Gov’t should cut losses on ‘flawed’ Amaila project

- Thomas

Economist Professor Clive Thomas has warned against the continuation of the Amaila project, saying it would be better for the country to cut its losses than be saddled with a liability that nearly rivals the size of the economy.

The project has generated its share of controversy as government and opposition broke lances over the non-passage of two legislative instruments to further the process of reaching financial closure for the US$840 million project.

Clive Thomas
Clive Thomas

Speaking at a Working People’s Alliance (WPA) press conference yesterday, WPA co-leader Thomas said that the project was ill-conceptualised and is being pushed by non-technically qualified politicians and stakeholders around them with a vested interest in seeing the project go forward.

He said that if some of these interests believe that the project is such a good one for the country, then they should invest their private funds into it and in turn reap the rewards in terms of return on their investment.

“It is better to cut sooner than to cut later. Once you get into a flawed deal it is important that you abandon the deal early rather than late. Because even though the short term costs are heavy to cut, the long term costs are greater,” he said.

He said due in part to ignorance and in part to lack of sound information coming out of the projects from the propaganda in the public, people do not know the details of the project. “We do believe that a project of this gargantuan size is a project that warrants close public scrutiny. Our feeling is Guyanese cannot afford to treat this as a mistake that can be corrected, because the cost for correcting this will be so humongous that we do not believe that the economy can bear it in the years to come,” he said.

“If this were a private project I would have nothing to say about it,” said Professor Thomas. “But this is a public project and it involves public funds. A private project would involve private funds and that would be at the risk of the people putting their money [towards the project],” he said.

“If it is a public project, as a citizen I have a responsibility to speak out, especially when a project of this monumental size where the implications for the people of Guyana are considerable,” he said.

“With such projects, we always run the risk of having ill-informed politicians together with the soup-drinkers around them leading the project. That is always a danger because the people around the politicians have a vested interest,” he said. “The politicians then make decisions that are not economically rational,” he pointed out.

“My response to this kind of situation is always to urge that if the private sector individuals feel that the project is profitable…they should invest their money in it, not the public’s money. As long as the public’s money is involved, then the public has a right to speak,” he said.

‘Troubled project’

Thomas said that the WPA’s position on hydro-power is that such a facility will be necessary for the future development of the country. “But recognising that and giving a statement in favour of Amaila are two different things,” he said.

“One of the first points that we are making is that you have to separate the significance of the project in the context of the need for sustainable electricity and the choice of the particular project in the choice of the project’s dimensions and acceptability in terms of economic standards,” he said.

“We have a number of troubled projects in Guyana and we consider this to be one of the troubled projects. It is fundamentally misconceived and mis-specified. Amaila was never intended to be a standalone project. It was always seen as a part of a multi-stage project for the implementation of hydropower in Guyana from its very inception more than a decade and a half ago,” he said. “It is part of the fundamental reason why the project is turning out to be such a disaster,” he said.

Thomas is concerned that the cost of any miscalculation of the project will fall on Guyana and not on any of the sponsors outside of the government.

According to Thomas, the estimated outlay for the project is well over US$1 billion. “And to that you have to add an additional US$250 million needed to make GPL ready to accept the electricity from the hydro scheme. I think that for the size of Guyana’s economy, this is a tremendous burden to add to the economy, when in addition to this we already have a debt of about US$1.4 billion. So this is a further doubling of the debt,” he said. He called the project a contingent liability since the government will have to guarantee the debt for the project and will be liable for covering it if the project fails.

He said that project financing for Amaila is based on GPL’s ability to purchase the power generated over the next 20 years at a cost of about US$100 million annually. “Now that comes up to US$2 billion. But as you all know, a dollar 20 years from now is not the same as a dollar today. Everybody knows that money in the future is worth less than money now,” he said. “When you convert that to its present value it comes up to just under US$1 billion and that is the basis at which we started our calculations of the cost of the project. Its present value makes it very clear that the liability involved in the project is within the region of US$1 billion,” he said.

“The intention of the project is to lower the price of electricity by 25 per cent to 40 per cent by the time [it] comes on stream. But as we have seen over the years, the price was initially given as US$0.07 per kwh, then it went up to US$0.10 pe4r kwh, then US$0.11 and now we are at a position where people are saying that the electricity may not be sold at that price,” he said. “In any investment, the size of the investment depends on the returns you get. If you cannot forecast the price but you can only forecast the quantity you are likely to sell, then you are in a situation where the project is not properly determined or executed,” he added.

Thomas asked whether the government could guarantee the supply of electricity from the project knowing GPL’s penchant for losses. Further, he said that by 2019, Amaila will not be supplying sufficient power for the country’s needs. “As far as the project is concerned, it is outdated in five to six years,” he said.

Further, Thomas said he is not happy that sections of the opposition are taking the position that they are prepared to support the project once the Inter-American Development Bank (IDB) gives the project its blessing at the end of the due diligence process now ongoing. AFC has publicly stated that it would support the project once the IDB finds it favourable.

“We feel that this is fundamentally a rejection of the responsibility which the political leadership owes the country. You cannot abandon your own responsibility to others,” he said. He pointed out that a feasibility study is only important insofar as it is available for independent assessment, since any feasibility study could be made to service whatever needs a particular investor had in mind.

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