Who owns the debt in Amaila?
Dear Editor,
President Ramotar has stated that the Amaila Falls project would not incur any national debt to Guyana’s Treasury /tax payers. This cannot be the case because the Government has requested Parliamentary approval to pay from the Treasury up to GUY $150.0 billion or US$750.0 million for default payments to Amaila by Guyana Power and Light (GPL), signaling that the Treasury would have to record this liability on the national books. Further, with Sithe Global/Blackstone (SB) seeking to get 100 percent ‘buy-in’ from all Parliamentary parties, this is implicitly a non-revocable guarantee from the Treasury that is better than political risk insurance bought in financial markets. As a result, it would be useful to examine the paper work or certificate issued for the incorporation of Amaila as this would bring clarity to many outstanding issues; and this information should be placed in the public domain.
The rationale for political and financial guarantees in this project is based on the fact that Guyana Power and Light (GPL) is currently not a financially viable company that can generate large cash-flows sufficient enough to pay in full and on-time its debts to Amaila. Evidence suggests that GPL has not been a profitable undertaking for many years and recent audited reports show that it made losses instead of profits, despite its almost monopoly status in the economy. Evidence will also show that GPL financing for capital works are covered by the Treasury, once Parliament approves those requests made by the Ministry of Finance. These are Treasury transfers with no repayment terms; hence, the need for Treasury guarantees for Amaila as any financial dependency on GPL will be misguided and a high risk for investors.
Usually, investments are paid for with what we own (equity) and what we owe (debt). Specifically: Investment = Debt + Equity. In the Amaila project, the total investment cost according to the government is US$858.0 million of which the government equity contribution is US$100.00 million (US $80.0 million from Redd funds; and US$20.0 million from the Treasury), with remainder of US$ 758.0 million as debt from Sithe Global/ Blackstone (SB) at US$150.0 million; China Development Bank (CDB) at US$500.0 million; the Inter-American Development Bank (IADB) at US$100.0 million and an unknown lender, yet to be declared, at US$8.0 million; this should be clarified by government.
The rule in investment projects is that the higher the risk, the higher the return. This however does not seem to be the case in the Amaila project. Specifically, the government initial guarantee of GUY$150.0 billion is equivalent to US$750.0 million (US$1= GUY $2.00), implying that all foreign lenders are covered by Guyanese tax payers through the guarantee issued by the Guyana Treasury. The main implication of this guarantee is that all the debt and risk
(US$758.0 million) are solely owned by the government and there is no risk to the lenders: SB, IADB, and CDB. More intriguing is the fact that SB is guaranteed a rate of return of 19 percent for no risk, while the government has all the risk, but we do not know the rate of return on its investment as it has not been publicized. This need to be corrected and the calculations made public.
Finally, the fact that the approved amount by Parliament for the guarantee was less than US$758.0 million and there was no consensus by Parliament endorsing the project unreservedly indicates that the risk exposure was too great for at least one investor who walked away. Given these concerns, President Ramotar cannot be right about who owns the debt in Amaila.
C. Kenrick Hunte
