2.
Background and Rationale
Problem Statement
Many rural communities in the Eastern Highlands and other parts of Papua New Guinea lack access to
reliable and affordable electricity. The heavy dependence on diesel generators results in high operating
costs, air pollution, and unreliable power supply. This affects essential services such as health clinics,
which struggle to refrigerate vaccines; schools, which cannot extend study hours; and small local
businesses that are unable to expand due to limited power availability.
The Ba’e River provides a practical and sustainable opportunity for clean energy development. Its
consistent water flow and favourable topography make it ideal for a mini run-of-river hydropower
system. This project directly addresses energy poverty, supports climate resilience, and contributes to
national goals for rural electrification.
Context and Justification
The Ba’e Mini Run-Off Hydropower Project is located in the Aiyura Valley, Eastern Highlands Province —
a region with moderate infrastructure, agricultural research centres, and a reliable water source. The
Aiyura Valley’s high elevation, steady rainfall, and accessible terrain make it an optimal site for small-
scale renewable energy generation.
The project aligns with Papua New Guinea’s National Energy Policy, which prioritizes rural electrification
through renewable energy. By replacing diesel generation, the mini hydro plant will:
Reduce greenhouse gas emissions (≈600 t CO₂/year avoided).
Lower community energy costs by up to PGK 550,000 annually.
Support local economic activities such as coffee processing, education, and health services.
Enhance social well-being and local employment through infrastructure development and
technical training.
The initiative also contributes to several Sustainable Development Goals (SDGs):
SDG 7: Affordable and Clean Energy
SDG 9: Industry, Innovation and Infrastructure
SDG 11: Sustainable Cities and Communities
Stakeholder Needs
Stakeholder Needs/Expectations Role/Interest
Local Communities & Reliable electricity, employment, minimal Beneficiaries and land
Landowners environmental disruption custodians
PNG Power Ltd. / Sustainable, low-cost power generation Project
Provincial Government proponents/operators
Health & Education Continuous electricity for clinics, Service enhancement
Facilities laboratories, and schools
Local Businesses (Coffee, Stable energy for production and Economic empowerment
Agriculture) processing
Regulatory Authorities Compliance with environmental and Oversight and approval
(DPE, CEPA) safety standards
Funding Partners (ADB, Financially viable and impactful Financing and monitoring
Government) investment
The Ba’e Mini Run-Off Hydropower Project is a practical, sustainable response to rural energy challenges
in Papua New Guinea. It delivers measurable social, economic, and environmental benefits while
aligning with national and global sustainable development priorities.
6. Risk Management
Effective risk management is critical to ensure the successful delivery, operation, and sustainability of
the Ba’e Mini Run-Off Hydropower Project. This section identifies key financial, technical,
environmental, and social risks that could affect project outcomes, along with corresponding mitigation
strategies.
6.1 Financial Risks
Risk Description Mitigation Strategies
High Capital Cost The project requires a significant upfront • Include a 10–20%
Overruns investment (PGK 3 million). Unexpected contingency fund in CAPEX.
increases in material, labor, or logistics costs • Use EPC (Engineering,
could exceed budget estimates. Procurement, Construction)
contracts to fix prices and
timelines.
• Implement strict cost control
and monitoring during
construction.
Revenue Revenue projections depend on stable demand • Secure a long-term Power
Uncertainty and accurate pricing of avoided diesel costs Purchase Agreement (PPA)
(PGK 0.80/kWh). Any drop in local energy with PNG Power Ltd. or
consumption or price changes could reduce community cooperatives.
financial returns. • Diversify revenue through
potential carbon credit sales.
• Promote productive energy
use (agro-processing,
refrigeration) to maintain
steady demand.
Financing and Increases in borrowing costs or delays in • Seek concessional loans or
Interest Rate funding could affect financial viability. grants from development
Fluctuations partners (e.g., ADB, GoPNG).
• Phase project expenditure to
align with cash flow
availability.
• Establish clear financial
management procedures and
audits.