Dear Editor,
At a media briefing at the Pegasus Hotel held on Jan 25, executives of the investor Sithe Global, which in an apparently unusual deal bought a licence/contract instrument from Synergy Holdings for US$12M to develop the Amaila Falls Hydropower Project (AFHEP) on the Potaro River, now appears to be struggling just as Fip Motilall of Synergy did. Sithe Global has failed to find financiers/lenders who will be willing to make investments for this project, which is likely to go nowhere any time soon, since financial closure because of the imponderables is not on the horizon. As Sithe Global’s CEO succinctly stated, “unless financing for the project with a locked in fixed price is assured and becomes a reality soon, it could be put on the backburners for the next 5 to 10 years.”
While the financial uncertainty continues, a contract was awarded to China Railway for procurement and construction of the project, but this cannot start until finance is assured, as well as the completion of an access road the contract for which has been terminated while only about 25% of its work has been completed.
Guyanese are very bewildered as to the nature of the contract which the government entered into with Sithe Global, since it was the general understanding that China Development Bank was financing AFHEP. Now with bits and pieces of information emerging, the understanding is that Sithe Global is responsible for desperately putting together a group of investors to fund the project with the expectation that in return it will receive a handsome reward for its services, as it claims it has already invested US$11.1M in the project, although for what, no one knows.
Investors/lenders will be hard to come by for this project for several reasons. Firstly, there was no feasibility study done for the project to justify its economic and financial viability, which is one of the reasons the World Bank (WB) has declined to participate. Unlike the IDB and CDB, the WB has stringent and clearly defined lending guidelines which the government was unable to fulfil. Secondly, at this time no one knows the total project cost and this will not be known until the tenders are received for the various elements of work and ancillary lenders‘ fees, advisory cost, insurance risk and currency adjustment cost are clearly stated. Therefore, the various segments of project costs now being peddled are just wishy-washy, and when the final total costs are known and tallied they are likely to be in the stratosphere. It is worth noting that the afore-mentioned fees/costs will have to be paid upfront, and these are estimated to be over 32% of total project cost. Hence, Sithe’s Global stands to gain a lucrative fee upfront before any construction gets off the ground. Thirdly, the US$175M expected from the IDB is unlikely to materialize because Guyana is a heavily indebted country and IDB analysts will surely find the Bank’s exposure too risky to lend such a large sum for this project as the country’s loan repayment cannot be predicted with certainty, because GPL its executing agency and sole purchaser of the power to be generated, has a history of poor management as well as an inability to control power losses due to theft, and local transmission and distribution problems. These factors will impact adversely on GPL’s cash flow as its projected income stream of US$101M to service its yearly debt for this project becomes doubtful. As reported, the government is still struggling to satisfy the conditions for the release of LCD’s initiative money from Norway for its share of project funding, something for which the ‘Champion of the Earth’ continues to work relentlessly.
Finally, Sithe’s CEO made a bold attempt to hoodwink the Guyanese people by stating, “similar projects as AFHEP have lasted in excess of 100 years since there are not many moving parts.“ The turbines and generators have to be replaced and/or have major overhauls at least every 25 years. The hot, humid tropics and adverse weather conditions will pose serious maintenance problems for the switch gears, sub-stations, transmission lines, towers, the penstock’s water control gates and valves to the turbines within a short period of time. The working life of these components will depend on the reputation and track record of the suppliers and installers. Then there is the maintenance of the dam and siltation of the reservoir during their 25 years of operation to contend with. The plant, if indeed it does get constructed, eventually may very well last 75 years, but not without costly maintenance during this period. Guyanese also will have to be assured that after 20 years of BOOT the project’s components will still be in good condition to last the remaining 55 years as Sithe claims, and that injections of money for costly maintenance will not be necessary since of necessity these would be passed on to the consumers.
Yours faithfully,
Charles Sohan
