Plainly Speaking – Let us give Sithe the BOOT

It is a measure of the public’s concern about it that news stories on the Amaila Hydroelectric Project overshadowed the goings on in the National Assembly. A consequence of the parliamentary contretemps is that the four Local Government Bills which, according to at least two of the parliamentary parties, would facilitate local government elections have been shelved. While it would be desirable for those Bills to be passed, I do not think there is any excuse for there to be no local government elections for another full year (2013). Let us use the existing legislation and give to citizens their constitutional right to choose their representatives in such elections. I am hoping that on the next occasion on which the Minister of Local Government brings a Local Government (Elections) (Amendment) Bill that one of the very attorneys in the National Assembly or indeed a citizen of Guyana will challenge the Bill for unconstitutionality. We cannot call this country a democracy and yet violate the Constitution with impunity. I believe however that measured by the yardstick of urgency and media coverage, the developments this week on Amaila take priority.

On Wednesday, Ramon Gaskin and I held a Press Conference to draw attention to our concerns about the Project, raise questions and to make some recommendations. The bottom line position was that since the various contracts to execute the project had not been conducted in accordance within the constitutional and statutory framework of the Constitution and the Procurement Act, it should be revisited in its entirety. We are not unmindful of consequences of suspension but we are also aware that the Guyana Government cannot enter into any valid contract which is in breach of any law and that no party such as Sithe Global can come into our courts and attempt to enforce such contracts.

Then one day later the Government of Guyana held a stakeholders’ consultation at which the President and practically every single available member of his Cabinet were in attendance. Also present were the choir boys of the private sector and various civil society organisations. The exercise was not without its merit although it was surprising that the Prime Minister seemed not to be sufficiently informed of this “transformational project” for which he has ministerial responsibility. The Housing Minister made a valiant effort to answer some of the questions while the Government side gave a commitment that a meeting would be arranged for me to meet with persons to have my concerns addressed. I have since written the President setting out the concerns I consider most important based on the documents seen to date.

It may be useful to recap the history of the project. Synergy was granted an Original Interim Licence on July 29, 2002, two days short of eleven years ago, for the development of a Hydro-electric power station and reservoir and the construction of a transmission line to the coast to sell electricity. Following some extensions, Synergy went to Sithe Global Amaila Holdings Ltd, a company incorporated in Cayman Islands, a tax haven, as the proposed investor for the project. By a series of further extensions a Tenth Supplementary to Interim Licence was granted to Amaila Falls Hydro Inc. Apparently for flipping the licence, Mr. Motilall was paid around US$10 million.

Perhaps the most important provision of the Tenth Supplementary was on paragraph 2 of the licence (not the preamble) which states as follows:

“Such amendment shall alter only paragraph 5 of the Interim Licence. All other parts, conditions, and provisions of the Original Interim Licence … shall remain in force and effect.”

The Interim Licence not only required the completion of ten very specific activities to be completed by Amaila Falls Hydro Inc. during the term of the licence but also sets out what constitutes Default. One of these is if the provisions of the Interim Licence are breached.
Sithe as the successor licensee must do the following under the current interim licence in order to qualify for a final licence:

(a) Form a Guyana company. Done.

(b) Obtain all environmental and other statutory permits. Seems to have been partially completed.

(c) Conclude all arrangements for the sale of hydro-electric energy with proposed consumers specified in paragraph 7 hereto (GPL, Linden/McKenzie area, Omai Gold Mines Limited and other consumers approved by the Minister) and where such hydroelectric energy is to be sold to public suppliers, the related Power Purchase Agreement (PPA) must be approved by the Public Utilities Commission (PUC). The information available suggests that this has not been completed.

(d) Complete all technical evaluation with consumers and in particular with the Guyana Power & Light Inc. (GPL) including load flow evaluations, to ensure that the project can be implemented without any adverse effect on the quality and reliability of the electricity distributed by public suppliers to the public. The information available suggests that this has not been completed.

(e) Finalise and survey all lands to be occupied for construction, maintenance and operation of AFHEP, including the access road and transmission line routes. Status unknown.

(f) Prepare and negotiate EPC (engineering, procurement and construction) contracts and incorporate the final prices in the interim licensees’ financial model. It was announced that an EPC was signed but not without the Government of Guyana undertaking a number of obligations which should have been borne by the company.

(g) Conclude all financing and pre-closing activities for the development of the AFHEP. It appears that this process is incomplete. Again, the Government of Guyana has had to undertake a number of financial obligations which should have been borne by the company.

(h) Complete initial developmental works related to the construction of the proposed forty (40) kilometres access road from Pamela Landing to the project site and the airstrip at the project site. Not done. Cost of road works being borne by the Government of Guyana.

(i) Collect additional hydrological data on an ongoing basis to verify the levels of firm power during dry seasons. Status unknown.

(j) Prepare and submit to the Minister responsible for energy a business plan and a framework for an operating and maintenance plan describing the intended approach to operation and maintenance, the proposed operating standards and likely costs. Status unknown. It is unlikely that this could have been completed in the absence of the financing being put in place and a Power Purchase Agreement approved by the Public Utilities Commission.

Serial failures
Sithe has been as casual with the Government of Guyana as has been Mr. Fip Motilall. In my view, the company they formed to inherit the Licence from Mr. Motilall, Amaila Falls Hydro Inc. has not met the conditions for the issue to it of a Final Licence. But the Government too has been careless in this regard. It has been months since I raised the matter of the Licence with the Prime Minister and I did so again on Thursday. Significantly, he and the rest of the Government team avoided my question. The company was aware of its obligations under the Licence.

Sadly, it seems that the company has not only shown complete disregard for the Licence but has asked for the exclusive control of lands well beyond what the Licence provides. A Study done in June 2002 for the Government of Guyana was based on the Amaila Falls being developed as a private sector project, on the principle of a Build-Own-Operate-Transfer (BOOT).

It is time the country gives Sithe Global the BOOT for failing to meet the conditions of its Licence. Let us tell China Development Bank that we do not need their usuriously expensive money. Let Sithe deal with the contractor.

And let us as a country reconfigure the project and assume it as our own. In a transparent process we can award a contract to build the plant while we take steps to have engineers trained in operating a hydroelectric plant and try to fix the perennial problems of Guyana Power & Light. For financing we can turn to the Inter-American Development Bank or the Caribbean Development Bank or better yet, open the financing to consumers. And of course, our private sector who think the present configuration is better than sliced bread, will no doubt chip in. Under this model, we will save approximately US$1,000 million in payments to Sithe Global and the China Development Bank. Moreover, we will avoid hideously expensive Lenders Fees and Advisory Costs, political debt insurance, and interest during construction totalling nearly US$200 million.

It will surely compound their presumption and disdain for the conditions of the Licence for Sithe to contest such a decision.

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