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Jul 17, 2013 News
The US$840M Amaila Falls hydro project is facing another major hurdle.
This time, unless the National Assembly passes two major bills by a July 30 deadline, it could place in jeopardy a US$175M loan that is needed from the Inter-American Development Bank (IDB).
Challenges: The Amaila Falls Hydro Project is facing a July 30 deadline for the National Assembly to pass critical legislation or face delays.
The two Bills are the “Guarantee of Loans (Public Corporations and Companies) Act” and “Hydro-Electric Power (Amendment) Bill 2013”.
IDB’s Board of Directors is scheduled to meet in October to consider approval of the US$175M, a critical part of the financing which is needed to get the project off the ground.
The “Hydro-Electric Power (Amendment) Bill 2013” is a piece of legislation which creates a protected area for biodiversity conservation and is reportedly a prerequisite for IDB Board’s approval of the project.
The “Guarantee of Loans (Public Corporations and Companies) Act” will, once passed, allow Government to raise its guarantee limit from $1B to $150B (US$750M). The new proposed limit of $150B (US$750M) is needed to guarantee that the Guyana Power and Light Inc. (GPL) honours its financial commitments under the Power Purchase Agreement (PPA) to be entered into between the power company and Amaila Falls Hydro Inc (AFHI), the local company that will be managing the project. GPL is the state-owned power company.
Under the PPA, GPL commits to purchase the power from Amaila Falls for an average annual capacity payment. Government’s obligation is in the form of a Performance Guarantee.
The Ministry of Finance says that “the Performance Guarantee is not a guarantee of debt, but rather a guarantee of GPL’s obligations under its Power Purchase Agreement (PPA) to pay for power delivered from the hydro facility.”
According to the Private Sector Commission (PSC) yesterday, it understands that the Amaila Falls Hydro-Electric Project has reached the stage where two critical pieces of legislation require Parliamentary approval for the advancement of the Amaila Falls project and obtain IDB Board approval for the IDB portion of project funding.
The PSC said similar projects could be placed at risk.
“If the project does not go ahead this year, the cost of attempting it in the future would rise significantly and potential investors in other areas for major investment would be unwilling to take investment risks. In addition to these consequences, all other large public-private partnership projects would be put at risk since its failure would lead to a lack of confidence in the country’s ability to realize these projects.”
PSC appealed to the Government, the Parliamentary Opposition and the Attorney General’s Office to work together, regardless of time, to ensure the smooth passage of the required legislation before July 30.
PSC said that it “wishes to stress the critical importance of moving the Amaila Falls project forward as swiftly as possible. Competitive energy pricing is essential to attract new investment in the economy, particularly for diversification and value added industries that will reduce dependence on the vagaries of commodity-priced exports such as sugar, gold and bauxite”.
Warning that rising fossil fuel prices and alternative, less expensive, renewable energy sources such as hydro-electricity are crucial to the survival of many businesses, especially those in the manufacturing sector where growth is stymied by existing energy prices, PSC said it is appealing to all parties responsible for the passage of the necessary legislation to have the national interest as a paramount priority.
“From the data we have gathered on the true cost for generating and distributing electricity, it is important that the public and all the parties involved be aware of certain consequences if the Amaila Falls project is not approved this year. Among those consequences is the fact that the cost of electricity for end users could rise to a true cost of approximately US$0.40 per kilowatt hour.”
This will visit untold hardships upon the people of Guyana that would in effect serve to wipe out the “struggling” manufacturing sector, PSC said. The Commission is a grouping of businesses vocal on issues affecting the country.
In addition to this deadline, Government is also worried about another one. Miles of road to the Amaila Falls site in Region Seven are still to be completed before year end.
Several contractors have been dismissed and a critical phase has been reportedly awarded to China Railway First Group, the same contractor that is building the 165-megawatt facility. The roads are needed to move heavy equipment and supplies to the area and will affect funding and cause Guyana to even be penalized millions of dollars if it is pushed beyond 2013.
Of the total US$840M for hydro project, US$100M will come from the Government, US$413M from China Development Bank, US$175M from IDB while the developer, Sithe Global will be providing US$152.1M.
According to the Finance Ministry, the project will save approximately US$200M annually in avoided fuel cost, in exchange for paying on average an estimated amount of US$100M to $110M per annum over a concession period of 20 years, and will revert to GPL/Government at the end of that time at no cost. The project is expected to have a life of approximately 75 years.
Earlier this year, the Opposition blocked almost $20B in funding for the project, citing concerns over costs, among other things.
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