Stalled Amaila Falls hydro project…Norway’s Ethics Council warns of corruption with Chinese company

Watchdog body, the Guyana Human Rights Association (GHRA), has urged Government to hold public consultations before proceeding with a Chinese firm that has been awarded a contract to build the stalled Amaila Falls Hydro Electric project.

Former President Bharrat Jagdeo

Government had been signaling intentions to start the project before the end of this year but there is emerging worries over the questionable track record of an associated company of that Chinese contractor which is embroiled in bribery scandals. The situation has reached the attention of Norway and a critical committee has recommended that no business should be done with China Railway Group Ltd (CRG). CRG’s subsidiary, China Railways First Group (CRFG), is the company awarded the US$506M contract to build the US$850M-plus project in Region Eight, Guyana. Norway would be concerned how monies are being spent as that country has a US$250M agreement with Guyana for this country to maintain its forests in a sustainable manner. Some US$80M will be used from the Norway money as part of Guyana’s equity for the project. The rest of the monies are reportedly coming from the Chinese and the Inter-American Development Bank (IDB) –about US$175M from the latter. According to GHRA yesterday, China Railways First Group (CRFG) has won several important contracts in Guyana, including construction of the stalled hydro project.

An artist’s impression of the site.

“With the prospects for Amaila having improved appreciably in recent weeks, the Guyana Government would do well to take note of another development in relation to the CRG, involving Norway,” the body warned. GHRA explained that the Norwegian’s Ministry of Finance manages the Government Pension Fund Global (GPFG), the largest investment fund of its kind in the world.  It has monies invested in CRG. An important component of the Ministry’s decision-making in determining its investments are the recommendations of its influential Council on Ethics (CE). Corruption The end-of-the year 2014 CE Annual Report recommended “the exclusion of China Railway Group Ltd. (CRG) from the investment universe of the GPFG due to the unacceptable risk of the company being responsible for gross corruption.” GHRA explained that CRG is itself a wholly-owned subsidiary of the China Railways Engineering Group (CREG), listed on the Shanghai and Hong Kong stock exchanges. The importance of the linkage between the various companies is highlighted in the Council of Ethics Report: ”…CRG is involved in one of the most serious corruption cases in China, is still managed by the same people who managed it when the acts of corruption took place and who knew or ought to have known about the acts, and is still operating in countries heavily exposed to corruption without at the same time, making it clear that it is trying to prevent future violations, the Council believes there is an unacceptable risk of CRG being involved in future cases of gross corruption.” The Committee also said that “…The management of CRG apparently also knew about the bribes from the parent company. This is supported by the fact that the current CEOs and legal director, as well as several other key managers in CRG, also held important positions in the parent company during the years when the acts of corruption apparently took place…. The company’s annual report for 2013 states that: ‘CRG’s president until 2014 was a vice executive president of the parent company from 2006 to 2007’.” The CE Report continues: “In addition, the parent company has apparently bribed China’s former railway minister in order to secure major contracts for CRG. In June 2013, the railway minister was convicted in China of taking bribes to award contracts to individual companies for a number of years. The Council on Ethics assumes that CRG knew about its parent company’s bribes. This assumption is substantiated by, among other things, the close ties between the parent company and CRG. Reports in the Chinese press also refer to the parent company being one of the companies that have been investigated and sanctioned internally by the Communist Party for having paid bribes.” Stop! GHRA noted that in Guyana, CRFG signed the contract with US-owned Sithe Global of the Blackstone Group, for construction in Guyana of the Amaila Falls hydro-scheme and related transmission lines in a contract worth US$506M. “Should the political problems surrounding Amaila be resolved, it is assumed that CRFG would be head of the line to get the contract again.” The association also noted that last year, the same company, CRFG, was awarded the $8.7B East Coast road expansion project. Around the same time the company, under its locally incorporated title, CRFG (Guyana Inc.), were reportedly granted two free lots of land, one acre in Liliendaal on which to construct an office and a 7.5 acres plot at Friendship on the East Bank for materials and marshalling yards. The CE Report goes on to note that “CRG operates in countries and sectors that are known to have a high risk of   corruption.  The building and construction industry, where large public contracts are common, exposes the company to a considerable risk of corruption.  It is the Council’s opinion that a company in this given situation is required to have solid systems and measures in place to prevent corruption.” GHRA said that while the China Railways First Group (CRFG) is not the company directly referred to in the CE Report, the extensive inter-changing of Directors and CEOs between parent and wholly-owned subsidiary companies has to be a matter of concern to Guyanese authorities and citizens. “With the Norwegian Government having recently given the green light to the Inter-American Development Bank to facilitate the Guyana Government with US$80M to serve as the Government of Guyana’s equity contribution to the Amaila Falls project, the investment hurdles to this project appear to have been largely overcome. However, in light of the deep political divisions around this ambitious project, before contracts are signed, a prudent step would be to hold another round of consultation together with serious due diligence investigations of contracted companies, following general elections in May 2015.” The 165-megawatts hydroelectric will be Guyana’s most expensive one to date, if it gets off the ground. But questions over the costs saw the Opposition-controlled National Assembly voting down a key piece of environmental legislation in 2013 that was needed for IDB to approve their loan. The project has been stalled since then. Government has already spent an additional US$35M-plus to build more than 160 kilometers of road to the Amaila Falls site. The project has been one that is being aggressively pushed by former President Bharrat Jagdeo.