By Kenton X. Chance
ABU DHABI, Jan 18, CMC – St. Vincent and the Grenadines has been granted a loan of US$15 million to help fund the development of a 10 to 15 megawatt geothermal project, expected to come on stream by 2018.
The funds are part of US$57 million in concessional loans for five renewable energy projects in developing countries financed under the second cycle of the International Renewable Energy Agency (IRENA) and the Abu Dhabi Fund for Development (ADFD).
The loans, announced on Sunday during IRENA’s Fifth Assembly, will also go to projects in Cuba, Argentina, Iran, and Mauritania.
“The geothermal project in St. Vincent and the Grenadines will connect to the energy grid to provide a consistent power source for the entire country and will influence the deployment of additional geothermal projects in the Caribbean,” IRENA said.
“The implications are massive and game changing. It is a word that the Prime Minister [of St. Vincent and the Grenadines Ralph Gonsalves] uses, and it is a word that you also heard the director-general of IRENA [Adnan Z. Amin] use,” Minister of Foreign Affairs Camillo Gonsalves told the Caribbean Media Corporation (CMC) after the announcement.
He noted that US$15 million is the most that IRENA-ADFD lends for a single project, and this is the second time in its two cycles that it has awarded such an amount.
“So, we are very pleased in the confidence that IRENA and the government and people of the United Arab Emirates have reposed in us,” said Gonsalves, who is leading the three-member Vincentian delegation.
The other members of the delegation are Minister of the Health, Wellness and the Environment Clayton Burgin, and Director of the Energy Unit, Ellsworth Dacon.
Gonsalves noted his country’s reliance on imported diesel for electricity generation.
“… we have some of the highest electricity tariffs in the world, due in large part to the fact that we are a small country, importing small amount of diesel and our electricity is based on that,” he said.
He told CMC that when the geothermal power plant is complete, it will reverse the ratio of electricity generated by fossil fuel and renewable sources.
“This project is over 50 per cent of our current demand,” he said, noting that it has the potential to generate 10 to 15 megawatts of electricity.
“We have roughly 20 per cent of our electricity already provided by hydro. So, we will go from being 80 per cent fossil fuel electricity to close to 80 per cent renewable energy when this project is completed.
He told CMC that in addition to reducing electricity cost by some 20 per cent, the project potentially has important developmental benefits, including poverty alleviation, the competitiveness of business, and foreign direct investment.
“So, all of these things, wrapped up, create what we really believe is a game changer,” he said.
Dacon told CMC that the project could save the country US$18 million of the US$26 million that it spends on diesel for electricity generation annually.
“This project will save approximately 4.5 million imperial gallons of fuel imports per year. So, the impact of the foreign exchange is great. It will also stimulate some light manufacturing,” he said, adding that it could also create opportunities in aquaculture, and agriculture.
“We expect this project to be saving or reducing at least by 25 per cent our energy cost today. We pay about 39 cents US a kilowatt-hour. I don’t want to predict, but I think, based on discussions, that it will be lower than 25 per cent saving when the project is realised,” Dacon told CMC.
At the press conference where the successful loans were announced, Amin said while renewable energy resources are abundant in many communities suffering from energy poverty, finance is still a key challenge for deployment.
“That is why the partnership between IRENA and ADFD is so important as a pioneering effort,” he further said.
“Renewable energy is now, in many cases, the low-cost solution to power generation and one of the most cost-effective ways to increase energy access and energy security around the globe,” the IRENA secretary general said.
ADFD is a Government of Abu Dhabi national institution established in 1971 to assist developing countries by providing concessionary loans to finance development projects in those countries, as well as direct, long-term investments and contributions.
The fund has provided and managed more than US$18 billion since its inception to finance 424 projects in 71 countries around the world.
Just what we need, more debt.
Timing is everything.
@C. ben-David … You didn’t read the article say the geothermal plant will save St. Vincent up to $18 million US? A year? In other words the debt could be paid off in one year with the money saved.
However, and this may shock you, it won’t be wise to pay it off immediately because $15 million will be worth less 20 years from now due to inflation and thus in real terms it will be cheaper to pay off debt we have today, 20 years from now through monthly or yearly payments.
Let me explain by asking these questions. What kind of debt do we have? Is it that strangle hold IMF kind of debt? No, a lot of the debt we have today is in the form of soft loans i.e. loans with below average interest rates and long pay back (amortisation) periods. In other words, since these interest rates are below inflation we are effectively getting a discount every year not only on the principal but also on the interest! $1 today could be worth 10¢ twenty years from now so if you take a $1 loan and even if you pay 10% a year in interest, dollar for dollar , cent for cent, taking a loan will be cheaper in the long run than using raw cash you have in an account somewhere. So even if St. Vincent had the money, I would suggest they take loans to complete big capital projects as it frees up more money that can be spent on other things while still achieving capital objectives. What would you rather do, pay $1 out of your pocket today or 10¢ twenty years from now?
Now that you have been taught this simple economic principle, what will you do? In the words of Martin Luther King:
“There is nothing more dangerous than sincere ignorance and conscientious stupidity, you have a responsibility to be intelligent ”
Perhaps I am being too harsh on you but for someone who likes to comment on these articles and make bold statements you should first have an understanding of the basic economic logic that goes into acquiring debt. Its 2015, lets put an end to lazy thinking.
Surely Gonsalves could have got the coalition of the willing to put the money in for nothing?
One thing about this loan, you can be sure when you look at all the others at the front of the line waiting for repayment, this loan will never be repaid, we will never be in a position to repay it.
If you remember the secret Iranian agent with Vincentian citizenship is now living in Abu Dhabi. I wonder if anyone got together with him for a reunion?
My only concern is if I am going to see a significant reduction in the surcharge on my electricity bill. Like everything else the devil is in the details, sounds like a great project…but given the track record of this Administration, can we really trust them to undertake such a project with transparency. Are we certain that 15M, is going to this project and not to Argyle?
@Ernesto
“Its 2015, lets put an end to lazy thinking.” – How about putting an end to incorrect think first.
Where did your economic logic come from that Inflation causes loans to be cheaper in the long run.
By this logic, if i have a $400,000 home loan, at the end of my 20 year period I actually paid less than $400,000 to the bank ?
If this was actually the case why did the government have to increase the retirement age? By your inflation logic, would it not be cheaper to pay pensions at “10 cents” using the “$1” the government collected 30 years prior? Hence the retirement age should have been decreased not increased unless the government has failed to “put an end to lazy thinking”.
@mike.david
Yes, If you have a $400,000 home loan the amount you pay for annually/monthly will become less and less over time once you adjust those figures for inflation. Lets look at the total charge of a $400,000 loan at 10% interest over 20 years. The total would be $926,420.78 at $3,860.09 a month. This includes the principal as well as the accumulated interest after 20 years. Lets say you took the loan in 1980, by 2000 to buy something of equal value would cost you $1,936,039.54 . In other words, you are paying less than half the total of what you would be charged in the year 2000 if you were to take out a similar loan. More importantly, from the years 1980-2000 you would be paying $3,860.09 a month but by year 2000 $3860.09 would be worth $1,847.10 in 1980 dollars! Doesn’t this prove the loan will be cheaper in the long run??
The value of a 1980 $1 has more than halved by the time the new millennium comes around. Yet, the loan payments don’t take this into account as you are still paying off 1980 dollars using the value of money as it is 20 years later. If a $5000 salary kept up with inflation over that same period you would be making over $10,000 yet you would still be paying the $3,860.09 a month . Put simply, if I ask you to buy a bag of bread for me in 1980 that cost 50 cents and I walk up to you today and pay you back 50 cents, would you feel justified that I paid back my entire debt? In numerical terms I have paid you back exactly 50 cents but now 50 cents is not worth to you as much as it was then. The amount I would owe you today after 34 years would be $1.44 yet our loan was agreed on 50 cents and its 50 cents you will get! Amazing I know, but this is the financial system we live in. Why would I pay $15 million out of my pocket when I can spread that cost over many years plus get a discount from inflation? Lets not forget as well that the underlying value of the asset may increase over that period as well. Its a no brainer. Good Job Camillo.
Secondly, you can’t apply the above argument to the NIS other than say inflation makes things much harder for the NIS to make payments. The way insurance schemes, social security etc. are set up is you don’t put in 1 dollar and get back 10 cents, you put in 10 cents and may receive one or even two dollars depending on how long you live. One of the reasons the NIS raised the retirement age was because beneficiaries are living longer and thus we end up paying a lot more than anticipated. There has traditionally not been any fixed term of retirement payments as there are in a loan for instance. In European schemes this same problem exists and this is made worse by the fact that the european population is declining which means that younger generations will have to pay higher taxes to fill the deficit in these insurance schemes. In St. Vincent there are many who collect payments on behalf of employees but do not contribute to NIS.. At the end of the day smart debt is good debt and as such we can’t continue to fund the NIS indefinitely in its current form. Raising the retirement age is the first step. Changes are needed… But thats an entirely different story.
*once using a pricing index that does not include house prices.
SOURCES:
http://www.usinflationcalculator.com
http://www.thisismoney.co.uk/money/cardsloans/article-1633405/Loan-repayment-calculator.html