Part 1
Introduction
Last week’s column completed the discussion of Phase 2 of the management of Guyana’s public investment programme (that is, project selection and sequencing). Before proceeding with Phases 3 and 4, however, as promised, I shall first examine the Amaila Falls Hydro Project (AFHP) in the context of the several considerations that were raised in the discussion of Phase 2. It is my belief that this project best illustrates those concerns, which arise from translating a country’s public investment strategy into concrete projects.
In addition to this, several readers have urged me to undertake this task after it was reported that businesspersons (with their presumed knowledge of how public projects should be selected) had in responding to a Georgetown Chamber of Commerce’s Survey, chosen the AFHP as the “most desirable.”
Strategic value
Most analyses of Guyana’s economy and prospects published since Independence, have directly or implicitly acknowledged that clear, sustainable, renewable energy (especially hydropower) is indispensable to the country’s economic transformation and development. This situation has become more urgent because of environmental stresses arising from the country’s burdensome dependence on imported oil. This dependence is further compounded by the fact that world prices for oil have been both high and volatile.
From this perspective I therefore fully endorse the strategic pursuit of hydropower as an essential component of Guyana’s public investment strategy. However, as I have indicated over several preceding columns, one must also take into account what is required for translating a desirable component of an investment strategy into specific viable projects, to which scarce public funds are committed. In the case of hydropower several key hurdles must be crossed before committing to any public project. These hurdles are best crossed only after systematic project evaluations are undertaken. Furthermore, all such evaluations should be publicly available.
Public availability is an absolute requirement where public resources are utilized. However, if the project is a private one (that is, utilizing only private resources) public disclosure of their project evaluations are neither required nor expected. In general, private projects entail (1) that their financial estimations are based on market prices and (2) all financial risks (private equity and/or debt) remain privately owned. There is no need therefore, to convert market prices to their “economic values”. Indeed, the private investors’ goal is usually to make private profit.
Project selection
Based on the above, the question may then be asked: what are the fundamental determinants for this choice from the standpoint of public investment? In the case of the AFHP there are four. First, the project’s technical feasibility must be established. That is, the technical parameters and requirements for producing hydropower from the Amaila Falls should be established by the relevant specialists.
Second, technical feasibility has to be complemented with an environmental and social impact assessment (ESIA) of the project. The likely impacts should be thoroughly evaluated in order to determine whether the project should go ahead or not. In practice, this assessment is accompanied with two complementary items. One is a series of public stakeholders’ consultations; and the other is the preparation of an Environmental and Social Management Plan, with which to manage the likely project impacts on the environment and society.
Third, the project should be further evaluated in relation to those generic alternatives which technically offer themselves as sources of energy/electricity. In the case of the AFHP this would require at the minimum, a comparative evaluation of 1) GPL’s expansion (based on utilizing the funds planned to be spent on Amaila being spent to correct GPL’s well-known inefficiencies); and 2) alternative energy sources (solar, wind, biomass and so on). In all these instances, at this stage value-for-money pre-feasibility studies and environmental/social impacts should be prepared to ensure the correct project choice is made.
Fourth, alternative hydropower sites would have to be compared and evaluated. To the best of my knowledge there are well over 300 technical surveys of Guyana’s hydropower resources in the archives of the Guyana Energy Agency (GEA). These estimates indicate a total hydropower potential of about 7600 MW, spread over about 67 identified hydropower sites. From these data, specialists have technically prioritized five potential candidates for public investment, subject to their economic evaluations. These are (1) a “collection” of several small micro hydropower projects, (about 18) which would generate about 170 MW of electricity altogether; (2) Turtruba Falls (generating about 800 MW and located on the lower Mazaruni River); (3) Kaieteur Falls (generating about 220 MW and located on the Potaro River) ; (4) Sand Landing (generating about 1400 MW and located on the upper Mazaruni River); and (5) Amaila Falls (generating about 164 MW and located at the confluence of the Kuribrong and Amaila Rivers).
Of note, in this prioritization of Guyana’s hydropower potential, analysts usually rule out Kaieteur Falls as a site because of its world heritage and tourism potential. Further, the Sand Landing site should also be ruled out because of an extant Memorandum of Understanding (MoU) between Rusal (Russian bauxite transnational) and the Government of Guyana (GoG) to develop this site as a power source for the eventual conversion of bauxite into alumina/aluminium. There is also reference in some documents to a MoU between the GoG and Enman Services (2001) for the Turtruba site.
Conclusion
This discussion will continue over the next two to three weeks. At this stage, however, I wish to bring to readers’ attention upfront two of my major concerns about the AFHP, which I shall develop later. First, given the significant public resources afforded to this project, woefully inadequate up-to-date information about the economic feasibility of the project has been publicly provided. It should be noted though, that an updated ESIA (2011) is available on the IDB and Guyana EPA Websites.
Second, as we shall explore more fully later, there is to my mind a lingering uncertainty as to whether the AFHP has been mis-specified in its geo-economic dimensions.
