Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 14-2022: Independent Power Producers and Deregulation in an Island Based Small Electricity System: The Case of Papua New Guinea

Rabindra Nepal (), Ronald Sofe and Tooraj Jamasb ()
Additional contact information
Rabindra Nepal: School of Business, Faculty of Business and Law, University of Wollongong, Australia
Ronald Sofe: National Research Institute, Papua New Guinea
Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark

Abstract: The island economy of Papua New Guinea (PNG) is facing severe electricity shortages and is therefore turning to implementing broader power sector reforms as a vehicle to attract private capital and investments in electricity generation. This study, based on a case-study approach, revisits the reform progress and plans in the electricity sector of PNG alongside the development and integration of IPPs in its small power system. Lessons of reform experiences and IPPs integration are drawn from three other smaller power systems belonging to Nepal, Nicaragua and the Northern Territory of Australia including stakeholder consultations, which includes two IPPs of PNG. We find a widening gap between reform ‘theory’ and ‘practice’ in the PNG power sector. Cost reflective pricing is implemented but cost recovery is never achieved by the vertically integrated state-owned utility while the insolvency of this state-owned single buyer poses the greatest perceived revenue risk to the IPPs. This lack of revenue reimbursement to the IPPs by the single buyer is a barrier towards attracting private capital into electricity generation We recommend that strong political will and strengthening of institutional arrangements are urgent reform measures to attract private capital in power generation as political instability continue.

Keywords: reforms; small systems; political instability; independent power producers; regulation

JEL-codes: L50; L94

Language: English

36 pages, October 27, 2022

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