Was Sithe Global’s insistence on raising the loans guarantee ceiling a means of securing a safeguard for the loans that were to be made available to the Amaila Falls hydropower project by the IDB and the Chinese Development Bank (CDB)?
This is the question that was raised by former Auditor General, Anand Goolsarran in Monday’s Stabroek News as part of a series of columns on the Amaila Falls Hydropower project.
Goolsarran raised his question in the light of what he observed in the draft Power Purchase Agreement (PPA) between the Guyana Power and Light (GPL) and the Amaila Falls Hydropower Inc (AFHI), the company which had been set up to steer the now-stalled project.
He pointed out that the main purpose for the motion was to lift the ceiling for the Government’s guarantee of loans to public corporations to cover the PPA between GPL and AFH Inc. He said that this agreement provides for GPL to pay to AFH Inc. approximately US$100 million per annum for 20 years. This works out to $400 billion. Therefore, he said that the ceiling of $150 billion which was originally sought by the government would therefore have been inadequate to cover the PPA for the 20-year duration. He said that in any event it was inconceivable that the Government would provide a guarantee for such a large sum. He said that he had subsequently suggested that a figure $50 billion, which would cover at least two years of the PPA, be approved. The National Assembly eventually approved the lifting of the ceiling to this amount after the Alliance for Change voted with the PPP/C.
Goolsarran said that he has since been privy to the draft PPA which has a section captioned “Assignment of Receivables Agreement” in which GPL assigns and pledges a first priority lien and security interest in all of GPL’s right, title and interest in and to the following, whether now or hereafter existing or acquired:
* All proceeds from any sale, transfer or other disposition of electric energy directly or indirectly by GPL to any GPL customer, excluding new connection charges; and
* (i) Each of the accounts (including any sub-accounts within such accounts) and all amounts, securities, financial assets, investment property, cash and other instruments or amounts or other property deposited or required to be deposited therein from time to time or credited or required to be credited thereto from time to time and all income or gain thereon, (ii) all of its securities entitlements with respect to financial assets credited or required to be credited from time to time therein, and (iii) the proceeds of all of the foregoing.
“In other words, GPL is pledging all of its assets as security for honouring the terms and conditions of the PPA. If there is default, the bank as the collateral agent will step in. This scenario is equivalent to GPL going into receivership! That apart, why is there a need for a government guarantee to cover the same agreement? Is it not a case of double counting? The Government’s original request for lifting the guarantee ceiling to $150 billion, equivalent to US$750 million, coincides with the cost of the project, excluding the Government’s contribution”, Goolsarran asserted.
He then posed the question “Could it therefore be that Sithe Global was indirectly trying to extend coverage for its own investment as well as the loans from the CDB and the IDB?” Goolsarran said that fortunately, the National Assembly has tied the increase in the guarantee to strictly the arrangement between GPL and the PPA.
The CDB was intended to provide US$550.8M in financing for the project and the IDB, US$100M at varying rates of interest.
Goolsarran added “In any event, it is not possible for the Government to provide a guarantee to an entity unless it is State-owned or controlled. AFH Inc. is a privately-owned company since the Government owns only 40 per of its equity while Sithe Global owns the rest. Interestingly, the draft PPA describes AHF Inc. as a public corporation. Was there initially an intention to make it one? If so, the analysis of project’s financial architecture would have been a completely different one.”