Int’l report slams Govt. and Exxon for failure to be transparent on financing arrangements for Gas-to-Energy project

Oct 06, 2023 ExxonMobil, News, Oil & Gas

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Kaieteur News – A damning report released this week by the Institute for Energy Economics and Financial Analysis (IEEFA), a US based think tank, has slammed the Guyanese Government as well as ExxonMobil Guyana Limited for failing to be transparent on the financing arrangements for the gas-to-energy project.

The report, co-authored by Tom Sanzillo, Director of financial analysis for IEEFA and Cathy Kunkel, an Energy Consultant at IEEFA, has taken note of the Guyana Government’s claim that the gas project will displace petroleum for power generation and allow the Guyana Power & Light (GPL) to cut its rates in half. More recently, Vice President, Dr. Bharrat Jagdeo stated that Guyana would “practically have the electricity [from the Gas to Energy project] for free.”

Based on their perusal of publically available documents for the project, the authors found it difficult to arrive at the Vice President’s conclusion, noting that the financial arrangements for the project are not exactly transparent.

In fact, the report pointedly stated that, “Neither the Government of Guyana nor ExxonMobil has been transparent about the details of the cost or financing of the project. Much of the information that follows (in the analysis) has been pieced together from news reports.”

IEEFA estimates that the total capital investment of the gas-to-energy project is approximately US$2 billion. This includes: US$1 billion for the offshore and onshore pipelines ExxonMobil is responsible for building. The Guyana Government will be paying for this in annual installments over a period of 20 years.

According to press reports, IEEFA notes that taxpayers will be paying US$55 million annually for 20 years to Exxon, for a total of US$1.1 billion. IEEFA said the contractual details of the pipeline agreement between ExxonMobil and the government of Guyana have not been made public. As a result, IEEFA said it is unclear which party bears the cost of delays and/or cost overruns.

Looking to other sums, IEEFA recalled that the Guyana Government granted two contracts, one for US$759 million to Lindsayca/CH4, a US joint venture for the construction of the natural gas power plant and natural gas liquids (NGL) plant and a US$22 million contract for management consulting services for the project. IEEFA noted that those contracts have not been made public. IEEFA also noted that there is some US$175 million that will be needed for GPL’s grid upgrades. IEEFA said it estimates this cost based on the statement in the Guyana 2023 budget that the total gas-to-energy project capital cost for the government (that is, excluding the pipeline) is US$955.5 million.

With respect to how the Government of Guyana finance its portion of the capital expenditures, IEEFA referenced the 2023 budget which states that US$646 million is to be financed by foreign loans and the remainder financed directly by the Guyanese government. IEEFA noted that Guyana has applied to the U.S. Export-Import Bank for the loan, which has not yet approved funding.

IEEFA also said the government has not provided further details on how it will finance the remaining US$309.5 million of its share of capital costs. In its analysis, IEEFA said it assumed that these costs, as well as Guyana’s annual share of pipeline costs, will be borne by Guyana Power and Gas, a new state-owned company set up by the government to manage the natural gas liquids plant and the power plant.

“We assume that Guyana Power and Gas will enter into a contract with GPL to sell the resulting electricity and recover its capital and operational costs,” the report states.

In summary, IEEFA’s analysis of the available information regarding the financing of the gas-to-energy project makes it clear that very little information is publicly available on the cost of the natural gas pipeline or the arrangement between Guyana and ExxonMobil to pay for the pipeline. In particular, the institute states that it is unclear which party bears the risks of delays and construction cost overruns. It has since urged citizens to demand greater clarity on these matters.

BACKGROUND ON GAS PROJECT

The PPP/C’s plan for a gas-to-energy project entails partnering with ExxonMobil Guyana Limited to construct a massive 218 km offshore pipeline structure that would bring gas from the Stabroek Block’s Liza field onshore and feed into two facilities, a Natural Gas Plant and a 300MW Power Plant, both to be situated at the Wales Development Zone.

The 12 inch pipeline being constructed by Exxon will have the capacity to transport 50 million cubic feet per day (MMcf/d) from the offshore Liza field, and will be able to deliver a minimum volume of no less than 10 MMcf/d. The Government of Guyana and US consortium, LINDSAYCA/CH4 on December 13, 2022 signed the contract for the construction of the integrated Natural Gas Liquids Plant and the 300-megawatt (MW) combined-cycle gas turbine (CCGT) power plant at Wales, West Coast Demerara (WCD), Region Three. The historical signing of the contract for the US$759 million project took place at the Office of the President, Shiv Chanderpaul Drive.

In January 2023, President Irfaan Ali witnessed the signing of a contract between the Guyana Power and Gas Inc. and Engineers India Limited (EIL) for the provision of Consultancy Services for the Wales Natural Gas Liquids (NGL) facility as well as the 300 megawatt (MW) power plant. That contract is pegged at US$22,143,190.

The consultancy is for the Consultant to assist the Government of Guyana through the Gas to Energy Task Force in the design review, construction, supervision and general project management of the development of the integrated plants, and contract administration throughout the project implementation process and thereafter during the defects liability period. Government has said project generation costs, taking account of payment for the pipeline, operations and maintenance, and capital cost recovery will total less than five US cents per kilowatt-hour.

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• Cathy Kunkel, Director of financial analysis, Energy Consultant at IEEFA, Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo

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