Generations of Guyanese in this Land of Many Waters have been enchanted by the dream of Hydro-electric power with its assumed potential for lower electricity charges. Up to recently, the Burnham administration had come closest to the dream, spending millions of dollars on an entity called the Upper Mazaruni Development Authority (UMDA) as part of a grand project to develop a Hydro facility. Nothing came of this huge expense.
The idea of hydro-electric power was revived under the Jagdeo administration which settled on a 165 MW facility at Amaila Falls at a cost of about US$840 million (excluding interest). The concept for this project is that the operator will sell power to the Guyana Power and Light under a Power Purchase Agreement for a period of 20 years, after which ownership of this facility – built on a BOOT Model – will revert to the Government.
A smaller facility at Kato is also being funded by the Government.
Amaila has had its own blight with a disastrous road project awarded to favoured “investor”, Mr. Fip Motilall by the ubiquitous NICIL to build an access road to the site. NICIL made the award to Synergy despite publicly expressed concerns that the company did not have the experience, skills training, capability, human resources nor equipment and tools to undertake such a task.
Motilall inevitably had to be fired and the contract divided up among local contractors. The most recent available information is that the local contractors who have replaced Motilall have also not performed well and that Chinese contractors are being considered to complete the project.
October 2013 is the date to which the contract price of the hydro-electric power plant extends. If the roads are not completed, the price will have to be renegotiated.
The Deal itself
As with the road itself, the Marriott deal, the Specialty Hospital, the New Timehri Airport Extension, etc. official information on the Amaila Project is still unavailable. Information has to be gathered from such disparate sources as the press, comments from PM Hinds and spokespersons from Sithe Global –a main participant in the project.
This unavailability of documentation on what is obviously the largest ever investment in the history of Guyana –approximately US$840 million (excluding interest) –is truly mind blogging. It speaks of the persistent perception that the Government does not think it necessary to inform, let alone consult, Guyanese but that it has a divine right to do as it pleases and Guyanese should be thankful.
This is what is “known” so far:
i Approximate Capital cost of Project – US$840 million (excluding interest)
Breakdown as follows:
Chinese Source US$413 million
IDB (Proposed) US$175 million
Sithe Global US$152 million
Government of Guyana US$100 million
Total US$840 million
ii Recent reports have shown an increase in the Chinese sources contribution to approximately $506 Million US.
iii There is no report of the IDB funding being approved.
iv Sithe claims to have already “invested” over US$11.1 million since 2009 on various expenses including over $1 billion Guyana dollars in “environmental work”.
v Acquisition costs of Motilall’s “licence” is US$12 million.
vi Return on investment for Sithe – 19% guaranteed on US$28.8 million per annum on US$577.6 million over 20 years. Not bad at all.
vii Interest on Chinese investment of approximately 8.5% or US$42.5 million per annum or US$850 million over 20 years.
viii Interest on Chinese Funding plus Guaranteed Rate of Return on Sithe already adds up to US$1,427 million.
ix Excluding other interest (IDB GOG) the total project is now at a sum in excess of US$2,200 Million for 165 megawatts or US$13.3 million per megawatt as compared to approximately US$1 million for 1 megawatt of Wartsila Power.
x Under normal circumstances a 165 megawatt Hydro Facility would come in at about US$320-360 million. But this is Guyana where nothing is normal so the total cost (principal + interest) is about six times the normal.
Not only is the cost exorbitant, there are other major concerns as well:
i Financial closure has not been achieved because the China Development Bank is asking IDB to share some of the financial risks.
ii A study has been commissioned for a Corporate Development Plan for GPL to consider and make recommendations on action necessary to operate within the framework of a viable hydroelectricity power purchase agreement.
iii The Power Purchase Agreement which Sithe Global is insisting on is a take-or-pay which means that GPL is buying power that it does not currently need.
iv GPL is hoping that all the companies and Linden not currently on the National Grid will return.
v Unless GPL can bring down losses to below 20% the power purchase will not be viable.
vi To achieve ii. and iv. will require financing of approximately US$250 million.
vii Not all consumers will be served by hydroelectric power.
viii No formal approach has been made to the Public Utilities Commission for rates. The estimate is that tariffs will not be reduced for several years, in the absence of any subsidies.
Amaila, the most expensive project ever undertaken in Guyana, is full of risks and uncertainties. It has the potential to render GPL insolvent. Before pronouncing further on this project, Ram & McRae would need to see all the questions answered.