Development is a costly affair, and Guyana has been pursuing a course of development that is seeing huge expenditures. There is a huge expenditure on sea defence, more money on education, a large sum of money on the One Laptop Per Family programme and a large expenditure on bringing in a communication cable that would open up the information technology horizon.
When the European Union signaled that it was going to cut back on the amount of money it was prepared to pay to Guyana and the other African, Caribbean and Pacific countries for their sugar, Guyana realized that it stood to lose billions of dollars. This country recognized that sugar was still a lifeline, so it set out to reduce the cost of production and thus make sugar still profitable on the world market.
Needless to say, there have been queries surrounding the investment on the new sugar mill. To make things worse, the new billion-dollar facility has not lived up to expectation, thus sparking even more queries about the wisdom of the investment and of course, the real cost of a project of that magnitude.
Now there is to be the Amaila Falls hydroelectric project. This project came to the drawing board in the late 1990s with a promise that there would have been hydroelectricity within five years. There were setbacks that caused the programme to be shelved until 2001.
Again there was the promise that hydroelectricity would have been a reality by 2005. Funding was not available and the cost of oil then soared as did everything else. Inflation was not excluded. The government decided that this project was necessary, given the drive for lower carbon pollution globally. The focus was on renewable energy, and Guyana with its abundant waterways was right there to spearhead the drive for renewable energy sources.
The government undertook the road construction and awarded the contract to Synergy Holdings. In the first place, it was Synergy Holdings that claimed that it could deliver on the hydroelectricity programme. It could not. So it was saddled with the road amidst criticisms that it was incapable of constructing any road. Research showed that it never did, despite claims to the contrary.
So there was this US$15.4 million expenditure that has grown somewhat because of modifications to the proposed road.
Now there is the cost of construction of the hydropower station. In the first instance the cost of the project was put at US$450 million. That in itself was a sizeable sum. Within weeks the cost had been hiked to US$650 million. The main player, Sithe Global , announced that it was going to put US$200 million into the project.
Tenders went out for the contractor, and according to President Bharrat Jagdeo, China Railroad was selected after a very competitive building process. Everyone knows that a tender process is premised on a series of costs. For the country to select a bidder meant that the price range had been determined. That price range was US$650 million.
Sithe Global hosted a forum at which it explained the environmental impact and the fact that it had been granted approval for the project. The Sithe Global experts concluded that the final cost of the project would be somewhere in the vicinity of US$700 million.
When one looked at the size of the project and compared it with similar projects around the world, one found that the Guyana project was high priced. There were explanations that the terrain and other factors were responsible for the project being as expensive as it was. More was to come. One of the Sithe Global Vice Presidents, James McGowan, in a private conversation said that the project could cost as much as US$1 billion.
So, when President Jagdeo announced that the cost of the project would be US$835 million there were raised eyebrows. He had moved the cost closer to the prediction by Mr McGowan. Both of the private dailies made the new cost their main headlines. Kaieteur News saw the increase as being in the vicinity of US$385 million. Stabroek News saw it as being some US$200 million.
The tender had already come in and the cost was supposed to be fixed, so why this increase? President Jagdeo, in his address to the opening of GuyExpo on Thursday, said that the previous contract made no mention of risk insurance so the government has gone after political risk insurance. He placed this figure at some US$50 million.
It seems strange that there is the fear that some political party or the other would go all the way to the hinterland to sabotage the hydroelectric project. This, I feel, is unnecessary and a further tax on the people. Why political risk insurance?
Then there is a contingency cost in the event that there is cost overrun. If a contractor undertakes to construct the hydroelectric facility for a figure, he has taken into consideration the duration of the construction, inflation, and of course his profit.
Again it is strange that we are catering for inflation in construction. I have learnt that when the contractor did his borehole tests, he found some things that were different from what he anticipated. Did he ask us to make the adjustment? So we add another US$50 million.
We hear that the cost of construction material has risen. There is not much evidence of the movement of these prices, but we do know that prices fluctuate. They may also fall. If they fall are we going to persist with the additional US$50 million that we have pegged to the project or will that money disappear with the contractor?
It has not escaped notice that the Auditor General has noted that we make it a habit to overpay contractors. That comment was made again on Friday when he presented his report. He also notes that we do not ever collect the overpayment from these contractors.
And to crown it all, we are told that the interest rate will go up once we borrow more to cater for the political risk insurance, the contingency fee and for the rising cost of the materials. Surely this is unnecessary.
I am willing to bet that the project would actually cost much less than we are going to be borrowing. And if it does, will we give back the extra money? I think not.
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