Find another Amaila contractor, investor – Norwegian consultant

Dec 29, 2016 News

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• report says current model needs restructuring

A critical independent report on the future of the Amaila Falls Hydropower Project has warned that Guyana cannot move ahead with it in the current format with the financial model in need of restructuring.

The Final Report of Norconsult, titled ‘Review of the Amaila Falls Hydropower Project in Guyana’, released by Government yesterday, also said that another “well merited” investor and contractor should be found and that the main sponsor, US-owned Sithe Global and the Engineering, Procurement and Construction (EPC) contractor, China Railway First Group (CRFG) should not be associated in any way.

“An internationally well merited investor and operator in the hydropower industry should be invited to take the majority position and the driving seat (main sponsor) in the project company. The main sponsor and the EPC Contractor should not be associated in any way,” the report said.

Norconsult was hired by the Norwegian government earlier this year to decide whether the project was feasible.

It was stalled with Sithe Global announcing its pullout three years ago after key legislation was shot down in the National Assembly by the Opposition-controlled house.

The Coalition Opposition has since entered Government.

The project has been a major issue between the People’s Progressive Party/Civic (PPP/C) administration – which pushed for it, saying it would help solve Guyana’s dependency on fossil fuel – and the then Opposition, which held out, insisting that the costs (estimated to go over US$1B), were too high and would burden Guyanese for decades to come with long-term benefits being few.

According to the report yesterday, the current BOOT (Build, Own, Operate and Transfer) type public/private/partnership model should be maintained for the project implementation.

Norconsult, which had teams in Guyana, made it clear that the only realistic path for Guyana towards an emission-free electricity sector is by developing its hydro-power potential.

And the fastest way would be to ensure that the 165 megawatts Amaila Falls Hydropower Project (AFHP) is the first major step for substituting its current oil-fired generation.

“AFHP was prioritised as the first hydropower plant because it was the only project with a full feasibility study completed, it has a higher plant load factor than the alternatives, a smaller reservoir and a levelised unit cost in the same range as the most attractive alternatives.”

However, the report said that Amaila Falls alone cannot provide a 100% emission free power generation in Guyana.

OTHER SOURCES NEEDED

“Other generating sources will have to be added in parallel like sun, wind and thermal production based on emission neutral fuel (bagasse) for back-up in the dry periods when the water flow to AFHP may be insufficient for full capacity operation.”

Norconsult said that as the power demand is growing, and for reaching the goal of 100% emission-free generation by 2025, a second hydro-power plant of capacity comparable with AFHP will have to be commissioned by 2025.

“In parallel with preparations for AFHP, therefore, pre-feasibility studies will have to be carried out for promising candidates for the second hydropower project and a full feasibility study be performed for the selected candidate.”

The report tagged Amaila as the best hydro option, as there are immediate current reports relating the environmental and social impacts.

“No resettlement is required and there is limited human activity in the area directly affected by the project. About 23 km² of rainforest is inundated by the power plant’s reservoir. The live storage volume is small compared to the annual water flow and the plant will be operated mainly as a run-of-river plant with little impact on the downstream river hydrology, except for the approximate 4 km stretch of the river between the intake dam and the tailrace outlet from the powerhouse.” The most serious threat to the environment that may result from the project is the access road, which is almost completed and has already – while the further progress of the project itself is uncertain – created easier access for mining and exploitation of the forest along its alignment.

A strict control regime is required for obstructing such activities. It is important to take up again consultations with all affected parties as soon as resuming the project preparations.

The report said that other hydropower plants that could have replaced AFHP as the first hydropower project to be implemented would require 1-2 years of investigations and studies, including environmental and social impact assessments meeting today’s standards, to reach an updated feasibility study stage comparable to AFHP.

The first needed step for revitalising AFHP would be a decision by the Government to maintain AFHP as the priority project in the transition to a green generation regime, as recommended in the “Initial Study on System Expansion of the Generation & Transmission System” of 2014.

This was reiterated in “Guyana’s Power Generation System Study” of June 2016.

The Norconsult report said that by restructuring the financial model, the risk for Guyana’s economy can be reduced.

ANNUAL GPL PAYMENTS

“The annual payments from GPL may possibly be reduced by 20%, which are significantly lower than the current fuel costs paid by GPL for its oil-fuelled generation. The risk to Guyana’s economic stability would be at the same level with other projects generating the same amount of energy, as the investment would be of a similar magnitude.”

Norconsult said that it is of the opinion that the EPC tenders from 2008 are outdated and need to be replaced by a new tender process.

“Before that, certain technical features of the project should be reviewed and the EPC tender documents be updated. In order to save time, this work should be done in parallel with identifying and assigning a new main sponsor.”

To get on with these activities, the consultant said the Government of Guyana (GOG) will need continued support by the Inter-American Development Bank (IDB), or a similar institution, and Guyana Power and Light will need technical and management support by a highly qualified engineering company with extensive experience from the international hydropower industry.

The report suggested that the cost for buying out Sithe Global from the project company and expenses for services by an engineering company engaged for support until a new main sponsor is established, are covered from a portion of the US$80 million deposit in IDB, for later being turned into equity contribution from GOG to the project company.

“Our estimate is that three years will be required from when a decision is taken to resume project preparation for AFHP until Financial Close and Notice to Commence to the EPC Contractor.

From this point in time, we estimate another 3.5 years for construction until the start of the commercial operation of Amaila Falls Hydropower Project.”

Norway since 2009 had supported the project, depositing US$80M in IDB earmarked for Guyana’s equity share in AFHI, a Special Purpose Company for realising the project.

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