Get your act together!

Jul 07, 2018 Features / Columnists, Peeping Tom

It is not rocket science how Sithe Global acquired the rights to develop the Amaila Falls Hydroelectric Project (AFHP). It acquired those rights from the original developer.
This is how the world of business operates. Intellectual property includes the development of ventures such as the AFHP. No developer is going to come to Guyana with a concept only to have it stolen and implemented.
Fip Motilall was the originator of the AFHP. From his own business perspective, he entered into a Memorandum of Understanding with the government of Guyana and later acquired exclusive rights to develop the project.
Those rights were later acquired by Sithe Global. Given the level of investment which is required, no investor is going to enter into an arrangement of that nature without having iron-clad property rights.
No investor is going to begin to develop a project of that nature unless it is secured against political risks – such as governments changing their minds. Sithe Global walked from the AFHP because the then-opposition was against the project and this represented a grave political risk to the company. It was a political calculation which proved correct on the part of Sithe Global.
The government needs to understand how major businesses operate. It is not going to be able to engage in venture capital investments in Guyana, unless it upgrades its understanding of international business. The government must stop believing that it is operating in an environment where investors are not going to secure themselves against all forms of risk.
The government should not be worried about Sithe Global. The proposed AFHP is not of such a great magnitude internationally that Sithe Global would be reluctant to transfer its rights for a nominal amount. If the government knows how to negotiate, it can regain the rights to that development for as low as US$1. But it has to familiarize itself with the way international businesses operate.
The government also needs to familiarize itself with the real costs of building roads in virgin forest and swamplands. There is no way that a proper road to the AFHP could have been built at a cost of US$14M. No way, given the geography of that area, could a road to the site of the falls be built for US$14M.
The government is faced with a crisis, and is up to its usual tricks of deflecting criticism to the opposition. Its renewable energy plan has reached a fork in the road. The government needs a major renewable investment in order to be able to meet its obligations under the LCDS, otherwise monies due to it will not be released.
Two years ago, the APNU+AFC coalition was forced to puts its tail between its legs and undertake an independent review of the AFHP.
That review found that the only realistic way forward for Guyana in having an emission-free electricity sector was through hydropower. And according to the foreign consultants, the fastest way to do this is to maintain the AFHP. The study noted that 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.
Politically, the government will not go with the AFHP. It was opposed to the project while in opposition, and it was this opposition which caused the developer to walk. The government will lose face – and Jagdeo will be proven right – if it is now seen as endorsing the AFHP.
But how else will the government be able to meet its renewable energy target within the electricity sector, unless it has a project the size of the AFHP. The AFHP would not have increased the national debt, since it was a BOOT-type project. The alternatives present financing challenges.
The government has serious problems in delivering on its promise to move towards full renewable energy by 2025. Time is not on its side. And ideas seem to be elusive.
After 3 years in office, the government has no alternative to the AFHP. It has to understand that if it wants big projects, it has to be aware of how big business operates. Without property rights, nothing will move. Investors simply do not have the patience to deal with a government which cannot get its act together.

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