Amaila Hydro: Deals within a deal

Mr Rafael Herz, Project Manager of the Amaila Falls Hydropower Inc, in a letter in the Stabroek News of May 24 captioned ‘Inaccurate information being published on Sithe Global,’ seems to have intended a response to Business Page of May 22 ‘Deals within a deal.’ With the government’s cynical and obstinate refusal to pass freedom of information legislation, it is only through enterprising persistence and the self-serving material offered by PR conscious investors, including Fip Motilall and Sithe, that even limited information comes out in the open. Indeed had it not been for questions posed to Sithe’s representatives at their road show at the Tower Hotel, Prime Minister Sam Hinds would have been silent on what he did and did not sign and Sithe would have been able to avoid the kind of direct questions which its representatives now have to contend with but which seem to make them increasingly nervous.

Mr Herz states that the interim licence previously granted to Synergy Holdings was transferred to Sithe Global from Synergy and subsequently renewed. He then volunteered “that both actions were in accordance with Guyanese law.” It would be helpful if Mr Herz could, within Sithe’s commitment to transparency, tell us the amount of the bond posted as security for performance and whether each of the series of interim licences included “a statement whether the requirements thereof and of the Regulations [published under the Act] have been fully complied with by such interim licensee.”

And it is for Mr Hinds to tell us why with the serial failures of Mr Motilall, and after ten supplementaries to the 2002 licence, the government did not think it fit and necessary to impose any rent or royalty provided for under the Hydro Electricity Act Cap 56:03. In 2008 alone, Mr Motilall was granted three such supplementaries – on April 9, September 3 and December 16! It is a case of whom the politicians bless, let no one touch.

Cost and capacity
Mr Herz’s letter under reference does not state the cost of the project – which his colleagues had told reporters at the Tower event would be around US$667 million – nor did he state the size of the plant on completion, two absolutely necessary pieces of information to test Mr Herz’s assertion that “the cost per kilowatt for the construction of the hydro facility will be comparable to the cost of other hydro facilities of similar scope.” Mr Herz probably assumed that such information was already in the public domain and needed no repeating, but what may need repeating to him is Clause 2 of the Tenth Supplementary Interim Licence issued on January 10, 2011 which states in Clause 2 that the Memorandum of Under-standing (MOU) signed by the Government of Guyana, Guyana Power and Light Inc and Synergy is for the construction of a 100 MW hydro electric plant at Amaila.

It is true that other documents including the ESIA and Sithe’s website refer to a 165 MW capacity plant but surely the MOU which states categorically and unambiguously that that MOU remains in full force and effect (emphasis mine) must be of principal legal significance.

The January 10 2011 licence is described on the website as the latest interim licence and expires at one minute to midnight on December 31 of this year. It seems reasonable enough therefore that it can be relied upon as authoritative in the matter, since if there were any doubts or amendments, such modifications would be written into the binding agreements. Indeed, a responsible government would want to ensure that there is no uncertainty about the details of the country’s largest investment ever, and avoid the possibility of the project sponsor Sithe delivering a plant of 100 MW and claim compliance with its obligations. Maybe it is only after completing its work under the interim licence, that Sithe will be better able to determine the precise details of the plant capacity.

Re-thinking Amaila and Sithe
What was not fair however was for him to expect that the Guyanese public would be gullible enough to accept his generalizations about “facilities of similar scope.” Could Mr Herz not name one or two, or was he afraid and embarrassed to name the Bujagali hydro project in Uganda for which Sithe has earned a rather dubious reputation as project sponsors?

I have done an internet search of projects and by any measure Amaila is coming in at a prohibitively high cost and needs to be rethought. Whether Guyana can now back away from Sithe depends on an interpretation of the interim licence, the wording of which suggests that once the interim licencees have completed the initial development and otherwise fulfilled the terms of the licence and file a notice of such completion and fulfilment together with proof of such completion and fulfilment, the Minister’s options are limited. He may conduct a survey of the works constructed or used and of the lands and waters used and occupied in connection with the project, and provided all the works have been completed, the licence makes it obligatory on him to issue a final licence to which other terms may be added.

Next week’s column will examine some hydro electricity projects around the world and their cost, but for now it might be useful for readers to understand what Sithe as the successor licensee must do under the current interim licence in order to qualify for a final licence:

(a) Form and register a Guyana based Special Purpose Company with the “no objection” of the responsible Minister of the equity partners and shareholders to undertake the development of the project. The company which was formed has an authorised share capital of US$500 and at the end of the year of the transfer of the licence from Synergy to Sithe not a single share was issued.

(b) Obtain an environmental permit from the Environmental Protection Agency and all relevant statutory permits required for activities related to the development of AFHEP.

(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). My information is that this has still not reached the PUC which in any case ought to have a public hearing before giving its approval.

(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.

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

(f) Prepare and negotiate EPC (engineering, procurement and construction) contracts and incorporate the final prices in the interim licensees’ financial model.

(g) Conclude all financing and pre-closing activities for the development of the AFHEP.

(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.

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

(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.

(k) Previously applicable to Synergy and Harza.

Guyanese need to make sure that the Prime Minister and the government do not allow shortcuts which are in breach of these obligations.

Leave a Reply