Delays and cost overruns at Bujagali should be a warning for Amaila

Dear Editor,

I have researched and written extensively on this tragic Amaila Falls hydroelectric project fiasco that remains a harsh reminder of the scandal-tainted, incompetent and mismanaging deeds of the PPP administration. Sithe Global is also marked with serious questions about its handling of the ongoing Uganda’s Bujagali hydro project. The cost overruns and delays on the Bujagali project mirror Amaila. The Ugandan newspaper, The Observer, noted in a January 22, 2012 article titled ‘Shs 450bn lost in Bujagali delay‘ that Uganda stood to lose US$184 million in revenue because the dam was not finished in 2011 as scheduled. This figure was obtained from a report on Bujagali compiled by the World Bank, the International Finance Corporation, and the Multilateral Investment Guarantee Agency in April 2007. Another environmental impact report compiled by experts arrived at a similar US$180 million loss figure. We know that Fip Motilall’s incompetence and sloth has delayed the commencement of construction at Amaila Falls. Delayed start of construction means Guyana is already losing revenues due to this delay. Sithe Global’s performance in constructing the Bujagali project has been lacklustre. Several construction timelines have been missed. There is no glaring evidence that things will be different with Amaila.

A 250MW Bujagali project now costs around US$1 billion at US$4 million per MW. A 165MW Amaila Falls now costs $845 million at approximately US$5.1 million per MW without a single stone laid. Just as happened at Uganda’s Bujagali, I expect costs to increase to around US$1 billion for Amaila by the time it is completed. That should put final construction cost per megawatt (CCM) for Amaila around US$6 million. The CCM for Amaila is now the highest in the world for recent projects. Experts say CCM should range between US$1 million and $1.5 million. Here are the CCMs of recent major projects: China’s 18,000 MW Three Gorges is US$1.3 million; Turkey’s Ilisu is US$1.3 million; Sudan’s Merowe is US$0.63 million; and Ethiopia’s Gilgel II is US$1.42 million. Getting a plant 20 years after it has been used, and after paying the highest construction cost per megawatt in the entire world to build it only makes sense to the failed brain trust within the PPP. 400,000 working Guyanese must each repay G$317,500 with interest for a US$835 million power plant. If that plant ends up costing the Guyanese taxpayers US$1 billion, then each working Guyanese must repay G$500,000 with interest. A reasonable cost for a 165MW project like Amaila Falls should be from US$165 to US$330 million. Using a CCM of US$1.5 million, the expenditure of US$835 on a hydro project should deliver 556MW of power, not 165MW of power. Bujagali went from an estimated CCM of US$2 million to US$4 million from commencement to near completion. Bujagali’s CCM doubled. Amaila is already at approximately US$5.1 million and construction has not even started. Will Amaila double in cost? Guyanese buying electricity will have to pay for any cost overrun. Add the already astronomical cost of the project to grid losses and GPL’s mismanagement and you get a situation where there is no viable relief to consumers.

Why should the IDB have serious concerns about GPL? The problems extend far beyond mismanagement, incompetence, failure and technical nightmares. GPL had 898 employees in 2009. Its projected employment costs for 2010 were $2,367,329,000 or roughly $2,636,223 (US$13,181) per GPL employee per annum. It is no wonder that electricity costs $48.42 to $53.78 or US24.21 cents to US26.89 cents per Kwh. In New York, Con Edison customers are paying from US 8.5 cents to around US 12 cents per Kwh. Putting a brand new hydropower station on a dilapidated grid where there is mismanagement and incompetence is asking for serious trouble. Further, considering that Amaila will not produce to its maximum capacity and will drop off output significantly during the dry season, how does one justify this ludicrous construction cost per megawatt when there is no guarantee that the Guyanese people will get any relief in cost of electricity, since low output will have to be made up by increasing tariffs to the paying public? If the Chinese deliver another Skeldon white elephant, Guyanese will end up paying more to bail out the bad loans and atrocious decisions of the PPP regime.

This entire Amaila Falls project must be revisited before the shocking price is too much for each Guyanese to pay. The return on investment is suspect for this project given its heinously high construction costs, high fees (US$188 million various fees and insurance during construction), expected delays and potential issues with the quality of construction considering Chinese involvement. The Bujagali hydroproject in Uganda is screaming to the Government and the people of Guyana to look and learn. This project may have already started down the Bujagali stream and it has not even started. APNU and the AFC better start paying attention.

Yours faithfully,
M Maxwell