Dear Editor,
The calls for care and caution put by the Leader of the Opposition (LOP) as the coalition government proceeds as announced, with the negotiations with Guyana Wind Farm Inc (GWFI) are well justified. There is no disputing the close relationship between the current leading shareholder of GWFI, Mr Lloyd Singh, and the AFC which was recently declared by both sides on the commissioning of the new AFC headquarters.
There is no deceit in the LOP’s statements. True, the PPP/C administration had been working with GWFI over more than a dozen years for the realization of a Hope Beach Wind Farm, but whilst it could have been taken for granted that the concluding negotiations with a PPP/C administration would have been “at arm’s length”, the concluding negotiations between the coalition government and a major supporter of one component must expect to be tested. As it is said, ‘forewarned is forearmed.’ The LOP was putting out the warning early.
The LOP would have been deceitful if he had stayed quiet, aware as he was that the announcement by the Minister of Finance contained a major error. GPL’s current cost of generation is only about a third of the figure which was given as US 28 cents per kWh. Additionally, there are other worrying statements in the media and in society which could easily lead to consumers of electricity paying more than they should.
Persons familiar with our electricity utility, GPL, and with wind and other renewable energy sources would share the LOP’s causes for concern even more, on reading the article on page 10 of KN of Sunday February 7, 2016. Two quotes from that article, separately and more so when combined, would justify the LOP’s alarm.
Mr Lloyd Singh is quoted as saying, “I want the people to understand that there are three alternative sources of energy in Guyana: hydro, solar and wind. Hydro depends on rain; solar on sun, but wind is 24hrs”. As all of us who have attempted to fly kites, know, the wind does not blow steadily but is constantly changing and for many long periods may be effectively zero. Arrangements to ensure that the utility’s other generators compensate quickly and adequately, is a major challenge. The usual result is that a utility like GPL should only offer to pay a ‘discounted avoided cost’ for energy it receives from others.
The Minister was dreadfully in error when he put the average current generation cost of GPL at US 28 cents per kWh. At the cost of fuel to GPL on Budget Day, January 29, 2016, generation cost would have been no more than US 9.5 cents per kWh, with a fuel component of about US 6.30 cents.
His figure of US 28 cents might have been true at the time of the highest oil prices of almost two years ago, or there might have been a mix-up with two other figures ‒ the average cost of electricity delivered to customers and the average price as billed to customers. In negotiations for an independent supply of power (a PPA with an IPP) one must ensure that one has accurate figures for the generating cost which would be avoided, if not the GPL and consumers would be paying more that they should.
Mr Lloyd Singh tells about the PPP/C cabinet on June 9, 2014 approving (in principle) the sale of electricity to GPL at US 18 cents per kWh. At that time the average generation cost was about US 23 cents per kWh with a fuel component of about US 20 cents. The price of US 18 cents was less than the avoided cost and was calculated to be enough to amortize the investment (good price and concessionary financing) in not much more than five years. It was therefore an attractive price at that time for a speeded up BOOT arrangement in which the facility would have been quickly bought-down and ownership transferred to GPL within not much more than five years, at no further charge. Fuel prices and prospects are quite different today.
Allow me to restate here our PPP/C background position when considering offers for electricity generation. The priority project for secure, renewable energy for Guyana as identified since the mid 1980s, was and continues to be the realization of the Amaila Hydro, with projected costs of electricity delivered at Sophia, at about US 12 cents initially, falling to about US 7 cents after about seven years then to about US 3 cents after about fifteen years and for the rest of its life of about 50 years, giving an arithmetic average of US 5 cents over its life.
The speeded up, shortened BOOT for the wind farm was to avoid or minimize a period of conflicting competing calls to accept electricity from a wind farm owned by a private third party, against calls from Amaila.
As I recall, subsequent to the Cabinet’s approval of June 9, 2014, there was effectively a withdrawal by the preferred Chinese manufacturer as it ended its very attractive price and financing offer. Consideration began of offers from other Chinese manufactures including offers for financing. Costs were increasing. Whilst at the beginning of financing discussions many manufacturers and financiers seem to be willing to proceed without a ‘sovereign guarantee’ of the loan/investment, invariably as discussions/negotiations proceeded they hardened their call for a ‘sovereign guarantee’.
With those subsequent developments and bearing in mind that the discussions with GWFI went back to the early 2000s, when Mr Kolader from Curaçao came with a pure private sector proposal, the PPP/C administration had begun moving towards:
- A different business model: an ‘open book’ public-private-partnership, where the contributions, risks and rewards of each party would be explicitly stated and agreed to;
- possibly restarting with an open, worldwide call for proposals, with some reasonable recognition (and reward) for the valuable work done by GWFI over more than a dozen years, if it were not to be the successful bidder.
The Leader of the Opposition was being constructive. A few days after the reading of the budget he held a press conference at which he constructively critiqued the budget proposing reasonable changes to reduce increased costs which the government might be unwittingly introducing on middle and low income earners in our country. His statements of caution and concern as the government proceeds to conclude agreements with GWFI are similarly constructive for the purpose of achieving better for our people and county.
Yours faithfully,
Samuel A A Hinds
Former Minister for Electricity and Energy
