…and 15 years of profits-Anand Goolsarran
At a 19 per cent rate of return, Sithe Global, the company contracted to develop the Amaila Falls Hydro Electric Project, would have recovered its total investment of US$157M, within five years time, and this is ignoring inflation.
Former Auditor General of Guyana, Anand Goolsarran, in an invited comment regarding the repayment arrangement to Sithe Global, said that for the remaining 15 years of its operations in Guyana, all of the payments it would have received would have been profits.
He calculated this to work out at US$447.45 million.
According to Goolsarran, over the 20-year period, Sithe’s return on investment of US$157M would have been US$596.6 million.
He said that as a percentage of the original investment, “this works out to 380 per cent over the 20-year period.”
Goolsarran said that the return on investment of 19 per cent “appears too high” given that most of the financial risks were covered by the Power Purchase Agreement, which was also backed by a Government guarantee.
He said that Guyana Power and Light (GPL) has also pledged all of its assets as a security for its payments, including all receivables derived from the sale of electricity to consumers.
Goolsarran also said that it needs to be borne in mind that at the end of the 20-year period, Amaila Falls Hydro Inc. would have accumulated significant assets, other than the actual infrastructure works which would have been handed over to the Government.
He explained that as a preference shareholder, Sithe Global, would be entitled to its 60 per cent share of such assets as a priority over the ordinary shareholder which is the Government of Guyana.
The former Attorney General explained that there are two main types of equity investments: ordinary shares, and preference shares.
He said that for its return on investment, ordinary shareholders receive dividends when profits are made and dividends declared.
In contrast, preference shareholders receive a fixed rate of return regardless of whether the company has made a profit or not.
“Preference shares are a half-way house between loans and ordinary shares…The main difference is that there is no periodic repayment of the investment.”
He said that should the company have to ‘wind up,’ preference shareholders will be given priority in terms of the distribution of the proceeds arising out of the liquidation.
Goolsaran did caution that “there was no mention of Sithe Global being a preference shareholder in any of the documents I have seen.”
This status of the company had been attributed by Financial Analyst, Christopher Ram, who in his writings had said the public might have been led to believe that Sithe Global is an equity investor when, “in fact Sithe Global was allowed to design the project documents so that the repayment of its cash and in-kind investment would be effected through the monthly all-in charge to be paid by GPL.”
He concluded that “Sithe (Global) then is not an equity shareholder but the holder of redeemable preference shares enjoying total control of all aspects of a project.”
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