Hydro-Electric Power (Amendment) Bill 2013 – Bill No.15/2013
3181 07 Aug, 2013
HYDRO-ELECTRIC POWER (AMENDMENT) BILL 2013 – Bill No.15/2013
Mr. Hinds: Thank you very much, Mr. Speaker. Mr. Speaker and Hon. Members, I would like, firstly, to extend my appreciation to all Hon. Members in this House for enabling, allowing and participating in this debate for the return and even the resurrection of the Bill and motion which we hope would see us being able to bring the Amaila Hydropower Project into realisation.
We did something earlier that was unprecedented in returning or resurrecting the Bill and the motion to this House. I think that Amaila is worthy of such unprecedented action. I hope that it will be truly transformative not only with respect to, maybe, the relations among the parties, but also with respect to how the citizens of our country see each other and how we think. I think that it is really transformative for those reasons and, maybe, those reasons may count as much as or even more than the savings which we are pretty sure will follow the construction and establishment of the Amaila Falls Hydropower Inc.
As I said the last time, and I think we all know, the construction of Amaila Falls would bring into realisation one of the long held aspirations of our people and, for me, going back into the 1970s and attending some of the presentations of the challenges of hydropower development in our country, I well remember at least one presenter talking about the challenges which tend to have made our hydropower site rather costly, compared with others at that time. But I think there was the understanding that our day will come as more and more of the more attractive sites, the more naturally attractive sites, were constructed. And as oil prices would rise, the day will come when our sites would be economically attractive.
Let me say that when we came into Government and when things were starting to happen again in Guyana, we adopted the fairly common policy of receiving interests, evaluating interests for hydropower development on what was quite a common practice of first-come-first-serve basis and I would say that we had a number of approaches, all of which were entertained and granted some position, usually a Memorandum of Understanding (MoU). We had an approach for Tumatumari and that is in the order of 45 megawatts and maybe that was where our peak demand was at that time. We had also, along with Amaila, an approach for Arisaru by one Mr. Griffith, someone who I grew to respect in his presentation and someone - just let us say it - who appeared then and appears to be a supporter of the PNC/R then and the APNU now, and he was granted a MoU with respect to the development of Arisaru. There were approaches with Takwari, Tortruba, Upper Mazaruni and, of course, Amaila.
Let me say that there are large ones there like Upper Mazaruni, the largest, that would need very large accompanying investments – smelters - to make them viable. So they were being thought of as their development being coupled with some large, industrial development that would take a lot of electricity. But for our domestic use in our country, I would say Tumatumari, Arisaru and Amaila were the ones that were more or less in that ballpark.
I would say that large projects such as a hydropower development project like this normally happens in a way where someone comes along and seeks to pick it up from where it is, takes it a certain distance and then seeks to have some larger group take it on from there, for example Mr. Griffith in Arisaru. I would say that would have been the approach not much different from what was in prospect with Mr. Motilall with Amaila or the other gentleman who sought and obtained some position in Tumatumari. So this was the approach and we were prepared to proceed with the ones that could have been taken to further stages.
Let me say, too, as we reconsider again this project, that the work began - all of these here that I am speaking about, these approaches - in the mid 90’s and, in the case of Amaila, it was developed to a point within sight of closure some time in about 2005/2006. We did not go forward then because of two reasons: one, oil prices were still low and still thought to be that they could not get above $30 a barrel. It was thought that they would stay between $20 and $30 a barrel. When one considered the proposal on that basis, there would have been more money flowing out to pay more foreign exchange, more US dollars flowing out, to pay for the installation than the savings in fuel. We did not proceed for that reason. The second reason we did not proceed then was that the investor at that time, which was also a significant investor, not as big as Sithe and Blackstone, but also a significant investor, maintained, at that time - and those were maybe buoyant economic times - that they needed to get 25% return on their equity and, even more than that, when we were very close to closing, they said that they would require that the transfer after 20 years - you know the usual boot arrangement - have been done at commercial rates. They further said that if you notice, our fund has been getting over 30% return and the way we get that return - this extra five plus per cent - is by insisting that this transfer be at commercial rates. So we did not go ahead with that arrangement.
As it turns out, looking back in hindsight, if we had gone forward then in an arrangement that appeared very unfair and so on at that time, when we look at what happened with oil prices subsequently, we would have been ahead but we did not go forward with it at that time. Sithe Global was sought and some new investors were sought and so Sithe Global came in on the scene by about 2007 and they have been with it over the last six years.
Today, Amaila has been advanced to within sight of closing. I would say that we, myself and everyone on the Government side, were surprised about the developments which led to 18th July. As we look back at it, we think that maybe there should be some understanding that as one gets closer to the signing - the point when we go forward substantively - that concerns should rise as we approach the final closing. As I have heard it said that there has been many a man who has had to take many a stiff drink to warm his cold feet as his day of marriage approaches, I know that it did not happen with us, Sir, we went ahead. But we can understand why persons may be concerned and I am normally, too. When the time comes to make the final sign off, one holds his pen in his hand for a while, looks into the air, stares into space and wonders what the future would bring. I think sometimes we have to be bold and we have to go forward at times and we have to pray that faith would kind to us. I would say that that is what I want to call on all Members of this House to take that position. These matters have been under consideration for a large number of years, that as it turns out the Government has not run forward with the first proposal. The Government has, even though it very much wants this to happen, maintained a critical consideration of the proposals. I would like our people to be assured of that.
I would like to maybe refer to some of the main issues that might have come up around the 18th July and since then. We have said before why we want this to happen. It is because of its truly transformative nature for our society and that may go beyond the physical installation. Hopefully it may lead us to different and better ways of relating here in Parliament and politically.
It is an opportunity, I think, undertaking this task as a nation, for us to establish the overarching idea. It will be a significant item in establishing this overarching idea of Guyana and Guyanese, which we all, I think, say we are and, I think, truly and honestly say. Within that overarching frame, we will have our contentions, differences and contradictions but it may help us to establish that overarching thing which is Guyanese, a hydropower project that is a Guyanese something.
Let me go on to say, Sir, practically, about the reduction in costs. Today, the cost of generating electricity in our country - and this is close to the best that can be done in our circumstances - averages US$0.23, about GYD $47.18 per kilowatt hour generated. Because of the extraction of power from the grid, the removal of power from the grid without paying for it and the losses inherent in a grid for which we have not had the moneys to bring up to the size that it should be in terms of size of conductors and transformers, because of those things and the loss figure that we all know about - 32% - the generation cost at the stations of $47.18 is raised to $69.68 per kilowatt hour by the time it reaches the customer. That is what is happening now with petroleum at the present oil prices. When we have Amaila, the generation cost would be no more than US$0.12 per kilowatt hour which is GYD$24.72 per kilowatt hour, which itself is increased, assuming there is no improvement in losses; it would be increased to $36.35 per kilowatt hour on arriving at the consumer. So, there is a reduction of the affective generation cost at the consumer level from $69.68 to $36.35 per kilowatt hour, a reduction of $33.33 per kilowatt hour. This there can be little disputing about; there will be a reduction of $33.33 per kilowatt hour even at the current level of losses. And if we were to get down to target figure and if we were to get down as low as Barbados, which I would like to be our target at the consumer level, the cost of generation would be only $26.58.
And I would estimate the final price would be averaging about $32 per kilowatt hour if we were to be able to get down to where Barbados is, 7% total loss. I think we should take it as a national challenge that in the area of losses we would set our sights and do as well as, and even better than Barbados. I would want us to set it as our national challenge.
Let us look at these same set of figures. The lower cost of generation would be reflected in lower imports or no imports of petroleum. At this time the current prices of petroleum imports which Amaila would substitute for is about US$200 million per year. That would no longer be needed. But we do not avoid some payments. Our payments would average about $100 million a year over 20 years. But in the early years because of the structuring of the financing and the repayments there would be years of higher payments initially of up to US$120 million but over the 20 years it will average about 100 million. After the 20 years what then? With the commitment or clause that says Amaila would be transferred to Guyana at no cost or maybe a nominal US $1, as is sometimes is the practice, after 20 years the cost of generation would be in the order of 3and 4cents per kilowatt hour. So it is not only for the 20 years we are saving, we are saving even much more after 20 years.
I know there has been some understandable yearning that we should get financing at the lowest rates possible. I would like to assure the Members of this House and our Guyanese public out there that this Government has been using every strategy and tactic, every argument, to obtain the very best rates for the people of Guyana. And we could refer to the fact that whilst the starting rate of return for nearly all such equity projects is 25% we have gotten down to the point where Sithe Global is accepting 19%, if I remember exactly. But we have been spending much time over a number of years pressing all the sources of financing and insurances and so on to bring those rates down lower and lower, to the lowest possible.
I have seen some things in the media which seem to have been misunderstood or maybe someone was not sufficiently experienced with these sorts of things. I would admit that were it not for the job that I have I might not have bothered at the various times, over the last 10 or 15 years, as various announcements have been made in the media and so on. I would not have probably paid it attention. So I can understand again why some people maybe only now paying attention to these things may not understand fully what is fully involved. But we have been having the presentations by Sithe and their parent company Blackstone, and also those who have been working on this project. There have been presentations which I think answered a number of questions.
One of them that I would like to refer to is the issue of financing, the presentations have been made as to how the financing is being put together, debt and equity - Sithe is putting so much and the Government of Guyana from the GRIFF Fund. A certain amount of money in there is available to us. It is a project that has won the approval for an application of the Guyana REDD + Investment Fund (GRIF) Funds. It would be a sad thing if we do not go forward because that $80 million has been predicated all along on Amaila going forward. If Amaila does not go forward we stand because of all the other rules and in particular the rules of the Norwegian Law that if it is not used within a certain period - which I think ends by November this year - by an approved project in line with low carbon development approaches then that money could lost. We have spoken about and there have been presentations on how the financing is put together, debt and equity. And we have said that we the Government is going to forego return on its own equity so as to keep the tariffs, the prices, as low as possible. One can imagine that sort of thing puts pressure on other providers of finance. It more or less says the Government, we Guyanese, are ready to put our money where our mouth is. We are ready to forgo a return because we really and truly want the lowest electricity prices possible in our country, not only for domestic but particularly for industry because we want industry to develop, and when it develops it brings more job opportunities for our people.
We have spoken to the financing and how it is being put together and we have spoken about how the money is to be spent in constructing and creating the facility. This money is being provided to Amaila Falls Hydropower Inc. (AFHI). With that money AFHI is going to build the dam and the power station and put in place the transmission line. They are going to create the facility. Then with the facility created there are to be the payments from the day of commercial operation – the COD - to AFHI by GPL as prescribed in the PPA. The requirements of the financing would be met so that the debt is repaid over this period. One part of it would be paid in a shorter time; the debt would be repaid at the interest rate prescribed; the equity would receive its prescribed return over 20 years. We have made presentation on that and I hope many of the misunderstanding there might have been would have been cleared up.
We have also had some claims in the media that the cost of this project is not $840 or $850 million dollars but some $2 billion. I would say we should think about this issue in terms of if we go to buy something, let us say on credit at one of the stores. Let us say we are buying furniture for 100,000. I think nearly every time we would see something like $100,000 cash. We would see also a monthly payment over some months. If we work out those monthly payments over those months – and those months are like two to three years - it may come up to say $140,000. We do not say this piece of furniture is costing $140,000. Similarly because in this case where we are making the payments over 20 years there is not much point in saying this project is costing $2 billion. There is no point in saying that, at least not anymore point in saying the furniture that has a cash price of 100,000 is really $140,000. It is much the same sort of situation. Indeed in much of the hire purchase kinds of things there is implied or implicit interest rate that is typically in the order of about 19% per annum overall. I think that answers another question that we have been seeing in the press not too long ago.
Another issue that has come up is with respect to the size of Amaila. I have seen in the media criticism by one of our commentators in Guyana that 165 megawatts is too much. We would have the need for all of the 165 megawatts. I have seen another criticism; I have no doubt well-intended, maybe well-founded and well argued from Hon. Member Greendige that maybe we should be looking at 200 megawatts, but I would say that we have been looking at this question ourselves. We have been looking over much the same range and have gone on thorough different positions. The 165 megawatt position comes out in the analysis as more or less the best we can do at this time. There is no doubt a bit of risk if there is no development in Guyana over the next couple of years. I do hope none of us would pray that would happen. I hope all of us pray there would be a lot of development. And with the prices I have been speaking about the self generators should be expected to come onto the grid. This 165-megawatt would be very quickly taken up. And what happens then? It is not the end of the day. There are other things in sight. We would have to do and we plan to do additional things. In fact I would say, as many people know, we have an Memorandum of Understanding (MOU) with the Brazilian Government to look at development of large hydro which would have as its focus exporting of electricity to the northern part of Brazil, maybe as far down as Manaus. We have that in view. The study so far is looking at installations of 4,500 megawatt in total. With that sort of installation we are thinking we would maybe have access to 10% easily. So we see something coming after Amaila. We see another something on the horizon after Amaila. In the normal course of things I would say maybe we are nine or ten years away from that sort of development. So hopefully while Amaila maybe on stream by end of 2017 or so we are thinking the arrangements with Brazil could be on stream, let us say nine or ten years from now, by 2023. We see timely arrangements for the next step after Amaila.
I would say with such large installations and the usual position that there are economies of scale we could see prices, even from the very beginning with such large developments, coming down very significantly, being less than 50% of say the 12 cents we are looking at with Amaila at 165 megawatt. With total installations of over 4,000 megawatts we could see prices down to about 6cents per0 kilowatt hour even from the very beginning. So we have been thinking about it also and I would like to assure Hon. Member Greenidge and all of the other Members of this House and our fellow Guyanese that we have been putting quite a lot of thought into the provision of electricity at the most favourable rates possible, the most favourable rates that are sustainably possible for our people.
I think that this is a very momentous time for us. I am pleased, as I said, that we have been able to resurrect with the active and maybe the passive participation and support of all Members of this House. We have been able to resurrect as it were Amaila which is truly worth resurrecting.
On this particular Bill we have here, as I have stated on 18th July, that whilst hydro power has been developed in the world for maybe 130 or 140 years, and whilst initially there were not all these special laws, environmental and, social impact assessments, it is not that these things were not considered before but these days these things are addressed more formally and very, very formally. I know some of us in our quiet and private moments may wonder if the developed countries and others that have hydro from 100 years ago had to go through the procedures of today whether those developments would have happened. I would admit that at times we smile with each other about it but we are living in 2013 and we Guyanese are members of the world. As the world goes, whilst we do may kick up a bit now and then, we go. So we have to amend the Hydro Electric Power Act (HEPA) another Act that is 50 or more years old, another act that was born in the time of colonialism we have to amend it so as to take account of the needs of today for commitments to being environmentally correct. And as Government we have accepted that. We have gotten into arrangements with the Inter-American Development Bank (IDB) and others. We accept that to get the benefit of the reduced cost of power, potentially 50% reduction in the cost of generating and delivering electricity to our people that it is quite proper that we accede to and maybe even more than accede to, because we want the environment in our country to be protected too. So we are going forward with these amendments without any hesitation and with full and total commitment to them. When the time comes for the third reading I would introduce the amendments which have been circulated and are before us.
So Mr. Speaker, Hon. Members I would be pleased, my greatest wish would be satisfied if when the time comes all of us support this Hydro Electric Power Amendment Bill 2013.
I thank you. [Applause]
Mr. Hinds (replying): I would try my best to answer many of the issues raised by the speakers on the other side. I welcome the support given by Members on this side. I think one of the things one learns when large projects are being pursued or being in progress is that... I want to refer to the issue of estimates and the fact, as was stated, that there was an estimate of $840 million and then when, I think, Sithe Global came it was put at $858 million. Sitting where I have been sitting doing the works that I have been doing, I have had the opportunity to learn, which I may not have otherwise,...One of the things one learns is that large projects go through a series of estimates.
The very first time that one thinks about doing some large projects, he oftentimes comes up with a benchmarking estimate and it may be plus or minus 50 to 100% but it puts him in the right ballpark. It does not involve a lot of money. It gives him an estimate to make a judgement as he continues. Quite often for these large projects by the time they get done, one may have gone through up to a dozen re-estimates and reviews where one consciously looks at it and makes a decision again.
As I said, when I was introducing the Bill, that we actually went through that with a pervious investor and we came close to a point and we said we would not go forward. It is that large projects go through maybe a first estimate plus/minus 50% where $1 is spent to get to that position. Then another estimate would be gone through that, maybe $10, but it narrows the uncertainty, the band. Another estimate would be gone through which bumps up to $100 and a $1,000, and so on. On the question of what is finally done, the final drawings for construction and even drawings after construction oft-times had to be made because even as the construction is done adjustments may be made.
By the time you have made your construction drawings to construct, sometimes you could have incurred more than 10% of the cost of the project. That is the situation in which one does not have the kind of firmness in numbers as we would have been accustomed to in many of the things we do. If we go to buy a car, we have a certain fixed number. Even in those situations, you have issues like foreign exchange which certainly comes into this matter - issues of foreign exchange and the rate of foreign exchange and the change in the rate of exchange. In particular, one of the big issues is the strengthening of the Chinese yen with respect to the US dollar and issues like that.
There could be pretty standard and proper explanations about the variations that have been seen in the prices. There are also issues that are addressed in all projects, such as the issue like force majeure and so on, which might be constraining Sithe Global. As it was said, Sithe Global did not want to be pinned down on anything. There are issues like that also.
I would like to assure Hon. Member Greenidge that we have put a lot of effort, as I said in my presentation, in trying to ensure that electricity would be provided at the lowest sustainable cost or sustainably at the lowest cost possible. I would like to assure him that lots of effort has gone into it. I think someone - I think it was Hon. Member Harmon - referred to meeting Sithe Global in the beginning of 2012 and hearing some things then and meeting again with them in 2013 and seeing some changes. I think that says two sorts of things. It says that there has been involvement ever since the beginning of 2012. Yes, as time passes, prices change.
I know someone said - it might have been Hon. Member Greenidge - that he does not yet accept the price increases that we have been seeing and that they are not related to fuel. I would say that nearly all the materials that go into a hydropower development are very sensitive to energy - copper and all metals are very sensitive to energy costs. Electricity, copper, steel and cement are all very sensitive to energy costs. So, that explains a large part of the increases that we have been seeing. They have been responding to increases in prices.
Indeed, an estimate that originated from the time of the peak, which happened to come in at about the time of the peak of the oil prices, was pretty high. When oil prices hit US$147 per barrel, it was reflective of that figure. That, I think, explains some of the price increases that we have been seeing and also not having a precise number to the last dollar. These estimates, at the very end, we will get a fixed figure. As I recall, one has to take into account the value of the yen, the exchange rate between the Chinese yen and the US dollar at the very end, at the moment of closing. That has to be taken account of.
On the question of the improvements to GPL so as to reduce technical losses, yes, we have had moneys from the International Development Bank (IDB), $10 million. Do you know what? We have been saying that estimates by one set of consultants of the kind of moneys that one needs to invest into GPL to bring transmission and distribution up to the kind of levels they would like to have, one is looking at much larger numbers. One is looking at numbers all the way up to US$250 million. So, $10 million dollars is a good start. We would make as good use of it as we could, but we are at the beginning of it. Indeed, you would recall that we worked and arranged for a transmission upgrade, which is maybe 70% or 80% along the way, which will take in all about US$43 million of which US$39 million comes from an Export-Import (Exim) bank loan to the Government and US$3 million or US$4 million is being funded between the Government and GPL for moneys provided to GPL from the Consolidated Fund, from the revenues collected by the Government.
Indeed, at times, one used to hear a figure of US$40 million from the Chinese but, depending again on the exchanges rates at the moment, you have to take account of some adjustments getting to it. So, we are still in early days with the levels of investment that are required. We would like to get up to a figure in the order of $100 million. We would like to maybe get another US$50 million into improving the distribution network. We are working to upgrade the transmission network. We would like to get another US$50 million or so to put into the secondary network, the distribution network.
I made a note here about distinguished Professor Thomas calling Amaila a troubled project. I would like for time to show that it turns out to be good for us. I think it would. There was an issue raised about Government spending. This is not Government spending; this money would not be spent by the Government. This $840 million or $850 million is not being spent by the Government. Just now Hon. Member Greenidge spoke about... [Interruptions] [Mr. Ramjattan: What is going on here? We are just going to walk out this place.] Hon. Member, please forgive me. I will forgo. I thought there was a desire for some response to the points made by Hon. Members on the other side. I will forgo it and I would move, Mr. Speaker…
I cannot recall any real principle position taken against this Bill. Certainly, Hon. Member Moses Nagamootoo said that maybe we could have brought it earlier. Maybe it could have been brought since the time when Upper Mazaruni was contemplated in the 1970s. Maybe we could have brought it earlier. I would say that I think we brought it in a timely way because many of the specifics here came about very recently.
I am not reluctant to say that the amendments that were tabled on 17th July were amendments that came to us subsequent to the amendment that we did first for 17th June. They came at a later time. I think that these amendments are coming in a timely way.
Mr. Speaker and Hon. Members, I move that the Hydro-Electric Power (Amendment) Bill 2013 be read for a second.
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