Minister of Finance Dr. Ashni Singh in a statement this evening reiterated that the government will not incur any debt from the Amaila Falls Hydropower Project.
Dr. Singh was at the time responding to a letter which appeared in one of the local newspapers today under the headline, “Who Owns the Debt in Amaila?”
The letter writer asked who owns the debt in the Amaila Falls Hydropower Project and argued that the Government of Guyana (GoG) in approaching Parliament to increase the debt ceiling amounts to the Government borrowing the debt.
In response to this, the Finance Minister said, “To repeat, GoG is not incurring a single dollar of debt. The borrower or the owner of the debt is Amaila Falls Hydro Inc (AFHI), a privately controlled company that is the Special Purpose Vehicle (SPV) which will undertake the project before handing ownership over to the people of Guyana in 20 years. Government taking a minority stake in AFHI is to reduce the cost of capital and, in turn, reduce end-user tariffs, not to incur additional debt through AFHI.”
Below is the rest of the statement by the Finance Minister:
Avoiding public debt in this way helps to build Guyana’s sovereign credit rating, which in turn enhances Guyana’s attractiveness for future foreign investment. Moreover, over time, attracting foreign capital and proving that Guyana is investment-worthy would mean that the future cost of borrowing – for citizens (mortgages, car loans), or businesses (small and large) – would go down because capital would become cheaper.
Avoiding public debt for economic infrastructure also means that the Government’s window for borrowing is still open for other important national priorities which do not generate an economic return, like healthcare and education.
To answer the other part of the question raised by Mr. Hunte, why is the Government then raising the debt ceiling? Simply put, the debt ceiling caters for GPL’s financial obligations to AFHI. These financial obligations take two forms:
– First to pay the annual tariff payment as it relates to the debt; of the approximate US$120M annual payment due in the first 12 years of the concession, US$76M per annum is related to the debt component;
– Secondly, in the event of a default by GPL, AFHI may trigger a termination of the Power Purchase Agreement (PPA) and a “buyout of the project by GPL.” In this case, the guarantee addresses the buyout by GPL of that portion of the purchase price relating to debt. The total outstanding debt on the project including estimates for breakage costs of long term interest rate, etc. is estimated at US$650M or approximately G$130B.
It is important to emphasize that the guarantee is only triggered if GPL does not make its payments and therefore defaults on its obligations (e.g. GPL stops making payments). The guarantee cannot be triggered by non-performance of AFHI. A buyout would result in the project asset being owned by Guyana with no further payment obligations.
It ought to be pointed out that GPL will not be responsible for construction risk or operating risks of the Amaila Project. These risks are borne by AFHI and its investors (both debt and equity). GPL’s risk is largely after the project is built and for payment obligations associated with the delivery of power. Additionally, GPL is responsible for actions that cause AFHI not to perform or for certain political events (Political Force Majeure).
In summary, Government is not committing to any debt with the performance guarantee issued to AFHI for the benefit of its lenders (CDB and IDB). GPL and GoG is not taking the construction and operating risks—these are being bourne by AFHI. Government is only responsible for that payment (restricted to the debt) that GPL has to make under its PPA and for nothing more.
GPL obligations are simply to pay the capacity payment for power delivered. If GPL does not pay, GPL may trigger a default which leads to a termination of the PPA and an obligation of GPL to buyout the project under the PPA. In this case, the guarantee is applicable to ensure that GPL can pay the portion of the buyout price that is associated with the lender’s senior loans (calculated at approximately US$650M or G$130B).