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

West African Gas pipeline Project (WAGP) _________________ Overview

West African Gas pipeline Project (WAGP) _________________ The WAGP New high pressure natural gas pipeline to transport Nigerian produced natural gas to commercially viable markets in Benin, Ghana and Togo

West African Gas pipeline Project (WAGP) _________________ Takoradi Tema Escravos Cotonou GHANA T O G NIGERIA Lomé Lagos Niger Burkina Faso Mali B E N I The WAGP

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ 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)

West African Gas pipeline Project (WAGP) _________________ 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%)

West African Gas pipeline Project (WAGP) _________________ 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)

West African Gas pipeline Project (WAGP) _________________ 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)

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ II. Enabling Environment

West African Gas pipeline Project (WAGP) _________________ · 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

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ · IPA (Cont’d) Tariff Methodology principles Pipeline Development Plan outline Pipeline Access Code principles Environmental Impact Assessment & Management Plan

West African Gas pipeline Project (WAGP) _________________ 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)

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ III. Commercial Environment

West African Gas pipeline Project (WAGP) _________________ 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)

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ IV. Project Benefits

West African Gas pipeline Project (WAGP) _________________ 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

West African Gas pipeline Project (WAGP) _________________ THANK YOU FOR YOUR ATTENTION !