US and NZ stand by PNG electricity campaign despite concerns

New Zealand and the US say they are committed to the Papua New Guinea Electrification Partnership despite the PNG government's awarding of major energy contracts to Chinese companies.

The $US1.7 billion Partnership, which also involves Australia and Japan, has the stated aim of electrifying 70 percent of PNG by 2030 - currently only about 12 percent of PNG households have access to electricity.

It was announced with much fanfare at last year's APEC leaders summit in Port Moresby, as part of a suite of aid and development announcements by Australia and its allies for the Pacific region, particularly PNG. These were widely seen as an effort to counter Chinese activity in the region.

However, PNG's government - which welcomes partnerships with a broad range of partners - is at the same time pursuing a number of major electricity projects with China. This is where PNG's parliamentary opposition has raised concern.

PNG's opposition leader Patrick Pruaitch last week claimed that the US was about to pull out of the Partnership over concerns about the government awarding contracts for power projects to companies from China without calling for open and competitive tendering.

Mr Pruaitch cited the massive Ramu-2 hydroelectric project, which State Enterprise Minister William Duma last year announced would be led by Chinese company, Shenzhen Energy Group.

"The NEC (PNG's National Executive Council) declined to approve this project when it was presented to cabinet because of the realisation it would breach the Public Finance Management Act," Mr Pruaitch claimed.

"Instead it has gone through the back door and approved by Kumul Consolidated (holding company for PNG's state-owned enterprises) without participation of PNG Power."

Shenzhen appears to have clinched the contract because of the proximity of a Chinese Exim Bank financing deal that PNG's Peter O'Neill-led government entered into.

The Ramu-2 project, said to be valued at US$800-million, is linked to Beijing's signature Belt and Road initiative. Mr Duma said the planned 180-megawatt plant would eventually increase PNG's electricity output by a third.

However, the country's electricity provider, PNG Power, rejected the project, deeming that it was too expensive and would pose an unacceptable risk to the utility, which would be forced to guarantee the deal.

PNG's opposition also cited the planned $US145-million Yonki to Mt Hagen electrification project which has been awarded to another Chinese company, TBEA Ltd, without an obvious open tendering process, as a slap in the face for the Partnership launched at APEC.

While it wouldn't comment on the individual contracts, the US government denied the PNG opposition's claim that American commitment to the Partnership has faltered.

A spokesman at the US Embassy in Port Moresby said US commitment to the Partnership had not changed since Vice President Mike Pence signed the agreement at APEC last November.

"Certainly any contract undertaken by the Partnership would be required to conform to international standards of transparency," the spokesman explained.

"However, the PNG government has also undertaken a national electrification program, outside of the Partnership, and can negotiate contracts as it sees fit."

Similarly, New Zealand's government is standing firm by the commitment made by prime minister Jacinda Ardern at APEC.

"We expect that any tenders under the Partnership will be open to businesses from all countries including New Zealand," said a spokesperson at the Ministry of Foreign Affairs and Trade.

According to the spokesperson, the Partnership provides a principles and values-based framework that promotes open, fair, sustainable and quality delivery of electrification tenders and projects.

"New Zealand is focused on delivering tangible results in a transparent manner, not on who the PNG Government chooses to partner with," she said.

The spokesperson said that decisions by PNG's government on their own tender and procurement processes were not New Zealand's business.

"We anticipate New Zealand's assistance will be directed to a range of projects in line with the PNG government's priorities for electrification development."

PNG's prime minister Peter O'Neill has denied Mr Pruaitch's claims, saying they lacked evidence and were misleading.

The ambitious goal of electrifying most of PNG's households is still in its infancy. With help from the Partnership, PNG Power was planning to have 30,000 connections this year, up from an estimated 19,000 last year.

But PNG Power has to contend with a government which appears to lack a cohesive policy on how to effect a reliable, cost-effective energy supply to the country.

The Ramu-2 and Yonki projects are expected to drive power prices up, but the opposition says it's not too late for the government to call new open tenders for the ventures, and to consider rival bids for similar quantities of electricity from gas and other energy sources.

Mr Duma is merely one minister pushing certain projects, which in recent history have included at least one dubious deal involving public money.

At the same time others in the cabinet, namely Energy Minister Sam Basil, are pushing for a coal-fired power plant in Lae. Given that the prime minister says his government is serious about moving towards renewables in the face of climate change, it's not clear that the coal plan has total government approval.

PNG has a range of power options on the table, but faces a tricky juggling act to balance competing interests of partner countries in this area.