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Shake-up of the PNG electricity supply industry

The National Parliament recently passed the National Energy Authority Act 2021 (Act) and the Electricity Industry (Amendment) Act 2021 which will introduce significant changes to the electricity supply industry in Papua New Guinea.

The legislation will come into operation in accordance with a notice in the National Gazette although there is no present indication when this will occur.

The key takeaways of the new legislation are:

  1. The National Energy Authority (Authority) will be the regulator of the electricity supply industry (taking over the role currently performed by the Independent Consumer and Competition Commission).

  2. A new regime of licensing, levies and fees will be introduced.

  3. New national content requirements will apply to electricity project developers, similar to those for projects in the extractive industries.

What is the role of the new regulator?

The Authority will have a broad range of functions, including:

  • administering a new licensing regime, including the collection of levies and charges;

  • regulating domestic market obligation gas supplied by gas projects to the State; and

  • implementing the National Electrification Roll-Out Plan to achieve the government’s objective to provide electricity access to 70% of households in PNG by 2030.

What are the new licences, fees and charges?

The Act introduces a licensing regime that is similar to that under the Electricity Industry Act (Chapter 78) and the Independent Consumer and Competition Act 2002.

A licence will be required for the generation of electricity, operation of transmission and distribution networks, and retailing of electricity. While there are some transitional arrangements for existing licensees migrating to regulation under the new Act, there may be gaps in coverage.

The new levies and charges apply to:

  • Generation: There will be a licence levy of K0.009 p/kWh, reviewable every three years. In addition, there will be a fixed annual fee ranging between K10,000 and K500,000 depending on generation capacity above 1MW.

  • Transmission and distribution networks and retail: Annual fees are to be prescribed by regulation.

In addition, the Authority must establish a tariff system (subject to public consultation) for the electricity supply industry.

What are the national content obligations?

The Act introduces new national content obligations for electricity projects, seemingly modelled on those that apply to projects in the extractive industries. These include:

  • Royalty benefits: A royalty benefit of up to 5% of the gross annual revenue of a project to be paid to affected landowners within a kilometre of the project facilities.

  • Equity benefits: An option for governments and landowners to acquire up to a 20% equity interest (in aggregate) in the project.

  • PNG citizen company participation: Generation projects with installed capacity of up to 10 MW are reserved for PNG citizen companies, and all other generation projects must be developed in joint venture with PNG companies.

  • National content: Requirements for employment, training, business and community-development opportunities and assistance to be provided to PNG citizens.

  • Landowner identification and forums: Requirements around the identification of affected landowners, to be approved by the Minister, followed by a national content forum to discuss benefit-sharing between governments and landowners.

Comment

The new legislation introduces new requirements for electricity projects that will significantly change the energy and electricity sector landscape in Papua New Guinea. It will be interesting to see the impact that the legislation has on businesses moving forward.

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Authors

MILLS vaughan SMALL
Vaughan Mills

Head of PNG Practice

KUDADA Lisa SMALL
Lisa Kudada

Senior Associate

MOFFATT andrea SMALL
Andrea Moffatt

Senior Associate


Tags

Energy and Natural Resources

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