Oct 02, 2011 News
Jacking up the cost of the Amaila Falls Hydro Project represents an attempt by the government to fatten the pockets of some of its officials for the rest of their lives, Presidential Candidate of the Alliance for Change, Khemraj Ramjattan, said yesterday.
Only four months ago, the developers of the project, Sithe Global, had issued a guarantee that the project would be US$650 million.
President Bharrat Jagdeo, on Tuesday, stated that the project could end up costing US$835M. This amounts to some US$200M on 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 than the cost cited by the state-owned Guyana Chronicle earlier this year.
Ramjattan rubbished the government’s explanation that the price increase for commodities is what has driven the cost of the project up, saying that it is an avenue through which Government cronies could get a “permanent kick back.”
He described the project, which would effectively become the largest infrastructure project in Guyana, as the ‘epicenter’ of corruption, given the price tag and the potential kick backs. He said that this sort of corruption is typical with large infrastructure projects in this country.
The government, on Wednesday, linked the bloating cost of the Amaila Falls Hydro Project to added interest costs, price hikes for materials and a political risk insurance that would be used in the construction. It said that it was not ruling out pushing more money into the project.
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, Head of the Presidential Secretariat, Dr Roger Luncheon said that 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.
However, Ramjattan said that the prices for some of those commodities have in fact dropped over the past months.
As such, Ramjattan said that there needs to be an inquiry into how the cost of the project has risen so much and for the expenses related to the project be detailed.
Only four months ago, the Senior Vice President of Sithe Global, Jim McGowan, maintained that the cost of the project would be between US$650 and US$700 million. Since then, the company has said nothing further on the project.
One observer has noted that Jagdeo’s comments on the project were made “by the way” at the commissioning of the new power plant at Kingston, in hopes that it would not have been noted by the media, and that the President would later come back to say that he did in fact talk about the escalating cost of the project.
On May 12, this year, Sithe Global officials issued a guarantee 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, McGowan stated at Hotel Tower where the company held a consultation on the project’s Environmental and Social Impact Assessment.
“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.
“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.
Dr Luncheon also said 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, he said that “there are a number of interests that have to be reconciled” before financial closure could be met.
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 has yet reached Guyana.
However, Dr Luncheon 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 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.”
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 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.
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