Sep 19, 2012 News Comments Off on Amaila Falls Hydro-Electric Project…US$840M price tag assured – Sithe Global
– financial closure within nine months, construction immediately after
Financial closure for the massive US$840M Amaila Falls hydro electric project is expected within nine months with construction set to start shortly after, the developers disclosed yesterday.
The Amaila Falls Hydro Inc. (AFH), the local operating company formed to manage the 165-megawatt project to be situated in Region Eight, also indicated that the access roads leading to the site will have to be completed before construction begins.
The roads were faced with major delays after the first contractor, Synergy Holdings Inc., failed to meet deadlines and the contracts were severed in January by government and awarded in parts to several other construction firms.
“AFH expects financial closure in the second quarter of 2013, with construction beginning immediately thereafter (the Access Road Project is to be completed prior to commencing construction of the Project).”
The company said that it will deliver hydro energy in three and half years or 42 months.
The hydro project, the largest single investment in Guyana’s history, has been marred with questions of cost, access road construction delays and the suitability of contractors.
There were numerous questions when the road contracts were awarded to Synergy, but government had come out heavily in defense of the principal, Makeshwar ‘Fip’ Motilall, for whom no immediate evidence or road building experience could be found.
Last week, government announced that Sithe Global, the developers, had signed an Engineering, Procurement & Construction (EPC) agreement with China Railway First Group (CRFG).
There were immediate questions about the suitability of that Chinese firm after media reports revealed that last year Poland had severed a multi-million-dollar project with one of the overseas subsidiaries because of cash problems experienced by that company. The Chinese firm reportedly demanded more money to complete the highway project, but the Polish government refused.
There were also disclosures earlier this month that the Pakistani government refused to green-light a railway project and instead started an investigation to determine how it was awarded the contract in the first place.
No price adjustments
According to AFH yesterday, the hydro-power project reached major development milestones last week, with the signing of key project agreements in Xi’an, China, including the EPC contract and the Inter-American Development Bank Mandate Letter.
“This sets in motion the next phase of lender due diligence and documentation needed to reach project financial closure and begin construction, which is scheduled to start in the second quarter of 2013. The milestones demonstrate the hard work and commitment of all parties in making the project a reality for Guyana.”
The EPC contract is valued at US$506M.
“Signing the EPC contract provides price certainty, avoiding the risk of commodity price adjustments for a period of nine (9) months, during which AFH will secure the project financing. The pricing is subject to adjustment in currency fluctuation until financial closure is reached, at which time the pricing will be fixed.”
According to AFH, Sithe Global will lead the oversight of the construction activity, using its core management team which has “successfully led the development or acquisition of over 70 power plants comprising more than 18,000 megawatts globally. China Railway, one of the world’s largest infrastructure construction companies with significant experience building hydropower plants, will build the power facility and transmission lines.”
AFC insisted yesterday that the “robust contractual requirements of the EPC contract require that the strength, structure and integrity of the dam and associated power plant infrastructure will be of accepted international standards”.
Sithe Global will closely monitor the implementation and ensure strict compliance with the standards.
“Further third party oversight will be conducted by the lender’s engineer, the owner’s engineer (MWH, one of the largest hydro engineers in the USA), as well as an independent panel of experts in dams and dam safety.”
The company said that the signing of the Mandate Letter between the IDB and AFH represents a critical piece of the project financing scheme.
“This significant step forward allows the lenders of the Project (IDB and China Development Bank) to proceed with the final phase of due diligence and draft the required financing documentation. AFH and Project lenders are working hard to finish the financing arrangements while pushing the tariff as low as possible.”
Government has said that the project will reduce Guyana’s dependence on imported fossil fuel which is the main source of energy.
AFH is a member of the Sithe Global group, incorporated in Guyana for the purpose of developing, owning and operating the Amaila Falls Hydropower Project.
AFH said that it has spent over US$11M on third party environmental, technical and legal costs associated with the development and financing of the project.
“AFH intends to contribute in excess of US$120 million of equity funding during the construction period.
Sithe Global’s majority shareholder, the Blackstone Group, is said to be manager of one of the largest private equity funds in the world with total assets under management of approximately US$190B as of June 30, 2012.
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