By Rannie Whyte
Uganda demonstrates what can happen when technical disputes continue after construction. Pakistan shows that Sinohydro can successfully deliver a huge hydropower project. Guyana’s own Sheriff–Mandela experience shows why strong supervision cannot be optional.
In Part One, we examined Sinohydro Corporation’s enormous international engineering capacity alongside formal integrity actions involving the African Development Bank, World Bank and European Investment Bank.
We also examined Ecuador’s Coca Codo Sinclair Hydroelectric Plant, where construction disputes continued for years and a major corruption prosecution ultimately resulted in the conviction of former Ecuadorian President Lenín Moreno and others.
But Ecuador is only one part of the story.
Other Sinohydro projects reveal something equally important for Guyana: the company can deliver major infrastructure successfully, but the quality of government oversight, engineering supervision and contract protection can determine whether a project becomes an asset or a continuing liability.
Uganda: what happens after construction?
Uganda’s 600-megawatt Karuma Hydroelectric Station was constructed by Sinohydro and represents one of that country’s most important energy investments.
Karuma eventually entered commercial operation, adding substantial generating capacity to Uganda.
But the road to completion was difficult.
The project experienced delays, disputes over construction and continuing questions concerning various defects and operational problems.
The importance of the Uganda experience is not simply whether Sinohydro or the Ugandan authorities were responsible for every problem.
Large hydro projects are complicated. Designs change. Environmental conditions arise. Governments alter requirements. Contractors sometimes dispute whether work falls within the original contract.
The crucial issue is what happens when the two sides disagree.
Does the contractor pay?
Does the government pay?
Is the problem covered by the warranty?
Is it a design failure, construction defect, maintenance issue or unforeseen environmental event?
Those definitions can mean tens of millions of dollars.
For Amaila, Guyana must therefore negotiate a contract under which responsibility for defects is unmistakably clear and backed by enforceable financial guarantees.
Pakistan shows another side of Sinohydro
A balanced investigation cannot examine failures and controversies while ignoring successful projects.
Pakistan provides an important counter-example.
Sinohydro participated in the Tarbela Fourth Hydropower Extension Project, which added about 1,410 megawatts of generating capacity.
The World Bank has described the performance of that project positively.
It reported that construction was completed on time and at lower cost, that the project generated foreign-exchange savings and that revenues from electricity sales exceeded the cost of the investment.
The World Bank also highlighted strong project management, international engineering involvement and improved contract-management practices.
That tells Guyana something extremely important.
Sinohydro clearly has the technical ability to participate successfully in extremely large and complicated hydropower projects.
The lesson, therefore, should not be:
“Sinohydro is a bad company.”
The better lesson is:
A powerful contractor needs an equally strong government on the other side of the negotiating table.
Guyana already has experience with Sinohydro
Guyana does not need to depend entirely on the experiences of Ecuador, Uganda or Pakistan.
Sinohydro has already worked here.
Its best-known Guyanese project is the Sheriff Street–Mandela Avenue Road Enhancement Project.
In November 2019, the Inter-American Development Bank suspended disbursements to the project.
Guyana’s Department of Public Information reported that the suspension followed what then Minister of Public Infrastructure David Patterson described as numerous serious health-and-safety infractions and failures in traffic management by the contractor.
The Government subsequently announced that Sinohydro would be required to bear the cost of road-safety works undertaken to correct problems.
The project was eventually completed.
That matters too.
The Sheriff–Mandela experience does not establish that Sinohydro is incapable of successfully constructing Amaila Falls.
It establishes something more useful:
Guyana already knows that rigorous supervision of the company is necessary.
Amaila is far bigger than a construction price
This brings us back to Sinohydro’s approximately US$416.9 million Amaila proposal.
It may appear attractive when compared with competing bids.
But Guyana should not confuse the initial construction figure with the eventual cost of electricity to consumers or the total financial exposure of the country.
Amaila is being pursued under a Build-Own-Operate-Transfer model.
This means Guyana must look beyond the price of concrete, tunnels, turbines and transmission infrastructure.
The country must understand who provides the financing, the expected return on investment, how electricity will be priced, what Government guarantees are required, what happens if the project produces less power than forecast and what happens if the Guyana Power and Light system cannot take all the electricity contracted.
It must know who carries hydrological risk during periods of low rainfall.
It must know who carries geological risk if construction encounters unexpected underground conditions.
And Guyanese must know who ultimately pays if the project overruns its budget or fails to meet the scheduled completion date.
Transparency is essential
If Sinohydro—or any competing consortium—is selected, the Government should publish enough information for the country to understand precisely what it is buying.
The Power Purchase Agreement is particularly important.
The public must be able to determine not merely what Amaila costs to construct, but what Guyana will pay for the electricity over the life of the agreement.
A US$416.9 million project with expensive financing and unfavourable electricity-purchase obligations can ultimately cost more than a project carrying a higher initial construction figure but better financing terms.
That is why evaluating Amaila purely by headline bid prices would be a serious mistake.
The questions that must be answered
Before the Government signs a final agreement, Guyanese deserve to know whether the evaluation team examined Sinohydro’s African Development Bank integrity finding, the European Investment Bank settlement and the World Bank reprimand.
Did evaluators study Ecuador’s Coca Codo Sinclair experience?
Have they examined what went wrong at Karuma in Uganda?
Have they also studied why Pakistan’s Tarbela project was comparatively successful?
And have they thoroughly examined Guyana’s own experience with Sinohydro on Sheriff–Mandela?
These questions are not designed to prevent Chinese investment.
They are designed to protect Guyana.
This is not about China
There is a danger that any serious scrutiny of a Chinese company will immediately be characterised as hostility toward China.
That would be unfortunate.
China has become one of the greatest infrastructure-building nations in modern history.
Chinese companies have constructed dams, highways, railways, bridges, airports and power stations throughout the developing world, including projects countries desperately needed but could not easily finance elsewhere.
Guyana can benefit greatly from Chinese expertise and investment.
But international friendship cannot substitute for domestic accountability.
Sinohydro should not be rejected because it is Chinese.
Neither should it be selected because it is Chinese, because it is enormous, or merely because its initial proposal appears to be the cheapest.
The same rigorous standards should apply to Sinohydro that Guyana ought to apply to American, European, Indian, Brazilian or Guyanese companies.
Guyana must negotiate from strength
The international evidence presents a company with significant engineering achievements and demonstrated hydropower expertise.
It also presents documented integrity findings, construction disputes and projects where governments found themselves dealing with difficult problems long after construction began.
Guyana should learn from both sides of that record.
Amaila Falls could become one of the country’s great national assets, providing substantial renewable electricity and reducing dependence on imported fuel.
But major infrastructure projects do not become successful merely because governments announce them or contractors build them.
They succeed because contracts are properly negotiated, financing is affordable, engineering is independently supervised and governments refuse to compromise the public interest.
Guyana today possesses financial resources that previous generations could scarcely have imagined.
That makes the obligation to protect those resources even greater.
The Government’s responsibility in selecting an Amaila developer therefore goes far beyond identifying the bidder offering the smallest headline number.
The Government must identify the proposal carrying the lowest long-term risk and delivering the greatest long-term benefit to Guyana.
And before the final contract is signed, Guyanese have every right to know how that conclusion was reached.
