Washington DC, November 23, 2004 The World Bank Board of Executive Directors today approved a total of US$125 million in guarantees supporting the construction of a 678 km gas pipeline to transport natural gas from Nigeria to three other West African nations: Benin, Ghana and Togo.
The Multilateral Investment Guarantee Agency (MIGA*) provides US$75 million for up to 20 years and the International Development Association (IDA**) guarantee is for US$50 million for 22 years. More specifically, MIGA will guarantee 90 percent of the equity investment of US$83.4 million in Ghana by West African Gas Pipeline Company (WAPCo) from the risk of breach of contract for a net exposure of US$67.5 million after treaty reinsurance. Neither Benin nor Togo requested IDA assistance for risk mitigation.
Essentially earmarked to cover payment obligations by the Government of Ghana, the World Bank Groups contribution, although small compared to the total cost of the project: US$590 million, is seen by private investors, as with the Chad-Cameroon Oil Pipeline, as the condition sine qua non for their participation in the project. WAPCo, led by Chevron Texaco, requested the Banks involvement, indicating that it will not implement the project without appropriate mitigation of what they perceive as political risks linked to natural gas sales to state-owned power companies in Ghana, Benin and Togo.
The gas from Nigeria to the three neighboring countries will be used initially for power generation, and later for other industrial and commercial uses.
The West African Gas Pipeline project will provide cheap, efficient, and environmentally friendly fuel to the consuming countries, which will lower the cost of power in these countries and improve the competitiveness of goods and services, said Michel Layec, the World Banks Task Team Leader for the project.
The pipeline is a flagship project in the push to accelerate economic integration in West Africa. Backers expect that the pipeline will contribute to the harmonization of regional, institutional, legal and regulatory frameworks in the participating countries. It complements the proposed West African Power Pool (WAPP) project, which promotes increased electricity trade among the 15-member states of the Economic Community of West African States (ECOWAS) and is part of the action plan of New Partnership for Africas Development (NEPAD).
It will help replace higher polluting fuels such as crude oil, heavy fuel oil and gas oil, with cleaner burning natural gas, and bring Nigeria closer to attaining the objective which its Government has fixed to eliminate gas flaring by the year 2008. Nigeria currently flares 75 percent of the gas it produces. WAGP is a relatively small part of the overall gas development in the Delta region of Nigeria (representing 5 percent to 10 percent of overall gas production).
For the past 10 years, Ghana has been struggling to meet demand for reliable and affordable electricity, which has been growing at about 8 percent per annum. The Volta River Authority (VRA), which produces nearly all of Ghanas electric power and supplies electricity to a number of neighboring West African countries, will account for about 90 percent of the initial gas transported from Nigeria, while electricity companies in Benin and Togo account for 5 percent each.
An increase in demand for natural gas is expected in all three countries. In Ghana alone, demand for electricity is expected to grow by 5 percent annually. Moreover, consumers in all three countries are expected to switch from liquid fuels to natural gas over time.
The 678 km pipeline, to be laid mostly offshore, is expected to be 18 to 20 inches in diameter. Its main offshore trunk will be placed on the seabed in 26 to 70 meters water depths at an approximate distance of 15 to 20 kilometers from the shore of all four countries.
The project has three components, the first of which is the commissioning of the gas pipeline to the West African Gas Pipeline Company (WAPCo), a newly formed private entity expected to be owned (directly or indirectly) by Chevron Nigeria Limited (36.7%), NNPC (25%), Shell Petroleum Development Company of Nigeria Limited (18%), Volta River Authority of Ghana (16.3%), Societe Beninoise de Gaz S.A. (2%) and Societe Togolaise de Gaz S.A. (2%). WAPCo will build, own, operate, and transport natural gas from a terminal near Lagos (Nigeria) to the terminus at the western Ghanaian town of Takoradi.
The second component of the project will focus on the development of non-power gas markets in Benin, Ghana and Togo and the funding of other technical assistance needs while the third focuses on providing support to the newly-created West African Gas Pipeline (WAGP) Authority.
Nigerias gas reserves, estimated at about 125 trillion cubic feet, are twice as large as its oil reserves, with a potential for production of 120 years, compared to 30 years for oil, which currently accounts for 95 percent of foreign exchange earnings and over 80 percent of the countrys GDP.
* MIGA is the World Bank agency that promotes foreign direct investment into developing countries by providing insurance to private investors.
** IDA is the World Bank agency that provides financial support to the worlds poorest countries (those countries with an annual income of below $875 per person).