Jamaica's Big Energy Gamble - Comes with Huge Risks

ColideZ   Sweet Music Jamaica    Tech Life

Will Jamaica ever get cheaper electricity? That remains to be proven but hopefully so. Its April 30, 2014 and Jamaica is still grappling with the prospects of cheaper electricity cost resulting from the proposed Natural Gas fired turbine electricity generation plant courtesy of Energy World International (EWI).

When the Minster of Energy sought to personally facilitate Energy World International  he showed the world that he had the biggest balls in the land of the big balls. He took a gamble on a company with huge risks. Failure to implement the new generation facility is a huge risk to the country and the entire implementation process comes with significant risk itself. A bit of "damned if you do, damned if you don't". In this case however the scales are definitely tipped more heavily to the damnation of the country if nothing is done.

Now at this juncture a number of things have already taken place:

1. EWI's application was made late to the Minister and not directly to Office of Utilities Regulation. 
2. Office of Utilities Regulation (OUR) canceled US-based consortium Azurest Cambridge’s preferred bidder status for failure to meet its 15-day deadline to produce a bid bond security of one per cent of its proposed US$690-million investment in the energy facility, which was required by midnight October 3. 
3. EWI selected as the new preferred bidder on October 4, 2013. EWI delivered the one per cent bid bond. That one percent required was US$7.37 million. Well done.
4. Power Purchase Agreement with the Jamaica Public Service Company was signed, dated and finalized on December 2, 2013.
5. Ministry of Science, Technology, Energy and Mining issued licence to EWI on April 4, 2014 for the generation and supply of  electricity to the Jamaica Public Service Company (JPS).
6. EWI Deposits US$36.85 M with their bankers HSBC in Hong Kong. This represents the five per cent Performance Bond which was due Friday, April 25, 2014. The banks has undertaken to process and issue the bond as soon as possible while adhering to all their internal compliance and regulatory processes that introduce timelines that cannot be circumvented. 

For Jamaica to achieve a lower electricity cost, several hurdles remain yet to be crossed. Some of the major risks lying  ahead are discussed in brief below.

Risk 1 - Fuel supply plan and agreement
Gas production is ramping up in the United States and exports are growing. As a result, it is plausible that EWI will get an agreement for supply. This is however coming on the heels of lack of supplies to Jamaica only a few years ago when Trinidad would not supply and Venezuela was also unable to supply. Shale oil and fracking for gas was only just starting to grow. Come 2016-18 gas supplies in the region should be reasonably higher. The other part of the equation here is the supply chain which involves the specialized ships to transport the gas. The infrastructure here could be lacking.

Risk 2 - Financing the US$787 million project
The second major hurdle that EWI will have to cross is that of financing. Given the current reputation of EWI and its relationship to Energy World Corporation it may be hard pressed to get the financing of US$737 million needed to build the 381 Mega Watt Natural Gas Power Plant. By right, this should not be a truly difficult hurdle as an investment in a plant like this in a market like this should almost guarantee that investors will get the proper return on their investment. One unfortunate turn of events however, is the decision by the Inter-American Development Bank (IDB) to not participate as a potential financier of the project on the grounds that the bidding process and the ultimate selection of EWI were undertaken in a manner which is inconsistent with the IDB internal procedures and policies.

Risk 3 - Facility construction and implementation 
Again EWI's track record here is not spectacular. Evidence of the completion of meaningful projects is limited. Additionally in the world of engineering and construction it is known that many factors can impact the on-time and under budget goals of any project. if only there were meaningful, compelling and credible evidence that EWI is more than capable to deliver on this project in the specified time frame. An this posses yet another huge risk to the deliver of cheaper electricity to the Jamaican people.

So only time will tell but in the interim consider solar.

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