$120 Million Investment to Help PNG Address Critical Gaps in Power Supply

News Release | 26 November 2010

MANILA, PHILIPPINES - The Asian Development Bank (ADB) will extend $120 million in loans to Papua New Guinea (PNG) for renewable energy facilities that will help the country meet critical electricity supply gaps in provincial urban centers.

The ADB Board of Directors approved a multitranche financing facility for the Town Electrification Investment Program, which will contribute to the state utility, PNG Power Ltd's 10-year power development plan through to 2018. It will fund, in two stages, renewable energy facilities, including run-of-river hydropower plants and transmission systems in about six provincial centers.

"By providing these centers with clean, reliable power supplies the program will greatly improve economic conditions and livelihood opportunities, as well as help to reduce poverty," said Anthony Maxwell, Energy Specialist in ADB's Pacific Department.

Around 10% of the population of over 6.5 million has access to grid-connected power, which is largely confined to main urban areas. When supplies are available in provincial centers, they can be unreliable, with regular power outages forcing businesses and industry to use costly and polluting diesel generators.

The first tranche of the investment program will support run-of-river hydro plants in Northern Province, and the Autonomous Region of Bougainville, as well as a 66 kilovolt transmission line in West New Britain. The transmission facility will provide access to about 1 megawatt (MW) of spare generation capacity from the Lake Hargy Hydropower Plant, as well as up to 3 MW of biomass-generated electricity from palm oil plantations.

"The program will establish key transmission links along major population corridors that will boost connectivity outside the main provincial centers, and help address a significant investment hurdle for provincial governments responsible for rural electrification," said Mr. Maxwell.

Providing funds through a phased program has major advantages over other funding modes, such as reducing commitment charges and transaction costs compared to one-off project financing, and enabling staged construction to meet human resource availability.

The first tranche funding will include a loan of $40.9 million from ordinary capital resources, and one of $16.4 million equivalent from the concessional Asian Development Fund, with annual interest charges based on ADB's LIBOR-based lending facility. Collectively they will finance 80% of the full tranche 1 cost of $71.6 million, with the Government of Papua New Guinea providing counterpart funds of $14.3 million. The full program is due for completion in December 2016, with first tranche activities finished by December 2013.