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Guyana’s hydro: Will the cash flow?

Published: 
Sunday, May 5, 2013
Guyana’s Kaieteur Falls. Looking like a billion dollars?

At the Kaieteur Falls in Guyana’s interior, the mighty Potaro river plunges almost 750 feet—four times the height of Niagara, and incomparably more beautiful. An airstrip brings a trickle of tourists. Waterfalls can earn more than tourist cash. A 25-mile trek from Kaieteur are the Amaila Falls, almost as impressive but ten times as inaccessible, and the site for a planned hydro-electric scheme

 

Guyanese have talked of hydro-power for decades. They have potential to generate at least 20 times the country’s present power demand. In the 1970s, planners talked of a huge dam on the Mazaruni River. World Bank finance was blocked by Venezuela, which claims western Guyana as its own. In 2009 Brazil proposed a dam to supply all of Guyana, with a surplus for export. The Guyanese government showed only modest interest. 

 

Meanwhile, consumers suffer a woeful electricity supply, generated from imported oil. Costs are high and power outages frequent. “My electricity bill is more than my rent” complains a Georgetown businessman. Three were shot dead in Linden last July, in a protest over electricity prices.

 

The state-owned electricity company Guyana Power and Light loses almost one sixth of its current to theft. Their head of security was killed during a May 2009 raid on illegal connections. Cheats include “reputable” businesses as well as low-income families. When running at maximum output, Amaila Falls could supply all Guyana’s present power needs. Twenty years from completion, when the capital cost has been paid off, ownership would pass to GPL. 

 

For many hydro-schemes, the environmental impact is the big killer. Suriname last month dropped its Tapajai hydro project because it threatened both river flow and the traditional way of life of riverside maroon communities. Amaila has fewer problems. The flooded area would be small—around nine square miles. No Amerindian settlements are directly threatened. And Guyana would move from fossil fuels to low-carbon electricity. 

 

Sounds good? Maybe. But this costly project may not in fact cut Guyana’s monthly light bills, or even produce a reliable supply. Many Guyanese are deeply sceptical. GPL’s annual payment to Amaila will be around TT$650 million, more than it has been paying in most years for imported fuel—though the developers argue that consumers will be shielded from soaring oil prices in future years. 

 

Drought is a big risk. Guyana’s rains seem incessant, but they are not. Periodic El Niño events shift rainfall patterns in South America and the Caribbean. They can bring Guyana an extended drought. Even in normal years, the plant will run below full capacity from October to April. To guard against severe droughts, Guyana Power and Light will have to maintain—and pay for—a backup power supply. 

 

Sithe Global, part of the US-based Blackstone Group, has been leading the project since 2009. They want a guaranteed 19 per cent return on their investment. The China Railway First Group has the main construction contract, and the China Development Bank will provide most of the funding. The cost estimate has crept up, from TT$1.9 billion in 2007 to TT$5.4 billion today, close to one-third of Guyana’s GDP.

 

The scheme has been under discussion since at least the mid-1990s. In 2001, there was confident talk of a June 2002 start to construction. The site remains inaccessible. Asked if they’ve visited, most of the planners say “I’ve flown over it.” A planned 110-km access road is long past its scheduled completion date. International lending agencies are cautious. The IMF wants “careful consideration of the risks.” The World Bank was involved in initial discussions, but drew back after a due diligence study. 

 

The  Inter-American Development Bank has been asked to contribute TT$1.1 billion, and is in the midst of its own due diligence process. The talk now is of financial closure by the end of 2013. Most of Amaila’s risks will be carried by the Guyanese consumer. But the IDB is treating this huge scheme as a private sector project, with private sector rules on transparency and accountability. 

 

There is still no economic feasibility study. When there is one, it will remain confidential. Amaila’s power purchase agreement with Guyana Power and Light is also confidential. Unwisely, the IDB has not yet found time for discussions with the opposition parties. In the National Assembly, the opposition parties hold a narrow majority. On April 24, they voted down a TT$600 million budget allocation for an equity stake in Amaila. 

 

They are unlikely to agree funding until they have a chance to study its likely impact on the Guyanese consumer. The government argues, quite correctly, that Guyana needs hydro power. The opposition retorts, equally correct, that Amaila has a history of delays, secrecy and soaring cost estimates. An open debate could clear the way. If the detailed sums now look good, they can win consensus support. If they don’t, the project’s backers should think again.

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