Introduction
Mr Hinds’s intervention on the Amaila issue came one day after the press carried a report that hydro-electric “pioneer” Mr Fip Motilall had received approval for the transfer of a licence to Sithe Global, which some time in 2002 he had been awarded under the Hydro-Electricity Act Cap 56:03 to develop a hydroelectric plant at Amaila Falls.
Letting the cat out of the bag
It is important to nail the myth that Mr Motilall pioneered the Amaila Falls project. The studies on that Falls’ potential were done in the 1970s, and Mr Motilall was given access to them by this administration. If the Prime Minister would care to read from his own website, he would notice that the feasibility study done by Kaehne Consulting Ltd for the government in 2002 described Synergy/Harza as “developers.”
It was the senior Vice-President of Sithe, Mr Jim McGowan who on Thursday last at the Hotel Tower, let the cat out of the bag when, in answer to a question from the press at what was supposed to be a road show, said that his company had “acquired Synergy’s interest in the licence.” Neither he nor Mr Philip Mooney, the consultant to the project appeared to know that the law provides first for an interim licence and then a final licence, or the difference between the two. Indeed, Sithe is acting as if it has a final licence and one wonders whether the pattern of non-compliance with the law will continue despite the increasing scrutiny.
In a series of five columns I did in May-June 2010 I pointed out the amazing level of unfamiliarity with key provisions of the Hydro-Electricity Act demonstrated by no lesser persons than President Jagdeo and the Head of the Presidential Secretariat Dr Roger Luncheon, and the confusion they have sown with throwing around figures and relating one story to another. Mr Hinds now completes the triumvirate when he asserts, in clear contravention of the law, that he had authorized the transfer of the licence from Synergy to Sithe, something which only the President is authorized to do.
PM’s understanding
There is nothing about the project that Mr Hinds says now or has said before to suggest that he knows anything about the law relating to hydro-electric power or the facts pertaining to Synergy/Sithe. The law provides for the payment of rent and royalties under an interim licence; the publication by the Chief Works and Hydraulics Officer in the Gazette of any application for a licence; the posting of a bond as security for performance; that “a licensee shall at all times have an office in Georgetown”; that the licence must state “the date of each permit and extension thereof which may have been issued in favour of the interim licensee; and a statement whether the requirements thereof and of the Regulations [published under the Act] have been fully complied with by such interim licensee.”
Exactly one month ago, on Friday April 15, 2011, in the face of mounting confusion sowed by Luncheon and Jagdeo on the one side and Synergy and Sithe on the other, I publicly asked Dr. Luncheon to use his influence to have publicised “the licence(s), extensions, agreements including that of May 2006, and the terms and conditions for cash and other inputs by the government towards the Amaila Hydro-electric project.” This has not been done.
The triumvirate could not make available what the law requires but suddenly the Prime Minister shares the details of the agreement which Mr Motilall had concluded with Sithe, including the US$5 million dollars in “cash and unpaid time since 1997 in helping to develop the Amaila Falls Project.” Does Mr Hinds not know that “pioneers” also make side deals and that the costs he claims Mr Motilall expended are not reflected in the financial statements of Motilall’s company?
Pioneer’s profits
In matters relating to Amaila Mr Hinds has shown a remarkable tendency to mis-remember and mis-speak, and anyone who takes his words seriously risks being misled. What is very clear is how poorly the Prime Minister is informed about the project and how little he appears to care about its consequences for the consumers and taxpayers of this country. He did give an indication of how much Mr Motilall will benefit from his pioneering efforts by volunteering that “depending upon the profitability of the project the pioneer would receive multiple of his investment in cash and time.” A multiple of two means twice US$5 million, a multiple of three means three times, etc. With Sithe being the most expensive hydro-electric developers in the world, there are several multiples accruing to Mr Motilall. That licence should have been cancelled, but it was not. Did I hear someone say Simon and Shock International Logging Inc and Vaitarna?
China Railway
At what was described as a forum to consult with the public, Sithe billed China Railway as the contractors for the construction of the hydro-electric plant, although under questioning its senior officers admitted that there was as yet no contract between Sithe and China Railway. What is particularly interesting is that the China Railway Group lists on its website its core business as railway construction and including “infrastructure construction, survey, design and consulting services, engineering equipment and components manufacturing, as well as property development.” Despite extensive search on the group’s and its subsidiaries’ websites, I could find no trace of the Chinese company being engaged in hydro-electric plant construction. It is difficult therefore to comment on the confidence which Sithe is placing in the China Railway Group as their preferred contractor.
Guyana and GuySuCo are reeling from lack of demonstrated expertise by Chinese contractors for the Skeldon Sugar plant which cost the country nearly two hundred million United States dollars. We as a country would want to avoid a similar experience and should do our own due diligence on the Chinese Railway. We have been far too gullible in the past, at great cost to the country.
Sithe’s contribution
At the consultation at Tower Hotel, we were told that the total project cost was US$675 million and that Sithe’s principal – the Blackstone Group – was putting in US$200 million in cash, a proposition not borne out by other information. President Jagdeo not too long ago had announced that the final cost for the hydro will be US$306 million, the transmission line US$145 million through a public tender and US$150 million is there for contingency and interest cost.” That leaves US$75 million of the US$675 million to be accounted for.
It is unusual for a fixed price contract to have a contingency but even a 10% contingency would amount to only US$45 million, so that the interest cost during construction will be $105 million. If as Sithe’s representatives said, Blackstone is putting in US$200 million and we know the government plans to put in US$70 million of Norwegian funds, then the balance needed is US$181 million, to finance expenditure progressively over the 3-4 years construction phase. If the interest is a minimum of $105 million during construction, one is looking at an interest rate of in excess of 30%!
But there is more. Blackstone is an investment and advisory firm that specialises in putting deals together, not financing other people’s projects. As its website states their “alternative asset management businesses include the management of private equity funds, real estate funds, [hedge fund solutions], credit oriented funds [and] publicly-traded closed-end mutual funds .. and various financial advisory services.”
Sithe’s role therefore appears to be a higher form of deal-making than Motilall’s, putting no money into the company but walking away with tons of money as the project’s developer. Needless to say, it is the country’s consumers and taxpayers who will pay.
Electricity cost
The interest cost referred to by President Jagdeo only goes up to the point of completion. If at that stage the project would have cost US$675 million, interest for the duration of the licence will cost hundreds of millions again. The management of the Guyana Power and Light Inc and the Public Utilities Commission need to get involved.
But at this stage they, the taxpayers and consumers are either in the dark or totally quiet, with no clue as to the price consumers will pay for electricity when the hydro-electric power starts to flow. The information I have is that any savings on fuel costs will be used to pay interest costs so that while the country will save on the fuel bill, the consumers will not be better off, at least for a couple of decades. That probably sums up the Amaila deal and sub-deals.