…impact assessment study released
HYDROPOWER developer Sithe Global Group is optimistic that financial closure for the 165 megawatt Amaila Falls project could be achieved, and that work could begin before the end of the year; but he warned that external factors could lead to changes in costs and final completion time.
Speaking at a press conference at the Pegasus Hotel yesterday, Senior Vice President of Sithe Global Group , Rafael Herz, said that while the project is pegged to cost between US$650M and US$700M, it does not mean that this figure cannot increase or decrease.
Further, he defended the cost of the project, saying that it is an unfair comparison to measure this project against the other Sithe Global venture, the Bujagali hydro project in Uganda, which is to be completed this year.
“Every project is different. There is no project that is equal to another one. This is a very complex undertaking because of its remote location. It entails, therefore, some challenges that are very particular to this project,” he said, explaining that a range of factors can be responsible for the project being more expensive than another, such as location, material costs and building specifications.
“If we take that the hydro facility is around US$315M, that leads us to a cost of US$1,900 per kilowatt. That is absolutely comparable with what you are seeing nowadays in other places. If you take into account that the transmission lines are estimated to be roughly US$125M, that adds up to US$460,000 per kilometre. I do believe that if you take the actual cost of the hydro facility and separated it from the transmission line, it is not a so much costlier project than others,” he said.
“We are still looking at a price tag of US$650M to US$700M. What happens with this project and the complexities of this project is that things change over time. Exchange rates change. The project is likely to be built by a Chinese contractor, and obviously changes in the exchange rate [between] the Renminbi and the US dollar; the next thing is material cost, [which] changes over time; finance and development costs change over time,” he said. Explaining the cost, he said the project not only encompasses the hydro facility, but the transmission lines and the road.
He said that even after financial closure, there could be changed orders during the construction phase that might represent either a decrease or an increase of the final cost. However, he said there still could be delays in obtaining all of the financing by the planned timelines. Herz said that more sampling and consultations for the Environmental and Social Impact Assessment (ESIA) process could lead to further delays in funding being approved, especially from the multilateral backers.
Sithe’s equity in the project is pegged at 30 percent of the total cost, Herz disclosed. “Having said that, we are now in discussions with the government because government might have an interest to contribute through the REDD+ funds that you know about,” he said.
At the current stage, Sithe is contributing at least US$150M of equity into the project. In terms of the Power Purchase Agreement between the developer and the Guyana Power and Light (GPL), he said that discussions are ongoing with the government. He explained that the end-user cost will be determined by the cost of the project as well as the returns on the equity investment, and noted that the Public Utilities Commission (PUC) and the GPL will have to work out tariffs.
“We are in very advanced stages of the negotiations of the Power Purchase Agreement (PPA). I would expect that within a few weeks that PPA is basically finalised. It is a very straightforward PPA…I think the most interesting option is the possible contribution of the Government of Guyana into the equity itself.”
He said that the ESIA being released is a much more comprehensive one to that which had been done before. “We are very proud to be able to share that. We think that it is an extremely detailed work that has been undertaken by independent third parties of the highest quality and it is a very important document that is done under the [strictest] standards. It has followed the standards required by multilateral institutions – the World Bank and the Inter-American Development Bank,” he said.
According to Herz, the ESIA provides an overview of the project itself, including the legal and regulatory framework in which it is embedded. “It provides a description of the project in relation to how it will be constructed and operated; it presents a baseline description of the social and environmental conditions found in the project area itself; and it analyses the impacts that this project will have on those baseline conditions, both from a social and environmental point of view. It proposes, through the environmental and social management plans, efforts to mitigate and compensate any of those impacts as required by the standards used by those multilateral organisations,” he said.
He said that over the next weeks, there will be a process of consultations on the ESIA, during which persons from Sithe will go to the fields and discuss with the Amerindian communities located some distance away from the project. However, he pointed out that the project itself is not located at or close to Amerindian communities.
There will be town hall type meetings in both Georgetown and Linden, and these are in addition to the opportunity to provide comments through the company’s website and by dialling a telephone number.
Asked about the potential returns for the company, Herz stated: “Sithe is obviously a private company; and as a private company it is there to make money for its shareholders. But it is also a company that has always engaged in projects that have a positive social impact in the communities that it works in.”
Herz said that the hydro will also reduce Guyana’s greenhouse gas emissions and reduce the country’s dependence on foreign oil and the exposure to the price volatilities that come with such dependence. However, Herz noted that there will still be a need for the continuation of imports of fossil fuels to have on standby, so that in case of a period of drought and the river not being able to flow to the needed levels, generators could supplement energy production.
He said that Amaila Falls Hydro Inc. will be the company that will be developing the hydro project. Sithe Global fully owns Amaila Falls Hydro Inc., Herz said. He said that this company has been expending its human and financial capital on the project, and will work on financing and building the project. This company, he said, will own the project for 20 years, after which it will be handed over to the Government of Guyana (Guyana Power and Light) at no cost.
Speaking of the benefits of the project, the Sithe Global Vice President said the venture represents a more dependable, reliable and less expensive source of power based on renewable resources. “It will provide a long-term, clean and sustainable source of electricity and represent independence from imports of oil,” said Herz.
“There will be a very positive balance of payment impact by reducing the need for oil import substantially,” he said. “Clearly, this project, being located in the virgin forests, will have environmental impacts. It should be mentioned that deforestation caused by this project will be only about eight percent of the greenhouse gas emissions that would have been emitted by the thermal electric, fossil fuel, based on the estimated time period,” said Herz.
He noted that during the construction and operational phase of the project, jobs will be produced, thereby contributing to the growth of the economy. Further, he explained that the cheaper, more reliable energy will mean that companies looking to invest in Guyana will be more attracted to the destination, because of the project.
“Energy is one of the most important infrastructure needs of industry and mining [and investors] will now [see] Amaila as the most important source of that energy,” Herz said.