Sithe Global pulls out of Amaila

Sithe Global has pulled out of the Amaila Falls Hydro Project, Head of NICIL Winston Brassington, has confirmed to Stabroek News.

According to sources, Sithe Global has informed President Donald Ramotar of its decision. The President is expected to make a statement on Sithe’s walking away from the project.

Sithe Global’s President Brian Kubeck today said that the company will be making a statement in the press on Sunday. In an email to this newspaper, Kubeck said that his company’s position remained the same – that the project was too large to continue without national consensus.

Kubeck had issued explicit statements that unless all three parties in Parliament backed two measures in Parliament for the controversial US$858M project his company which has been the prospective developer for a number of years would pull out. At Wednesday’s crucial session of Parliament on the two Amaila measures, the AFC changed its position and voted with the PPP/C while the main opposition APNU voted solidly against.  This would have tipped Sithe in the direction of quitting a project that has carved deep divisions in the body politic over the financial architecture for the project and the tariffs to consumers.

The Amaila Falls (GINA photo)
The Amaila Falls (GINA photo)

The Jagdeo administration and the current government had pressed hard for the project but it was eventually compromised by unrelenting questions and analyses from commentators like Christopher Ram, Dr Clive Thomas, Ramon Gaskin and Anand Goolsarran who argued that the planned 165 MW of hydropower could be obtained at a cheaper cost if unnecessary rates of return and interest charges were stripped away. They had also argued that there was no guarantee that tariffs would be reduced as had been argued by the proponents of the project – including all of the leading private sector bodies. They further contended that the Guyana Power and Light remained incapable of functioning as the node for the receipt of power from Amaila and there would be many attendant risks.

Sithe, a company reportedly incorporated in the Caribbean, had entered the Amaila stage in a big way through a purchase of the interest in the project held by the controversial Synergy Holdings Inc headed by Fip Motilall who had been the prime mover behind the project going back to 1999.  From the inception, the government and Sithe were bombarded by questions about the escalating cost of the project. In its initial stages, in the early 200os the project had been estimated to cost US$325M and it has now ballooned to US$858M as a result of inflation, project changes, the built-in rate of return and financing charges.

Sithe and the government have held fora to provide answers to questions but these have not satisfied the analysts and it clearly did not move APNU which voted solidly against it on Wednesday.

The loss of Sithe would be a major blow for what is a government prestige project and is likely to further embitter relations among political parties. Analysts have argued that if the project collapsed it could be rebuilt from the ground up with a new financing model and firmer guarantees on issues like tariffs which would placate the opposition. The access road to the Amaila Falls is far gone and is expected to cost around US$30M. The sources say that the government could try to re-tender the project under the umbrella of established multilateral financial institutions such as the Inter-American Development Bank.

With Sithe quitting, the financing for the project which had been secured from the China Development Bank – US$500M – could also be in jeopardy.  The prospective builder for the project is China Railway and they are currently engaged in work on the most challenging section of the Amaila access road. A deal with China Railway and the China Development Bank under the auspices of the Chinese government had been secured by the Jagdeo administration. Those arrangements could now be potentially at risk.

Analysts note that the Sithe pullout is starkest manifestation to date of the government’s loss of control of Parliament. Had the 2011 PP/C government had a parliamentary majority like its four predecessors it would have had no difficulty having Amaila related bills and measures passed in the House. With no guarantee that the government could get measures passed in an opposition-controlled assembly, Sithe and its other partners would have assessed the political risk as too great to continue. Sithe has already spent US$16M over six years and this would all now be written off as a loss.

The project has also had unexpected repercussions for the Alliance for Change which has styled itself as an alternative to the PPP/PNC duopoly. A major controversy erupted over the disclosure that  its Chairman Nigel Hughes is the Company Secretary for the Sithe-led company that has been set up to build the Amaila hydro project. His wife who is an AFC Member of Parliament has also done public relations work for Sithe through her media company. These two facts have exposed the AFC to questions about  its about-turn decision to support the two Amaila measures in Parliament on Wednesday. The AFC’s bid at a compromise with the PPP/C on this major project has also come to naught as a result of the Sithe pullout leaving it with little solace for its supporters.

Sithe’s departure represents a deja vu of sorts for the country’s bid for hydropower. An attempt in the Upper Mazaruni by the Forbes Burnham government in the 1970s collapsed for a number of reasons including lobbying by the government of Venezuela against it.

Hydropower has been accepted by all parties as a critical component of the clean-energy mix needed by the country. However, the critics of the Amaila project have said that the opaqueness and the numerous unanswered questions were too large a risk for the country to bear.

In 2010, Sithe had said the following about the hydro project:

“The Amaila Hydropower project can provide Guyana with a long-term, clean and sustainable  source of electricity. It would largely free Guyana from imported oil for electricity generation and will lower carbon emissions and cut pollution.  And for the people of Guyana – residences, businesses and industry – it would lower the prices they pay for electricity, while providing them with a reliable and dependable supply.

“Hydropower dams are not small undertakings. It takes considerable capital resources, experience and technical expertise to construct and operate a successful hydroelectric project and transmission line.   Sithe Global’s core management team has successfully led the development or acquisition of over 50 power plants comprising over 15,000 MWs globally.  Since combining forces with the Blackstone group in 2005, Sithe Global has raised nearly US$3 billion in capital to finance three greenfield projects totalling 1,725 MWs , including the 250MW Bujagali hydroelectric project in Uganda, which will effectively double that country’s generation capacity.

“Our environmental and social standards have been certified by our partners including multilateral lenders, such as the World Bank, African Development Bank, Inter-American Development Bank and other institutions well-known to have the world’s most exacting environmental, social and safety standards.  We are also working to develop strong partnerships with local non-governmental organizations to ensure that the civil society of Guyana has the opportunity to help shape the project. Building a hydropower project requires care, experience and precision. Doing just the minimum isn’t enough here.  That is why Sithe has chosen to update the previous Environmental Impact Assessment.  We have hired internationally recognized environmental advisors who are completing their environmental and social baseline surveys next month.
We are committed to bringing the Amaila Hydropower project to successful completion and operation, despite the challenges posed by its remote location. For this reason, we welcome the Government of Guyana’s commitment to build a road to the site, the critical first step to developing Guyana’s energy independence. The cost of this road will be part of the government’s equity in the project.  But once Amaila is built, the people of Guyana will have reliable, affordable electricity, and a critical resource to power their economy. Twenty years after its completion, Amaila will transfer from private ownership and become property of the Guyanese government, at no additional cost.”



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