AFHP to be world’s first hydropower project financed from ecosystem services sale
Sunday, 04 August 2013 22:10, Source - Guyana Chronicle
THE Amaila Falls Hydropower Project (AFHP) will be the world’s first hydropower project financed by the proceeds from the sale of ecosystem services, and has been hailed as a “model” for using public climate finance to leverage private investment.
This is according to a 2010 report by the United Nations Secretary-General’s Advisory Group on Climate Finance. The report’s findings were given prominence when the Government of Guyana and Sithe Global hosted a public stakeholders’ forum at the Guyana International Conference Centre last Wednesday.
An Artist’s impression of the Amaila Falls Hydropower Facility (Photo courtesy of Sithe Global)
Leveraging
According to the report, Guyana sells “avoided deforestation credits” at US$5 per ton of carbon dioxide.”
The report said that Norway has agreed to pay Guyana US$250 million for 50 million tons of carbon emissions avoided due to reduced deforestation. Scientists say that deforestation is responsible for a large percentage of the carbon emissions which cause global warming.
These payments are channeled into a climate finance mechanism dubbed the Guyana REDD+ Investment Fund (GRIF), from which US$ 80 million will be invested by the Government of Guyana in Amaila Falls Hydro Incorporated (AFHI), the special purpose vehicle created to finance and construct the hydropower facility.
The report stated that leveraging refers to the use of public funds or financial instruments to attract private investments, and by investing public funds into a project, a government encourages private investors’ participation by reducing the risk they face.
Debt debate
Critics have charged that the Government of Guyana’s investment into the project is not concomitant with the equity that it will receive.
Seventy percent of the project will be financed by loans, while the remaining thirty percent will be financed by equity contributions by the Government of Guyana and Sithe Global.
Of the thirty percent equity, forty percent will be financed by a US$100 million contribution by the Government of Guyana, while the majority of the equity financing will be provided by Sithe Global to the tune of US$158 million.
However, critics claim that the government, in addition to its equity contribution, is guaranteeing the debt, which makes for an 82 percent “actual” stake being wielded by the Government of Guyana in exchange for only forty percent of the project’s returns.
Sithe Global has stressed this is not so.
“The debt provided by IDB and CDB is on the books of AFHI, and repayment is not guaranteed by GoG,” it insists, adding that the guarantee provided by the administration is not that the loans will be repaid, but that the Guyana Power and Light (GPL) Incorporated will pay for the electricity it buys from AFHI.
Procurement
The project’s critics have also called loudly for the project to be scrapped and re-tendered, since they believe there was no competitive bidding.
However, according to Amaila project officials; there were five bidders for the project, which included China Gezhouba Group Corporation (the main contractor of the Three Gorges Project), China National Technical Import and Export Corporation, China Railway Engineering Corporation, CNC India Group, and Salini Construction.
“Five EPC [engineering, procurement and construction] proposals were received for the power plant in late 2008, followed by another round of negotiations with bidders,” project representatives explained.
The proposals, they added, were evaluated based on price, construction and engineering experience, management capability, quality of specified critical equipment, suitability of project arrangement layout and features, quality of execution plan, financial resources, contract terms, quality assurance and control plan, health and safety plan, environmental plan and performance guarantees.
Project officials also pointed out that final selection took place around the end of 2008.