Chairman of GPL’s Board of Directors Winston Brassington says that a re-tendering for the US$858 million Amalia Falls Hydroelectric Project, though not impossible, would send a negative message to the investors who are providing the majority of the finances to facilitate the venture.
Brassington made the statement yesterday afternoon during a follow-up stakeholders’ meeting
on the project at the International Conference Centre, Liliendaal and was joined by representatives of Sithe Global, the company which is partnering with the Government of Guyana (GoG) on the project.
Yesterday’s forum was part of a drive by the government and the prospective investor to win support from the public for the project. A similar effort was held earlier yesterday at Parliament with the opposition which has raised serious doubts about the project (See other story on page three.) At least week’s forum, the media was not allowed to ask questions but they were permitted yesterday.
It should be noted that during the meeting last week, government representatives said that the cost of the project was US$840 million but yesterday it was stated that the price was US$858 million. The old cost, it was stated, was outdated due to a number of factors including currency fluctuation.
Brassington, at the time was responding to suggestions that the project, which critics say is overpriced, should be scrapped altogether, or re-tendered. Brassington made it clear that there is nothing in the contract which restricts the government from canceling the current arrangement, but said that the option would cost the country the investment which has been provided.
Noting that the majority of the funding for the project is coming from foreign investors, Brassington said that taking such a step would suggest to the investors that the country is not serious about the investment they are offering. Guyana along with Sithe will be providing the equity for the project, but will only be supplying US$100 million, while Sithe provides US$157.7 million.
The remaining costs take the form of loans, US$500.8 of which is being provided by the Chinese Development (CDB), while the Inter-American Development Bank (IDB) is to provide another US$100.
Ultimately the equity will account for 30% of the total project cost while the loans account for 70%.
What this shows, Brassington said, is that even if a decision was taken to pull out now, money will still be needed to complete the project, money which the GoG just does not have. As such, he said, it is not practical to go back to tender, considering how far the project has come.
He made it clear though, that Sithe is the partner which is standing the majority of the expenses, and will suffer the biggest loss if the project was to be discontinued.
In recent weeks, the Amaila project has come under withering\ attack from many quarters including by noted economist, Dr Clive Thomas, chartered accountant Christopher Ram and analyst Ramon Gaskin. Thomas has said that the project would be unable to supply the peak demand for power in a few years and he said that the country should cut its losses and cancel the deal. Ram and Gaskin at a recent press conference warned that the cost associated with the project would be well over the country’s US$1.7 billion national debt. Gaskin noted that while Guyana is expected to foot 82 per cent of the project cost, Guyanese ownership will only be 40 per cent. He noted that Sithe Global, the project contractors, will invest US$150 million and will own 60 per cent of the project, while collecting a whopping 16 per cent in interest.
Gaskin also pointed out that the AFHP was originally sold as a BOOT (Build, Own, Operate, Transfer) project but has since seemingly been transformed into a venture capital agreement. “This thing has changed. This thing is not no BOOT, this is a joint venture where the people of this country are putting in 82 and getting 40 and they putting in 18 and getting 60. This is no longer a BOOT operation. So all the talk of BOOT, I would say, is a confounded lie,” Gaskin proclaimed.
He stated that to date Sithe Global has acknowledged that a project of this magnitude, producing 165 megawatts, should cost in the range of US$350 to US$400 million. Sithe Global’s Bujagali Hydroelectric Project in Uganda, which produces 250 megawatts and cost US$900 million, he noted, was 40 per cent cheaper than the AFHP.
Brassington said yesterday that when Amaila comes on line, Sithe will be responsible for generation of power, and will be required to pay if it us unable to deliver. The hydro plant will be operated by Amalia Falls Hydro Inc. (AFHI), which is jointly owned by Guyana and Sithe. Guyana will own 40% of the company by virtue of its investment while Sithe will own 60%.
The hydro plant is expected to generate in excess of 1000 kWh, considered to be more than enough to meet the demands of the Guyanese population. In fact, Brassington said, he expects that GPL will be able to meet whatever demands exist by the time the project comes on line, especially when one considers that GPL produced just about 730 kWh last year. GPL, according to Brassington will only be required to pay 11 cents per kWh in the first year, then 9 cents per kWh over a period of 20 years.
Payment will be made to AFHI by GPL who will be paid by consumers.
He said that even after self-generators are connected to the grid, it is expected that they too will be supplied comfortably.
During the meeting, it was also explained that the government guarantee of loans borrowed will not be triggered as long as GPL makes the necessary payments for the electricity it will be receiving from the AFHI. Currently the government is attempting to move a motion to increase the country’s loan guarantees ceiling for public companies from $1 billion to $150 billion and critics are concerned that in the worst-case scenario, the government, and by extension the taxpayers of Guyana, will be saddled with this extra cost.
However, President of Sithe Global, Brian Kubeck yesterday informed the group of stakeholders who attended the meeting that what the government is not guaranteeing is the debt, but standing behind GPL, thereby guaranteeing that GPL will honour its commitments to pay for the electricity generated.
The government, he said, will only be required to back the payment if the company is unable to make it, he said.
With the savings GPL is expected to see, Kubeck said, it is unlikely that such a situation would develop. He said that once the project comes on line in 2017, tariff prices will come down by up to 20% in the first 12 years, providing savings of up to US$991 million, depending on the price of fuel. After 100 years, he said, GPL may be seeing savings of up to US$14.8 billion, again depending on the price of fuel.
These savings will be generated, Brassington said, because of the decreased fuel importation, which accounted for around 80% of their expenditure last year.
Brassington also said that the project will eliminate the need of government to subsidise electricity tariffs. These funds, he said, can then be used for development in other sectors.
These benefits though, are hinged on the ability of the GPL to handle the power generated at Amaila, and Brassington said that government is working towards making the power company ready. He said that the IDB is also working with the company to this end.
Accountant Ram said at the forum yesterday the explanation suggests that the guarantee is not a prerequisite for moving forward with the project, as is being suggested by government. Ram said that the legislation being pushed by government, even states that if the government defaults on its responsibilities relating to the project it will translate to a cost on the Consolidated Fund.
There was also a squabble as it relates to releasing specific documents on the project. Ram noted recent statements made by Finance Minister Ashni Singh to the effect that government is willing to share certain documents, but would need the go ahead from Sithe before a decision is taken on the matter.
Ram said though, that the company, on their website, has indicated that they are open to sharing particular documents depending on the government’s agreement.
Outlining the progress made in finalizing important documentation, Brassington said that a Draft Power Purchase Agreement between GPL and the AFHI has been done; there is also a Draft License for the operation of the plant; and there is a Draft Shareholders agreement be-tween the two entities.