Part 5
In this week’s column and the next I shall wrap up my discussion of the financing arrangements through which the Amaila Falls Hydropower Project (AFHP) is being executed. In pursuit of this, I draw readers’ attention to two finance-related concerns considered as pivotal to the future success or not of the project. These are 1) the valuation of Guyana’s resources utilized in the project and the legitimate equity interest, which should flow from this; and 2) the pivotal role allotted to Guyana Power and Light (GPL) in the project’s financial structure.
Hidden subsidies
When considered carefully, the two items cited above refer directly to the named position of the Government of Guyana (GoG) as the project guarantor in the project’s promotional literature. If the GoG holds this position it requires that the project fully acknowledges the GoG’s significant contributions in both its equity distribution and economic accounting, especially in regard to 1) the contribution of Guyana’s natural resources to the project; and 2) the valuation of the public policy support (especially financial subsidies) the GoG affords the project.
At this point readers should recall that the AFHP is being executed as a private-public partnership (PPP). If it were an entirely public project, then the subsidies could be treated as a transfer of resources from the government to the government. But it is not and, therefore, in the 
PPP it is important that the GoG guards against giving the project public subsidies, which are in part appropriated by its private partners and at the same time not ensuring these are accounted for in the project’s equity distribution.
There is the additional concern that the GoG (as guarantor) seems to have been allocated most of the project’s commercial risks. To date I am aware that the cost for arranging political risk insurance coverage to the project (about US$60 million) will be shared by all the project sponsors. However, the commercial risk appears to remain disproportionately the responsibility of the GoG.
Natural resources
Specifically as far as Guyana’s natural resources in the project are concerned, the public needs to be assured that these are properly accounted for in its equity distribution. I am not privy to the details of the concessionary deeds and fees being paid to permit the utilization of these natural resources by the project. I hope these make commercial sense, but given what has been recently publicised about the lease of public lands to the Marriott Hotel, it is imperative that this information is made publicly available soon.
My bigger concern on this score, however, is that, based on experiences with similar projects in developing countries, the information may very well show that the GoG is 1) providing a non-commercial ‘leasehold’ for the use of GoG’s national resources in the project areas; 2) permitting these natural resources to be classified as the resources of the executing company, AFH Inc for purposes of seeking finance (security interest); 3) preserving sub-soil resources (minerals) in the leased areas for the GoG; and 4) permitting production of any discovered minerals but promising full indemnification to AFH Inc for any material damage that ensues during production.
Public policy support
From available evidence the public policy support resources devoted to the project are varied and considerable. One area where this is heavily concentrated is in GoG’s support for Guyana Power and Light (GPL). This topic will be discussed separately in next week’s column.
A second and equally important area of public support is to be found in the considerable tax expenditures (giveaways) and regulatory relief afforded to the project. Although the details of the latter are not fully known, it is believed that the GoG is 1) allowing AFH Inc to operate foreign bank accounts and undertake project transactions outside Guyana’s domestic banking system; 2) permitting it to hold foreign currency accounts inside Guyana’s banks; 3) permitting the free transfer of all funds required to ensure the project’s execution; 4) allowing also for unrestricted conversion (as well as transfer outside Guyana) of Guyanese dollars into foreign currency (US dollars). And, to complement the above, the GoG may be affording AFH Inc the right to expeditiously import, re-export, and re-import all project-related materials.
On examining similar contracts in poor developing countries I would confidently expect the tax expenditures and giveaways to include:
Total relief from income and wealth taxation: (This would entail that 1) no corporation taxes and property taxes are levied on AFH Inc; 2) no withholding taxes are levied on interest payments, dividends or other such distributions out of profits derived from the project; gross payments; and, any other withholding taxes on items provided to the project’s consultants.)
Total relief from indirect taxation on goods and services: (This would include exemption from value added tax (AFH Inc would be treated as zero rated); no excise taxes; and no custom duties.)
Total relief from all forms of taxation on realized capital gains: (That is derived from the sale of capital assets at prices greater than their purchase prices.)
It should also be noted that the project is likely to be given a blanket assurance that there would be no expropriation, compulsory acquisition, or nationalisation of the project, the project area, or the AFH Inc.
Nowhere is the GoG’s role better epitomized than in the motion, which it has placed before the National Assembly, aimed at raising the limit of GoG’s guarantee for Public Corporations debt from G$1 billion to G$150 billion. This motion has to be considered together with GoG’s legal obligations to facilitate, ensure and enforce the terms (and adjustments) enshrined in the Power Purchase Agreement.
Conclusion
Public policy support provided to GPL will be extensively discussed in the next column. This discussion will examine GPL’s role in providing the ultimate rationale for the AFHP, while at the same time holding the position of key financial player around which the project’s success is being predicated.
