Jamaica gets bids for massive power plant far lower than Amaila

Jamaica yesterday received bids for a massive power plant using a variety of fuel sources which puts the average cost per megawatt at US$1.54M to US$1.62M compared to the Amaila hydropower project’s US$5.09M.

Amaila will provide cleaner fuel than the Jamaican options but analysts have argued that there must also be some rational weighing of the costs to the country and how this can be mitigated.

The opening of the Jamaican bids yesterday could not have come at a worse time for Amaila supporters as the pressure on the government over the cost of the project and the manner of its financing has reached a crescendo. Stabroek News columnist Anand Goolsarran has argued that with a different financial model, the cost of Amaila to the country can be considerably lower than the US$858M and rising cost of the project.  

Today’s Jamaica Gleaner reported that three major companies have joined forces seeking to become the preferred bidder for the island’s 360MW project.

Energised Jamaica Limited is proposing to establish a 360-megawatt dual-fuel selective-cycle reciprocating power-generation plant, using number-six heavy fuel oil and natural gas. If successful, the company will be spending US$586.7 million to set up the plant.

Nigel Davy of Energised Jamaica Limited told The Gleaner yesterday that his company was confident of being selected the preferred bidder.

“I think ours is the best proposal there and I think we have the winning bid,” he added.

Other companies contesting to be the successful bidder are Energy World International out of Hong Kong, Azurest Cambridge Power, and Optimal Energy Limited, the Gleaner said.

Energy World International Limited plans to spend more than Energised Jamaica Limited to construct its plant. The company says it will invest US$737 million to build a combined-cycle power plant with 478 megawatts that will operate on natural-gas power generation. Azurest will be spending US$690 million (US$1.91M per megawatt)

The Gleaner said that President of the Jamaica Manufacturers’ Association (JMA) Brian Pengelley yesterday cautioned against any variance, in future, from the stipulated timetable set by the regulatory body OUR to select a preferred bidder for the 360-megawatt project.

“We really expect the teams – the ministry and the OUR – to be moving very quickly to identify the supplier of choice and get this thing done,” the JMA head told The Gleaner, following yesterday’s opening of bids by the OUR at its offices in New Kingston.

The report said that  OUR recently came under fire from the JMA and two other leading private-sector associations for delays in the bidding process for the 360-megawatt project.

Minister of Science, Technology, Energy and Mining Phillip Paulwell also warned that his ministry would not countenance any further delays from the OUR.

Goolsarran in Monday’s edition of Stabroek News  referred to his comparison of costs of various hydro projects.

“We examined the cost estimate for the project and we noted that six other countries, including Brazil, have constructed or are constructing hydroelectric power plants at an average cost of US$2.32 million per MW, compared with the estimated cost of the Amaila Project of US$840.3 million or US$5.09 million per MW. This has led knowledgeable persons to conclude that the project might be over-priced, especially when one considers the original price tag was US$300 million, later adjusted to US$450 million.

“Government’s response was that the facility being constructed in Pakistan at a cost of US$2.46 million per MW does not include the installation of a transmission line and the construction/upgrade of access roads.  In the case of the Amaila Project, these are estimated to cost US$175 million. Taking these into account as well as the latest estimate provided by Sithe Global of US$858 million for the cost of the project, the revised cost works out to US$4.14 million per KW, that is, 68 per cent higher than that of the proposed construction in Pakistan.  The Government did not comment on the hydro-electric facilities in the other five countries where the average cost is US$2.30 million per KW, that is, 80 per lower than the cost of the Amaila Project. The high cost of the Amaila Project therefore remains a valid concern.

“In terms of financing, the debt to equity ratio of 70:30 will result in a higher cost to the project costly because of the debt servicing charges amounting to $US$97.1 million, in addition to lenders’ fees and advisory services (US$34.9 million) and debt political risk insurance (US$187.7 million), giving a total of  US$319.7 million.  If AHF Inc. (the proposed developer of the Amaila project) were to be totally equity-financed, these charges could be avoided, thereby reducing the cost of the project to US$538.8 million, or US$2.20 million per MW (excluding the cost of the transmission line and the access road).  We had also stated that it is not in Guyana’s best interest for the Government to have minority interest in the project since it will be responsible for 82 per cent of the project’s financing through a combination of equity and guarantees of loans.

“Sithe Global has since clarified that: (a) the only guarantee it is requesting from the Government relates to the Power Purchase Agreement between GPL and AFH Inc.; and (b) the loans from the China Development Bank (CDB) and the Inter-American Development Bank (IDB) are specifically being provided to AFH Inc. and for which the Government is not required to issue a guarantee.

“These are important clarifications since the general feeling was that the Government has to guarantee the repayment of these loans. This was  especially so, given the Government’s desire to lift the ceiling for the guarantee of loans, corresponding roughly to the size of these two loans as well as amounts involved in the Power Purchase Agreement (PPA). Taking these clarifications into account, the extent of Government financing of the project will be 12 per cent, with Sithe Global contributing 18 per cent. The remaining 70 per cent financing comes from the CDB and the IDB by way of loans which have since been revised to US$500.8 million and US$100 million respectively.

“Concern, however, still remains about the high debt to equity ratio in AFH Inc.  If both Sithe Global and the Government can agree to a higher level of equity financing, the cost of the project will be significantly reduced. Can the Government afford more equity financing? A review of its latest audited accounts revealed that the Government had net cash resources in the tune of $63.084 billion as at 31 December 2011. Included in this figure was an amount of $90.856 billion reflected in the Monetary Sterilisation Account which was set up to capture the proceeds of the issue of medium term (180 and 360 days) Treasury Bills. This account also reflected balances of $56.610 billion, $69.956 billion and $87.921 billion at the end of 2008, 2009 and 2010. Without the risk of jeopardizing payments for the redemption of Treasury Bills, can the Government not use some of this to boost its equity contribution?  In addition, can the equity base not be extended to include shareholders other than Sithe Global and the Government?”

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