01/02/2022
BOARD ADDRESSES CONCERNS ON DIRIO GAS & POWER COMPANY
BOARD MEDIA RESPONSE
February 1st, 2022
The Board of Dirio Gas & Power Company is appalled by the misleading and inaccurate information about the Company, which are being circulating by ill-informed individuals.
”These gross inaccuracies are a deliberate attempt by a few ill-informed critics and naysayers to not only portray Dirio and the Mineral Resources Development Company (MRDC) in bad light, but also tarnish the reputation of the members of the Dirio board, management of the company and the landowner leaderships.
Established in December 2017, Dirio is PNG’s first locally owned Independent Power Producer – owned 100% by the landowners from PNG LNG Project and their five provincial governments.
It is a 49.5 megawatts (MW) power plant and has the capacity to produce at least 45MW.
Dirio was established for the purpose of providing cleaner, reliable and cheaper power to consumers in the capital city and at same time, promote self-reliance and generate sustainable income from the business, for landowners and their provincial governments.”
It is already profitable based on the current Power Purchasing Agreement (PPA) and its board believes that in the long term, Dirio will be a success story for the PNG LNG landowners and the people of PNG.
Dirio is not a failed project as speculated. It is a 25-years project - a worthwhile investment.
The Dirio Project is a testament of what landowners can do so long as they can commit time, dedication and put their hands and resources together to get such project off the ground.
Since its establishment, Dirio has been contributing to the national economy by paying yearly corporate taxes; providing employment opportunities for more than 250 Papua New Guineans and; continues to spend millions of kina on local Papua New Guinean companies resulting in the local areas directly benefiting from the project in multiple ways.
This investment not only secures the future of our beneficiaries from the resource project areas, but also supports national development by collaborating with our development partners and the State to provide a solution for PNG’s electricity problems.
1. Ownership
Dirio is owned primarily by the landowners and the five provincial governments (Hela, SHP, Gulf, Western and Central) of the PNG LNG Project.
The provincial governments and the landowners from the PNG LNG pipeline and plant site; brownfield and oilfield each have a larger stake in Dirio while the balance is taken up by the greenfield PNG LNG landowners. MRDC has less then 3% in Dirio.
MRDC’s role in Dirio is based on its mandate as the Trust Manager for the Landowner companies (MRDC subsidiaries).
This mandate includes holding the shares in trust for the landowners and; managing all the subsidiaries - this extends to the investments that these subsidiaries invest in such as Dirio.
The current board composition at Dirio includes a mix of landowner and MRDC representation.
The board members include:
• Ambassador Issac Lupari as Chairman;
• Gulf Governor, Chris Haiveta representing the 5 provinces of Hela, SHP, Gulf, Western & Central;
• Hela Governor, Philip Undialu representing the Greenfield companies;
• Tony Kila representing all the Brown Field companies;
• Solo Damena representing the PNGLNG Pipeline and Plant site companies and;
• John Tuaim, MRDC’s Chief Operating Officer representing MRDC.
There is nothing sinister about MRDC’s involvement in the Dirio Gas & Power Company nor the board composition.
Dirio’s primary business is gas-based power generation where it buys gas from ExxonMobil’s LNG Plant outside Port Moresby (under the Gas Supply Agreement), then using three 15MW solar turbines, produces power and sells to PNG Power Limited (PPL) to distribute through its grid under a 25-year Power Purchase Agreement (PPA).
“Getting a Gas Sales Agreement (GSA) and PPA are not easy and we thank ExxonMobil, PPL and the State for approving this venture.”
Our decision to use Solar Turbines were based on four key areas – brand, accessibility, support and sustainability.
Solar Tubines is a subsidiary of Caterpillar Group of USA, a global leader and a trusted brand - the best in the business of manufacturing turbines of this size.
By using Solar Turbines, we also have access to their experienced technical support team and the availability of tooling and spare parts when needed.
These turbines are the best for PNG’s setting given their durability.
ExxonMobil uses the same turbines to power the PNG LNG Plant facility so we wanted to ensure there is consistency in our assets.
2. Dirio Contractors
The contractors who delivered the Dirio project have been operating in PNG since 2013 and had a track record of delivering multiple projects successfully in PNG, both with the MRDC Group and with other clients in country.
Their in-house power generation team brought over 200 years of combined experience on similar projects around the globe and the result – the Dirio Gas & Power Plant has been recognized as a world-class facility by Solar Turbines themselves.
Solar Turbines, who operate to the highest corporate standards, have a well-established working relationship with these contractors and fully vetted them prior to entering into any business dealings with them and had granted them exclusivity for the Dirio project.
It is true we have entered a long-term engagement for the Operations and Maintenance (O&M) of the power station with the same contractors.
This is sensible business practice to ensure technically qualified people, familiar with the assets are managing and maintaining them and that our value is protected for the long term.
Again, whilst we cannot fully disclose commercially sensitive information, our O&M costs represent less than 10% of the Dirio budget operating cost base and certainly do not result in ‘all the returns of this project being sent overseas’ as has been suggested.
We are also aware that there are Papua New Guinean companies that claim to be able to offer O&M services, as well as some from Australia, but these companies are not authorized or supported by Solar Turbines.
This means they will not be able to access the necessary tooling or spare parts to undertake the work, as they do not have the required experience.
3. Dirio Project costs
Total project costs for Dirio was K380 million and not K450 million as suggested by many.
The Dirio Board approved this cost.
There were some variations from the original budget due to a number of factors which included changes in PNG Power’s connection specifications; changes in ExxonMobil’s requirements for gas connection, internal errors within Dirio that have been addressed and; the impact of COVID-19.
For any project of this size, project variations do happen – it is incredibly rare for any project of such magnitude not to experience them.
For Dirio, these variations were carefully considered and analyzed to ensure there is minimal impact on the business and that they are not repeated.
The project cost was below budget. The debt to equity ratio currently stands at 28% debt and 72% equity.
4. Delay in grid connection
Dirio has a legally binding PPA contract with PPL for the dispatch of the power station.
This agreement has been in place since the early stages of the project and is very clear on the oblig*tions for when PPL was required to take power and the fees associated with the power station.
Dirio was ready to connect to the Port Moresby grid and distribute power into the city after its commissioning in November 2020, however, PPL requested for a delay in connectivity to the grid due internal grid issues that PPL had.
We proactively worked with PPL in a reasonable manner to resolve this including the commercial aspects of this.
The delays had nothing to do with technical issues nor problems with the Dirio Power Plant itself.
5. Return On Investment
On 31 October, Dirio Gas & Power Plant was switched on for the first time and began supplying 9MW clean gas-generated power supply into the Port Moresby grid.
It is not a failed project as speculated.
Getting the 9MW electricity onto PNG Power’s Kanudi Grid and into the homes of Port Moresby residents is the first phase of the full implementation of the agreement.
As soon as PNG Power corrects its systems stability and grid, Dirio should improve from 9MW to 45MW.
What the public should know is that the cost and capacity of electricity that Dirio is currently supplying to PPL is cheaper as it provides PPL with significant cost savings when compared to the diesel-powered generators that are being replaced.
Whilst we cannot reveal the full commercial details of the PPA, we can say that the fees Dirio receives are made up of multiple components and are not all directly related to the total supply of power from the power station.
As per the PPA, PNG Power will have to take or pay 30MW by the end of February this year and pay the capital recovery. Dirio will not lose anymore, whether or not it supplies power to the Port Moresby grid.
6. Dirio is profitable
Dirio is already profitable based upon the PPA in place.
Once the payments due under the PPA are received from PPL then Dirio will immediately be cash flow positive, and this will continue throughout the entire life of the project.
No additional funding for the Dirio is required at any point in the future as it will be entirely self-sufficient from the PPL payments due.
This is to be expected of a project where the project owners have made the initial capital investment.
This means that Dirio will be able to provide sustained revenues to the landowners and the five provincial governments for over 25 years.
The profits and cash flows from Dirio will be used for reinvestment into future projects to grow the company and to improve power availability for the people of PNG and; be used to provide returns to the landowners who own Dirio in accordance with our mandates.
