GPL to pay US$100 million a year for hydro power – IMF staff report
February 26, 2012 | By KNews | Filed Under News
Source - Kaieteur News
The Guyana Power and Light Company (GPL) would have to pay US$100 million annually for electricity generated from Amaila Falls, a staff report by the International Monetary Fund (IMF) states in sounding caution against the contingent fiscal liabilities associated with the large hydro project.
“The AFHP is expected to have a transformational impact on the Guyanese economy, but also poses large fiscal risks, should it fail to deliver the promised benefits,” the IMF staff report noted.
The report, which was completed at the start of last year, states that in the event that the contractor walks out of the project and the government takes over, the debt that would be accrued would be serviced by the same money that would have otherwise gone to the contractor.
The Guyana Government is pressing ahead with the construction of the hydro project which it hopes would lower energy costs and improve energy reliability.
However, there are risks that could come if large industries which currently generate their own electricity because of high GPL charges get lured into the cheaper hydro power.
“A key issue…is the extent of the displacement that (the hydro project) can provide, as GPL would need to maintain backup generation capacity, which increases with the size of its market, when private self generators purchase cheaper electricity from GPL and stop self generating.”
Electricity generation in Guyana has been based on outdated technology, using imported high cost fuels. As a result, electricity supply has been unreliable and at a high cost (32 U.S. cents per Kilowatt hour), causing several private sector entities to install their own generation capacity. The dependence of electricity generation on imported fuels, of approximately US$90 million a year, has also exposed the economy to the vagaries of international price movements. Guyana Power and Light (GPL) also suffers from an aging distribution network, and weak revenue administration, the IMF staff report noted.
The Amaila Falls Hydro Electricity Project is structured as a 20-year “take or pay” Power Purchasing Agreement through which GPL will purchase all of the electricity generated at Amaila Falls for an annual payment of approximately US$100 million that will help achieve the guaranteed 20 percent return on the sponsor’s equity, the report stated.
That payment of US$100 million will decline over time.
GPL will pay for the hydro electricity from the money it receives from consumers. Currently, Guyanese pay an estimated US$150 million to GPL annually.
Since Amaila Falls will generate more electricity than is demanded, it will allow GPL to increase its revenue stream over time despite the projected lower tariffs.
Further, the design of the PPP would allow the government to increase its equity share and,
by extension, reduce its obligation to the sponsor, namely Sithe Global.
These conclusions, among others, are made in the IMF staff report which was completed at the start of 2011.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.
The staff report followed discussions that ended on November 18, 2010, with the officials of Guyana on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 5, 2011.
The team had met with then President Jagdeo, Prime Minister Samuel Hinds, Minister of Finance Dr. Ashni Singh, Central Bank Governor Lawrence Williams, and representatives of the private sector, labour, the donor community, and members of the political opposition.
The hydro project is a key component of the government’s Low Carbon Development Strategy (LCDS), from which it has been guaranteed US$250 from the Government of Norway for several projects.
The government is investing in the project from the money it anticipates from Norway. According to the IMF staff report, the Government of Guyana would earmark US$40 million to US$60 million of the LCDS-related payments to increase its equity in the project.
According to the IMF staff report, a reduction of between 20 and 40 percent per Kilowatt hour is expected for the tariffs of residential, commercial, and industrial consumers as GPL switches out of oil based to hydro-power based electricity generation.
The hydro project, for which total financing has not been finalized, is to expected to take 40 months to construct.
Upon completion, the AFHP would cover all the electricity needs of Guyana—approximately 154 megawatts.
The AFHP would be constructed as a Private Sector-Public Sector Partnership (PPP). A local company—the Amaila Falls Hydro Inc. (AFHI) company—has been established, with shareholdings by Sithe Global (the Sponsor) and GPL. This company would build, and then operate the AFHP for 20 years, after which it would revert to the government.
February 26, 2012 | By KNews | Filed Under News
Source - Kaieteur News
The Guyana Power and Light Company (GPL) would have to pay US$100 million annually for electricity generated from Amaila Falls, a staff report by the International Monetary Fund (IMF) states in sounding caution against the contingent fiscal liabilities associated with the large hydro project.
“The AFHP is expected to have a transformational impact on the Guyanese economy, but also poses large fiscal risks, should it fail to deliver the promised benefits,” the IMF staff report noted.
The report, which was completed at the start of last year, states that in the event that the contractor walks out of the project and the government takes over, the debt that would be accrued would be serviced by the same money that would have otherwise gone to the contractor.
The Guyana Government is pressing ahead with the construction of the hydro project which it hopes would lower energy costs and improve energy reliability.
However, there are risks that could come if large industries which currently generate their own electricity because of high GPL charges get lured into the cheaper hydro power.
“A key issue…is the extent of the displacement that (the hydro project) can provide, as GPL would need to maintain backup generation capacity, which increases with the size of its market, when private self generators purchase cheaper electricity from GPL and stop self generating.”
Electricity generation in Guyana has been based on outdated technology, using imported high cost fuels. As a result, electricity supply has been unreliable and at a high cost (32 U.S. cents per Kilowatt hour), causing several private sector entities to install their own generation capacity. The dependence of electricity generation on imported fuels, of approximately US$90 million a year, has also exposed the economy to the vagaries of international price movements. Guyana Power and Light (GPL) also suffers from an aging distribution network, and weak revenue administration, the IMF staff report noted.
The Amaila Falls Hydro Electricity Project is structured as a 20-year “take or pay” Power Purchasing Agreement through which GPL will purchase all of the electricity generated at Amaila Falls for an annual payment of approximately US$100 million that will help achieve the guaranteed 20 percent return on the sponsor’s equity, the report stated.
That payment of US$100 million will decline over time.
GPL will pay for the hydro electricity from the money it receives from consumers. Currently, Guyanese pay an estimated US$150 million to GPL annually.
Since Amaila Falls will generate more electricity than is demanded, it will allow GPL to increase its revenue stream over time despite the projected lower tariffs.
Further, the design of the PPP would allow the government to increase its equity share and,
by extension, reduce its obligation to the sponsor, namely Sithe Global.
These conclusions, among others, are made in the IMF staff report which was completed at the start of 2011.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies.
The staff report followed discussions that ended on November 18, 2010, with the officials of Guyana on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 5, 2011.
The team had met with then President Jagdeo, Prime Minister Samuel Hinds, Minister of Finance Dr. Ashni Singh, Central Bank Governor Lawrence Williams, and representatives of the private sector, labour, the donor community, and members of the political opposition.
The hydro project is a key component of the government’s Low Carbon Development Strategy (LCDS), from which it has been guaranteed US$250 from the Government of Norway for several projects.
The government is investing in the project from the money it anticipates from Norway. According to the IMF staff report, the Government of Guyana would earmark US$40 million to US$60 million of the LCDS-related payments to increase its equity in the project.
According to the IMF staff report, a reduction of between 20 and 40 percent per Kilowatt hour is expected for the tariffs of residential, commercial, and industrial consumers as GPL switches out of oil based to hydro-power based electricity generation.
The hydro project, for which total financing has not been finalized, is to expected to take 40 months to construct.
Upon completion, the AFHP would cover all the electricity needs of Guyana—approximately 154 megawatts.
The AFHP would be constructed as a Private Sector-Public Sector Partnership (PPP). A local company—the Amaila Falls Hydro Inc. (AFHI) company—has been established, with shareholdings by Sithe Global (the Sponsor) and GPL. This company would build, and then operate the AFHP for 20 years, after which it would revert to the government.
