Power Station As Potential Project example essay topic

As I'm writing an essay about public-private partnerships for urban development, firstly I would like to define what is public-private partnership. Word " public" refers to people in general, but "private" - to certain person or group. Public-private partnership is a kind of cooperation between public and private sector in order to achieve common objectives. Such partnership is needed and is helpful in cases when large-scale project (like redevelopment, renovation, building etc.) should be done, but the government has no enough money to tackle it. The finance then can be attracted, for instance, from private capital or investors. As a theme for the essay, evaluating potential project, I have chosen comparison between two projects, both involving building: a new power station and National library.

To explain why I decided a power station as potential project, I offer a small insight into energetics (power industry) of Latvia. At present the company "Latvenergo" is the main producer of electrical energy in Latvia. Power system covers the whole territory of Latvia and makes use of the local power resources - hydro energy, peat, imports gas, black oil (mazut), coal and electrical energy. The total length of power transmission lines is - 101526 km, including 9888 km of cables. The total capacity of power stations is 2038.1 MW, hydroelectric stations with 1517.4 MW inducing. From year to year the cooperation develops with the producers of energy from the USA, Germany, Finland, Sweden, Italy and other countries.

Nevertheless our own power stations are not able to supply enough electricity to satisfy all the needs of whole country. That's why 32% of total consumption of electric power must be imported from neighboring countries - Russia, Estonia and Lithuania. This doubtlessly may cause unexpected increase in the tariffs for consumers. Within the last 2-3 years the demand for electrical energy has stabilized - 6, 1-6, 3 GWh per year. Additional power station definitely would be very useful. It could help to reduce import and growth of tariffs in future; besides our power industry would be more independent from other countries and their politics.

What refers to National library, I agree, that such building is also needed very much, because education of people is in the first place for the successful development of country. It's not a secret, that attention paid to education in Latvia is rather small. And education is not only public or private universities and schools, but also storages of information, accessible to wide circle of people. Idea of our government to build the Latvian National Library (LNL), so called "Palace of Light", is only supportable and welcome, more due to the fact that other Baltic states (Estonia and Lithuania) already have such up-to-date library, and Latvia also needs an establishment, where everybody can not only find necessary information or book, but also get acquainted with recent information technologies and internet. The only drawback in this case is the high expenditures of the building: 87,391 million lats (145 million US$), which cause several problems.

The government of the republic of Latvia decided to gain money from public-private partnerships, because cannot afford it from the budget, especially now at conditions of general thrift and economy. It is said that only 25-30% of required money can be gathered from LNL's support fund in manner of donations and technical support. It means that special target-payment is needed. The bill projects to bring in extra fee for each KWh of electricity consumed to the tune of 0,001 lats during the period of time from January 2001 till December 31, 2012, although the library is expected to finish by the year 2004. It's unnecessary to explain that both deputies and society are against this project and claim to find different sources of financing the building. In my opinion National Library shouldn't be financed by the fee for electricity, because, although everybody take part in paying, not everybody can attend this library or simply doesn't have need to attend it.

Actually the library will be most available to inhabitants of Riga and region of Riga, besides elderly people having no children and living in poverty will never agree to pay, especially for that long period of time. It's the same with enterprises consuming much electric power, which is required for their work (for example in metallurgy), because then only one "Lies^a jas Metalurgs" will have to pay approximately 200 000 lats to the fund of LNL. Unable to solve the problem, mayor of Riga decided to ask opinion of people about possible ways of financing the library and selected approximately 32 the most considerable ideas. Apart from lottery, switching the revenue of privatization, increasing the outer debt, initiation of progressive income tax, there is idea to en cash small fee for fuelling at petrol stations. This measure could bring in cash revenue of about 60 million lats.

It is remarkable, that the sum Ls 87 million has been taken from similar project in USA and it is also possible to build cheaper building. Furthermore there are several vague questions. The first is lack of preciseness and definiteness in the project's plan. For example almost nothing has been mentioned about gaining the land for building, although it is private land with 11 owners in 22 apartments, 46 families and 16 houses, from which only 2 belong to state.

It's easy to imagine how high prices the owners will request for their property. It is interesting that for the main purpose of the library - information systems and computerization there is projected only Ls 3, 4 million, while for "public relations" - Ls 1, 8 million, for furniture - Ls 6, 27 million, for interior - Ls 9, 5 million; and what's more surprising - nothing has been mentioned about purchasing the books. The second thing deals with problem of possible increasing of expenditures during the building process, usually caused by imprecisely defined tasks and costs. I can say so basing on experience of Great Britain, where in London it took nine years (instead of six projected) to build British Library and costs went up from lb 300 m to lb 511 million. This proves, that even in spite of centuries old traditions of planning and money spending control, it is almost impossible to avoid failures in so large, technically and administratively complicated project.

As I previously concluded, gathering electricity fee from people for financing the National library is not appropriate for public-private partnerships. To my mind more suitable would be to make public-private partnership, using the same fee for electricity in support of building a new electric power station. As every project, it requires a lot of finance, planning and right politics to succeed. If we speak about politics, I can say that despite the fact that improvement of Latvian power industry is not only the objective of one enterprise, but also the aim of whole country, special political coalition is advisable.

With the help of political coalition the specific project can gain more support from the government in both: decision making and financial questions, especially when part of money must be taken from state budget to form start up capital. So if we had political coalition in government it would be easier to persuade others that money should be deflected to the building of power station rather than to different project. Otherwise all wouldn't be very bad anyway, because in accordance with the policy of the government in sector of energetics priority is given to: o Building of new, ecologically acceptable power stations; o Economy and increasing of energy efficiency; o Setting up of cogeneration stations; o Making use of local energy resources. And what's more, in the State Investment Program (SIP) in year 2000 for development of energetics sector there have been scheduled 37 projects with total value of Ls 10,378 million.

Although these projects are very small, it shows that the government thinks about power industry, which is in the third place (by investments) in SIP of Latvia after traffic and sphere of environmental protection and regional development. There are also special economical conditions stimulating commercial operation and building of small hydro stations, wind generators and cogeneration stations. Ministry of Economics has given permissions to the building of 28 small hydro electro stations (HES) in year 2000. Besides the fund of energy efficiency (founded in 1998) accommodates with loans small projects (from Ls 5 000 till Ls 200 000). As you can see, power industry takes rather high place (16% of total investments) in the investment program, as it should be, because it also plays great role in economy of Latvia.

Apart from all this there is one more thing why our government could accept the project. It is general pride and possible shame in case of beating a retreat. International institutions should be told about the decision of government to construct the new power station and then it will be more likely, that the project will be implemented, because otherwise "Latvia will be shown in negative light" in the eyes of international institutions. The next thing that everybody must take into account, when planning his project, is finance. And it is perhaps the most difficult and most common problem for any project implementation, especially in Latvia, where integration of state budget is not easy. As the very first action we must realize and calculate how much money we are going to need for all processes connected with the project.

It's no doubt, that the sum of money required depends on the dimensions and power of the station. As I have mentioned before, consumption of electrical energy in Latvia is approximately 6, 2 GWh per year. I reckon, that by building a station of 450 MW, import of electric energy would be possible to decrease to the half, but in years with greater amount of rainfall - eliminate at all, because existing hydroelectric stations would compensate the deficit. If we build thermoelectric power station, expenses can bulk up to nearly Ls 100 million. Neither state nor some private company has so much money to afford it. It is possible to make public-private partnership and involve special target payment to support building of a new power station.

The payment could consist of additional fee for consumed electricity as it was projected for the National library. At least in this case people will understand for what they are paying - the more electricity they consume, the more they pay in fee. But to start the project, start up capital is needed for land acquisition, clearance and initial infrastructure: at least 8% of total value. There are several sources of getting the capital.

One of them is profit of "Latvenergo", which draws up Ls 48 million of total Ls 160 million revenue from distributing electric energy. The second source is national taxes, but seeing difficult situation in budget, I wouldn't rely much to that, because even Ls 5 million is huge sum of money. Good idea would be to attract foreign investors. We have to do everything to make them interested in this project, to persuade invest money and what's more important - prove (if it is possible) that their investments are not under a risk and are guaranteed by something. We shouldn't also forget, that expenses can increase by 5-7% a year. Even taking into account inflation (which is under 4% a year) we must expect 2-3% growth of expenditures every year.

Our country can't complain about lack of interested investors, because in 1998 there were made Ls 700 million total investments from Denmark, USA, Russia and other countries. But unfortunately there are several obstructing considerations slowing their expansion: 1) inconsequence in interpretation of law and normative acts; 2) very weak possibilities for investors to seek for defense in case of conflicts with state establishments (missing of ombudsmen); 3) lack of advisory board of foreign investors and government, ensuring feed-back; 4) long process of provision of visas, residence and work permissions; 5) roughness of immigration institutions and concision of validity of work permission; 6) missing of independent institution, which could review disputes of tax calculation; 7) long procedure of getting building permission or buying land. Mostly due to the last problem investors sometimes are unwilling to involve in building projects. As it can be seen, we have lot of things to do in this sector. Another way is to get finance from E.B.R.D. (European Bank of Reconstruction and Development) or PHARE program, which grants different development projects. Before to wade in the project, thorough planning is needed, which should be done in one step with other analysis.

It includes choosing the type of building and the area for its locality, considering potential ecological problems and fitting into view, public benefits or disadvantages, creating implementation agency with good consultants and other executives like architects, engineers, designers, builders, managers, lawyers. It would also be a wise decision to place the station on the state land, because then it wouldn't be necessary to buy or rent the land. The type (thermal power station) I didn't choose by accident, but by planning. As you can see from figure 1, there are two thermoelectric stations (TES-1 and TES-2) and one hydroelectric station (HES) in the surroundings of Riga. Since there are difficulties with finding suitable place for powerful HES (to be more precise: there isn't place at all), thermoelectric station, to my mind, is more appropriate even in spite of consumption of power resources and relatively high polluting of air, because it is much easier to construct and building costs are lower. What refers to alternative power stations like wind power stations, they can't provide permanent electricity supply in periods of lull (they may cause serious oscillations of voltage till +/-11%), besides they provide small power per station and need large and windy area for a number of stations.

I think the best of all would be to build cogeneration station, where in the same equipment heat energy and electric energy is produced while using only one type of fuel (mazut, gas etc. ). The base of the station is diesel engine, which turns a generator. Heat is produced by cooling exhaust gases from the engine in utilization tank. It reduces costs of every separate energy production and less fumes the environment. Possible location of cogeneration station I tried to illustrate in figure 1.

Location is away from the city center, infrastructure is rather good and doesn't require large investment. Besides power transmission line is nearly, what will decrease the costs of hooking up the substation to the power system. Great advantage, in my opinion, is that the land belongs to municipality. In conclusion I can say that the power station, which project I tried to evaluate, itself will not give any benefit to public, except work-places for people, but certainly will benefit economy of Latvia with produced electricity. So I think public-private partnership in this object is possible and realizable.

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Rolands Pctersons, Alternative electro stations. Independent morning newspaper, Friday, September 15, 2000. Sandra Diezi " oa, The government will decide about palace of Light. Society doesn't believe to the clearance of LNL project, Independent morning newspaper, Wednesday, June 7, 2000. Sandra Diezi " oa, Ideas about palace of Light introduced in government.

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