Over the past two months Linden Mining Enterprise (Linmine) has on two occasions gone public through the media to criticize and complain against the Linden Power Company (LPC) about LPC's inability to supply Linmine with adequate electricity for its operations. Linmine attributed its inability to produce to this purported non-supply of electricity. LPC is now constrained to respond both in order to protect its image and to bare the facts so that the public can understand the real issues.

In its quest to attract much needed foreign investment, Guyana has to ensure that its image in the international community as an investor-friendly country is maintained protected and propagated. The Government of Guyana on the one hand can choose to superintend and operate any Government-owned corporation the way it sees fit. It can for political and other reasons, choose to consistently bail out and bankroll the Corporation's bankruptcy and insolvency; it can use public funds to encourage and pay for inefficient, non-accountable management bereft of any incentive to operate professionally, efficiently and profitably. But the Government of Guyana has to draw the line and demand that any and all Government-owned Corporations, which are executing arms of international contracts, treat with foreign companies in a professional manner in accordance with internationally accepted business and management practices.

In 1997 Texas-Ohio Energy, Inc. came to Guyana to participate in the privatization of the Linden community electric power plant. When the bidding occurred first by the Privatization Unit and then Linmine, we were the only party willing to accept the credit and political risk of Linmine and Guyana to move forward with the investment. Texas-Ohio formed Linden Power Company (LPC) and engaged Indeck Operations International, Inc. to refurbish, operate and maintain the steam plant facility.

To show good faith in the beginning before the PPA was executed, based on interim agreements we purchased, delivered and installed a boiler and other equipment moving forward to keep the community from losing electricity from what was then described by Guyanese as "...an existing plant perilously close to shutdown". The only two serious bidders in this privatization process were TOE and Sask Power. What happened to and with Sask Power is an open secret.

TOE's decision to invest in Guyana and in this project came at a time when the country was extremely unstable and volatile. When the contract was signed in 1998, bombs were falling in Georgetown and TOE's officials ignored a US Embassy travel advisory against coming to Guyana and traveled to Linden to sign final Privitisation documents on 16th January, 1998.

There were five principal preconditions or investment inducements upon which TOE based its decision to invest.

1. That Linmine (the Government's executing agent under the contract) was to be privatized within 18 months of the signing of the contract thereby transferring the contractual obligations from Linmine to a more prudent and professionally run Company.

2. That the Guyana Electricity Corporation (GEC) or its successor Company which was projected to secure the national monopoly for the generation and distribution of electricity in Guyana, would take over the franchise from the bauxite company in Linden. In this regard, it was projected that GEC or its successor would be the sole purchaser of electricity from TOE.

3. In order to mitigate and to offset the inherent financial credit and other risks applicable to this investment, Linmine agreed to establish an escrow fund of US$2,000,000 called "Power Purchase Escrow account".

4. It was projected in the Privitisation documents that within 18 months of the signing of the contract, power consumption would be in the vicinity of 16 megawatts. This level of consumption is crucial since the operational overheads and other costs associated with the steam generation facility designed to produce 32 megawatts of electricity would be absolutely uneconomical producing only 9 megawatts, which is the contracted energy consumption and payment.

5. The most important element of the contract was that Linmine must make payments promptly and on time when they are due. This was absolutely essential in order to (a) generate and maintain ongoing confidence in the investment and (b) to ensure the availability of timely cash flow to guarantee payments for fuel, bank charges, wages and salaries etc.

None of the above five itemized prerequisites or investment inducements were met and are not being met:

1. As is public knowledge, Linmine has not been privatized. The Govt. has attempted on several occasions to find a buyer for Linmine and has failed because of the derelict and decrepit, rundown state of the plant, the abnormally high overburden to recoverable ore ratio, coupled with the current price on the world market; the labour, social and other problems inherent in reconciling a massively over-staffed company. President Jagdeo is reported to have said in relation to the privatization of Linmine that if the bauxite in the ground was regarded by foreign investors as gold, they would be flocking to buy Linmine. Today it is impossible for the Government of Guyana to find some international Company that it can give Linmine to free of charge. The Government is therefore obliged to spend an average of US$6,000,000 annually to prop up a Company that is long past its usefulness (more on this later)

2. The successor to GEC is the Guyana Power and Light Inc. (GPL) GPL is so mired in and overcome by so many problems, it is loathe to take over additional problems here in Linden and has said clearly it is not interested in the Linden facility.

3. The Escrow Account which should have been established at US$2,000,000 with the South West Bank of Texas, was never established to that amount. Only US$500,000 was deposited. This failure by Linmine to fully establish this escrow account delayed the full funding of the rehabilitation project by more than sixteen months and was only partially remedied in September 1999 when the parties agreed to establish a new escrow account with a new escrow agent, The Republic Bank Trinidad and Tobago (Cayman) Ltd. This new escrow account should have equaled the aggregate amount of US$2,000,000 but has never gone beyond US$702,000 which was deposited on September 13, 1999. Linmine's inability / unwillingness to adequately fund this escrow account has created a severe psychological and financial setback in the funding of this entire project.

4. Despite its depressed status, Linden is a growing community characterized by the rate of housing construction, particularly in new housing areas such as Block 22, One Mile Extension; Blue Berry Hill and Amelia's Ward. This small housing boom coupled with the expansion of stalls in the Mackenzie Market and the over-proliferation of road-side shops would have seen power consumption in Linden climb past 16MW by now, however, this has not been the case because Linmine has not been supplying electricity to the new areas, despite being supplied with some transformers and cables by LPC and Omai. Linmine is only now beginning the process to supply power to the new stalls in the Mackenzie Market and this is as a result of direct Presidential intervention. In fact, Linmine now wishes to contractually change the firm capacity of the facility from 20 MW to 13 MW, completely disregarding the present and future developmental needs of the community.

A composite photograph showing two sections of the pannel

5. The mother of all problems in the operations of this contract has been Linmine's inability or unwillingness to pay its bills on time when due. The following verifiable records adequately describe Linmine's intransigence in this area. LPC started operating in July 1998.

August '98 payment 19 days late; September '98 payment 15 days late

October '98 payment 14 days late; November '98 payment 41 days late

December'98 payment 91 days late;

January '99 payment 60 days late February '99 32 days late;

March '99 50 days late April '99 36 days late;

May '99 67 days late June '99 37 days late;

July '99 55 days late August '99 34 days late;

September '99 24 days late October '99 43 days late;

November '99 22 days late December '99 20 days late;

January 2000 22 days late February 2000 22 days late;

March 2000 47 days late April 2000 36 days late;

May 2000 16 days late June 2000 24 days late;

July 2000 36 days late August 2000 5 days late;

September 2000 71 days late October 2000 45 days late;

November 2000 28 days late December 2000 5 days late;

January 2001 25 days late February 2001 30 days late;

March 2001 2 days late April 2001 25 days late;

May 2001 2 days late June 2001 37 days late;

Any businessman or prudent company operating anywhere in the world would refuse to continue operating within the context of such indisciplined financial imprudence but Texas Ohio Energy continued to keep faith, initially spent its own money and continues to operate.

The contract capacity of the Plant is 20 MW generated from the Steam generation facility and 5MW reserve generated by two 2.5 MW Diesel Generators. The configuration of the Steam Plant up until the fire in May 2000, which destroyed one turbine generator, was one turbine 12.5 MW and another turbine 7.5MW. The contract payments however, have been, since the inception of the contract a capacity charge of US$0.035 per kWh on 12 MW and an energy charge of US$0.04 on 9MW. At present, the installed capacity of the plant is 21MW configured as follows: Steam Generator - 7.5MW and 5 x 2.5MW Diesel Generator Sets - 13.5MW. Since the inception of the contract in 1998 LPC have been paid for 12MW capacity charge and 9MW as energy charges despite the fact that before the May 2000 fire the installed capacity was 25M and thereafter the installed capacity was and still is 21MW. Electricity generated throughout the contract period hovered between 10 and 12MW on a daily basis sometimes peaking at 13.4MW but LPC received energy payments consistently for only 9MW.

Linmine has consistently and incorrectly maintained that LPC never rehabilitated the Power Plant that they took over.

The reality is LPC started out on a lease/purchase agreement for the Plant but due to the non-funding of the escrow account and in order to conclude financial arrangements for the project, LPC was forced to convert the lease/purchase agreement into an outright sale agreement with Linmine and the Government of Guyana to acquire the existing plant and has provided a debenture for the sum of US$2,052,393 (Two million, fifty two thousand, three hundred and ninety three dollars). The debenture is being paid quarterly at the rate of US$69,675.

Rehabilitation, repair and rebuild work was done on all buildings plus foundation and other work was done on a 50 ft. x 120ft. steel building which is to house the proposed new diesel plant. A new 160,000 pounds per hour boiler was installed complete with new computer controls, new foundation, economizer, forced draft fan and all necessary piping valves and insulation. Extensive repairs have been carried out on the other installed boilers. The water system, including the water out take, clarifiers, ion exchange system and feed water pumps have been cleaned, repaired and rebuilt where required. A new electronic governor was added to the #3 Steam Turbine System and the oil coolers replaced. The existing Diesel Generator Sets were completely rebuilt and 3 (three) additional sets were installed in a new building with all new accessory equipment. Fuel storage tanks have been repaired and new fuel pumps have been installed. Work was also carried out to the auxiliary electrical equipment at the plant including breakers, switch gears, controls and instrumentation. Most of these have been either repaired or replaced.

Gene Satrap, President of the Texas Ohio Energy (parent company of Linden Power Company)

The original contracted rehabilitation plan called for the rehabilitation of the Steam Plant and the rebuild of two Diesel Generator Sets. During the due diligence exercise TOE was provided with what has turned out to be, at best, questionable and inaccurate data pertaining to electricity generation and distribution from the Steam Power Plant. In addition, at the time of takeover, the average price for Bunker C fuel was US$11 per barrel. New, authentic information regarding the operations of the Steam Plant, which was derived from on-site operating experience, and the escalating and uncontrollable oil prices which reached US$30 per barrel led to a change in perception, design and configuration for the Power Plant in Linden. LPC informed Linmine and the Government of Guyana since mid 1999 that the most prudent and cost-effective approach is for the establishment of an all-diesel plant outfitted with special electronic governing equipment capable of dealing with heavy swings imposed on the system by Linmine's heavy duty equipment including the dragline operated by Linmine. Based on agreement in principle, LPC proceeded with the installation of an all-diesel plant to comprise of 8 x 2.5MW Diesel Generator Sets with modern state-of-the-art switch gears and controls. Three of these generator sets were installed and commenced working and work commenced on the building to house the additional generator sets. The completion of the installation of this all-diesel plant is stymied due to Linmine's refusal to accept and work with principles and practices that are internationally accepted as the norm in the power generation and distribution business throughout the world.

Coupled with Linmine's intransigence in this matter is the fact that some senior Linmine Managers seem hell bent on reassuming control of the power plant for reasons best known to themselves, and operational information possessed by LPC will support the fact that nearly all of the outages that occur in Linden with the exception of the two major outages due to fire last year and lightning early July 2001, were caused by unexplained energy surges which bypassed existing safety devices and shut the generator sets down. These surges are usually traced to the bauxite plant or the Mines.

Then there is the issue of oil: At the inception of the contract, LPC had worked out a long term oil supply agreement with Staatsolie of Surinam at below-quoted world market prices. Linmine, on the other hand, had an oil supply contract with another company at Linmine-agreed prices. Linmine consistently attempted to have LPC take oil from its, Linmine's, supplier at prices that would have been higher than those charged by Staatsolie. LPC's contract with Statsoli was scuttled and discontinued due exclusively to Linmine's late payments. Linmine promptly offered to supply LPC with fuel in lieu of payments to which LPC agreed. Between April and October of 2000 Linmine overcharged LPC a total of US$232,882. This overcharging was in excess of Platt's posting plus US$3 a barrel for Bunker C fuel and US$0.19 a barrel for diesel. This overcharge was irregular and questionable and it forced LPC to negotiate for Linmine to be responsible for supplying fuel in lieu of energy payments. This so-called interim fuel agreement between LPC and Linmine was to be kept in force until agreement is reached on a new Power Purchase Contract. It was hoped that this agreement would have been reached in January 2001, then April 2001. Agreement is yet to be reached.

An external shot of the Linden Power Company plant

LPC has written President Bharrat Jagdeo on July 16, 2001 particularly requesting him to, among other things, "... intervene directly in this matter in order to ensure continued operations within the context of the interim fuel agreement, until the Government of Guyana and LPC can reach a resolution on the PPA.". In addition, LPC hereby calls for the President / Government of Guyana to mount an immediate investigation into Linmine's oil supply contract.

Fundamentally, the problems that have arisen in the operations of the PPA between Linmine and LPC have arisen because of the nature of the purchaser - Linmine. Linmine is a Company that is bankrupt and insolvent that cannot supply its contracted markets for bauxite. Many times when they do supply they supply bauxite of poor quality. The company has such a poor image in the international metals market that it is said by the Chairman of a major company that things spoken about Linmine among international bauxite purchasers and users cannot be repeated in Guyana. Linmine today hardly has working or workable mining equipment. Much of its operations is contracted out and every single contractor that works with Linmine can detail a factual litany of woes with respect to Linmine's non-payment to them. The Company is managed by persons who are accountable to no one. The Government pumps approximately US$6M per annum into Linmine's operations in order to keep it afloat and preserve the jobs of the 1300 or so employees. There is no public accounting. No one knows when it was the last time Linmine's accounts were audited. Even when they are, the audited statements are not made public. The Managers have no incentive to operate a profitable company and so they find it difficult to comprehend and to deal with a foreign company that must, out of necessity, make a profit, break even, or cease to exist. Hence Linmine can neither appreciate nor accept the sound business principles inherent in any real business and insisted upon by LPC.

The Mining Equipment, its rolling stock (Transportation Equipment), its processing equipment, calciners, crushers, and its pumps are all decrepit and derelict, hanging on by a thin thread and the grace of the good Lord. Their main walking dragline needs massive overhauling. Its dewatering pumps are most times unserviceable; the engines in its locomotives are so worn out, they cannot even push or pull 15 ore cars at one time; Kiln bricks in its calciners regularly fall out and have to be patched by old bricks taken from old abandoned kilns. The outline of this litany of woes can continue, for the same conditions exist in all areas of Linmine's operations. This sad state of affairs began long before the advent of LPC.

What is happening now is that the company is being overwhelmed by its own inertia and is grinding to a halt. Linmine has tried very hard to drag LPC down to its level of operations. Linmine needs and consistently projects LPC as its scapegoat for its current state of woe.

Their draglines hardly dig; their locomotives hardly have locomotion; their calciners hardly calcine properly - the bricks fall out; their crushers hardly crush; their front-end loaders and shovels don't dig and load; they have no trucks; their pumps don't pump: the East Mongomery Mines has two main large pumps, as this document is being written, Thursday July 26, 2001, both of these pumps are broken down - one pump in the main sump went down on Friday July 20 and the other in the secondary sump went down on Monday July 23, 2001; the mines are flooded and shut down; there is no mining going on and worst of all, no spares are available, yet they blame LPC for all these things.

The other serious problem with the operation of the PPA is the nature of electricity transmission and distribution in Linden. At present, the configuration of the transmission and distribution lines ties the community's supply to Linmine's so that heavy surges emanating from Linmine shut down power supply to the community. Also, injudicious operation of heavy equipment at Linmine cause severe voltage fluctuations among domestic consumers. LPC had long advocated that the transmission and distribution lines for the community be separated from that for Linmine. In doing so, LPC can guarantee an uninterrupted supply for the community but Linmine has strenuously resisted this, as Linmine would like to continue to hold the community to ransom and force the Government to continue purchasing fuel for its operations claiming that fuel is needed to supply power to the community.

Another problem is the tariff structure which exists in Linden. There are four electricity rates in Linden.

1. Free electricity - Linmine's pensioners pay for no electricity below 300 kWh

2. Linmine employees pay 40 Guyana cents per kWh

3. Domestic consumers pay G$5.00 per kWh and

4. Commercial and industrial consumers pay G$12.00 per kWh

These low rates that are enjoyed by the Linden community and are no doubt the envy of electricity consumers throughout the world, especially GPL consumers elsewhere in Guyana, are further compounded by the fact that Linmine collects from the East Bank consumers only between 30-40% of what is billed as against the Linden Utility Services Cooperative Society Limited (LUSCSL) which collects between 90 and 95% of its billings on the West Bank. While LUSCSL has contractual responsibility with Linmine for collections on the East Bank, Linmine forcibly retains the authority for disconnection due to non-payment.

Clearly, the problems besetting the electricity generation, transmission and distribution in Linden are very many and some may defy resolution. The onus is on the Government of Guyana, however, to take the initiative and immediately ensure through its direct intervention that the issues affecting the agreement on a new PPA with Linmine and LPC are immediately resolved.

For its part, TOE, though it has never made any profits from either of its operations in Guyana, (TOE has a small power plant that supplies electricity to Caribbean Containers Inc. located at Farm on the East Bank of Demerara) TOE is still prepared to stay the course in Linden, complete the installation of its modern, state-of-the-art, electronically governed power plant and operate to supply safe, reliable, relatively cost-effective electricity to the Linden community and Linmine.