MAALAS AND MILLSTONES

May 18, 2010 Features / Columnists, Peeping Tom

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With each passing day, the confusion that is rampant within the ruling administration is making itself public. The latest symptom of this endemic decay is the statement that the government plans to use the funds provided by Norway to buy equity in the hydroelectric project at Amaila Falls.
All along, external financing was being sought for the project. When this was not immediately forthcoming the failure was laid at the feet of the global financial crisis. The original sponsor of the project was even at one stage given a deadline to raise the necessary finance.
Later, the government said that Synergy Holdings, the originator of the project, was no longer the sponsor. It announced that there was a new sponsor. Then as the media began to probe the credentials of the sponsor, concerns began to be expressed about the possibility of the project being overpriced.
The government was unable to muster a defence. They tried to sell the project on the basis of the reduction in electricity costs. This did not go down as anticipated since they have not made public, the power sales agreement between the new sponsor and the GPL.
This agreement would confirm what price power would be sold at to the national grid and thus reduce the confusion over two conflicting statements: the first which stated that electricity tariffs would be reduced by half and the second, attributed to the President, that it would be reduced by one-third.
In the meantime, concerns emerged about the cost per megawatt of building the hydroelectric facility. Obviously if the project is overpriced then, with investors demanding a fixed rate of return, it would result in the price of electricity being inflated.
The President instead of assuring the Guyanese people that great care will be taken to ensure that the project would not be overpriced has now added to the confusion by saying that the government will buy into equity of the project.
So we now have an additional sponsor; the taxpayers of this country who will see part of the proceeds from Norway being devoted to buying equity into the project.
Now if there is a power sales agreement signed between the GPL and the private sponsor, the approval of the government for this aspect had to be based on it knowing what would have been the final cost of the project and thus the rate of return that would have to be paid to the private sponsor. This in turn would decide the ensuing tariff to consumers.
The government, however, does not seem to know what it is doing for it is now saying that it is buying equity into the project. This can only be for two possible purposes. The first would be to reduce the finacing gap in the project, and the second could be to forego the rate of return on this equity in order to keep tariffs down.
In effect, the government may be investing in equity in order to help finance the project or/ and to subsidize electricity costs.
In the case of the first reason, it must now be asked whether the government has any certainty as to how the hundreds of millions of US dollars for this project is going to be raised. In the case of the second, it would be a miscarriage of trust for the government’s injection of equity to be used to subsidize electricity tariffs through a foregoing of the rate of return on this injection.
During the opening of the Berbice River Bridge, the suggestion was thrown out that perhaps the State would have to forego its rate of return in order to make the bridge viable. But viable for for whom? For the private investors?
If the monies earned from Norway are to be approved for buying equity into the project, it should have affixed the same rate of return at the private investors. It must not be used as a subsidy for this project in the same way as taxpayers deserve their fair rate of return in the Berbice River Bridge.
But also if this project has a sponsor why is there a need to buy into the equity of the project? If it is an attractive proposition, investors would be lining up to invest.
The government must therefore explain this latest rationale to buy into the equity of the hydroelectric project. If must also end the confusion that it is causing by its failure to make satisfactory disclosure about the details of this project.
Its continued piece meal responses have not provided comfort that it knows what it is doing. Given what has happened in the past and the manner in which this investment had been handled, there is likely to be little public confidence in the ability of the government to secure the interests of the Guyanese people.
The government was confident that it would get back the money from CLICO that was said to be invested in Bahamas.
That money, close to seven billion dollars, is now gone forever with the ruling against Guyana’s claim.
Maalas were placed around the neck of the President at an event last Friday to celebrate his Champion of the Earth Award, but it will be a millstone that will be placed around the necks of future generations of Guyanese if the administration bungles the deal over this hydroelectric project.
And from all indications, the government does not seem to know what it is doing.

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