Amaila hydropower project cost shoots up by $200M

An increase in the projected cost of the Amaila Falls Hydroelectric Plant (AFHEP) by more than US$200 million has been attributed by Cabinet Secretary Dr Roger Luncheon to the “escalation” of associated costs connected with financing and materials for the project.

President Bharrat Jagdeo, while delivering the feature address at the commissioning ceremony for GPL’s 15.6 MW expansion to its power plant on Tuesday, indicated that the Amaila Falls project would cost US$835 million. “This is going to be a big project, US$850M, not just the project itself but its entire construction costs and the cost of capital in the construction period… a little less maybe US$835M,” Jagdeo said.  “But given our electricity import bill, you can see how easy it would be for us to repay this,” the president said. The AFHEP is expected to be a 165 MW facility.

Questioned about this yesterday, Luncheon admitted that the estimated cost of the project had increased from the amount originally captured in the contract and attributed this to several factors.  “…The escalation of the associated and related costs for arranging the financing; paying interest and insurance and such like, those are responsible for driving up the cost to where it is today,” he said. He noted that the contract was agreed since 2008/2009 and since then the cost of various material such as cement and metals would have increased.

In the past, the government and the project developer Sithe Global have delivered conflicting projections for the construction of the project.  Last May, the government, in a press statement, estimated that the entire project would cost some US$616 million. The release said the actual construction cost of the plant is US$450 million (US$306 million for the actual hydro construction and US$145 million for the transmission line, clearing of its corridor and for the road). According to the release, interest during construction, the debt reserve fund and construction contingency would account for US$165 million.

Sithe Global, on the other hand, through its Project Manager, Rafael Herz, said that the price for the project would be US$650 million. This figure, according to Herz, included an estimated US$190 million for the transmission line and other supporting infrastructure. In March, Herz, while addressing the press, said that the project could cost between US$650 million and US$700 million. However, he said that the price range can increase or decrease based on several factors, including the exchange rate, material costs, and finance and development costs.

Sithe Global is the developer for the controversial Bujagali hydropower project being built in Uganda, which has been plagued with issues over rising project costs. This plant, which is still to be completed, is said to be among the most expensive in the world.

When Herz was asked what would be done to ensure that the AFHEP was not plagued with the same cost issues, his contention was that he AFHEP was a less complex project than Bujagali. He further stated that the cost increases had to do with some geo-technical challenges, while adding that neither the company nor the Ugandan government or the other partners involved in the process saw the increases to be unreasonable.

Luncheon yesterday also indicated that financial closure for the project is still to be finalized. He, however, indicated that the government hoped to have this issue settled by the end of the year, with the intention of having work start on the project by the beginning of next year. Previously, the last quarter of 2011 was indicated as the startup date for the Amaila Falls Hydroelectric project.

The US$15.4 million access road to the site is still under construction, with the contractor Fip Moitiall being given an extension to complete the road by December. The completion of this access road was seen as key to obtaining financial closure for the project. Recently, a team of external consultants assessed the road project and highlighted that there were poorly outlined specifications in the original project document and recommended immediate changes to the design, including widening the road and reducing its steepness (grades). Motilall has since been instructed to widen sections of the access road.

Sithe Global and the Guyana government, the China Development Bank (CDB) and the Inter-American Development Bank (IDB) have been identified as the financial partners in this project.

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