 MW of diesel. ELCOM is also responsible for the operation and maintenarnceof generating and distribution facilities at 142 centers owned by the PIG Governmentwith a total capacity of 8.9 MW. Three of these centers situated in the area of the Upper Ramu hydroelectricproject will be trans- ferred to ELCOM in 1976 and incorporatedinto the system. vii. ELCOM's management is able, and its staff is competent. It was the first organisationin PNG to appreciate the need to train local staff and it has had a training program in operation since 1964. At June 30, 1973, its operating staff totalled 1,247 of which 264 were expatriates. In addition it had 365 local apprentices, trainees and cadets under training. The degree of indigenisation(excluding apprentices, etc.) is now 79% as against 64% in 1970, with a target set for 1980 of about 98%. By then most of the 25 expatriates still consideredessential would be in the more senior positions. viii. The proposed project would be a suitable basis for a Bank loan of US$10.8 million equivalent for a ?eriod of 20 years including a 5 year grace period. PAPUA NEW GUINEA PAPUA NEW GUINEA ELECTRICITY COMMISSION SECOND POWER PROJECT I. INTRODUCTION 1.01 The Government of the Commonwealthof Australia on behalf of the Government of Papua New Guinea and the Papua New Guinea Electricity Commis- sion (ELCOM) has requested a Bank loan of US$10.8 million equivalent to finance the off shore cost element of salaries of expatriatesexclusively engaged in training local staff (44%) modest distributioninvestments (21%); and the foreign exchange short-fall on Loan 737-PNG resulting from recent currency adjustments (35%). The principalelement of the proposed loan would support a soundly conceived training program which would otherwise have to be curtailed since no alternativefinancing