AMALIA WILL BE THE DOWNFALL OF GUYANA

May 24, 2010 Features / Columnists, Peeping Tom

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Guyanese should begin to tighten their belts. Also, those who can afford to send their children overseas should begin making the necessary preparations because if the Amalia Falls Hydroelectric Project gets going and is completed, the people of this country will be paying back for this project until they have nothing left on their bodies but their underwear.
Just do the math! This project we are now told will cost some $650M and since the investors will demand a return on their equity of probably no less than 20%, it means that each year this country will have to fork out some US$130M or 26 billion dollars just to repay the investors. Where will the revenue stream come from to pay for this?
Obviously, it will have to come from the sale of electricity and there is no way that this sum can be had without hiking electricity tariffs that would reduce this nation to paupers and its children to refugees.
Even if the return on equity is 10%, it will still be an onerous burden to facilitate the returns to the investors. Just do the math!
Do the math also to decide whether this project is too costly?
How can any government proceed with the building of a hydroelectric facility whose cost per megawatt is three times the average for other hydroelectric projects? For example the cost per megawatt of the Ilisu Hydroelectric Plant in Turkey is $1. 3M and this is generating eight times the power that will come from Amalia Falls.
How is it then that our relatively small hydroelectric plant will have an average cost per megawatt of US$4.2M.?
How can any sensible government burden the people of this country with repaying a return on equity for a US$ 650M plant?
If by chance there are cost overruns- and these things have been known to happen- then this one project will cost close to what the national foreign debt was a few years ago.
The project must therefore be halted and those who negotiated it must be placed in front of the Economic Services Commission for questioning. Guyana cannot go ahead with a US$ 650M project that would generate only 154MW of electricity. By contrast, a 420 Megawatt hydroelectric plant built in Ethopia cost only US$600M. So that facility which generates four times the power that will be generated from Amalia Falls actually cost less than what it will take to build the Amalia Hills Falls.
What is even more disturbing is that in response to criticisms about the cost of the project, it was stated that the government would buy into the equity of the project. Just this past week it was reported also that the funds from Norway would be used for this purpose. Low and behold, in a press statement issued by the project sponsor, it is now being revealed that the government’s contribution to the equity of the project will be the construction of the road.
We have some conflict here. On the one hand we were being told that buying into equity of the project, presuming this to mean the US $650M price tag, was the means by which the cost of the resulting electricity would be kept low. On the other hand, the sponsor of the project is saying that the government’s building of the road is its contribution to equity.
Now the road costs US$15m and this is dwarfed by the cost of the actual hydroelectric plant, and the distribution lines. So what difference is US$15M going to make to the cost of the electricity in a project that will cost US$ 650M.
And this is presuming that the government will get a return on its equity equivalent to what the main investors will get. It is most likely that the road investment, which has to be paid for by the taxpayers’ of Guyana, is going to be non-remunerative, that is, there is not going to be a return on equity since governments are usually expected to bear the cost of infrastructure to support investments of this magnitude.
Onto now we have not been told what is the cost that the GPL is going to pay to the investors for electricity. This project is not going to be funded unless those putting their money into it know the details of the power sales agreement that is being entered into between the sponsors and the GPL. It must be questioned why this information is not yet in the public domain and why we are still hearing conflicting projections about the cost of electricity being half of what it is now and another saying it will be one third of what it is now.
Whatever the figure, it would be irrelevant if the project will cost US650M and only generate 154MW of power. With that equation, this project will be a financial albatross around the necks of the Guyanese people.
And those who know little about the history of Guyana will appreciate that the small population cannot bear such a burden. So the only option would be for them to vote with their feet and leave before we all end up as refugees in our own country.

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