Jan 29, 2012 Letters
Based on Demerara Waves article of January 24, 2012 “Amaila Hydropower cost could climb again – Developer” The IDB should not provide financing unless certain conditions are met.
To anyone who has been involved in the management of capital projects, the Amaila Falls Hydroelectric project started out on the wrong foot and is continuing along that path.
In the first place, the contract for the design and construction should never have been signed without the financing being in place; whatever the final cost turns out to be, it will be saddled on the taxpayers and should be up front knowledge. Secondly, it is fine to give a design and construction contract but not without project management.
It is project management that is responsible for project control (which includes Scope identification, Schedule and Cost control, Progress monitoring, Problem identification and mitigation, Project Status reporting and Progress payments).
Finally, only specialized human resources that is unavailable in Guyana should be employed on the project (the cost of overseas personnel include transportation, housing, food, base wage plus premium for overseas assignment). Additionally, the imported labour is exempt from local taxes. These costs are included in the cost of the project and are not part of contingency costs.
Based on those findings, it would be in IDB’s interest to ensure that it’s funding be protected by project management excellence through incorporation of the above changes to the contract.
In my 48 years and as one of the fathers of modern project management, I have never heard of any utility hiring a developer for a major heavy industrial project. Furthermore, developers are usually owners of whatever facility they undertake which happens to be either residential or commercial facilities.
Generally, the developer hires a project management firm or has its in-house project management. In the industrial industry, it is the owner of the utility who contracts out the engineering, procurement, construction and project management (EPCM) for the facility and has a project director who reports back to management.
The hiring of a developer who does not have a stake in a project is an additional cost to the project. The contract for the Electrification Project in the early 1970s was carried out between the Electricity Corporation and the consulting engineers; there were no developers adding to the cost of the electrification costs.
It is the same way that heavy industrial projects are efficiently managed in developed countries. As such, it is GPL who should be dealing directly with the IDB, project managers, designers and contractors.
According to Demerara Waves, “Sithe Global will operate the completed plant for 20 years before it is turned over to GPL. Wrobel said the plant should have another 70 to 80 years in it.” I don’t know what is the message being conveyed here.
Does Wrobel mean that Sithe will operate the plant for GPL for a fee or Sithe will own the plant for 20 years and determine the price GPL pays per Killowatt Hour?
So far as has been reported in the article, “The other major financiers of the project are the China Development Bank, China Railway First Group and the Norwegian government under the biodiversity agreement with Guyana.” Sithe was not mentioned as one of the financiers and if it is being paid for the engineering, procurement and construction (EPC) its work should be completed after the power station has been commissioned. Why is necessary for Sithe to operate the plant for 20 years?
During the first 20 years of operation, the power plant will incur very little maintenance but as major parts erode from usage, maintenance will become a major part of operational costs. Furthermore, the possibility exists that Sithe will leave the plant is that same condition that Guyana received the Bauxite plant after it was nationalised.
That the plant will last another 70 – 80 years is no consolation as anyone who has operated an electricity generating plant is aware that power plant design evolve, materials evolve and parts become difficult to obtain and in many cases have to be custom made at higher prices than would have been the case. What does Wrobel mean by Savings of hundreds of millions of dollars?
The Road to the project should have been the responsibility of Public Works Department and not a developer. The works department should either have designed or have the road designed, awarded the contract for its construction and monitored the progress to ensure that it was being constructed to specification and, within schedule and cost.
As I said in my opening statement, the IDB should not partner the financing of this Hydroelectric Plant until proper project management is included in the contract.
Neville Quelch, B.A., PMP
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