West African Gas pipeline Project (WAGP) _________________ 11th Africa Oil and gas trade and finance conference 23-25 May, Nairobi, Kenya Developing transborder.

West African Gas pipeline ProjectWest African Gas pipeline Project (WAGP) _________________ (WAGP) _________________

11th Africa Oil and gas trade and finance conference

23-25 May, Nairobi, Kenya

Developing transborder infrastructures :

West African Gas Pipeline Project: A case Study

Débo-K’mba A. BARANDAO

West African Gas Pipeline Authority Coordinator

NOT AN OFFICIAL UNCTAD RECORD


I. Overview


• The WAGP

New high pressure natural gas pipeline to transport Nigerian produced natural gas to commercially viable markets in Benin, Ghana and Togo

• The WAGPTakoradi

Tema

Escravos

Cotonou

GHANA

TOGO

NIGERIA

Lomé

Lagos

Niger

Burkina Faso

Mali

BENIN



• Pipeline System

680 km of mainly 20” pipeline from Nigeria to Ghana; delivery points in Benin, Togo and Ghana (8”, 10” & 18” lateral lines); extension to Cote d’Ivoire possible

Compressor Station on Lagos Beach: 2 x 12,500 HP (one stand-by) in initial phase


• Pipeline System (Cont’d)

Expansion Stages: Initial Capacity 160 MMBtu / day; Final Capacity of 474 MMBtu/day, i.e. potential for 2,500-3000 MW on combined cycle power plants); expansion by increasing compression capacity

Initially, 85% of gas to power plants; 15% to heat-using industries


• Project Objectives► New markets for Nigerian gas (Reduce gas

flaring)

Access to cleaner & cheaper fuel and greater energy security for Benin, Togo and Ghana

Regional economic integration (ECOWAS)


• Developed by the West African gas pipeline Company (WAPCo):

Chevron (36.7%) Managing PartnerNigerian National Petroleum Corp. (NNPC, 25%)Shell (18%)The Volta River Authority of Ghana (VRA, 16.3%)BenGaz SA (2%)Société Togolaise de Gaz SA (2%)


• Project Milestones►Pre-Feasibility Study 1993 States Agreement 1995 MOU States-Developer 1999 Intergovernmental Agreement (IGA) Feb 2000 Shareholders Agreement (May 2003) Treaty Jan 2003; IPA May 2003 Enabling Legislation 2004 Final Investment Decision Dec 2004 Construction March 2005 – Q2 2008 First Gas Jan 2008 (Free Flow)


• Pipeline Financing

Estimated (and fixed) Initial Cost: $614 million

Financed by equity contributions from Company Shareholders

CAPEX amount in Escrow Account at FID

Longer term Guarantees from the Governments backed up by World Bank Group (MIGA, OPIC)


• Participating Countries

English speaking• Common Law

GhanaNigeria

TogoBenin

French speaking• Civil law

Two French speakingTwo English speakingDifferent legal systemsThree of four countries without pipeline experience


II. Enabling Environment


· Harmonized fiscal, regulatory, legal and investment regime

3 mechanisms to achieve regime standardization– WAGP Treaty – International Project Agreement – Enabling Legislations passed in all countries

Regulatory Documents– Access Code – WAGP Technical Regulations – Pipeline Licenses – Pipeline Development Plan – Environmental Impact Assessment & Management

Plan


• WAGP Treaty

Establishes WAGPA as the Regulatory Authority Establishes Bodies for Legal & Fiscal appeals Joint Commitment to implement the IPA Agreement for sharing of fiscal

commitments/revenues among countries No Transit Royalties:

a)Unnecessary cost additions and administrative process: countries get fiscal income from taxes on Revenue

b)ECOWAS Treaty stipulates free transit of goods


• International Project Agreement (IPA)

Establishes the Commercial and Regulatory terms of the WAGP Business

Comprehensive and harmonized investment Regime to enable WAPCo to operate as a single business entity across the four countries

WAPCo to Build, Own, Operate & Maintain Pipeline System


· IPA (Cont’d)

Tariff Methodology principles

Pipeline Development Plan outline

Pipeline Access Code principles

Environmental Impact Assessment & Management Plan


• WAGP Authority – WAGPA

Established as an international institution by the WAGP Treaty. WAGPA’s powers and functions are:

a) Representing the States;

b) Facilitation between Project Stakeholders; and

c) Regulatory (enforces Regulations,

Access Code)


• WAGPA (Cont’d)

This includes Approving conceptual design package & FEED Agreeing upon & Enforcing Terms of Pipeline

Development Plan Reviewing EIA & EMP Coordinating and facilitating all necessary

approvals Conflict Resolution


• Enabling Legislation Single law adopted by the four countries, validates

the Regime established for the Project in the IPA (including Fiscal & Regulatory Regime)

Authorizes Company to own & carry out Project Establishes Licensing procedures & introduces

Pipeline Regulations

Validate Guarantees by Governments Confirms Tax Sharing by Countries


• Fiscal Regime

Single Fiscal Regime across the entire region (only applicable to WAGP Activity)– 35% income tax rate – 25% reducing balance method of depreciation – 5 year tax holiday – No import / customs duties or VAT on import of capital

goods – No Transit Royalties – Single tax filing & country assessment process – Minor taxes aggregated & capped – Exchange control rules harmonized


• Tax Sharing Between Countries International Practice: Income Tax shared in proportion to

Distance or Investment amount in Countries – Some States required Sales volume & Country Development

Costs to be considered –

A combined formula is applied for WAGP:

APs (%) = 45 x (( LS ÷ LT ) + ( RCS ÷ RCT )) + 2.5 APs: Apportionment Percentage for a State LS: Length in State RCS: Reserved Capacity by State LT: Total length of Pipeline RCT: Total Reserved Capacity

Formula also valid for sharing of Project costs incurred collectively by the States


III. Commercial Environment


• Tariff Methodology Tariff Model Discounted Cash Flow at FID date 12% Rate of Return (ROR) on Foundation Market (20

years) 15% ROR on Overall Market after 20 years ROR is real, after Tax (to attract Investors) 3 Tariff Classes: Foundation, Standard & Industrial

Development 10c/MMBtu premium for Foundation Customers Based on Reserved Capacity – Ship or Pay (not on

volume transported)


• Delivered Gas Price: Sum of

1. Gas Commodity 2. ELPS Transportation 3. Shipper delivery fee 4. Compression Fuel Gas 5. Take or Pay Commodity / Ship or Pay ELPS 6. WAGP Reservation Charges 7. WAGP Authority Charge 8. Credit Security Charge


IV. Project Benefits


Savings against Oil: $700 M – $2,500 M, range over 20 years

Fiscal revenues: $650-$700 M, shared between four countries

Access to sustainable energy for Benin, Togo & Ghana Promote economic development Create gas industry in Benin, Togo & Ghana

Reduce GHG emissions by 52% IRR between 25% - 58%, depending on specific

country


THANK YOU

FOR

YOUR ATTENTION !

West African Gas pipeline Project (WAGP) _________________ 11th Africa Oil and gas trade and finance conference 23-25 May, Nairobi, Kenya Developing transborder.

Documents

nigerian gas

gas trade

pipeline experience

pipeline financing

togo slide

gas flaring access

opic slide

overview slide