Category: Public sector

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Mid-year 2013 report – a financial commentary

Introduction
Once again the mid-year report required under the Fiscal Management and Accountability Act (FMAA) was published within the statutory deadline and once again publicly released before being laid in the National Assembly. As the calendar would have it, the National Assembly is usually on its two months recess when the mid-year report is scheduled for release. In a positive kind of way the report is unremarkable, no dramatic developments one way or the other, except perhaps in sugar where GuySuCo continues to cause serious headaches for the Government and no doubt those closely associated with or dependent on the sub-sector and the slow start to the capital expenditure programme.

Unlike his annual Budget Speech which is well-known for its prose and politics, Minister of Finance Dr. Ashni Singh stuck to a pattern of using only as much language as to place whatever numbers he wants to discuss into context. The report cannot be faulted in its requirement to give an account of the year-to-date execution of the annual budget but does seem short on explanations and clarification as well as on the prospects for the remainder of the year. The FMAA requires the report to address a number of other issues which this report at best only addresses tangentially or not at all. It specifically requires:

(a) an update on the current macroeconomic and fiscal situation, a revised economic outlook for the remainder of the fiscal year, and a statement of the projected impact that these trends are likely to have on the annual budget for the current fiscal year;

(b) a comparison report on the out-turned current and capital expenditures and revenues with the estimates originally approved by the National Assembly with explanations of any significant variances; and

(c) a list of major fiscal risks for the remainder of the fiscal year, together with likely policy responses that the Government proposes to take to meet the expected circumstances.

The report does not have a specific section dealing with Outlook for the second half of the year and the Conclusion, consisting of two paragraphs, is a very brief summary of the contents of the completed half-year. There is not sufficient information to support some of the broader statements in the report which does not capture, in particular, (c) above, factors of relevance not only for the macro-economy but individual businesses and segments as well.
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Energy Policy for Guyana – Conclusion

Introduction
Readers will recall that Plainly Business noted last week that the country has had no energy policy since 2004. In fact I had quite a surprise when the response I received from a top level political operative about Guyana’s current energy policy was “you all just killed the policy”, in reference no doubt to the Amaila Falls Hydroelectricity Project. Had the comment not been made by a very high-ranking official it would have been easy to think it came from someone unfamiliar or unconnected with the energy. At the time, given the authority and responsibility of the individual, I thought the comment was tragically uninformed. On reflection the person was right since, as has now been established, there is no policy.

Before proceeding into the post-1994-2004 era it might be useful to note that in a document Strategic Plan 2012–2016, the Guyana Energy Agency as it is called admitted that while Guyana’s energy policy is to ensure that reliable energy is provided to all in Guyana within an economically, environmentally and socially sustainable framework, many of the Policy’s objectives set out in the 1994-2004 National Energy Policy have not yet been fulfilled.
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Consultants raised questions about the water flows at Amaila

I had hoped, vainly it seems, that the government and the hydroelectric power team led by Mr Winston Brassington would take the necessary steps to address the country’s energy situation and GPL’s losses following Sithe’s withdrawal from the Amaila Falls project. Instead Mr Brassington continues to create his own realities and enemies. The latest case of this is his response through NICIL, to public concerns over the findings of the recently released 2009-10 Economic and Financial Evaluation Study done by Mercados Energeticos of Argentina in connection with the water flows at Amaila. Mercados reported on the possibility of low or no power from Amaila during the eight months dry spell each year.

NICIL responded that:

i) “A multiplicity of comprehensive and extensive evaluations of the hydrological conditions of the Amaila Falls Hydroelectric Project site has been carried out by a number of international engineering firms”; and

ii) “All the findings create a sound basis for the hydropower potential of the Project and reaffirms the Project’s acceptable hydrology risk to the Government of Guyana, thus, setting the stage for the outlook of reliable, stable and a dependable energy source for the people of Guyana.”

These can hardly be described as even half-true. Let us examine the “multiplicity of comprehensive and extensive evaluations” and pose some questions to Mr Brassington.

1. That Montgomery Watson Harza (MWH) did an analysis in 2001 of historical rainfall and river-flow measurements from several locations in the region of the project.

Questions:
(a) Would Mr Brassington confirm or deny that one year following MWH, Kaehne Consulting Limited, the Canadian consultants contracted by the Government of Guyana, raised concerns that “the developers have based the project viability mostly on data collected in an adjacent water shed (Kaieteur) and the Amaila/ Kuribrong River basin hydrology has been inferred from this. At no stage have concurrent hydrological data been collected to verify the relationship between the two water basins.”

(b) Is Mr Brassington suggesting that the government did not advise Kaehne of the MWH report even after the serious and emphatic statement by Kaehne in the preceding paragraph?

(c) Was Kaehne’s recommendation that a “permanent station be set up at the base of Amaila Falls and should record daily stream flow volumes from now until such time as flow is curtailed as reservoir filling occurs,” acted upon?

(d) If this was done, was it done by Synergy, the licensee, and are the findings available?

(e) Could Mr Brassington confirm that Mercados in their 2009-10 study reported that the hydrology study done by MWH encountered some difficulties due to lack of direct hydrological data at the project site?

2. That in 2008, “an update review of the hydrological study review done by MWH was completed to assess the validity of the monthly flow estimation for the project site.”

Question
In view of the intended or accidental ambiguity of this language would Mr Brassington provide the name of the consultant who did the update review.

3. The Mercados Report of 2009-10

Questions
(a) Can Mr Brassington state why NICIL’s statement was silent on the Mercados study which was commissioned by the government and Sithe?

(b) Is it because Mercados found that the design of Amaila Falls Project encountered several problems arising from the lack of hydrologic data including:
• uncertainty regarding the expected power generation?
• uncertainty as regards the maximum flow adopted for the design?

(c) Or that Mercados recommended that in order to obtain more accurate information, it would be desirable to install a hydro-meteorological station in a section of the river that is representative of the project?

(d) Or that it concluded that in wet months (June to September), more power can be generated and demand is covered. And in months with low hydraulicity, there is a deficit in power generation and demand is only partially covered?

While it is not unusual for public servants to spin data from time to time, it is unacceptable when that spinning involves a project costing at least US$900 million and affecting the entire economy and consumers and taxpayers. Mr Brassington ought not to be allowed to continue getting away with this pattern of behaviour.

I have privately and regularly pleaded with him to concentrate on his chairmanship and responsibilities at the GPL. Billions of dollars in fuel savings and the reduction of subsidies did not have to wait on Amaila but are within the grasp of the board and management of GPL.

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Energy Policy for Guyana – Part 2

Introduction
Guyana has no energy policy. And has not had one for the last nine years. The last policy was for the period 1994- 2004 prepared when Dr. Cheddi Jagan was the President. It expired during Bharrat Jagdeo’s presidency. As the drama of the Amaila Falls Hydro-electricity Project was unfolding many observers – critics and friends of the Administration including Professor Suresh Singh and Dr. Janette Bulkan – drew attention to the absence of such a policy. Responsibility for such a major failure has to be placed at the door of Mr. Jagdeo and Prime Minister Samuel Hinds, a major element of whose ministerial portfolio is energy.

They have had at their disposal a statutory body called, perhaps inappropriately, the Guyana Energy Agency which has direct responsibility for the energy sector. Presciently, the Energy Policy 1994 -2004 wrote that “the formation of the Energy Agency is absolutely necessary for the successful implementation of the Policy. The projected time-frame for the activities could vary depending on the efficiency with which related activities are carried out.” The Agency was established in 1997, three years into the 1994 Energy Policy. It should have done far more than it has achieved. In fact, on Amaila it appears to have taken a back seat, to have had no view.
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An energy policy for Guyana

Introduction
However the Amaila Falls Hydro project turns out, there seems to be an implicit agreement that the country needs an energy policy. Janette Bulkan favours a Green Paper which in Westminster type countries is a document published by the Government as part of the consultation process before any major policy change is undertaken. While the LCDS March 2013 refers to the Amaila project – no doubt because it was already well-advanced – it did not place the project in any policy context. For that and some three years earlier, there was the Guyana Power Sector Policy and Implementation Strategy 2010 done by Verna Klass, which incidentally also anticipated Amaila coming on stream in 2015. But that Strategy included a specific recommendation that the Potaro river basin be developed in stages to meet the increasing requirements of the national grid. That Strategy noted that fuel oil was a better option than wind which it considered “did not seem appropriate for the long term either as it would be displaced by the expected hydro facility”. It also recommended the ongoing use and research into bio-fuels.

And if we go still further back to the National Development Strategy (2001 -2010) we note an entire chapter dedicated to Energy. The NDS looked at alternative energy sources noting that “many ideas for utilising renewable energy sources such as solar and wind power, are appealing, but that the costs are high. It added however that in the view of some experts, the cost of both wind energy applications and solar power generation could be considerably reduced.

The NDS made a number of recommendations some of which are as valid today as they were ten years ago. These included enhancing the energy-generating capacity in the interior districts to increase economic activity in all parts of Guyana, attaining an equitable distribution of economic activity, and eradicating poverty in the most depressed areas of the country; the use of locally available energy resources utilising local production e.g. bagasse in sugar and rice mills, and wood waste in sawmills; tax credits to encourage the use of wind and solar energy; and the exploitation of hydropower centred on Amaila in the Potaro River Basin. It should be noted that the NDS saw Amaila not as a stand-alone project but in a modular framework.
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