1. West African Gas pipeline Project (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

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Overview

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

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Takoradi
Tema
Escravos
Cotonou
GHANA T O G
NIGERIA
Lomé
Lagos
Niger
Burkina Faso
Mali B E N I
The WAGP

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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

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Pipeline System (Cont’d)
Expansion Stages: Initial Capacity 160 MMBtu / day; Final Capacity of 474 MMBtu/day, i.e. potential for 2, MW on combined cycle power plants); expansion by increasing compression capacity
Initially, 85% of gas to power plants; 15% to heat-using industries

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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)

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Developed by the West African gas pipeline Company (WAPCo):
Chevron (36.7%) Managing Partner
Nigerian 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%)

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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)

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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)

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Participating Countries
English speaking
Common Law
Ghana
Nigeria
Togo
Benin
French speaking
Civil law
Two French speaking
Two English speaking
Different legal systems
Three of four countries without pipeline experience

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II Enabling Environment

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· 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

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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:
Unnecessary cost additions and administrative process: countries get fiscal income from taxes on Revenue
ECOWAS Treaty stipulates free transit of goods

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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

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· IPA (Cont’d)
Tariff Methodology principles
Pipeline Development Plan outline
Pipeline Access Code principles
Environmental Impact Assessment & Management Plan

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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)

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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

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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

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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

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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

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III Commercial Environment

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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)

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Delivered Gas Price: Sum of
Gas Commodity
ELPS Transportation
Shipper delivery fee
Compression Fuel Gas
Take or Pay Commodity / Ship or Pay ELPS
WAGP Reservation Charges
WAGP Authority Charge
Credit Security Charge

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IV Project Benefits

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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

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THANK YOU
FOR
YOUR ATTENTION !