Sep 29, 2011 News
Gov’t says cost bloated by price hikes
The government yesterday linked the bloating cost of the Amaila Falls Hydro Project to added interest costs and price hikes for materials that would be used in the construction. It said that it was not ruling out pushing more money into the project.
President Bharrat Jagdeo, on Tuesday, stated that project could end up costing US$835M. This amounts to more than US$100M in excess of the cost that the developers, Sithe Global, had indicated earlier this year.
In fact, the new price tag cited by the President is more than US$300 higher than the cost cited by the state-owned Guyana Chronicle earlier this year.
On October 8, 2009, Prime Minister, Samuel Hinds, signed for the original developers of the project – Synergy Holdings – to transfer its 13-year-old interim licence to Sithe Global for the development of the Hydro Project.
Since then, Dr Luncheon said there have been obvious price increases. He referred to price increases on commodities such as metals, steel and cement, noting that these price escalations feed back into an increase in the construction costs.
He said also that the increased construction cost is linked to the financial arrangement that would attract a different interest charge.
“The cost that originally was captured in the contract and the escalation of the associated and related costs for arranging the financing, interest, insurance, those are responsible for driving up the costs to what it is today,” Dr Luncheon told reported
With a range of financiers involved in the project, Dr Luncheon said that “there are a number of interests that have to be reconciled” before financial closure could be met.
The Chronicle reported on April 3, last, “The hydropower project is estimated to cost in the vicinity of US$450M, which includes US$305M for the plant, and approximately $140M for the transmission lines.”
The Project will be financed through debt from the China Development Bank as per an agreed upon funding schedule over the course of the construction period, and equity from Sithe Global and the Guyana Government.
Sithe Global expects to ultimately contribute around US$200 million of equity. The Guyana Government has said that it will use funds from the US$250 million forest-saving deal with Norway to invest in project. None of the funds under that deal have yet reached Guyana.
However, Dr Luncheon yesterday did not rule out that the government could be prepared to raise the amount of funds it commits to the project given its importance to the government.
“For us, this project is so integrally tied into the (ruling) PPP/Civic vision of Guyana and its economic development that a consideration such as that should not be excluded,” Dr Luncheon said when asked about the possibility of the government raising its equity contribution.
He said that the government anticipates financial closure by the end of the year, “but I would be the first to concede we had similar anticipations earlier.”
“We are more confident as we go forward and the parties who contribute to the financial closure are more and more now in synch and allowing us to be confident that we are looking at closure hopefully by the end of the year and commencement of construction activities early next year.”
The Amaila Hydropower Project is a planned hydroelectric project (approximately 165MW capacity) to be located in western Guyana.
The project also includes a new 270 km transmission line and new substations near Georgetown.
Currently, nearly all electric generation in Guyana is provided through small units burning either diesel or heavy fuel oil.
The planned Amaila Project is touted as a substitute for the expensive 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.
This year, the Guyana Power and Light will spend US$100 million on fuel for the company.
“The reliable and more economic source of electricity would also encourage investors to assess possible investments in the mining sector in Guyana, which has often been identified as having substantial potential,” Sithe Global says.
Less than six months after Synergy Holdings under Fip Motilall realised he could no longer develop the Amaila Falls Hydro Project and agreed to have the licence granted to Sithe Global (October, 2009), Government awarded him a US$15.4 million contract to build roads and bridges leading to the project site.
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