HYDROPOWER OR HYDROCELE?

May 27, 2010 Features / Columnists, Peeping Tom

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The people of Guyana are being urged to make the right choices. But the people of Guyana do not have or are not being allowed to have much of a say when it comes to the economy.
What say do the people of Guyana have in deciding on projects in Guyana? They have none. And when the press which is the watchdog of the people raises legitimate concerns about what is taking place, the media is described as living in the past or having some sinister agenda.
Yet, there are those who are weaving confusion, believing that they are doing the right thing. How can the misguided make the right decisions?
If the government cannot get its numbers right when it comes to the Amaila Falls Hydroelectric Project (AFHP) how can they expect to convince the Guyanese people that they know what they are doing? How can the government be trusted to negotiate in the people’s interest, when they offer the most confounded explanations to legitimate questions about the AFHP?
There is, for example, concern that this project may be overpriced.
The sponsors of the project say that the project will cost US$650 M inclusive of the costs of the transmission lines. Analyses show that this price is more than three times the average cost per megawatt of other hydroelectric projects in other parts of the world.
Instead of addressing what seems to the overpricing of the project, the government adds to the confusion by disputing the figures given by the sponsors.
So what we have is a situation whereby the government says one thing and the sponsors are saying another.
The sponsors are saying that the project will cost US$650M, inclusive of US$190 M in transmission costs. The government, in response to the criticisms of the high costs, says that the project will not cost US$650, but US$350 plus US$145 for transmission equipment and lines. The government is saying that the project will cost almost US$500M, but the people who have to raise the equity capital for the project for which the investors will be handsomely compensated at a rate of return of 20 per cent, are saying that the project will cost US$650M.
Then to explain the high cost of construction, the government offers the most outrageous of explanations. In a statement, the government sought to justify the significantly lower construction costs per megawatt in other countries as being due to the ready availability in those countries of inputs so that the contractors do not have to contemplate importing all of the materials when building the project.
Is the government serious about the explanations it is giving? How can the government really expect people to take them seriously when they offer such ridiculous arguments?
What they should be explaining is why the construction costs are so high. How long is this dam that they are building across the Amaila Falls? How wide is river leading at the point where the dam is to be built? Is it 200 meters wide or is two miles wide? Why should simply damming this river that feeds the falls cost US$500-US$650M?
We now come to where this money will come from. The government has explained that the money for the project will be raised through debt financing and equity financing. This is another way of saying that they will borrow 70 per cent of the money and asking investors to put money into the project will raise the other thirty per cent.
The government has said that it will buy equity into the project from the funds from Norway. The sponsors say another thing. They say that the government’s equity is the road project, which is not likely to earn the 20 per cent return on equity, which will be handed to those investing in the building of the dam and power station.
Or will the Guyanese taxpayers whose funds will be used for the road project also enjoy no less favourable conditions that the private equity partners?
In addition to the equity partners, money has to be borrowed to finance the construction. The Inter American Development Bank and the Chinese are going to be approached for a loan to cover this aspect, which it is said, is 70 per cent of the project cost.
You can count the Chinese out because there is no way the Chinese are going to get involved in a project in which there is no guarantee that one of their companies will be involved. In the case of the IDB, if that institution has to finance this project we are looking at the minimum another five years, and the bank would have also to be convinced about the feasibility of the project.
One of the things that it is going to look at is the cost of the electricity that will be provided by the project. And here again there is confusion about the price at which power will meet the consumer after the project is completed. The pioneer of the project saying that electricity costs would be reduced by 50 per cent.
When it was pointed out that this cost would be too high to encourage the competitiveness of our industries, one government official said in Essequibo that the costs would be one-third of what exists today.
A recent release by the government says that it will be 40 per cent. So what really is it? Is it 50 per cent, 40 per cent or 33 per cent? All the government needs to do to convince the Guyanese people is to make public the power sales agreement entered into with the Guyana Power and Light. This should be public information.
Guyanese should not get their hopes up high about this project. It may well turn out to be a non-starter and even if it gets going it will not commence next year.  Worse yet, when one considers that next year is an election year and no investor, debt or equity, is going to put money into a major project in an election year. It is not going to happen!
What we will have by next year is a road being built, an election road.   And if the project costs do not come down significantly, instead of hydropower we will have a hydrocele.

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