Aug., 13, 2013
There has been considerable confusion in recent weeks concerning the costs of the Amaila Falls project to be borne by Guyana. In the interests of clearing this confusion, and to facilitate an informed debate about the costs of Amaila Falls, please note the following:
Guyanese citizens will pay for Amaila Falls in two ways:
- Guyanese taxpayers will pay for Guyana’s share of ownership (the Equity) in the Amaila Falls private company - in return, the taxpayer will save money each year from not having to pay a subsidy to GPL
- Guyanese consumers will pay GPL for electricity (by paying the Consumer Tariff) at a rate that is considerably less than the tariff they pay today
Paying for the share of ownership (Equity)
Guyana’s taxpayers will pay about US$100 million in equity. This money consists of:
- Approximately US$20 million of the money which is being spent on the access road to Amaila. Approximately US$15 million has already been spent on construction, with most of the remainder under contract to be paid on completion of the road in the coming months.
- US$80 million which is being invested from the Guyana REDD+ Investment Fund (GRIF). This money has already been earned, and is deposited in the GRIF waiting to be transferred.
It is very important to emphasise that NO more money will be paid by the taxpayer for Amaila Falls, and that NO government borrowing is taking place.
To emphasise and repeat: approximately US$100 million is the total bill to the taxpayer, not US$858 million or US$2.3 billion, or any of the other figures that have recently been quoted. The exact figure will is to be finalised at financial close, but it will not change significantly.
Paying the Consumer Tariff
There has been further public confusion in recent weeks about the expected reductions in the consumer tariff. The consumer tariff is the regular tariff that the customer – households and businesses - pay GPL today, and will pay after Amaila Falls is operational. It is made up of three inputs:
- GPL’s cost of electricity generation - today, about 80% of GPL’s electricity comes from an array of outsourced generating businesses and costs 19c per kw/h.
- The subsidy given to GPL by the Government – which in 2012 was 6 billion dollars, and which offsets the current high cost of electricity generation in Guyana.
- GPL’s non-generation operational costs, including the cost of transmission and distribution, and costs resulting from inefficiencies such as technical and commercial losses.
It is important to understand Amaila Fall’s role in addressing these three areas:
- Amaila will address the biggest input cost by far - GPL’s cost of electricity generation. With Amaila, GPL’s cost of electricity generation will come down in stages – by 40% in the first twelve years; by 71% for the eight years after that, and by 90% for the eighty years after that, based on current fuel price projections.
- Furthermore, the subsidy to GPL can be eliminated with Amaila Falls under the current structure. This will save the taxpayer billions of dollars every year (the 2012 subsidy was 6 billion dollars). These savings (US$30 million per annum) will exceed the amount paid in equity (US$100 million) after less than four years.
- Amaila Falls is not related to the parallel work on GPL’s operational efficiency. Both need to happen, but any conversation about GPL’s operational efficiency needs to recognise it is a separate project to Amaila Falls. It is the Government’s intention, working with the IDB, to start a process of consultation on GPL’s strategic plan in early 2014, once Amaila Falls was to be under construction.
By way of illustration: if GPL did nothing to address operational efficiencies, but Amaila Falls came on stream and the subsidy was reduced (saving the taxpayer billions), the consumer tariff would go down by 20% within 2 years of the start of Amaila’s operations.
Therefore, for those who are yet to make up their minds on Amaila Falls, the key points relating to cost are these:
- The total cost to the taxpayer is US$100 million in equity, of which US$15 million has already been spent, and most (US$80 million) of the remainder is already deposited in the GRIF and awaiting transfer.
- The total savings to the taxpayer because of the removal of GPL’s subsidy will be at least US$30 million per year, or US$600 million over twenty years – far in excess of the US$100 million provided by the taxpayer in equity.
- The total consumer tariff will decrease significantly because of Amaila Falls, it will enable the removal of the subsidy, and it will further decrease because of improvements in GPL’s operational efficiency. The reduction in consumer tariffs will be at least 20% in 2017, and considerably more in years ahead.
The total public debt for Amaila Falls is zero – this is perhaps the fact that has been lost the most in the majority of recent media coverage.
After twenty years, Amaila Falls will be 100% owned by Guyana, and is expected to last for a hundred years.