Members of Sithe Global were happy to recently meet government officials, media representatives and local business groups in Georgetown, on January 24, 2012. The questions from all groups were well received and we will continue these types of meetings in the future to support a transparent approach towards the development of the Amaila Hydropower Project.
After our meetings there were a few topics raised in the local newspapers which we are happy to address and we thank those who have raised their concerns and questions for the Amaila Hydropower Project. We believe the questions raised promote a productive dialogue regarding the Project and would like to take this opportunity to respond to these questions on behalf of Sithe Global.
We refer to GHK Lall’s article titled “Some Questions for Bruce Wrobel” (January 29, 2012). In this article, Mr. GHK Lall posits logical and fair questions for Mr. Bruce Wrobel regarding hedging for the Amaila Falls Project.
Mr. Lall’s questions largely pertain to the plan for a hedging programme for the Amaila Falls Project. The main currency and commodities to which the Project has exposure include the Chinese Renminbi and steel, cement, fuel, oil, copper and aluminum. Once the Project reaches financial close, Sithe Global has arranged to hedge the material price risks for the project.
Commodity price risk, including metals and fuel, will be passed to China Railway. China Railway will also take all of the Renminbi currency risk as of financial closing. Also at financial closing, Sithe Global will enter into a combination of fixed price debt instruments and forward swaps that lock in the project’s debt interest rates. In this manner, the price risk of the major components of the project will be locked as of financial closing.
The problem with hedging prior to financial close is that the project itself is the counterbalance to the hedge. For example, if Sithe Global were to fix the price of US$500 million worth of Chinese Renminbi and the project did not proceed for any reason, then Sithe Global would not have a use for those Renminbi, which creates a massive exposure.
This is the reason why Sithe Global must wait until financial close to implement the hedging program described above.
A second question was written by M. Maxwell in an editorial titled “Delays and cost overruns at Bujagali should be a warning for Amaila” (January 27, 2012). In this editorial, M. Maxwell raises a question regarding the cost overruns at the Bujagali Project, a 250 MW run-of-river hydropower project, on the Nile River in Uganda, whose lenders include the International Finance Corporation (private arm of the World Bank), Africa Development Bank and numerous other of the world’s leading development financing institutions.
As in any country with a free press, some articles in the Uganda media have been critical of the Bujagali Project. However, a few articles do not overshadow that the project is overwhelmingly recognized as being a major positive development for the country.
Since financial close in December, 2007, the Bujagali Project had a total of US$874 MM in committed debt and equity, including US$40 MM in contingency spending. As in any major infrastructure project, there are risks of overruns.
The Bujagali Project did encounter some unavoidable additional costs related to sub-surface, geotechnical matters. However, most importantly, the project had contingency funds available and stayed within the original December 2007 committed budget.
The first of five 50 MW turbines at Bujagali began producing power the first week of February 2012 and full commissioning of the 250 MW is expected in the summer of 2012, which means the overall project plans to be ahead of the Government of Uganda’s October 2012 due date. The project is currently providing power to the people of Uganda at a time when they desperately need cheaper, reliable, and clean power.
In the same editorial by M Maxwell, he raises another question regarding the Amaila Hydropower Project’s performance during the dry season.
“…considering that Amaila will not produce to its maximum capacity and will drop off output significantly during the dry season, how does one justify this ludicrous construction cost per megawatt when there is no guarantee that the Guyanese people will get any relief in cost of electricity, since low output will have to be made up by increasing tariffs to the paying public?”
The Amaila Hydropower Project will include a concrete-faced, rock filled dam that will create a reservoir to store water until it is needed to pass through the turbines into the power house. This reservoir provides the power plant with operational flexibility during the wet and dry seasons.
The dam and reservoir has been designed to accomplish three objectives: 1) to minimize costs to the Guyana Power and Light (GPL) ratepayers 2) to provide water energy storage to maintain power production during the dry seasons and 3) to minimize the environmental impact of the reservoir.
With those objectives in mind, the reservoir and dam were designed to have a 23 km2 area reservoir and will be able to store water energy to buffer the effects of varying river flows. In short, the hydropower plant was designed to optimize system performance, especially in the dry season, by using the energy storing capabilities of the reservoir.
As for the cost of the power station and 270 km transmission line, the Amaila Hydropower Project is projected to reduce annual generation costs for GPL by over US $90 million per year by reducing the demand for imported heavy fuel oil.
That projected savings grows to over US $200 million per year when the project pays down the majority of its debt in year 12.
A final question was raised by Mr. Abu Bakr in his editorial titled “Does the government have the requisite technical expertise to manage large infrastructure investment?” (February 4, 2012). In it, Mr. Abu Bakr raised the following question:
“…are there cheaper and better ways for us to solve the electricity problem now?”
The Project Environmental and Social Impact Assessment issued in March 2011 evaluated a number of potential generation alternatives. The analysis outlined various alternatives to the Amaila Hydropower Project and considered past studies on the subject. The conclusion of the analysis was that hydropower is the best source of power for Guyana and the Amaila Hydropower Project is the most economical hydropower project that matches the electricity needs of the country.
The relevant section of the ESIA can be downloaded from our project website at: http://amailahydropower.com/docs/ESIAJan11/06-Analysis-of-Alternatives.pdf.
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