Disconnected: Electrification in Papua New Guinea

Amidst global discussion of the increasingly competitive dynamic emerging between China and the United States, Papua New Guinea (PNG) represents a potential battlefield. As the country works to establish a functional electricity network, Chinese and Western-allied involvement in the process has presented a point of competition. PNG’s involvement in China’s Belt and Road Initiative (BRI) is a key source of anxiety for Western nations, and the associated extensive contributions of Chinese funding for various projects around the country. Western nations and China both seek to “lock in alliances” in the region, leading to growing Western investment which counters Chinese-funded projects. With a current grid-connected electrification rate of between 10 and 15 percent, the electrification process in PNG presents considerable opportunity for nations seeking to expand their influence in the region, which contributes to prevailing tensions among competing countries.

Competition began to ramp up following the 2018 Asia Pacific Economic Cooperative (APEC) conference, during which the United States, Japan, Australia, and New Zealand agreed to the US$1.7 billion “PNG Electrification Partnership” to develop the electricity sector in PNG. The goal of these four nations is to bring electricity to 70 percent of the population by 2030, in line with national electrification goals. A set of specific principles surrounding the PNG Electrification Partnership was described by Australian Prime Minister (PM) Scott Morrison, who stated that the Partnership would be “transparent, non-discriminatory, and environmentally responsible” and “promote fair and open competition, uphold robust standards, meet the genuine needs of the people of Papua New Guinea, and avoid unsustainable debt burdens.”

The United States and Australia previously expressed concern regarding the perceived lack of transparency of Chinese infrastructure funding in the Pacific, and with the accumulating debt to China among small Pacific states. In the case of PNG, extensive telecommunications and infrastructure projects funded by China have amounted to over US$1 billion in loan debt, which compounds economic difficulties for PNG. Budget shortfalls in PNG have already driven the Australian government to extend loans totaling hundreds of millions of USD to the country, meaning that Australia is largely paying for PNG debts to China. The realities of such a situation indicate extensive Chinese leverage over both PNG and Australia, and informs the media perception that the Partnership is working to “counterbalance” China’s influence in PNG and the Pacific at large. Considering the statement by PM Morrison, it is clear that the Partnership hopes to address these concerns and develop the electrical grid in Papua New Guinea with clear standards and fair bidding.

This 2018 agreement and its principles came amidst the contrasting backdrop of two controversial and ongoing Chinese-funded projects in PNG. Firstly, the Ramu-2 hydroelectric project, a US$800 million, 180 megawatt (MW) facility that would increase PNG’s electricity output by a third, has been alleged by the PNG Parliamentary Opposition Leader, Patrick Pruaitch, to have been approved through backdoor methods that violated finance management laws. The other project is a US$145 million transmission line and substation initiative, which the Opposition argued lacked an “obvious open tendering process.” These questionable funding practices led the Opposition Leader to warn that the United States would withdraw from the Partnership if “open and competitive tendering” was not more prominently supported. A return to questionable funding practices could instigate further tensions, particularly if Western nations feel the practices in question favor Chinese investment at the expense of Western influence in PNG.

The 10 to 15 percent electrification figure describes solely the percentage of individuals connected to the national grid or diesel operated mini grids; roughly 60 percent of PNG is connected if off-grid solar products are considered. Nevertheless, this is well below the global 89 percent electrification rate. For future development, additional off-grid means of providing electricity will be essential, and the continued expansion of solar products in this realm is likely. PNG has a population density of around 18 people per square kilometer—with 80 percent of the population residing in rural areas—and is mountainous and heavily forested. Given these demographics, it is more financially viable for many rural locales to generate electricity themselves than to connect with the national grid, and generate sizable market share in localized, off-grid means of electrification.

As such, the nature of the foreign involvement in electrical development will largely influence whether China or Western nations can consolidate influence in PNG. China’s involvement in the electrification process takes on a more multifaceted nature. In addition to the US$800 million Ramu-2 and US$145 million transmission line update projects, “almost all off-grid solar products…are imported from China.” The market for these off-grid products is valued at US$259 million and is increasing. Compared with China, the Partnership’s contributions to electrification are less tangible and far less financially robust. The specific projects are largely being funded on a country-by-country basis. Japan, as well as Australia and New Zealand jointly, have each focused on expanding the grid to rural buildings, projects which entail a US$23 million contribution cumulatively. United States Agency for International Development (USAID) has contributed US$57 million in funding which “leverage[s] private sector investment” into PNG electrification and aims to bolster the capabilities of PNG Power Limited (PPL), a state owned power company.

This disjointed and economically conservative effort (relative to Chinese contributions) seems to give China the upper hand in the electricity development process, as China controls the off-grid product market and invests significantly greater amounts in large scale projects. Given the overall financial impracticalities of grid expansion across the entirety of the island, China’s control of grid-based solutions will likely become less beneficial in the future, but the prevalence of Chinese imports for off-grid solutions will make it difficult for the Partnership to compete on this front moving forward.

Furthermore, the myriad financial and organizational issues at PPL throw into question the recent financial contributions by members of the PNG Electrification Partnership, which often rely on PPL to complete the projects themselves. A series of funding crises in 2021, coupled with general dysfunction within the company, mean it is unlikely that PPL can be relied upon to carry out necessary projects. Debts from the government to PPL have been estimated at US$310 million, and illegal grid connections cost a further US$7 million per month. Aging equipment and frequent outages lead to an unreliable grid, and a 2018 World Bank report found electrical difficulties to be the fourth largest business constraint for large businesses, and the third largest for small and medium enterprises in PNG.

While these issues can certainly be resolved, the organizational history of PPL does not seem conducive to effective problem solving. Starting in 2018, a series of short tenures from PPL CEOs came amidst back and forth allegations from the CEO’s and PPL union, with resignations occurring in 2019 and 2021. Furthermore, a PPL chair resigned with complaints of a “militant union” and “slowdown in reform” in 2021. Taken together, it seems as if internal conflicts at PPL are a major issue that must be recognized moving forward. If PPL is unable to address internal company issues, the ability of PNG Electrification Partnership nations to compete with direct involvement of Chinese corporations in the electrification process will likely be diminished. The PNG Electrification Partnership will likely need to expend considerable effort to reach its goals of strengthening PPL’s “financial viability and operational efficiency,” which may provide China the space to solidify control over the PNG electrification process and strengthen influence in the Asia-Pacific region.

As competition between China and Western nations continues into the future, electrification in PNG may prove a lucrative and conflict-ridden process. While PNG does not typically come to mind as a nation at the forefront of international politics, the nations of the South Pacific are finding themselves to be under the focus lens of Chinese geopolitics.