By MALUM NALUPNG Power had loans totalling K313 million on its balance sheet as of Dec 30, 2011, according to the Asian Development Bank (ADB), The National reports.
The ADB, in its Finding Balance: Benchmarking the Performance of State-Owned Enterprises in Papua New Guinea, said PNG Power paid only K6.2 million in interest – a heavily subsidised debt - which represented an average debt cost of 1.97%.
The report said PNG Power also carries a heavy financial burden due to the large number of non or slow-paying customers, which include poor-paying government departments and security challenges associated with disconnection activities.
PNG Power was one of three state-owned enterprises (SOEs), the others being Telikom and PNG Ports that contributed most of the profits generated by the PNG SOE portfolio from financial years 2002-10.
“PNG Power’s comparatively poor operational performance does not lead however to the very low financial returns found in Fiji, the Marshall Islands, Samoa, and Solomon Islands and this is due in part to its heavily-subsidised debt,” the report said.
“With more than K313 million of debt on its balance sheet as of Dec 30, 2011, it paid only K6.2 million in interest, which represented an average debt cost of 1.97%.
“If PNG Power paid a commercial rate of interest, the estimated adjusted return on equity for 2010 would have been 2.2%.
“While the company’s gearing at 50:50 would seem appropriate, retained earnings make up just over 50% of shareholder funds, indicating a history of ongoing shareholder support.”
The report said PNG Power, the largest utility in the Pacific in terms of installed capacity, performed comparatively well when measured by profitability.
It had a return on equity (ROE) of 5.7% and return on assets (ROA) of 3% in 2010 – second only to Tonga Power with a ROE of 7.5% and a ROA of 4.8% for the same financial year.
“Fiji Electricity Authority (FEA) – the second largest utility in the Pacific – is much less profitable than PNG Power and Tonga Power, returning only 2% on equity and 1% on assets in 2010,” the report said.
“This may be largely impacted by price regulation, as power tariffs in Fiji are 50% lower than for residential users in PNG whereas in Tonga the tariffs are 25% higher than in PNG.
“FEA is also carrying a significant unfunded community service obligation, which the board estimates costs the company US$16.8 million in lost revenue per year.
“The profitability ratios are, however, the only benchmarks on which PNG Power seems to outperform most of its Pacific neighbours.
“PNG Power’s operating ratio – which records total operating costs as a percentage of total operating revenue – is comparatively high at 90%, particularly as it generates 83% of the power for its main grids from hydro sources."