US$30M Skeldon power deal: Critical financing now accessible for system upgrades – GPL Chairman

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NICIL’s Winston Brassington

 

SKELDON Energy Inc. (SEI), the recently created power company that, for US$30M, acquired the installed generation facilities owned by the Guyana Sugar Corporation (GuySuCo), can now approach financial institutions and be able to refinance its operations aimed at system upgrades and expansion.

This is according to Chairman of the Board of Directors of the Guyana Power and Light (GPL), Mr Winston Brassington, who made the announcement this past week and alluded to the add-on benefits as a result of the transaction.

He said: “One of the benefits of this arrangement is the ability to have a stand-alone, independent power producer who, based on the revenue stream that it can derive from the sale of power, can finance all that is needed not only to pay GuySuCo for the assets, but also to invest in expanding and maintaining these assets.”

GPL has, in recent years, been the recipient of billions of dollars in transfers from Central Government; but, in securing a windfall from the drop in fuel prices, the power company has managed to shell over a total of US$15M to acquire the facilities.alt

SEI is jointly owned by GPL and the National Industrial and Commercial Investment Limited (NICIL).

Financing, for the project comes in the form of debt and equity involving GPL and NICIL, in addition to local and international financial institutions.

Skeldon Energy Inc. is funded using equity financing of US$9M and debt financing to the tune of US$21M, secured from local and international financial institutions.

Brassington has explained that, on the equity side, US$5M will be coming directly from NICIL, with an additional US$4M coming from GPL. Repayment of the US$21M debt financing will be made using earnings from the sale of power to GPL and GuySuCo.

REFINANCING
GPL has, over the years, been unable to secure large sources of financing, leading to Government having to intervene on numerous occasions to bail the power company out. This has led Brassington to point out that SEI will be able to approach financial institutions based on the strength of its Power Purchase Agreements, assets and revenue stream.

Brassington, who also sits as Executive Director of NICL, explained to media operatives during the announcement that an agreement has already been inked with Wartsila for the management of the power plant.

He said, too, that Wartsila has agreed to inject just over US$3M into rehabilitation of the generation facilities acquired by SEI, and this money would be refinanced over time.

INCREASED DEMAND
“We have to plan to ensure we have sufficient generation…. If Skeldon was not available, we would need to look at installing additional generation,” Brassington said as he spoke to the increase in demand for electricity in the country of Berbice.

The excess available from the Demerara grid which is exported to Berbice will not be sufficient in the future, given the ever growing demands, Brassington said.

Speaking to the US$30M deal that led to the creation of SEI along with its acquisition of the GuySuCo generation facilities, Brassington said: “What we are doing here is seeking to not only maintain, but to expand the power generation facilities at Skeldon.”

The Chairman of the GPL Board explained, saying: “By next year, we expect the total power generated out of that plant to increase by 50 per cent; and by 2019, (we expect) the total power to double.”

The investment, he said, was inevitable, “and this is the optimal way to make that investment.”

As part of the US$30M transaction, SEI acquired three Wartsila generation plants at an installed capacity of 10MW, in addition to a bagasse-using cogeneration plant with an installed capacity of 30MW.

ADDITIONAL INVESTMENTS
According to Brassington, the 30MW cogeneration facility has more installed capacity than has even been used; but, “in order to harness that full capacity, we need to do a number of things…we need to make some investments to increase the transformer capacity so we could take more power out of that plant.”

He said it is expected that, over time, “we will be able to maximize the level of power coming out of there.”

The GPL Chairman said, too, that based on modest projections, it is expected that the power leaving the plant will double in a few years’ time.

Brassington used the opportunity to explain that, by putting the generation facilities into a separate company with focused management, “that company, as a separate stand-alone unit, on the strength of the Power Purchase Agreement between GPL and GuySuCo, can go out and raise money for financing whatever it needs to do.”

He stressed: “One of the benefits of this arrangement is the ability to have a stand-alone independent power producer who, based on the revenue stream that it can derive from the sale of power, can finance all that is needed not only to pay GuySuCo for the assets, but also to invest in expanding and maintaining these assets; and that is one of the huge benefits!”

As a result of the transaction, US$30M in capital resources will be going directly to GuySuCo to pay off its creditors, while the new arrangements are also expected to lend to a more stable and reliable source of power and, at the same time, relieve the sugar company of the responsibility to manage the power plant.

REBUILDING CONFIDENCE
Meanwhile, GuySuCo’s Chief Executive Officer (CEO) Mr Raj Singh, who was also on hand for the historic announcement, told reporters bluntly that the US$30M “is clearly going to our creditors, our suppliers, our contractors, companies and entities that we owe monies to; and we have begun payment already to those creditors.”

What GuySuCo is also looking to do with the US$30M, according to Singh, “is to rebuild confidence in our creditors so that we can continue to have business relationships with them that would serve both of us well…. We are working hard to do that!”

GuySuCo staff members previously attached to the generation facility have since been seconded to SEI to work along with the Wartsila management team.

 

By Gary Eleazar