On December 26th the Board of Directors at the Export-Import Bank of the United States (EXIM) approved US$527m to the Ministry of Finance to support the government’s ambitious gas-to-energy project that aims to strengthen energy security and lower the cost of electricity to consumers.
According to the EXIM release, the financing from the transaction will aid the construction of a natural gas separation plant, a 300 MW combined cycle gas turbine power plant and services related to the gas supply pipeline from offshore rigs.
“This project will allow Guyana to transition to more reliable and cleaner energy for consumers and businesses by using natural gas-powered turbines to generate electricity. Without this gas-to-energy project, Guyana will continue to import fuel oil, one of the highest polluting fossil fuels, and be unable to decommission hundreds of less efficient local generators. This project will result in a reduction of more than 460,000 tonnes of carbon dioxide per year, the equivalent of consuming more than one million barrels of oil”, EXIM asserted.
Interestingly, the release said that the project falls under EXIM’s China and Transformational Exports Program (CTEP) mandate since the US companies that were ultimately awarded the contract faced direct competition from the People’s Republic of China. CTEP is designed to ensure that the US continues to lead in 10 transformational export areas: Artificial Intelligence, Biotech, Biomedical, Wireless Communications, Quantum Computing, Renewable Energy, Storage, & Efficiency, Semiconductors, Fintech, Water Treatment & Sanitation and High Performance Computing.
The EXIM release therefore located the financing deal in the intense geopolitical struggle between Washington and Beijing for influence here as Guyana’s oil wealth accrues to its growing strategic importance.
Chinese companies had bid for the gas to energy project but lost out to relatively unknown US-affiliated companies and this had raised eyebrows in some circles here.
The EXIM Bank added that the financing will support a US joint venture involving Lindsayca, a Texas-based company, and CH4 Systems, a Puerto Rican small business, and services provided by ExxonMobil. Further, the financing will also support more than one dozen US companies and an estimated 1,500 jobs across 11 US states and territories. In other words, the loan is also bringing significant value to US companies and their supply chains.
While it had been in the pipeline for some time raising questions about the impact of due diligence and the Biden administration’s climate policies, the approval of the deal is a major win for this government.
Now, the hard part comes. The financing costs are not cheap. Based on information provided by Vice President Bharrat Jagdeo “It is a 4 percent fixed interest, principal repayment is 30 semi-annual installments due and payable on each November and May 1, (from) 2031. So that is when you start paying from and it will be 15 years thereafter”. This loan will significantly push up the external debt and annual debt financing allocations.
Perhaps for the first time, Mr Jagdeo signalled that the cost of this massive project will be over US$2b when he declared that the EXIM loan constitutes only 25% of the financing required. This will conservatively put the current cost of this project at US$2.1b, a famous figure which was for some period during the 90’s what Guyana’s albatross external debt was.
This is already the largest public sector project in the country’s history by far and keeps on rising in value. It underlines how unstructured its development by the PPP/C government has been and how various factors have apparently caused an exponential increase in its cost.
On April 26, 2021, the country first came to learn about this project in an information session hosted by Mr Jagdeo at the Arthur Chung Conference Centre. At that point, the estimate for the project was under US$1b. That figure has now doubled in 44 months. How and why?
Shockingly at the session, the PPP/C government said that it used five pre-existing studies done under the APNU+AFC administration to determine that the gas-to-shore project was financially viable and would cut energy costs by at least half. This was the most reckless and opportunistic use of APNU+AFC-connected studies none of which comprehensively assessed the project and its various stages. No wonder the country is now staring down the barrel of a US$2b project.
At the April 26, 2021 engagement Mr Jagdeo was bullish on the investment for the project and assured that the approximate US$810-900m project would produce power at around US 7 cents per KWH compared to US 14 cents that the Guyana Power and Light is producing at. This is still a million-dollar question and it is unclear when it will be adequately answered considering the delays in the project and the need for a certain phase-in period before one could adequately cost the entire operation and determine if it will halve electricity tariffs.
Projected capital expenditure (CAPEX) for the offshore pipes and risers was US$570m to US$630m. The onshore pipeline was pegged to come in at between US$80m to $100m, while the Natural Gas Plant was expected to cost about US$120m. Infrastructure for the project was estimated to cost US$40-50m; bringing the total to between US$810m—$900m.
“The numbers on this project, a stand-alone project are so good it is a dream set situation,” Mr Jagdeo had enthused in April 2021. All of these assumptions now need to be reworked and the public has to be given a clearer picture on the operational and financing charges and how these parameters could result in a 50% reduction in tariffs.
The Wales location, Mr Jagdeo said too, was chosen because the very APNU+AFC studies determined its suitability against flooding and the high population density of other sites identified, in addition to its expansion potential.
“We examined the numbers of Crab Island versus Wales and Wales came out much more feasible, in terms of all the costs. The Crab Island area too is very low so the development costs would have been very high. One of the good things about Wales is that it is less prone to flooding…etcetera,” Mr Jagdeo had told the April 2021 session.
It now turns out that after geotechnical assessments a large amount of money had to be spent on stabilizing the soil at Wales and this has added to the total price tag and also factored into the claims that the Guyana Government now faces from the US contractors that are working on this project. These claims are now before an arbitration tribunal. What a most unconducive climate for a project of this scale and importance.
This project is still in the development stages and its various moving parts have to come together seamlessly for the best results. Given the PPP/C government’s lacklustre record with major projects of this type – and this one is already at US$2.1b – there will understandably be public apprehension of the way forward. The government has shown no inclination to involve the opposition and Parliament in the minutiae of this project and its management. The opposition itself invariably appears in a state of suspended animation. It must get going. Motions and questions should be tabled immediately in Parliament about this project and hearings should be summoned by the Natural Resources and Economic Services committees to interrogate all of the government officials and companies involved. Too much is at stake to entrust the fate of this project to a narrow group of persons in the government.
