Dear Editor,

This letter was prompted by Stabroek News’ excellent recent article on Sithe Global’s involvement in the Bujagali hydro project, a letter from a M Alli dated May 21 titled ‘The idea that hydropower would cost pennies per kilowatt-hour is nothing more than a pipe dream’ and the May 23 letter from Rafael Herz, Sithe Global’s Project Manager of the Amaila project. Experts state that the construction cost per megawatt (CCN) should range between US$1 million and $1.5 million. Here are the CCMs of recent major projects: China’s 18,000 MW Three Gorges is US$1.3 million; Turkey’s Ilisu is US$1.3 million, Sudan’s Merowe is US$0.63 million and Ethiopia’s Gilgel gibe II is US$1.42 million. Mr Herz stated in his letter that Amaila is a 154MW project that will cost US650 million in total of which US190 million is being spent by the Government of Guyana for support infrastructure. Thus, the Amaila project is currently estimated to cost US460 million. US460 million divided by 154MW equals a CCM of US$2.99 million (approximated to US$3 million). Mr Herz’s company is also updating the previous environmental assessments, which could lead to even higher cost.

Sithe Global’s Bujagali 250MW project is currently at a CCM of US$3.44 million and the project is incomplete. Why should the people of Guyana pay for power at a CCM of almost US$3 million when the average for recent projects is around US$1.36 million (Merowe not factored in)? Those projects are all within the range outlined by experts. Amaila and Bujagali are the only exceptions. Amaila’s CCM is already the second highest of the listed projects without a single stone turned. Bujagali’s initial project cost was US$500 million at a CCM of  US$2 million. At US$3 million, Amaila is higher than Bujagali’s initial CCM and may turn out to be arguably the highest CCM of any major hydroelectric project in history.

Using the experts’ range, Amaila’s 154MW project should cost between US$154 to US$231 million to complete. Based on Mr Herz’s letter, it will cost US$460 to complete. That is US$229 million to US$306 million in excess of the expert range. Using the reasonable CCM of US$1.36 million, Amaila should cost US$285 million. Amaila is already 62% over reasonable cost for a project of this size and a single brick is yet to be laid.

Using experts’ estimates and CCM for recent and ongoing major projects, US$460 million should give us the Guyanese people a 307MW to 460MW hydroelectric station, not a 154MW hydroelectric station. More power means lower prices. If US$460 million is being spent then at least guarantee the people of Guyana with 307MW of power.

Before construction commenced, Sithe Global’s Bujagali cost was US$500 million and its CCM was US2 million. Bujagali’s cost has risen to US$860 million (a US$360 million increase) and its CCM to US$3.44 million since construction commenced. Some estimates have put the final cost at US$1 billion. Bujagali had a staggering increase of 72% in cost. Cost overruns in the case of Amaila would also drive up the final cost. Amaila’s sole purpose and only means of revenue is from selling power to the Guyanese people. The fact that the investors own the project for the initial 20 years does not matter as Guyanese will have to pay for the higher CCM and any cost overruns in the first 20 years by way of the cost for power rates from Amaila to GPL to the consumer.

Sithe Global is only investing 25% to 30% of the capital in Amaila. 70% to 75% of the capital will come from multilateral institutions. Will those loans be automatically transferred to the people of Guyana if the investors pull out or after the 20 year period? If so, Guyanese will be paying a higher electricity cost to cover borrowing costs arising from those loans.What is the interest rate being charged to the project?

The cost of the Government of Guyana’s investment in the power grid cannot be forgotten. The government is expected to spend US$190 million of taxpayers’ money to build, rebuild, repair, replace and improve the existing power grid to optimum standard to receive power from Amaila; and to extend, grow and expand the power grid to capture the 35% of potential consumers the grid does not reach. The government is borrowing this money so lenders must be repaid with interest. Plus, the government must make some return on its investment. This cost must be added to the price of electricity.

It is instructive to compare the cost of power to consumers in Uganda and Guyana for this analysis. Fip Motilall has claimed at least a 50% cost of power reduction and US$0.025 cost per kwh. President Jagdeo recently claimed a two-thirds (66%) reduction. Guyanese pay a residential rate from G$48.42 per kwh to $53.78 per kwh (US24 cents to US27 cents). A 66% reduction means Guyanese will get power at G$16 to G$18 or US8 cents to US9 cents. Mr Alli did an excellent projected cost analysis and arrived at a cost of power of US9.2 cents, but he clearly stated that there were several other overheads that will drive up the cost of power. However, Mr Alli missed the cost overrun factor, the disaster/emergency cost and the curtailment of leakage and loss by GPL with the US$190 million refurbishment of its grid. In its current configuration, Amaila is probably going to sell electricity to GPL at about double the amount that Mr Alli calculated (US18 cents) when all costs and investment returns are calculated. That US18 cents cost of power is some US6 cents or US9 cents less than present. Then GPL has to sell its power to the Guyanese people for some return and taken in conjunction with other possible factors, the Guyanese people may in fact only see savings of US2 cents to US5 cents if at all. These numbers are a wake-up call to the government to confront the high initial cost for this project for if any savings are really to be realized they must be realized from the construction costs.

The massive intended investment from the government should seriously fix the most critical underlying problems of loss and leakage in the grid. These two key factors account for about 70% of the nation’s generating capacity and revenue losses resulting in GPL charging higher tariffs to consumers to simply recover these losses. A massive revamp of the system as planned by the government could see recovery of the bulk of that lost revenues and generating capacity. That alone could account for a 20% to 35% reduction of consumer tariffs. A 20% to 35% reduction in tariffs without Amaila means Guyanese get savings of US5 cents to US9.45 cents per kwh. It means the average consumer residential bill is reduced anywhere from US19 cents to US14 cents per kwh. These are potential savings even before Amaila is built. Even if the President’s claim of a 66% reduction  (reduction from US24 cents to US27 cents to US8 cents to US9 cents) in cost of power is accepted, that reduction is not solely generated from Amaila. Some US5 cents to US10 cents per KWH of that reduction would have come directly from the government spending taxpayers’ money to fix the grid. It means the cost of power before Amaila goes on stream is US14 cents to US19 cents per kwh for Guyanese consumers. If Amaila delivers power at US9 cents, it is only delivering real saving to the Guyanese consumer of US5 cents to US10 cents per kwh at this rate. If Mr Alli’s per kwh cost of power calculation is doubled to US18 cents per kwh to account for the various additional costs and other factors, it means Amaila will be selling electricity to the Guyanese people at a price that is the same as or even more than the cost of power realized from the government’s investment in the grid. At US18 cents per kwh, Guyanese will get only US1 cent in savings or will have to spend US4 cents extra for this power. Even if we add 50% in additional costs to the US9 cents cost of power from Amaila and we apply the resulting US13.5 cents to the rates Guyanese could enjoy from an improved grid, the savings are only US1 cent to US5.5 cents per kwh. Do these miniscule savings really justify a project of this magnitude? Shouldn’t the government of this nation duly elected through a democratic process conduct a serious review of this entire project? If you must build a hydro station, how about trying to find savings from reducing that US$175 million in initial costs? That should translate into savings for the consumers for the kwh rate.

By the time Amaila’s power gets to GPL, the cost of paying investors, generating a return on investment to the Government of Guyana, paying loans to various lenders, securing profits for investors and the cost of operation and maintenance will add up. On top of this cost, GPL will impose its own premium. In addition, electricity prices have increased significantly in the past 5 years. There is a strong likelihood of the situation of increasing tariffs in Uganda in anticipation of Bujagali will unfold in Guyana. Finally, the cost of power from Amaila to GPL will be different and likely lower than cost of power from GPL to the consumer.

The Government of Guyana, Synergy, Fip Motilall and Sithe Global should publicly release all details of the financial arrangements relating to this deal with all investors. Release the Power Purchase Agreement for public analysis. We need to know how payment and repayment terms, interest rates, borrowing requirements and the like will impact the cost of this project and the eventual cost of electricity to consumers of Guyana.

Yours faithfully,
Michael Maxwell