Case study
Case Study: The Bamnica Power Plant Project
Read the The Bamnica Power Plant Project case study in your textbook,and submit answers to all the questions that follow the case study.
part five I N T E G R A T I N G C A S E 1
The Bamnica Power Plant Project: What
Went Wrong and What Can Be Learned
This project was like the Hotel California. You can check out anytime you want but
you can never leave.
There were several times along the way where we could have stopped the proj-
ect but we did not have the willpower, discipline, or maturity to do it. There was
no single fatal flaw in the project. There were a bunch of things that made it ugly at
the end of the day. My view is that when you do things at the speed of light you
dont have time to read the warning signs.
We allowed a transaction to go through that had a lot of pieces that should have
been more heavily scrutinized and fixed because we were very hungry for a deal.
The people in charge werent able to identify all the risks. The people who could
have done that were pushed away from the transaction.
Various Comments from a Bamnica Project Developer
T
om Stephens, Executive Vice President, Global Development for Power-
Gen Inc. (PowerGen), was evaluating the companys eight-year involve-
ment in the Bamnica power plant project, which was now operated by a
joint venture controlled by PowerGen. Stephens considered the Bamnica
power plant one of PowerGens most diffcult and challenging projects. There had
been problems in many different areas, including site selection, joint venture man-
agement, fnancing, plant construction, equipment suppliers, community relation-
ships, and customer payments. Although the power plant was proftable, the
various problems had consumed a disproportionate amount of PowerGen manage-
ment time given the size of the project. As Stephens reviewed the projects history
and many challenges in mid-2011, he hoped he could identify some key learning
areas to apply to future projects.
PowerGen
PowerGen, Inc., a global power company with generation and distribution busi-
nesses, operated across fve continents. Founded in 1987 in Houston, Texas, Power-
Gen built its first power plant in 1989 in Louisiana. Over the next six years,
PowerGen built four more plants in the United States. The company then began
looking for international opportunities.
In the early 1990s, global markets for power plant projects began to open up.
PowerGen built its first plant outside the United States in Argentina and then
expanded to the United Kingdom, Indonesia, China, Hungary, Brazil, Ghana,
Cameroon, and several Caribbean nations, including Bamnica. Although most of
the power plants used thermal fuel sources, in 2011 the company was actively
Copyright 2011 Thunderbird School of Global Management. All rights reserved. This case was prepared by
Professor Andrew Inkpen for the purpose of classroom discussion only, and not to indicate either effective or
ineffective management. Various place, company, and individual names, including PowerGen, and other infor-
mation are disguised.
involved in a range of projects using renewable fuel such as biomass, hydropower,
solar, and wind.
Electricity Supply in Bamnica
Bamnica, a Caribbean nation with a population of about 4.5 million, had
experienced robust economic growth from 2002 to 2007. During the 2008 to
2009 period, growth slowed to about 3.0% and then picked up to about 7% in
2010. Economic growth was led by exports from free-trade zones and strong
performance from the construction and economic sectors. However, there
was an estimated 150 MW defcit in electricity generation capacity and power
outages were frequent. It was common for businesses in Bamnica to maintain
backup power systems and it was acknowledged that problems with power
were hampering economic growth. The head of the power company, the
Corporacin Bamnica de Electricidad (CBE), admitted that because of old
equipment, problems with billing, and widespread power theft, only about
60% of the power actually produced was paid for. The CBE was operating on
a deteriorating asset base and could not keep up with growth in demand.
CBEs cost was about 12-15 cents/kWh. Electricity demand was expected to
grow 9% over the next decade. Private power projects were necessary if electricity
demand was to be met.
Overview of the Bamnica Project
The project was a barge-mounted 185 MW combined cycle baseload plant located
at Puerto Salinas on the north coast of Bamnica. The project would be one of the
largest privately owned, project-fnanced power plants in Latin America and, when
completed, provided more than 20% of the countrys average electric generation
capacity. The project was owned by PowerGen/Jones Cogeneration Limited Part-
nership (PJCLP), a joint venture between PowerGen and Jones International (JI).
Originally, each partner had a 50% ownership interest. In 2011, JIs ownership was
15% and PowerGens share was 85%.
The plant was mounted on two seaworthy barges. One barge contained a 138k
kV substation and a Western Electric 75 MW turbine generator designed to burn
No. 2 diesel fuel. The second barge contained a Waste Heat Recovery Steam
Generator, two auxiliary boilers, and a 110 MW Western Electric steam turbine
generator. The boilers burned No. 6 fuel oil. Seawater was used for cooling and
then discharged into the sea outside the port area. The shore facilities included
2 60,000 barrel No. 6 fuel oil tanks, 2 60,000 barrel No. 2 fuel oil tanks, a
fuel pumping facility, a utility-pipe corridor, a fuel unloading facility, a parking
area, space for a cooling water discharge line, and office space. The project met
all local and World Bank environmental standards.
The sole power purchaser was CBE, a general utility with generation, transmis-
sion, and distribution in Bamnica. The power purchase agreement (PPA) had a
19-year term and was structured in U.S.-style, with energy payments that allowed
for pass-through to CBE of all fuel costs at market prices and operations and main-
tenance and capacity payments intended to cover all other project costs and pro-
vide a return on investment. The Bamnica government guaranteed the peso (the
local currency) convertibility and all CBE obligations under the PPA agreement
and further supported the guarantee by providing a $24 million letter of credit.
CBE payments were dollar denominated.
Integrating Case 1 The Bamnica Power Plant Project 685
The project cost was $204 million. Long-term debt for the project consisted of
loan agreements with International Finance Corporation (IFC) and several other
lenders, including government development banks of Germany, Holland, and the
U.K. The plant became operational in simple cycle mode in 2004 and in combined
cycle mode in 2006.
Project Initiation
PowerGen first became interested in Bamnica in early 2003. Several PowerGen
people, including Don Williams and Jack Kirk, went to Bamnica on an exploratory
visit. Williams and Kirk worked in PowerGens development group, which was
responsible for initiating and constructing projects. Williams, an engineer, was in
his late 50s and had worked for various energy companies over his career. Kirk
was a former U.S. military offcer and was in his late 30s. Prior to joining PowerGen
two years earlier, he had not had any private sector experience.
In April 2003, Williams returned to Bamnica and spent a week driving around
the country. His objective was to learn as much as he could about Bamnica cul-
ture, the government, the land, other power plants, and business prospects.
Based on that trip, the development team decided that PowerGen could poten-
tially develop a diesel-powered plant of about 150 MW on the north coast.
The CBE encouraged PowerGen to make a proposal. With Jack Kirk in charge,
PowerGen began preparing a proposal for the CBE. Kirk was responsible for devel-
opment in Central America and the Caribbean. Prior to joining PowerGen, Kirk
was a colonel in the U.S. Army. He had no project development experience or
business background. Kirk joined PowerGen in 2001 and had not yet closed any
deals.
In July 2003, just a few days before the proposal was to be submitted, the team
discovered that Jones International (JI) and the CBE had signed an agreement in
March 2003 to develop a power plant on the north coast. At this point PowerGen
knew nothing about JI, a company run by Richard Jones as a one-man business. JIs
only previous development was a 200 MW cogeneration facility running on natural
gas in Texas. The proposed Bamnica facility would be a copy of the Texas plant
but built on barges.
The PowerGen team concluded that there was room for only one plant on the
north coast, so ceased work on their proposal and left Bamnica. In August 2003,
Don Williams called Richard Jones. PowerGen knew that JI had signed a PPA with
the CBE and had an obligation to secure a construction contract within a certain
period of time. Suspecting that JI did not have the capital to develop the project,
Williams thought that perhaps JI and PowerGen could work together. The conver-
sation went as follows:
PowerGen (Williams): We want to congratulate you on your win with the CBE.
Jones: Thank you very much. I had heard about you guys and knew you were in
competition against us.
PowerGen: Perhaps there is something we can do to cooperate.
Jones: I already have the PPA. Why do I need you people?
PowerGen: Well, the PPA has a pretty short window for fnancingmaybe we
can fnd some way to help?
Jones: Thanks, but I already have the PPA and I dont anticipate any problems
getting fnancing.
686 Part 5 Integrating Case 1
PowerGen subsequently learned that Jones had been to about 15 banks and
none were interested in financing the project. In late August, two-and-a-half
weeks after the initial PowerGen-Jones conversation, Jones called PowerGen and
suggested a partnership. According to Williams:
Richard Jones sent us a confidentiality agreement to sign and it was the most screwed
up agreement you have ever seen. We should never have signed it. Although the
agreement never caused us any problems, it was defnitely a red flag in the way it was
drafted.
There were lots of problems with the PPA. Richard Jones went to Bamnica and
got most of them fixed. In the end the PPA was not bad. But, combined with a cus-
tomer who interpreted it differently than us and the problems with the plant, it was a
disaster.
We were probably Joness last resort. We had the ability to finance the whole proj-
ect out of cash. That was one of the attractions. We told Richard that if we liked the
project, we would use PowerGens cash and put it together on a fast track basis.
When we went to the board we were confdent that we could finance this thing out.
In October, PowerGen received board approval to proceed with a joint venture
with JI. In November, without notice to PowerGen, Jones executed a turnkey con-
struction contract with Western Electric for $117.25 million.
It was a bad construction contract that we immediately tried to change for the benefit
of the owners. It was so one-sided it was leaning over. The only right the sponsor had
was to pay. Jones said that he had to sign with Western Electric because he had a
time limit to perform in the PPA. We tried to get Western Electric to make changes
but they basically folded their arms and said no. For example, I wanted the operations
and maintenance manuals in Spanish. Western Electric said no. Western Electric
would not let us review contract details and our management refused to dig
their heels in. At the end of the day, Jones and Western Electric colluded to get what
Western Electric wanted.
Throughout this period there were various opportunities for PowerGen to kill the
deal but nobody did because the expected returns were off the charts.
Jack Kirk had a very free hand in developing the project and was under pres-
sure to complete a deal. That was usual in PowerGen. Developers were expected
to find and close deals and were incentivized to do so. Bonuses tied to projected
project performance were a signifcant share of developer compensation for energy
infrastructure projects. Developers who did not close deals and finish projects
rarely lasted long at PowerGen. Bonuses were typically paid at two stages: at the
completion of project fnancing, and at the start-up of the project. Lead project
developers determined how the bonus was shared across the development team.
Kirk was running around unsupervised because we had various other bigger deals
under way. As well, Kirk was trusted. He was a guy with ice water in his veins. He
was not afraid to stand up to the Bamnica government. You did not have to be around
him long to have confidence in him. He seemed to have the capabilities of a PowerGen
developer.
Prior to the Bamnica deal, Kirk worked on a project in Colombia that did not
get PowerGen approval. Because he was a senior developer and had not yet closed
any deals, Kirks future was largely dependent on the Bamnica project.
During the negotiation process, Jack Kirk made all the decisions and put the package
together. He listened to everybody but at the end of the day he was the driver. Jack
called the shots and had a pretty free hand. Once it was put together and the outside
counsel and the finance people were brought in, then it went to the board.
Integrating Case 1 The Bamnica Power Plant Project 687
This view of Kirks autonomy is refected in comments from another PowerGen
manager who had some involvement early in the deal:
I took a strong position on several points. I thought we were going in the wrong direc-
tion in that (a) we were creating a situation that was unstable, and (b) we were over-
paying and giving Jones too much for what he was bringing to the table. I said we
needed to be more aggressive in designing the joint venture and particularly who con-
trolled the venture, and insisting on changes to the PPA and the construction contract.
In terms of experience, slickness, business sophistication, street smarts, and a willing-
ness not to be constrained by normal ethical standards, Jones had us at a disadvan-
tage. I thought we needed some more experience on our team. Kirk had been pretty
successful in the military and was used to running his own show. He did not like inter-
ference from other people. He went to Rebecca [the head of PowerGen Latin America]
and said, I want this guy off my back. So, I was overruled.
The Partnership Agreement
Within PowerGen, Richard Jones quickly developed a reputation for being diffcult
to deal with and a somewhat unusual personality:
Richard Jones is an unbelievably crazy guy. You match up a wild man who believes his
own b.s. with a developer who is desperate for a deal, and what do you get? We did a
bit of research on Jones and learned through various law frms that he was very liti-
gious. It turned out to be true. Richard would say in letters to us that You will recall in
our last meeting that we agreed a, b, c. when in fact we agreed x, y, z. We had to
respond to everything he did, almost on a daily basis.
It was a very diffcult negotiation with Jones. Because of that we didnt have as
strong a partnership agreement as we should have. When the deal was cut, we did
not have a lawyer sitting there full time. Part of the problem was the inexperience of
Jack Kirk. There were no other deals in Latin America at that time and there was a lot
of pressure to get this one going.
In late November, PowerGen and JI signed the agreement for the PowerGen/
Jones Cogeneration Limited Partnership (PJCLP). According to the agreement,
PowerGen Construction would oversee construction.
We knew there were problems with the construction contract. Jones thought he understood
the risks because he had developed a plant in Texas. We knew that if we were interested in
this transaction, we needed to get control very quickly over the unilateral decisions being
made. We entered into a partnership agreement under which PowerGen was able to get
vast control so that the project could get financed. As long as PowerGen had to front the
money for Jones, the concept was that after the banks converted their construction finance
to non-recourse project finance, we would try to control the project.
Even though the construction contract was signed between Jones and Western
Electric, our outside lawyer told us not to sign. We stayed up all night with Western
Electric and Sylvanto [Western Electrics construction partner] making changes to get
the contract to the bare minimum. But, with the returns, we thought we could live with
it. We also kept telling ourselves that Western Electric was a marquee company and
theyd do the right thing. Wrong, big mistake. Western Electric was trying to make
money selling turbines and they would shove them down your throat.
In the final negotiations with Jones, we tried to get him to make two representations:
one, that the PPA was legal, valid, and enforceable under Bamnica law; and two, that
there were no FCPA violations. We told Jones that he had to bear the risk if any of his
people bribed someone. Jones did not like that. We also told him that if the PPA was not
enforceable, it was also his problem. In the end we got weaker representation on these
issues than we should have.
688 Part 5 Integrating Case 1
It also became apparent to us that Jones was going to ride our coattails and that
this was a mouse on the coattails of an elephant. We tried not to act like an elephant
but he continually used that against us. Hes a crafty guy and he played us like a piano
for a while.
Partnership Details
The agreement was set up with PowerGen and JI each holding a 1% general partner
interest (see Exhibit 1 for ownership structure as of 2011). Both partners initially
had a limited partner interest of 49% each. Richard Joness stake was subject to
reduction unless he came up with a certain amount of money at financial close to
EXHIBIT 1
Jones/PowerGen Cogeneration Limited Partnership after Jones 35% Equity Share
Transferred to PowerGen
(1) Operations, Maintenance and Admin. Services Agreement
(2) Fuel Supply and Management Agreement
(3) Turnkey Construction Contract
(4) Electric Energy Supply and Sales Contract
(5) Technical Services Agreement
(6) Same Ownership Structure as Smith/Enron Cogeneration
Limited Partnership
Operational Diagram Ownership Diagram
PowerGen
Corp.
Western
Electric
Company
Corporation
Barbuda de
Electricidad
Electricity (4) Turnkey
Contractor (3)
Jones/PowerGen
Cogen. Ltd.
Partnership
(Turks & Caicos)
Asset
Technical
Services (5)
Operator (1)
Fuel Supplier (2)
PowerGen
Barbuda
Operations,
Limited
PowerGen
Barbuda
Limited
Jones
Cogen
Jones/PowerGen
Cogeneration Limited
Partnership
1% G.P.
14% L.P.
1%
G.P.84%
L.P.
100%
PowerGen
Fuels
International
Inc.
Jones/PowerGen
O&M, L.P.
(Turks & Caicos)
PowerGen
Power
Operating
Company
100%
Integrating Case 1 The Bamnica Power Plant Project 689
repay PowerGen for carrying his out-of-pocket equity from inception to financial
close (the stake was subsequently reduced). The agreement provided the following:
1. Each partner will always agree and discuss major issues, except for financing,
which was exclusively in PowerGens control.
2. Unanimous approval of the partners required for: liquidation, sale of the busi-
ness, changing the name of the company, entering into agreements with part-
ner affliates, modifying the construction budget upwards, and modifying the
distribution of development fees.
3. For all other decisions, Jones and PowerGen will collaborate.
Notwithstanding the PowerGen supervote for financing, Joness de facto involvement
from the beginning was that he acted like a 50% shareholder. As well, Until the
financial close, PowerGen bent over backwards to accommodate Joness concerns, to
a fault. After the fnancial close, we no longer had to be so accommodating. Also,
the agreement did not include clear exit terms, something that would become
contentious at a later date.
Site Selection
According to the PPA, the government was to provide a site for the project and
provide the necessary regulatory authorizations. The government provided a site
near Puerto Salinas. The site was inadequate because it would require tearing
down an old bodega on the waterfront. The local government objected to the
development because they had their own plans for the area. So, another site had
to be found quickly because there were time deadlines in the PPA. Simple cycle
power had to be available by May 2004.
Some people said that since the site was not suitable, the clock should roll over until
we found a site. Some of us were not comfortable with this view. We had already
given the order to Western Electric. The turbine and the barge were being built. God
forbid that the barge arrives and we dont have a site. There were not a lot of choices
for sites. We looked farther away from Puerto Salinas but that would have meant build-
ing a transmission line, which would have been very diffcult.
Another site was located but it also had problems. Finally, a third site that CBE recom-
mended was found. It was zoned for industrial use with the approval of the Bamnica gov-
ernment and the CBE against the protests of a nearby hotel. The site was at the western
edge of a bay on the leeward side of a port. The hotel was on a ridge, north of the plant
in a straight line. The design of the plant included exhaust stacks which were about the
same height as the hotel restaurant. When the plant was under construction and during
the testing phase, there was a lot of noise throughout the day and night because silencers
were not included in the design of the steam relief system. In addition, although the
emissions normally blew to the south, away from the hotel, there were times when the
wind shifted and the emissions blew north over the hotel. Just beyond the hotel was an
upscale residential neighborhood occupied primarily by foreigners.
We did a lot of emissions modeling to assure ourselves that we would not cause any
problems. Our greatest concern was noise from the steam blows and the aesthetics of
the property. We spent a great deal of money on landscaping and painting the tanks. We
tried to make the place attractive. The folks at the hotel liked what we did but they did not
like the noise. And, I believe the operators ignored directions and did a steam blow
when the wind was blowing directly over the hotel. We never knew for sure if the particu-
late fallout came from our plant or other plants about a mile and a half across the bay.
690 Part 5 Integrating Case 1
Construction
The PowerGen development team was responsible for completing the construction
and then turning the plant over to PowerGens asset management group. There
were construction problems from the beginning, leading to a series of disputes
and arguments between PowerGen and the contractors. For example, one dispute
began like this:
In your own [Western Electric] literature you say that it is preferred that the client put in
fuel treatment, which means centrifuges. I said to Western Electric, Where is the
centrifuge. Western Electric said we dont need one and it was not included in
the price. If you want one, you pay for it. So we did, for more than a half million dollars.
The proposal that Western Electric signed had dual fuel filters. When we got the actual
unit it had one filter. Western Electric said that they changed their standard. I had to buy
them myself. Before they were installed I cant count the number of days that we had to
shut the plant down because the fuel filter was plugged. They just dug their heels in and
said we are Western Electric and we do it this way.
We initially thought we would not have to do a lot of oversight. We were reasonably
confident that the contractors would deliver. We had never worked with Western
Electric before this project. We had good feelings about themthey were supposed to
be a first-rate company.
To satisfy the lenders, PowerGens construction company oversaw the construc-
tion. Unfortunately, Power-Gen overlooked some serious construction issues and
Jack Kirk was not interested in hearing about construction problems. Then, Kirk
left the company to join a competitor.
Our own PowerGen construction guys were not leading the parade; they were stand-
ing on the curb watching the parade go by with full confidence that weve got the best
in the world and they are going to do it right. Unfortunately, Western Electric did not
have their A team on the ground. They were under pressure to get things done quickly
so they cut corners. I didnt figure this out until late in the game. They did a sloppy job.
We were also under pressure to get the project finished. For one thing, we had contrac-
tual deadlines that we had to meet. The project was to be transferred to PowerGen Global
Power and we were told to stop screwing with the project and get it transferred over.
Throughout the construction phase, Richard Jones and his company did little or
nothing. Richard was always the missing man. He was off sailing his sailboat or hunt-
ing or fishing. He might return our call or he might not. He wanted to be part of the
decision-making team but he was never around to make a decision.
The Project Start-up
The project was designed in two phases. The frst phase was a simple cycle power plant
on a barge that generated about 75 MW. This phase was completed six months after
the contract was signed. The second phase was a combined cycle power plant that
included two boilers. This phase was supposed to be completed by June 2005.
The second barge was brought in, and when the performance test was run,
there was major failure in the gas turbine and boilers. The result was a lengthy
period of repair and disputes with the contractors. It was several months before
the cause of the problem was identifed and the repairs were completed. PowerGen
concluded that contaminated water and other anomalies were present in the prep-
aration for the start-up. Water quality, something Western Electric should have
controlled, was not carefully monitored during commissioning and the boiler suf-
fered extensive corrosion damage.
Integrating Case 1 The Bamnica Power Plant Project 691
There were major disputes with Western Electric and Sylvanto about who was
responsible for the installation problems, why they occurred, and if claims were
under warranty or not. There was a major insurance issue because of a lapse in
coverage. It was unclear if a major claim was a Western Electric/Sylvanto responsi-
bility or a PJCLP responsibility.
Construction problems delayed the second phase start-up until January 2006.
Financing
PowerGen committed to a very aggressive deadline to have the power plant oper-
ating. PowerGen financed the initial development, with the understanding that
long-term non-recourse financing would replace PowerGens debt. From the
beginning, Bamnica was acknowledged as a diffcult place to get projects financed
because (1) the government had a history of not paying its debts; (2) there was a
thin foreign exchange market; and (3) there were weak banking laws.
The project was designed to be 25% equity and 75% debt. The original cost was
$204 million and the goal was to raise $153 million. The plan was to have a single
financial closing with two lenders: the World Banks International Finance Corporation
(IFC), with about $25 million and a bond underwriter for the remainder.
A bond underwriter was selected and began due diligence. When problems with
the CBE and payments for the electricity arose (see the next section), the bond
underwriter withdrew from the project, leaving a huge hole in the financing. By
this time PowerGen had spent about $100 million on the project.
The IFC agreed to increase its financing to $75 million. The remaining financing
came from six different lenders, with the result that seven different financial closings
were required. Each closing required an entire set of documents (legal opinions,
permits, mortgage registrations, and so forth). As well, it took almost nine months
longer than planned to replace PowerGens financial exposure.
Because of all the problems, there was a low level of confidence as to when the proj-
ect would perform. Everyone knew the customer was bankrupt. We were worried that
if we waited one week, the lenders might run away from the project. So, as soon as a
lender said yes, we went to closing. That increased the legal budget exponentially. The
reason the lenders remained in the project was because there was a lot of confidence
in PowerGen and the contractors and there were expectations that the Bamnica
government would stand behind the project.
Richard Jones made our life diffcult because he did not want to trust us, perhaps
because he felt we were not getting the best deal for the joint venture. After we nego-
tiated with the lenders, we often had to negotiate with our own partner about the
financing terms. We had to convince him that it was the best deal for the partnership.
The problem was that our incentives were not aligned properly. From Joness point of
view the project was fully financed by PowerGen. He did not have the same incentives
as PowerGen in raising third party debt. If we did not find financing and the project
tanked, PowerGen would have been out of a lot of money. Jones did not have money
in the project to lose. The third party debt was cheaper than PowerGen was charging
the project and, in Joness view, PowerGen was benefiting because of this. Every time
something changed he viewed this as an opportunity to improve his position.
The final closing was in April 2006 when lenders assumed the project risk, with
the exception of a PowerGen debt service guarantee of $9.6 million and approxi-
mately $32 million of liability for certain contingent litigation and construction
risk. At this time, total capital in the project was $205 million and the third party
debt portion was $150 million.
692 Part 5 Integrating Case 1
The CBE Does Not Pay
Prior to the start-up of the second phase, there had been some minor disputes
with the CBE about how PJCLP would be paid for the power, about the heat rate,
the cost of fuel, and the measurement of power output. The delayed second phase
start-up increased the contractual diffculties with the CBE. After the second phase
startup in January 2006, the plant performed well for the first month and the
invoice to the CBE became due. By contract, the monthly invoice from simple
cycle to combined cycle went from about $1 million per month to $7 million.
Under the contract, PJCLP had agreed that during the simple cycle phase the
invoice would mainly cover operating costs. Once the second phase was com-
pleted, the capital return and profit billings would begin.
CBE did not have the funds to pay the first invoice. The contract allowed PJCLP
to shut down the plant if payment was not received. PJCLP gave the government
10 days notice and then shut down the plant in March 2006. It took 20 days to get
the plant restarted and an agreement reached about payment. In June 2006, a new
government was formed in Bamnica. The outgoing government decided they had
been ill-treated by PJCLP, and again PJCLP was not paid. At this time there were
disputed payments of about $5 million dollars. PJCLP responded by filing an arbitra-
tion claim. By August 2006, the new Bamnica government was in place and had not
yet responded to the claim. In September the government filed a counterclaim. By
the end of 2006, the disputed amount from the PJCLP side was about $19 million.
The problem, according to a PowerGen executive, was as follows:
Under their interpretation of PPAs, the CBE thinks they are entitled to pay based on
what is delivered, notwithstanding a contractual obligation to make capacity payments
and incentives or disincentives regarding the generators performance. Even if the shut-
down of the generator was caused by grid failure in Bamnica, they would take the
position that You are failing to deliver the capacity that we expected and consequently
we are not paying you.
We concluded that the government and the CBE do not honor their word or the
written contract. They try to find ways to weasel out of it. Part of it is their nature, and
part of it is the fact that they dont have any money.
In contrast, another PowerGen manager commented:
The contract may have been too overreaching in some areas. For example, was it rea-
sonable to expect them to pay when the plant could not perform? The CBE was an
unsophisticated buyer and did not understand how t
