Govts. suspend Yacyreta consulting contract

The Argentine and Paraguayan governments have suspended a contract worth US$8mn annually with consulting firm Cidy to provide services for the 3,200MW Yacyreta hydro plant, Argentina's government news service reported. The decision, announced by Argentine officials at a press conference on Tuesday, is in line with President Nestor Kirchner's strategy to reduce inefficiencies in public works projects and reallocate the savings to benefit those affected by the project, EBY's Argentine executive director Oscar Thomas told BNamericas. EBY (Entidad Binacional Yacyreta) is the joint venture that administers the bi-national plant. The governments have created a technical commission to study the contract, which expires in 2008, and decide in 45 days whether to cancel the contract or modify it, Thomas said. EBY would have to pay Cidy a guarantee of about US$1mn if it terminates the contract, which Thomas says is worth paying compared to the US$8mn a year that it would cost to maintain it. "This is equivalent to paying about one and a half months of their fees, when they are charging us every month without doing any work, just to be at the disposition of EBY," Thomas said. EBY could hire Argentine and Paraguayan professionals to replace Cidy employees for less than 20% of the cost of maintaining Cidy's contract, Thomas said. The Cidy group is led by US firm Harza and Germany's Lahmeyer, and the other participants are the Argentine consortium Coady and Paraguay's Etic. Cidy was originally hired in 1979 to carry out technical and economic feasibility studies, and was rehired to provide assistance with tenders and contracts, and in the direction, supervision and technical coordination of the construction of the Yacyreta plant. EBY has paid Cidy about US$500mn since the start of the contract in 1979, which has actually cost EBY about US$1bn because it has had to obtain financing to pay the bills, Thomas said. Cidy wrapped up most of its main contractual obligations in 1998 with the start-up of the plant's tenth, and last, turbine, but since then it has charged the same amount without doing much to earn it, Thomas said. "After analyzing the global cost structure of the entity we find that [Cidy] is charging US$8mn a year and is not producing as much as they did originally, when they really did earn that amount," Thomas said. "Since 1998, the demand for consultancy services has been practically completely covered and they should have reduced their fees to the minimum," Thomas said. Nevertheless, Cidy's contract was renewed in 2002 to incorporate new tasks, but its duties were not well defined and other third parties have performed most of the work anyway, Thomas said. "If [Cidy] is smart enough, they will come and take their ball and go home, realizing that they have been pretty well paid over 25 years," Thomas said, adding "It's just common sense." Yacyreta is currently only generating at about 60% of its capacity, and EBY plans to invest an additional US$900mn to increase annual production to 19,700GWh from 11,300GWh in four years by raising the water level to 83 meters above sea level from the present 76 meters, Thomas said. Some of the money will be spent to relocate about 16,000 families whose land will be flooded by the higher water level, Thomas said. The completed project will increase hydro electric generation as a percentage of Argentina's total generation from 16% at present to about 25%, Thomas said, adding that with growing demand and problems in Argentina's electric sector it should be "a high priority to finish the project as soon as possible." About US$11bn has already been invested in the project, about half of which has been financed by the World Bank (WB) and the Inter-American Development Bank (IDB), while Argentina and Paraguay provided the remainder.