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At the end of the meeting, Mr. Ram made two commitments.
Firstly, he recognised that some of the documents we gave him were still under negotiation and remained confidential. Secondly, he said that he would not make pronouncements publicly without fact-checking the data with us. This is confirmed on his website.
However, Mr.Ram did not respect either of these commitments.
Firstly, he selectively circulated some confidential information. Secondly, he pronounced loudly and with great certainty in the public domain several new statements which are not remotely based on facts. Mr. Ram’s statements need to be scrutinised by anybody who feels that the Amaila Falls debate was hijacked by partisan and prejudice interests.
Mr. Ram’s maths is still wrong and spectacularly so.
I noted a recent exchange between Mr. Ram and Captain Gerry Gouveia, where Mr. Ram set out his latest position. The exchange between Mr. Ram and Captain Gouveia is important because it addresses the costs of Amaila Falls to Guyanese. Amaila Falls is designed to bring benefits to Guyana by reducing the cost of electricity to the taxpayer (through a reduction in the subsidy or a need to borrow to invest in electricity generation) and to the consumer (because of the excessively high cost of electricity today).
Mr. Ram correctly identified the key components of these costs to Guyanese. Taking each in turn:
Public Debt
Mr. Ram has finally admitted what the Government of Guyana has said for a long time: there is no public debt involved in the construction or operation of Amaila Falls. Not a cent.
I hope that Mr. Ram has the grace to accept that this is a massive U Turn in his public position, as for several years he has spoken about the public debt associated with Amaila.
Contingent Liability
Mr. Ram has also accepted the Government’s long-standing statement of fact: that the only thing the Government is guaranteeing is payments from GPL in the event of GPL being unable to make their payments. Considering that the Government is the sole owner of GPL and that Government has been injecting a subsidy into GPL over the last several years, a guarantee of this kind is fairly typical. He says “this is what accountants call a contingent liability.” Correct. It is not what accountants call a debt.
However, Mr. Ram then goes on to say that “by the Government’s own reckoning” this could exceed over US$2 billion over 20 years. This is totally wrong on two levels. First of all, the scenario Mr. Ram describes could only occur if GPL was unable to pay any of its bills for 20 years in a row. Surely Mr. Ram accepts that this is an extremely improbable scenario. But more importantly, Mr. Ram should know that this contingent liability is limited by current law to GY$30 B dollars.
Subsidy
Mr. Ram accepts the Government’s view that post-Amaila, the subsidy paid by the taxpayer to GPL could be eliminated. This was G$ 6 billion dollars last year – money that could be put to better use for the benefit of Guyanese. Since 2008, subsidies/loans have amounted to over GY$ 38 B dollars.
However, perhaps to hide this new recognition, it only warrants a couple of words, buried deep inside an explanation of his position on tariffs.
Perhaps Mr. Ram will have the grace to acknowledge that even under his analysis; the elimination of the GPL subsidy would significantly benefit the public finances by increasing the amount of money in the Treasury for more productive uses.
Fuel and Savings
Mr. Ram admits that there will be savings on fuel, but claims that these will only kick in after twelve years. This is wrong. Money will be saved on fuel from the first day the Amaila Project begins commercial operations. Thisis easily calculated when you look at GPL’s 2012 audited statements. In 2012 GPL spent US$117 million in fuel costs to generate approximately 690 GWh. Under Amaila, GPL will pay US$124 million to purchase 1,070 GWh’s of electricity. That is a 34% reduction in fuel costs per unit of power for GPL at today’s fuel price. The reduction in generation costs will be even greater when other avoided costs of generation are included.
Mr. Ram goes on to state that “A GPL that is not modernised and which maintains the same level of system losses and other inefficiencies will never be able to pay an annual all-in tariff of US$122 million.” And yet, in 2012 GPL paid over US$130 million in generating costs and US$117 million in fuel alone. I ask Mr. Ram how can he make such a false statement when GPL will pay less for Amaila to generate power that will be 150% of what GPL generates today.
Tariff
This is perhaps Mr. Ram’s most illuminating contribution. Despite having the facts, Mr. Ram tries to avoid the question about how much the Amaila Falls Hydropower Project will reduce the cost of electricity to GPL. Further, Mr. Ram goes on to conflate GPL’s cost of generation and selling price. It is important to juxtapose the Government’s analysis with Mr. Ram’s assertion. I repeat the summary of both here:
Government of Guyana:
With Amaila, GPL’s cost of electricity generation will come down in stages – by 40 % in the first 12 years; by 71 % for the eight years after that, and by 90 % for the 80 years after that, based on current fuel price projections. Therefore, the total consumer tariff will decrease significantly because of Amaila Falls. The reduction in consumer tariffs will be at least 20 %when the Amaila Falls Hydropower Project comes online.
Mr. Ram previously said: “Based on my calculations, the tariff will be increased by 23.6 %.”
However, in his latest statements, Mr. Ram makes some extraordinary contortions. He says (my emphasis): “allowing for a reduction in system losses and growth in demand, the inflated all-in tariff GPL will have to pay Amaila, and a projected increase in the exchange rate, our conclusion was that the total revenue of GPL would have to increase by 23.6%. Our projections were further based on no more subsidies from the Consolidated Fund.”
In other words, he is not answering the question of how much the Amaila Project will reduce the cost – instead he is asserting that the revenue will have to increase, and this will have a knock-on impact on the end-user tariff (as will the removal of the subsidy, which he just slips in).
Mr. Ram is now claiming that GPL revenue would have to increase by 23.6%. This is very different to the cost of electricity going up by 23.6% which was Mr. Ram’s previous public assertion. And finally, Mr. Ram includes the removal of the subsidy. Of course, if GPL no longer received $6 B per annum, the tariff would have to increase.
My advisors have shared information with Mr. Ram on the projected increase in volume of sales with Amaila. The summary of this information is already contained in GPL’s 2013—2107 Development and Expansion Plan (www.gplinc.com).The following chart was fully discussed with Mr. Ram which shows sales of electricity increasing by 55% between 2013 and 2017, and 23% in the last year (2016 to 2017:
The real question for Mr. Ram remains – by his analysis, how much will the GPL tariff increase or decrease because of the Amaila Falls Hydropower Project? Mr. Ram needs to answer this question as it is the single most important benefit from the project, and warrants more than a 9-word assertion.
To help make sense of this issue, perhaps Mr. Ram can address the two areas underlined in the following chart. Then we can have a more meaningful discussion about where his assertions have come from:
Table: What will happen to end User Tariff after the Amaila Project as currently designed.
Component of End User Tariff Government of Guyana Mr. Ram
Cost of Electricity to GPL With Amaila, this will reduce by 40%, then 70% after 12 years, then 90% after eight more years. There will be an “inflated all-in tariff GPL will have to pay Amaila,”
Subsidy from GoG Subsidy will be removed Subsidy will be removed
GPL Operational Efficiency GPL Efficiency needs to be improved, with or without Amaila GPL Efficiency needs to be improved, with or without Amaila
END RESULT TO USER End user tariffs will come down by 20% in the early years of the Amaila Project. Improvements in GPL efficiency through the separate modernisation project will improve these benefits No comment – only GPL’s revenue will increase by 23.6%
So that these statements can be properly analysed, Mr. Ram needs to answer the two missing questions, which he has avoided for some time – specifically, how much will GPL’s cost of electricity change because of the Amaila Falls Hydropower Project, and assuming removal of the subsidy, and a constant on GPL’s efficiency, what will this end user charge be per kw/h?
Winston Brassington
Executive Director
National Industrial and Commercial Investments Limited
