Guyanese would probably be unwilling to pay whatever it costs for electricity generated by hydropower

Dear Editor,

In a Sunday Stabroek article of June 9, Dr Clive Thomas ‒ and probably most Guyanese ‒ expresses the opinion that electricity generated by hydropower, although it will not come cheap, is indispensable for Guyana’s economic transformation and development because of the country’s dependency on oil and other challenges. Therefore he supports “its strategic pursuit as an essential component of the country’s public investment strategy.”

In order to move its citizens out of poverty through anticipated cheap electricity, the PPP led government felt likewise, and decided to develop plans for a project to build a hydropower plant at Amaila Falls (AFHP) on the Potaro River.  Accordingly, it started with a number of initiatives to achieve this objective all shrouded in secrecy, and goaded with inputs from so called advisers, the government decided on a public-private partnership arrangement (PPPA) to finance the project and gained the false expectation of generous participatory funding from one and/or several of the development banks.

The project was poorly formulated from the start, as there was no comprehensive plan drawn up to identify AFHP as an investment project. No in-depth analysis was made of the technical, economic, financial, institutional, legal, social and other relevant factors in order to define and develop the most attractive alternative hydropower project and determine its feasibility.  Based on limited preliminary information, a cadre of political elites advised that preparations proceed full speed ahead to make AFHP a reality, first with the access road and bridge which is behind schedule and will not be completed this year ‒ although hopefully it will be ready for material to be transported to the project site by early 2015.

The cost for these works is yet to be determined, but projected estimates indicate that it will be over 75% of the original bid submitted by ‘Fip’ Motilall.  While preliminary works are proceeding at government’s expense, financial closure for the project is still in the doldrums and in its desperation to secure adequate funding, the government decided to entrust financial arrangements for the project to a lead developer, Sithe Global, part of the Blackstone Investor Groups whose cost for the project is escalating by the day and which wants a guaranteed 19% return on its equity stake whether or not AFHP can provide reliable power throughout the year given serious misgivings as to whether sufficient water will be available to power the turbines during drought periods.

The World Bank has taken a ‘pass’ on AFHP while the Inter-American Development Bank (IDB) has been approached to provide a shortfall of about US$175M for project financing. Before considering this request, IDB informed AFHP that a feasibility study had to be furnished to its Board of Directors for consideration before any loan request by Guyana is approved.
The Minister of Finance who is on the Board of the IDB should have been aware of this requirement but it seemed to have slipped him.  However, this has since been done and IDB apparently still has AFHP under consideration for a loan.

Apart from its technical and economic justification, AFHP has to establish its viability from the viewpoint of electrical operations, and its proposed executing agency GPL has a poor track record in this respect which undoubtedly will leave contemplated investors with much uncertainty.

Finally, the government has been extolling that the cost for electricity per kwh from AFHP will be cheaper than the rate now being charged, exclusive of the 26.70% rate hike recently sought by GPL.  Unfortunately this claim was never supported by any published data, although the estimated cost for a kwh from AAFHP must have been stated in the feasibility study submitted to the IDB. The AFHP is supposed to be a PPPA project and therefore Prime Minister Hinds should make the feasibility study publicly available as he has done for the IDB in consideration of a loan.  If not, he should state why he is holding back on its release as he has done with so many other relevant reports.

In any case, he knows that AFHP is not going anywhere any time soon because of the high cost and financial risks. Brazil is building a hydropower plant on the Xingu River at Belo Monte south-east of Guyana, where the cost for power is estimated at US$1.3M per MW while at AFHP it is projected to cost US$5.1M per MW. It is reasonable to conclude therefore that given this large disparity in costs to develop hydropower and which eventually reflects electricity cost per kwh to the consumer, Guyanese no doubt would be unwilling to pay whatever it costs for electricity generated by hydropower, irrespective of the government’s strategic pursuit of hydropower as an essential component of Guyana’s investment strategy.

Yours faithfully,
Charles Sohan

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