If there is no national consensus on the Amaila hydropower project, the prospective developers will pull out.
This was the stark message delivered by representatives of Sithe Global and the Blackstone Group to a gathering of MPs in Parliament Chambers yesterday. The warning further elevated the significance of the opposition-controlled Parliament in the Amaila process. The opposition has thus far refused to support the project, arguing that the government has not provided enough information and that the likely debt burden may pose a danger to the economy.
After the session yesterday, opposition MPs told reporters that they were grateful for the answers from the intended developers as they shed some light however they were still not ready to give the green light to the project as they say the government still has to answer other crucial questions.
The closed briefing for the MPs was one of two high-profile events surrounding the controversial Amaila project yesterday. The other was the public forum later in the day at the International Conference Centre for the US-based Sithe/Blackstone to brief interested stakeholders.
The session for MPs yesterday was held following a meeting of the joint parliamentary committees on natural resources and economic services with the management of the Guyana Power and Light. The Sithe/Blackstone officials then addressed a number of lingering concerns from the opposition about the project, including its cost over the 20-year power purchase agreement (PPA), the hydrology of the river which feeds the dam and the tendering process.
According to a project update document from Sithe, the project total is now US$858.2 million. Financing comprises Sithe Global equity of $157.5 million, Government of Guyana equity of US$100 million, a China Development Bank (CDB) loan of US$500.8 million and an IDB loan of US$100 million. In addition to these costs, there are interest charges, lenders fees, advisory expenses and political risk insurance. For the past year or so, the price spoken of by Government for the project was US$840 million. The figure has also escalated in recent years.
Sithe Global said in its project update that parliamentary support for the project must come by August 12, 2013 or Sithe/Blackstone will not participate in the project. “The project is a major undertaking for Guyana and will require widespread support to be successful. Without support at the next sitting of Parliament, Sithe cannot continue to fund development expenses,” Sithe said in its project update.
It said that the Inter-American Development Bank (IDB) is scheduled to present the project for board approval on October 30, 2013. Missing this board date would prevent the achievement of financial closure within the EPC price validity period. “The IDB will not approve the project without relevant parliamentary approvals,” it said.
In responding to concerns about Guyana’s liability for the debt, the Sithe project brief said the debt that the IDB and the CDB are providing is not guaranteed by the Government. “Government of Guyana’s guarantee backstop is only at risk if GPL or GoG break their contractual obligations to the project,” it said. Critics have said whichever way it is looked at the state will ultimately be liable if anything went wrong.
With regard to concerns that the cost of producing electricity will be higher than present, Sithe said that GPL’s average generation costs for electricity are US 30 cents and US 19 cents per kilowatt hour for diesel and HFO respectively. “GPL’s payments (to Sithe/Blacksone for electricity supplied) in the first 12 years of the project will be US 11 cents per Kwh, reducing to US 5.6 cents in year 13 and US 1.8 cents after 20 years when the project is transferred to the GoG,” the brief said. It is yet unclear what GPL will then charge consumers for power supplied.
On whether large consumers will be enticed to return to the grid when Amaila comes on stream, Sithe said that the project has “earned strong support from the Private Sector Commission” and other entities. It said that independent surveys of self generators indicate that most prefer to be on the grid if power can be supplied reliably and at a reduced cost.
On whether GPL has the capacity to manage the project and take the power, a longstanding concern of groups here, Sithe’s response was that important changes are being implemented to GPL since the lack of capacity has been recognised by Sithe, the IDB and the CDB.
Refuting allegations that there was no competitive bidding for the project, Sithe said that five EPC proposals were received in late 2008. It said that another round of negotiations followed. Bidders included China Gezhouba Group Corporation, China National Technical Import and Export Corporation, China Railway Engineering Corporation, CNC India Group and Salini Construction. “The proposals were evaluated based on price, construction and engineering experience, management capability, quality of specified equipment and other factors. “Final selection took place in late 2008/early 2009,” the brief said.
Addressing the cost of Amaila over the 20-year term of the power purchase agreement (PPA), Sithe said the total annual tariff over the period will be US$1.95 billion. “However the cost of generation for GPL [with no Amaila project] over the same period, based on today’s HFO generation costs of US 19 cents per Kwh, would be US$4.1 billion. Therefore [Amaila] would result in savings of more than US$2.1 billion over the PPA term,” he said.
Responding to the concerns about the hydrology and its possible effect on Amaila’s generation capacity, Sithe said that Amaila includes a reservoir that allows the project to store water in the wet season for use during the dry season as needed. “The average annual capacity factor of the plant through both wet and dry seasons is over 80 percent. Even if hydrology is 10 percent worse than expected in a given year, Amaila’s savings are significant,” Sithe said.
Chief Commercial Officer of Sithe Global Brian Kubeck expressed confidence following the meeting that the on-going issues with regard to the project would be resolved in time for the venture to become a reality.
“We had very transparent discussion and a lot of good questions from the Members of Parliament and we look forward to addressing the public later on today,” he said, referring to the public forum held later in the day at the Guyana International Conference Centre.
“We believe very strongly in the project and we believe all the parties need to work together to find a way to make sure it could go forward. I am confident that everyone will work hard towards it,” he said following the engagement with the Opposition.
Speaking after the session, Leader of the Opposition David Granger said that the meeting was one that President Donald Ramotar requested the Opposition to attend with a view to clarifying issues with Amaila. “President Donald Ramotar requested that the Opposition meet with the two teams from Blackstone and Sithe Global. We considered it and we agreed to the request,” he said.
APNU MP Carl Greenidge called the exchange fruitful. “The exchange enabled us to put to Sithe a number of the questions that we have concerning the project itself,” he said. “Of course Sithe isn’t responsible for the whole project. If we had ten concerns that we have raised in the past, those aspects pertaining to Sithe are those that were raised. I make that point so that people don’t run away with the impression that having spoken to Sithe we are going to rush off and say yes or no,” he said.
“They have answered all the questions that we asked in the sense that they have given us answers. Most of the answers we regarded as reasonable. There are some specific details which they would provide to us subsequently and there are still one or two things we are looking at,” he said.
“Some of the more controversial points lie outside of Sithe. The issue of the guarantee and the exact quantum of the guarantee that the Government is asking for [are among these],” he said.
According to Greenidge, Sithe said that they will only go ahead with the project if there is national consensus on it.
He said that the Opposition still does not have a document before it laying out all of the key dimensions of the project. “We still have not seen an economic feasibility study,” he said. “One of the other things we made clear to Sithe is that we understand that notwithstanding what the Government is saying, the IDB had indicated to us that there are at least three points between now and [the end of October] at which the Bank itself can take a decision not to go ahead with the project. So the idea of selling the view that the IDB is in support of the project if only the Opposition would support it is completely false,” he said.
He said that in discussing the issue of tariff, the IDB and Sithe have agreed on a price at which power will be delivered to the GPL grid following hydropower generation. “But we need to be careful because Government has tended to use that as though it means that there is a guarantee of the price at which the consumer will receive electricity,” he said. “That aspect still needs to be sorted,” he said.
“We recognise that the power that is being generated right now is inadequate to the needs of the country,” he said. “We recognise also that Guyana needs affordable power. Affordable power is not power at the current levels being generated and if you bring on board more power at the same price it would still not be affordable power,” he said. “Additional power is needed and that power needs to be both reliable and cheaper than it is at the moment. The package that the Government had put together should have taken into account the medium and longer term needs and also the fact that if you have a larger hydro the per capita generating cost will be less than [what is being proposed with Amaila],” he said.
“The Government still have questions to answer; the IDB still has to come back with responses,” he said.
Alliance for Change (AFC) Leader Khemraj Ramjattan said following the session with Sithe and Blackstone that its team will now review the answers given and will make a decision on them early next week.