Sithe Global vows project completion on schedule
…acknowledges that failure could lead to assets forfeiture
Sithe Global, the developer behind the construction of a hydro electric plant at Amaila Falls, is guaranteeing that the project will be completed in three and a half years and will cost no more than US$700 million.
But if the developer defaults on the project, the financiers of the project will reserve the right to seize the assets and name a new developer, James McGowan, Sithe’s Global Vice President (Development) said Wednesday.
“There is no recourse to the parent company in the event of a default or a limited recourse,” McGowan stated.
“In the event of a default by the company, the lender’s rights are to step in and take ownership of the assets and most likely restructure the deal and to operate it with a new owner.”
McGowan said the current estimate is that the power plant and transmission line to get the electricity to power stations in Linden and Georgetown would be completed in three and a half years at a cost of between US$650 and US$700 million.
“That is correct,” he said, when asked if the company was guaranteeing that there will be no escalation in the cost or timeline for the construction of the project.
McGowan said that he could also guarantee that the project will be handed over to the government of Guyana, debt free, in 20 years.
But the project financing is still up in the air. Sithe Global is looking to be able to close financing for the project by the end of the year. The major lenders have been listed as China Development Bank and the Inter-American Development Bank.
They said that the focus is on closing the financial deal.
Sithe Global has agreed to invest 30 per cent of the project cost—an estimated US$200 million. The government has also said that it will invest in the project, using funds from the forest-saving deal with Norway, for which US$70 million has already been deposited into a Fund being managed by the World Bank, but not yet delivered to the local treasury.
The rest of the money would come from loans.
According to President Bharrat Jagdeo, the more equity Government picks up the cheaper will be the project. The interest on the loans would be less hence the final cost would be less.
The Amaila Falls Project consists of two components. The first component is the building of the hydro electricity plant. McGowan said this will cost an estimated US$320 million, calculated at an estimated US$1,900 per kilowatt. The project was first estimated to generate 150 megawatts of electricity, but this has since been reduced to 165 megawatts.
McGowan explained that the revised electricity generation was arrived at following negotiations with the government and “some things” learnt during the development of the project, such as the revised design of the reservoir and dam.
The second component of the project, McGowan said, would be the transmission line to relay the electricity generated at the plant to power stations in Linden and at Sophia in Georgetown. The line will be 270 kilometres and will form the backbone of the new grid system, McGowan stated.
He said this project will cost US$130 million.
Other “soft costs” mainly related to “project financing and development costs” add up to form the final project cost.
With the construction costs of the plant and the transmission line amounting to US$450 million, it therefore goes that the “soft costs” McGowan spoke of would amount to between US$250 and US$300 million.
Phil Mooney, a Consultant with Sithe Global, said that one of the issues with project financing is that when the lenders evaluate the entire project as a whole, they need to make sure the operator can operate the plant reliably, and that there is enough revenue to make sure the plant can cover the debt payments.
Sithe Global and the Guyana Power and Light Company (GPL) have not yet finalized a Power Purchase Agreement, which will determine how much GPL will buy electricity from the hydro project.
This year, GPL will be spending some US$100 million on imported fuel. Chief Executive Officer Bharat Dindyal said that within four years the fuel price could be higher.
He anticipates that the hydro power would be cheaper.
The planned Amaila Project is touted as a replacement for the expensive electricity generation facilities. The developers say it would not only provide a clean renewable energy source, but also represent important foreign exchange savings for the country by reducing Guyana’s dependence on expensive imported fuels.
On Wednesday, McGowan revealed that Synergy Holdings Incorporated sold or transferred its licence to build the hydroelectric power plant to the current developer – Sithe Global.
Synergy Holdings Inc. was first listed as the developer to design, build, own and operate a hydroelectric plant in Guyana.
In 2002, Synergy Holdings and Harza International were granted a licence by the Government of Guyana under the Hydro-Electricity Act for the development of a hydroelectric plant at Amaila Falls.
The licence was reportedly amended and extended in 2004 when Harza pulled out leaving Synergy as the sole licensee. The licence was again extended in 2006.
McGowan did not say for how much Sithe Global bought the licence but he was certain that at the completion of a successful project Makeshwar Fip Motilall would be compensated. The extent of compensation is still undetermined.
Synergy Holdings has since been granted a US$15.4 million contract to build the access roads to the proposed site for the hydropower plant.
The government, which has fiercely defended the award of the road building contract to Synergy Holdings, under Fip Motilall, has admitted that the company is woefully behind schedule.