Amaila Falls Hydro Power Project…China’s currency appreciation impacts cost

Oct 11, 2011 News

Amaila Falls Hydro Inc. (AFH) has responded to the various press inquiries regarding the cost of the Amaila Hydropower Project stating that its upward revision is based on pricing from the China Railway, the building partner in the project.
According to AFH, the current total project cost estimate of US$835M, announced recently by President Bharrat Jagdeo, is based on a final Engineering, Procurement and Construction (“EPC”) price from China Railway.
“It also includes all associated financing costs, non-EPC construction costs and project development costs.”
A statement from AFH, which falls under Sithe Global that won the project, says that the US$835M total Project cost is based on a new EPC price of US$508M, which represents an 18 per cent increase from the 2009 EPC price.
The higher EPC price requires AFH to secure more debt financing, resulting in higher costs for interest during construction, and political risk insurance.
“Certain non-EPC costs have increased as well.”
The company insists that the project remains fundamentally strong because “it is the lowest cost option for Guyana Power and Light (GPL).”
Sithe Global says that while everything possible is being done to minimize cost AFH continues to represent the best low-cost, long-term option to reduce GPL’s average generation costs and dependency on imported fossil fuels.
“It entails significant improvement of the electricity infrastructure in Guyana that will support Guyana’s overall economic growth and sustainable development, based on a reliable, affordable electricity grid for its industries, businesses and residents.”
In 2008 and 2009, AFH conducted information sessions with various qualified international contractors for the Engineering, Procurement and Construction of the Project.
This culminated in an open, international bid process resulting in four proposals from internationally reputable contractors.
China Railway reportedly had the lowest qualified bid in the amount of US$430M for the construction of the transmission line and the hydroelectric plant.
Total project costs, based on a US$430M EPC price, were estimated at up to US$700 million.
It was pointed out also that during negotiations that took place throughout the middle part of this year, China Railway proposed an updated EPC price that reflected a very significant price impact caused by three chief factors: increased commodity prices, changes resulting from engineering work/site reconnaissance and appreciation of the Chinese Yuan.
“The increased price of key commodities, such as copper (up nearly 50 per cent from original bid to mid 2011), steel (up 35 per cent) and crude oil played a significant role in the EPC price increase.”
The Company insists also that quantities of materials required to build the facility were also adjusted as the required pre-construction site reconnaissance work was completed.
“Finally, the appreciation of the Chinese Yuan Renminbi, by nearly eight per cent, was the single largest factor in the proposed price increase.
“These factors were not within the control of China Railway and are therefore reflected in the new EPC cost…However, now that the parties have agreed on an EPC contract, China Railway accepts the risk of further price escalation as of the commencement of construction.”

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Amaila Falls Hydro Power Project…China’s currency appreciation impacts cost

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