Nov 03, 2021 News
…as Govt. approaches Chinese contractor to build, own, operate and transfer Hydro Project – Jagdeo
Kaieteur News – The Guyana Government is forging ahead with its plans to construct a 165 mega watt (MW) Hydro Electric Plant, using the Amaila Falls as its energy source.
It has since retained the controversial Chinese contractor, China Railway First Group (CRFG)—the company that had previously signed a contract to build the said project several years ago and to be paid for by power purchased from the project.
This was confirmed by Vice President, Bharrat Jagdeo, who on Monday during a press engagement at the Arthur Chung Conference Centre (ACCC), told reporters that a decision had been taken at the last Cabinet meeting, and that government would be approaching the selected contractor to negotiate on the way forward.
The Ministry of Finance, in a subsequent public missive corroborated the Vice President’s assertions saying, that Cabinet had given its ‘No Objection’ to the company, as evaluated by the National Procurement and Tender Administration Board (NPTAB).
Government had earlier this year advertised, soliciting a private partner to fund and develop the project and according to the notice published at the time there had been two proposals on offer.
Power Purchase Agreement
The first option advertised, Build-Own-Operate-Transfer (BOOT) where the developer would operate the project for a 20-year period before handing it over to the government, at no cost.
The second option, Design-Build-Finance, where the government would take over the project at the commissioning date and initiate repayment of the financing in accordance with contract terms.
According to Vice President Jagdeo, government has since opted for the proposal identified in the first offer, where the selected contractor would also finance the project.
He was adamant that , in such a situation, government would bear none of the risks financial or otherwise and that the project would be repaid for through the Power Purchase Agreement (PPA) that would have to be signed with the Guyana Power and Light Inc (GPL).
The Vice President told reporters, “…we have a really great bid” and explained that in this iteration of the Amaila Falls Hydro Electric Project (AFHEP), “we are not going to put any money into the project, we are just buying power.”
The Vice President used the occasion to explain that during its initial attempt at constructing AFHEP, the administration had sought to lower the cost of electricity being produced, by buying into equity since debt financing would have been costlier.
According to Jagdeo however, this time around, it is expected that the project would be cheaper as a result of lower interest rates but even ahead of negotiations with the contractor.
As such, he said the administration is looking to generate power at some US$0.07 (cents) per kilo watt hour (KWH).
The Ministry of Finance in its missive confirming the Cabinet Decision, on Monday evening said, the ‘no objection’ was granted for the Office of the Prime Minister, to engage China Railway Group Limited to construct AFHEP.
This, the ministry said would be pursued based on a BOOT model where the company will supply electricity to the Guyana Power and Light GPL Inc. “at a cost not exceeding US$0.07737 per KWH and where the company will provide the entire equity required by the project and undertake all the risks associated with the project.”
According to the ministry, a total of four companies submitted proposals, and China Railway Group Limited was identified as the most ‘capable partner’ by the Evaluation Committee after a rigorous evaluation process, following which NPTAB submitted the relevant recommendation to Cabinet for ‘no objection.’
It should be noted that checks conducted by this publication found that China Railway was in 2019 debarred by the World Bank for practices considered fraudulent on a highway project in the country of Georgia.
China Railway was established in 1950 and is a subsidiary of China Railway Engineering Group (CREG).
Meanwhile, Vice President Jagdeo continues to defend the project. During his press engagement on Monday, told reporters, “we are not going to put any money into the project, we are just buying power and at 7.7 cents” and suggested that this could possibly be lowered “because we are still to do some negotiations.”
He speculated that with GPL purchasing power at that price, “we can still sell power at 15 cents per KWH which we are hoping to do, because now it’s 30 cents, and still make a good profit for GPL….we are very pleased that the bids came in and we have these offers now and the project is going to move forward.”
Lamenting the outcome of the previous iteration of the project coupled with the likelihood of a reduced construction cost this time around, Vice President Jagdeo reminded that it was the then political opposition that had refused to raise the debt ceiling for guarantees by government.
According to President Jagdeo, Guyana at the time was not incurring a debt but rather would have had to spend about $700M to guarantee payment for the power.
He said, even after killing the project the then political opposition when it took Office in 2015, approached bilateral partner Norway, to conduct additional studies on the project.
The Vice President reported that at the time, the Norwegians had again concluded that the Amaila Falls site was the best suited location to provide base-load power from a renewable source.
Arguing against solar as a base-load supply for electricity, Jagdeo again pointed to the lack of sunshine for days at a time and the likelihood the country remaining without power.
He did say however, that the US$80M that Guyana had earned from Norway would be invested in large scale solar farms but that these would not be used as base-load, since AFHEP and the proposed Gas to Energy Project would serve this purpose.
As it relates to the Hydro Project, Jagdeo said the only way to achieve renewable targets “is basically through the construction of the hydro power…the report from Norway said we should retender and I am happy we did.”
Reminding that millions of US dollars had already been expended on the necessary environmental and other studies required ahead of the project, Jagdeo reminded reporters that a US Company, Blackstone, through its subsidiary was ready to proceed with the project before “the opposition machinations” that saw the company withdrawing.
The Ministry of Finance in providing some background into the history of the project noted that the site was first identified in 1976 by the Canadian company “Monenco’ during an extensive survey for hydroelectric power potential in Guyana. It said various studies have since justified and strongly supported the construction of the AFHEP.
“Recognising the suitability and attractiveness of the project, the pre-2015 PPP/C (Peoples Progressive Party/Civic) Government had advanced preparation of AFHP (sic) by conducting extensive technical and financial studies of the project, including an environmental and social impact assessment (ESIA),” the ministry said.
According to the Finance Ministry, “in its current formulation, it is expected that the project will require no equity contribution from Government, in comparison with the previous project structure which was based on a Government contribution of US$100 million.”
Additionally, “the current structure anticipates a cost of power that will be lower than the initial cost of 11 cents per KWH contemplated by the previous project structure.”
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