I begin with the heading – The Wartsila Contract Misrepresented. A forthcoming letter will continue with other sub-headings.
During the recent debate on our (PPP/C’s) much amended motion, GPL and Guyana’s Long Term Energy Strategy, the Honourable Minister of Public Infrastructure, in informing the House and the Nation about ending the Wartsila contract, stated that the operations and maintenance of the generating sets were done by 194 skilled Guyanese, and Wartsila received US $25000.00 per day for just “checking off” the work done. We were certain that that was a gross misrepresentation of the Wartsila contract but we wanted assurance.
With no books at hand but out of subsequent contacts with the former Chairman and CEO of GPL, we can now state that the Wartsila contract was for about US $7.5million per year (about US $20, 500 per day). It paid the wages and all benefits including training of those 194 skilled Guyanese and purchased all the spares and expert services so as to meet or better the efficiency target, the lube oil consumption target and the availability of the generator sets of no less than 90%. The Chairman’s and the CEO’s estimate of the surplus on the contract beyond those direct labour and material costs was about US $0.5million per year or about 16% of the contract.
They believe that GPL received great value for that surplus, benefitting from a number of intangibles – some amount of preferential pricing and delivery of the running and all major overhaul spares; in times of tight money and late payments (crude oil prices above US $100/bbl) Wartsila maintained the contract normally. Another important intangible is that the company in Guyana whilst it’s a member of the Wartsila group of companies, is continually in contact with others with a common purpose, common experiences and language, and thus an “esprit de corps” is attained and maintained which is unlikely to be there when the local company stands alone.
We are concerned that the above misguiding of the Hon Minister and in turn his misguiding of our Nation. The majority of us citizens not knowing much of these things took the Honourable Minister at his word. We, the PPP/C, are fearful that this could be the first step in a scam to award a contract of say US $4million, with a seeming great saving, to a group who would just “check off” what the 194 skilled Guyanese are doing. Skill is one thing; team spirit and guidance which continually justifies itself are also essential things. We, the PPP/C, will not just wait and see how this matter evolves, but will be demanding full transparency and opportunities along the way to check on the substitution of the Wartsila contract.
The Wind Farm Project
In the matter of the wind farm at Hope Beach, the Minister was similarly misguided and similarly one could fear that the stage was being set for another scam. Yes, it is true that we the PPP/C were ready to enter a contract to pay the US 18 cents per kWh but that:
1. Was GPL’s avoidable cost of generation at crude oil prices then greater than US $100/bbl
2. Enabled a much reduced BOOT (Build, Own, Operate, Transfer) (handover period) of just 5 years.
In our calculations (the same calculations which everyone learns at school) the very attractive financing then said to be on offer from the equipment manufacturer and a reasonable rate of return on the small portion of financing provided by the local investor equity, would have been amortised (paid off) in 5 years at US 18cents/kWh. Essentially GPL was foregoing any benefits (lower generating charges) during the five years so as to get a rapid write-down and a quick transfer period (to GPL ownership) of five years.
We believe that similar calculations today at this period of low oil prices (US $50/bbl) should yield an avoidable cost figure even less than US $12cents/kWh and will there be a BOOT period of no more than five years? There is a danger in presenting for comparison the two rates of US 18cents and 12cents per kWh without stating the prevailing oil prices at each period and the BOOT period. The Honourable Minister may find himself agreeing to contracts which would see customers of GPL paying more than we ought to and for a longer period, with the “investor” enjoying an intended or unintended windfall. We, the PPP/C (and we expect the PUC) would be checking all the way. I will continue my analysis in a forthcoming letter
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