Continuing doubts by the IDB over GPL’s ability to effectively and efficiently distribute power from the proposed Amaila Falls Hydro Project is likely holding back the bank‘s financial commitment, sources say.
The Inter-American Development Bank (IDB) still lists Guyana’s Amaila Falls Hydro Project as being ‘in preparation’ on the ‘projects’ page of its website, with the ‘approved’ stage hanging in the balance now that the Bank has expressed concerns about the electricity company’s ability to manage the power.
The IDB’s decision to provide financing to the project seems hinged on a report that will be presented to the IDB by a consultant hired to perform a due diligence on Guyana Power and Light (GPL).
But CEO of GPL Bharat Dindyal said that the company has submitted information in response to the concerns that the IDB raised and it is for that consultant to value the information and put it into the final report to the IDB.
Sithe Global is the developer of the Amaila Falls Hydro Project which will consist of a hydropower dam at the junction of the Amaila and Kuribrong rivers.
The electricity will be generated by specially designed and purpose-built turbines and will be delivered to substations in Linden and Sophia by new 270 KM and 230 KM long high voltage transmission lines respectively. The facility is expected to generate in excess of 150 megawatts of power. The project cost is in the neighbourhood of US$840 million.
When asked how long the process is expected to take, Dindyal referred this query to the IDB since it is that agency that commissioned the due diligence process. Further, Dindyal chose to decline to disclose what information was provided to the consultant by GPL.
The IDB is reportedly concerned about the size and scale of the project relative to the size of the country and the sophistication of the utility. Sithe Global officials described the IDB’s concerns as “big” such as, whether there are systems in place and whether there is expertise in place to absorb a project of this size into the grid.
“We are providing information on a number of issues identified by the consultant who did the due diligence for them,” said Dindyal.
The IDB is considering a loan in the amount of US$200 million for the project, financing that is needed to supplement support from the China Development Bank (CDB) and equity financing from the Government of Guyana and Sithe Global itself as the developer.
Sithe Global officials during a visit in January said that should financing not come through from the IDB or the CDB, it would be very difficult to get the project off the ground. With the CDB seeming more certain to support the venture, the Sithe Global officials called the IDB the “last critical piece.”
Observers and stakeholders expressed concern that the World Bank, which usually supports projects such as this one, has pulled out of supporting the Amaila project.
The IDB has over the years expressed concern over the high losses of the power utility and has made interventions with a view to reducing the amount of power lost commercially or technically. About four years ago, the IDB had signalled that it would review its assistance to the power sector in Guyana if certain benchmarks with regard to losses were not met.
The executives of Amaila said that it is important for financing for the project to close by June 2012, since there is the possibility of price increases, further driving up the cost.
On the importance of financially closing by June, Sithe officials noted that there has been a lot of information in the press about price increases over the past year and a half. They said more than half of the increase in the construction price came from currency changes – the renminbi (Chinese currency) versus the US dollar.
They explained that because the contractor is a Chinese company and the equipment is coming from China, any further movements in the currency would result in additional increases in price.
Technical losses growing
Last month, Dindyal said that GPL would need an additional US$35 million to address technical losses and explained that more power is lost in the delivery to the consumer in the lower voltage network.
He noted that while losses overall were on the downward trend, technical losses were going up.
He said that while the new US$40 million Chinese project will be addressing primary losses, the company has no immediate plans to fund secondary losses in the network, even though it is in GPL’s development plan. He said that this may have to be done incrementally over an extended period, depending on internal cash flow.
Dindyal had reported that the company’s losses stood in the neighbourhood of 31 per cent at the end of 2011, virtually unchanged from the end of 2010. This is because the losses grew as the network got larger, seemingly erasing the impact of ongoing efforts at technical loss reduction.
“We have made quite some progress in reducing non-technical losses over the past five years,” he said. “But on the technical side we are seeing a dramatic increase in the demand for power and because there have not been any major investments on the network side, we are seeing a dramatic increase in technical losses,” Dindyal said in March.
At the end of 2005 technical losses were calculated at 11.4 per cent. However, at the end of 2010, these were recalculated at 14 per cent. Dindyal estimated that at the end of 2011 they would have increased further to 14.5 per cent and that this year they would rise to 14.8 per cent.
“We are attending to those losses in the distribution network; the highest technical losses are in the low voltage network, where consumers are connected – the 120 volt and 240 volt network – that is where we have the highest losses and we are not doing anything in that respect from the US$40 million Chinese project,” he said in an earlier interview with this newspaper.