Constructing the Amaila Falls hydropower plant at a cost of US$835 million will not reduce the cost consumers have to pay for electricity and may not be the answer to the country’s energy needs, the AFC’s economic advisor Dr Tarron Khemraj says.

“Given the demand for electricity in Guyana right now, if they build a hydro for US$835 million, you guys get ready for some very expensive electricity,” Dr Khemraj warned yesterday while delivering a lecture at the Pegasus Hotel. The lecture, titled ‘From Under-Performance to Economic Transformation,’ sought to present the AFC’s economic vision for Guyana and Khemraj put forward a plan consisting of several small hydropower plants and other forms of renewable sources of energy such as ethanol and bagasse.

Tarron Khemraj

Dr Khemraj, a professor at the Florida State University, likened the construction of the Amaila Falls hydropower station at such a high cost to the construction of the Berbice Bridge, while noting that the bridge toll is too costly for the average citizen simply because the government has set a rate necessary to recover its initial investment.

The escalation in the project cost of the Amaila Falls hydropower plant was recently announced by President Bharrat Jagdeo. Yesterday Sithe Global, the developer for the project, said that the new price was based on the final Engineering, Procure-ment and Construction (EPC) price from the project contractor China Railway, and reflected the significant increase in key commodities for the project and the appreciation of the Chinese Yuan by nearly 8 per cent. It also maintained that the project is still the best “low-cost, long-term” option to reduce power costs.

Khemraj told Stabroek News that the unit price for electricity will not be reduced following the construction of the Amaila Falls plant. “The unit price at which it will sell at is a fixed cost so you have to divide that fixed cost plus the interest cost… by the demand… and if you do that the unit cost is going to be just as expensive as what we have now,” he said.  According to him, Guyanese will have to bear this financial strain for 20 years until the loans for the project are repaid.

He said that should the AFC assume office, it would reconsider the project. “I don’t see it happening, not at that price. If I’m the planner why would I burden our producers more?” he said. He emphasised that the party was not against hydropower but said that it has a comprehensive renewable energy strategy for many sources. Khemraj said that personally he felt a hydropower plant at Tiger Falls may be more feasible but this still has to be discussed at the party level.

‘Lowest cost 
option’

Meanwhile, Sithe Global last evening said that the US$835 million price tag, based on the final EPC price from China Railway, includes all associated financing costs, non-EPC construction costs and project development costs.

The new project cost, Sithe said in a release, is based on a new EPC price of US$508 million, up 18 per cent from the price in 2009. The increased price, it noted, requires more debt financing to be secured for the project. This results in higher costs for interest during construction and political risk insurance. “Certain non-EPC costs have increased as well,” the release added.

Sithe said that the new price put forward by China Railway reflected a very significant impact caused by increased commodity prices, changes resulting from engineering work /site reconnaissance and the appreciation of the Chinese Yuan.

According to Sithe, the appreciation of the Chinese Yuan by nearly 8 per cent was the single largest factor in the proposed price increase. It pointed too to the increased price of key commodities, such as copper (which has increased by nearly 50 per cent from the original bid), steel (up 35 per cent) and crude oil, noting that play a significant role in the EPC price increase. Sithe said too that the quantities of materials required to build the facility were also adjusted as the required pre-construction site reconnaissance work was completed.

Now that the parties have agreed on the EPC contract, China Railway will accept the risk of further price escalation as of the commencement of the construction.

China Railway, the developers said, won the contract for the project in 2009, after submitting the lowest of four bids for the hydropower project. According to Sithe, the company submitted a bid of US$430 million for the construction of the transmission line and hydroelectric plant.  The total cost was estimated at up to US$700 million, it said.

“The project remains fundamentally strong because it is the lowest cost option for Guyana Power & Light (GPL),” Sithe said, adding that while everything possible is being done to minimise the cost of the project, it “continues to represent the best low-cost, long-term option to reduce GPL’s average generation costs and dependency on imported fossil fuels.

“Furthermore, it entails significant improvement of the electricity infrastructure in Guyana that will support Guyana’s overall economic growth and sustainable development, based on a reliable, affordable electricity grid for its industries, businesses and residents.”

Sithe said that so far it has spent over US$10 million on third party environmental, technical and legal costs associated with the development of the project. According to the company, it intends to contribute in excess of US$200 million of equity funding during the construction.

The Amaila Falls hydropower project is expected to be a 165 MW facility at the Amaila and Kuribrong rivers.

A 147-megawatt hydropower project in Pakistan is being built for US$362 million and the opposition has reiterated that this shows that the proposed 165-megawatt US$840 million Amaila Falls Hydropower Project (AFHP) here is overpriced.

Amaila is overpriced and the eventual tariff will not be lower than what people are paying at present, APNU leader David Granger said adding that the coalition remains concerned. “This thing is striking for its expense and all of these things must be studied properly,” AFC leader Khemraj Ramjattan told Stabroek News. He said that if the government does not want to do this then the Inter-American Development Bank (IDB) should.

Pakistan newspaper, The Nation, reported last week that construction of the 147 MW Patrind Hydro-project had begun with ground-breaking expected to be done next month. The report said the estimated investment in the project is US$362 million and commercial operations would begin in 2017.

Concerns about Amaila being overpriced as well as other ramifications had earlier been expressed here in the light of a 250 MW Bujagali hydropower project in Uganda that saw rapidly escalating costs which last year amounted to around US$1 billion at US$4 million per MW. That project is being done by Sithe Global which is the developer for Amaila. Reports had indicated that when completed Bujagali would not result in lower electricity tariffs for Ugandans in spite of promises from the project sponsors that this would be the result.

David Granger

It is not the question of hydropower at any cost, Granger said; while Ramjattan said that the due diligence is critical.

The leaders of the two opposition parties have said that they are awaiting the results of the IDB’s due diligence study which is expected to be released in October and if the institution green-lights the project then they will approve legislation that is required.

The opposition on July 18 voted against the Hydro-Electric Power (Amendment) Bill aimed at making the Amaila hydropower project compliant in terms of sustainable development and the environmental policies of the IDB, which is one of the prospective financiers of the project. APNU and the AFC also blocked the passage of the motion for the increase of the limit for loan guarantees—a requirement to allow the Guyana Power and Light (GPL) to have a Power Purchase Agreement with the AFHP.

APNU and the AFC had defended their decision to withhold support for the government amendment and motion billed as crucial for the AFHP, saying that the Donald Ramotar administration failed to address major doubts about the project’s viability and offer clear support for the re-tabled local government reform bills.

They had also pointed out that government had just before the sitting, tabled amendments to the Bill that were larger than the Bill itself and they needed time to study these.

Yesterday, Ramjattan told Stabroek News that the AFC had studied the amendments to the Hydro-Electric Power (Amendment) Bill and the party now has no problem supporting it. “Even without IDB due diligence that can be supported,” he said. “They [IDB] did tell us in relation to the Hydro Bill that is there, it would be good if that is supported,” Ramjattan recalled but said that because of the government amendment and the little time they had to study it at the time, they could not support it at the July 18 sitting of the National Assembly.

Granger said yesterday that APNU’s position remains that it will wait on the due diligence of the IDB.

Khemraj Ramjattan

Ramjattan was adamant that they will not support government’s efforts to increase the guarantee of loans from $1 billion to $150 billion. On Friday, he had said that government was recklessly tying the loans guarantee ceiling to the AFHP when the two were in no way connected. Ramjattan had contended that the IDB feasibility study made no mention of increasing the guarantee of loans and that since the AFC was waiting on the IDB’s due diligence on the project it made little sense to support the government’s whim.

He noted yesterday that GPL’s 2011-2015 Strategic Plan indicated that within this period, the utility must not be given any financial guarantees by government. He said that position and the position now of raising the debt ceiling are contradictory. “This is not tied to Amaila at all,” he said adding that the government wants to increase the debt ceiling so that other public corporations can borrow for other purposes.

The AFC leader said that even if the IDB says that Amaila is a feasible project, the AFC will not be voting to raise the debt ceiling. “The government wants that money separate and apart from Amaila,” he said. According to Ramjattan, even with its high losses GPL earns about US$118 million annually and the payments it would have to make to Amaila have been pegged at US$100 million with a peak of US$120 million annually. If they have to guarantee anything for GPL, it should be if there is a shortfall on a year’s payment, Ramjattan said. He asserted that if the utility fine-tunes its expenditure it would not need to ask for money.

If Thursday’s meeting of stakeholders on the Amaila Falls Hydropower Project (AFHP) was government’s way of energizing Article 13 of the Constitution which mandates the involvement of the people in the decisions of the country, particularly those that directly affect their well-being, then it was a masterstroke and indicates changed thinking by the Office of the President and by extension, Freedom House.

Unfortunately, it is more than likely that Article 13 was furthest from the minds of those in government who organized this meeting at the International Conference Centre at Liliendaal. What was more likely the objective of the arrangers was to present to the public a confabulation of like minds who would in scripted form acclaim the government’s approach and pass down an edict to the hapless populace that Amaila, questions or no questions, had to be proceeded with.

Any gathering of this type is useful as the more people that are involved in public ferment on issues like Amaila the closer the populace gets to the orbit of truth. However, as much as this Thursday gathering was helpful to those who were present and not present, it was no substitute for the forum within which the real decisions have to be made – Parlia-ment. Do any of those who attended Thursday’s forum believe that if the government had a majority in Parliament they would have been canvassed? According to the results of the 2011 elections,   the people who first and foremost have to be convinced are those in the majority in Parliament. They are not convinced as yet. So those who signed on to support the government’s position on Amaila as announced by the government Whip in Parliament, Ms Teixeira, should now invest some of their time trying to convince the opposition MPs of what they now firmly believe following Thursday’s forum.

What is clear to many objective readers of the situation is that there are serious outstanding questions about Amaila which have not been answered and which the government does not seem keen to be upfront about. If those who attended Thursday’s session are confident that they know the answers to these questions then they are in a rarefied group. We suspect that a significant percentage of them may know little of the details of the financing costs of the agreements on the table and the intricacies of the supply of a massive amount of power from a single point on the Amaila network to GPL for onward distribution. Those at the forum on Thursday are not the ones who will be held accountable if something went horribly wrong with the single largest utility project in the country. They should also bear in mind the calamitous failure of a previous attempt in the 70s even if as a result of far different circumstances.

The drip drip of information from the government on this project continues to raise more red flags that require clarifications and assurances. Which of those who attended Thursday’s forum would confidently say full speed ahead after hearing PM Hinds himself tell a parliamentary committee on Friday that foreign managers/coaches have been recommended for GPL? Such a recommendation could only mean that whoever was doing the recommending is not confident of the present leadership of GPL. It is more than likely that this evaluation was done in the context of the extended responsibilities for GPL if and when the AFHP gets going. So questions about the leadership of GPL – the focal point for the Amaila power – have now been raised. What does that say for an integral part of this whole project which has been entirely under the thumb of the government and its handpicked board over the last two decades? How could those at Thursday’s forum not have any doubts after hearing PM Hinds – who has had responsibility for the electricity sector for nearly 21 years – state that 90% of the present 15% technical losses was as a result of underinvestment in the utility’s old and overloaded system. Who has been in the wheelhouse of the utility for the last 20 or so years? It is not those who attended Thursday’s session and certainly not those who are in the majority in Parliament.

Serious questions remain to be answered before water tumbles over the Amaila Falls to generate electricity and it is only fitting that Parliament plays its rightful role in this process. The government has already frittered away years and millions of dollars as a result of bad decisions in this project. A little more time cannot be fatal to it. What the government and the opposition should do is agree on the immediate recruitment of two experts in hydropower projects: one on the plant side and another on the financial side. They could then be asked to review all of the documentation of the project so far and offer advice on what changes should be made and to provide answers to the opposition’s outstanding questions.

There are three key areas to be addressed:

i)  the cost of the project and whether interest charges and rates of return are acceptable;

ii)    Whether GPL will be in a position to efficiently handle the receipt and distribution of the power from Amaila and what would become of the excess that can’t be utilized;

iii)    Will the tariffs to all classes of consumers progressively decrease and then stabilize at a significantly lower rate given the financial terms of the agreements on the table?

There will be no disputing that these issues are still unsettled and both sides can agree that the parliamentary committees on natural resources and economic services can take on the role of managing this additional inquiry.

The committees can also invite the presence of a team from the IDB and the Chinese financiers and builder to advise them of this process and to invite clarifications on outstanding issues. Such a procedure would help immensely to clarify for the government, the opposition, those who attended Thursday’s forum and the public at large on the way forward for this vexed project.