Dear Editor,
The declared costs of some infrastructure projects launched by the government are so high as to raise questions about its competence to handle this type of development. Yet, we are told, the projects were assigned to the lowest bidders. I refer to Amaila Falls, the airport modernisation, and the so-called Marriott hotel construction, among others.
In the case of the hydro project, GHK Lall in a recent letter questions the justifications for the increase in costs offered by Sithe. One is reminded of similar and equally puzzling spirals in other countries. The method to the thing, for the chosen company in some other nations, has been to come in, complicit with the authorities of the place, with the lowest possible bid. Sometimes below the real costs of the works.
But, to ‘hedge’ against losing money on the deal, the contract has to bear a clause that reasonably insists on future cost escalation in case of parity changes in the currency in which the deal is denominated. A sometimes legitimate factor. One is also careful to have the contracting public authority agree to adjustments in price that take into account expected increases in the price of some basic commodities such as cement. Then, in the course of things the construction costs inevitably start to climb. If you had signed for US$100 million and the real costs you know to be $150 million then costs have to be made to climb until they reach and then surpass the veritable costs. You make a profit on the initial construction phase. The government or public authority agrees to the clauses, on certain conditions. Principal among them may be an illegal, kickback, share in the cake to be consumed out of the view of the public by selected officials.
The chosen company has nothing to lose by this type of arrangement. For, in cases of Build Operate and Transfer (BOT) projects, your annual takings during the operating phase have to cover the principal and interest of the sums you borrowed, would also need to cover your operating costs and would provide a surplus that, on your books, indicates a stable revenue stream that is of value while your company is on the stock market or which will render a listing then IPO much more interesting. In short, you get your money and it is the consumer who pays.
The contracting government or public authority, in many cases, gets the political benefit of having the project done. And in some cases the private benefit of party financing under the table, provision for the Big Man in an offshore bank account, subcontracts for the friends and family of other men, jobs for supporters, contracts for supplying cement granted to friends…
In a previous life I had once gone to Trinidad to discuss with the coordinators of the Piarco Airport modernisation project, NIPDEC, the participation of a French company to which I was consultant. The Trinidad project managers gave us a price that we knew to be inflated for the work done. The group for which I spoke had recently done similar projects in French Guiana, Guadeloupe and Martinique. I was aware of project investment costs, mark ups, and, after a visit to the Congo, the quantum and expected destinations of bribes demanded.
We knew, by the end of the second meeting, that the airport project in Trinidad was irreversibly over-priced and that the politics of the place prevented the reductions we proposed. The major bids had already been done and contracts signed. We knew that the programme included in its finances some funds as fat that would be stripped off and distributed. The cost of the “renovation” was what we estimated it would have cost to build a new airport. The matter ended up in the courts with ex-Prime Minister Panday himself among those in the dock.
Amaila Fall started at $450 million some years ago and is now approaching $800 million.We are told it is mostly due to fluctuation in the relative values of Chinese money to US dollars. Cheddi Jagan International is slated at $140 million, almost the cost of a new airport (if some elements of the old are retained) with air bridges and capacity of two million passenger movements annually. Runway extension has been done in Belize by Al Kharafi (930 meters) for $4.5 million USD more than a decade ago. Even if costs have doubled since then, and more new equipment is added, our prices are still too high. A new terminal with air bridges should cost much less than what is quoted.
The hotel on the Atlantic at $52 million appears, to me, similarly over-priced.
One is puzzled and wonders whether the government has the requisite technical expertise, or has hired the consultants with the experience and capacity to manage this kind of infrastructure investment. And if not, what are they planning to do to remedy this.
Two recent letters, Tony Vieira on Sat 28 and GHK Lall on Sunday 29, reveal troubling aspects of our national management.
Mr Vieira’s account really deals with the award or reward of radio licences. But what it reveals to our consternation is that the government has now engaged more than one billion US dollars in projects, (mostly depending on debt funding) in only three of the projects it has committed to: Amaila Hydro, CBJ Airport renovation and fibre optic cable to Brazil. To this would be added the Marriott hotel project. This has to be both good and bad news. The good news is that the injection of this amount of capital, whatever small percentage is retained in Guyana for local works, is bound to be good for the economy in terms of employment and in terms of the commerce in goods and services that would result, plus all the ways in which the projects would ‘re-structure’ the economy for more efficient or cheaper utilities and services, tourist access, etc. The bad news is that the possibilities of raising the money are limited. We do not know who responded to the ads for expressions of interest for Amaila Falls and where the money was expected to come from. A project of this weight is now unlikely, for a small country, to be funded by any other but a multilateral agency with an infrastructure fund.
The World Bank, which lends long term at very low interest rates, has declined, and the IDB is likely to do the same. We, as a nation, do not have the capacity and sovereign credit rating to borrow on capital markets. Commercial project finance will not be raised by Sithe. We are therefore looking only at financing from friendly coun-tries. Unlikely, given the amount involved for the hydro project. And since this latter form of financing is often conditional, a loan from China or Brazil, as one commentator proposed, will wipe Sithe Global out of the picture. The usual conditionalities will also apply and in the remote possibility that we find a bilateral lender, a company from the lending country will do the construction with material and technical piloting from among their own.
To my mind it may be too late now to call in another contractor. Termination clauses and their costs would have, as Dr Luncheon has correctly explained, locked us into a relationship in which Sithe is basically the designated intermediary and beneficiary in financial transactions.
The feasibility study that was done should have addressed the concerns about final cost per kilowatt that have justifiably been raised. The question is now pertinent: are there cheaper and better ways for us to solve the electricity problem now? We hope that the considerations underlying the deal were purely technical and financial. Suriname has hydropower and we all hope that we would finally get the same.
As for the Fip Motilall angle, it is not unusual for the government to channel public works to friendly forces. I have already written that the PPP’s paradigm of empowerment requires this. Perhaps Mr Motillal’s bid was also the lowest.
Now where does this put the opposition? On its benches sits Mr Carl Greenidge who has enormous experience with multilateral institutions but whose specialty may not be project finance. One would expect an informed criticism and explanation of these projects from APNU and AFC. I would imagine that contracts of this importance would have been discussed by a parliamentary committee and laid in the House for discussion. Sneaking about committing itself to this kind of debt is undignified as far as the PPP is concerned. I understand they may now make the contract with Sithe available for public discussion. And if the opposition is not equipped to provide the needed oversight then it should draw on those of its sympathisers with the knowledge and experience to ask the right questions and come to the right conclusions.
We look forward to seeing what the opposition, sharpening its skills in this phase, is capable of doing if ever it one day governs. The lack of technical expertise, including knowledge of financing, is a great problem in small developing countries. Can we afford more of this?
Yours faithfully,
Abu Bakr
