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Financial Times: Promise becomes a reality

By Dino Mahtani: Published: November 21 2006 02:00 | Last updated: November 21 2006 02:00

The promised start-up of the long delayed West Africa Gas Pipeline next year could finally mark a significant step forward for much needed power generation in the region. As long as it is not delayed again. The $600m project was first conceived in 1995 by the governments of Nigeria, Ghana, Togo and Benin to supply abundant Nigerian gas to its three neighbours as an alternative and cheaper way of generating power. It is especially important for Ghana, one of the region’s better economies, which is reliant on hydroelectricity for 60 per cent of its power.

The pipeline will be especially critical in supplying Ghana’s multinational mining companies, which have suffered serious output cuts this year due to a lack of electricity. But concerns over guaranteeing financial returns for shareholders and the logistical realities of West Africa have contributed to a long gestation period and project delays.

Shareholders of the West Africa Gas Pipeline Company’ (WAPCo) are Chevron (36.7 per cent), the Nigerian National Petroleum Corporation (NNPC) (25 per cent), Shell (18 per cent), Ghana’s Takoradi Power Company (16.3 per cent), Société Togolaise de Gaz (2 per cent) and Société Béninoise de Gaz (2 per cent). When the pipeline is operational, the company expects to deliver 470m cubic feet of gas a day from Nigeria’s Delta region, much of which would have otherwise been flared off, and transport it via a 678km pipeline, mostly constructed offshore.

The gas supply could help generate an extra 2,500 GWh (gigawatt hours) of electricity a year.

Given fears of the company’s shareholders exposing themselves to the state power generators, particularly Ghana’s Volta River Authority, international partners have been compelled to step in to guarantee the project. The World Bank in 2004 approved guarantees totalling $125m to mitigate political risks linked to natural gas sales to state-owned power companies. Zurich Financial Services, in collaboration with the Overseas Private Investment Corporation, is also guaranteeing a comparable sum.

“The issues of equity stakes and financial guarantees have been taken care of,” says Funsho Kupolokun, chairman of WAPCo’s board and managing director of the NNPC. “There are some issues outstanding, but these are basically ironed out.”

But industry observers say some of these issues could cause further delays. And if the delays are extended, they could lead to penalties under the terms of contracts signed by the consortium operating the pipeline. First, its customers and promoters have been wrangling since the summer over the price of Nigerian gas that will be carried. Second, WAPCo has been in a dispute with Willbros, a large US-based engineering company responsible for work on the pipeline’s main gas compressor, the onshore pipeline in Nigeria, and metering and regulation stations in all four countries. Mr Kupolokun says the dispute is resolved, but it has nevertheless delayed the completion of essential work.

Some customers meanwhile have voiced concerns over whether the beleaguered contractor, which has decided to divest its other Nigerian interests due to its deteriorating commercial performance there, has the capacity to finish the job on time.

Third, security in the turbulent Niger Delta region is also a serious concern for the project directors. One of the principal pipeline branches of the main gas feed line to the pipe was earlier this year ruptured during militant attacks in the western Delta. Some oil and gas fields feeding the pipe have been disrupted and not restored.

Nevertheless, the World Bank is still keen on the project, despite its rocky involvement with the Chad-Cameroon oil export pipeline.

The bank and other partners have pledged hundreds of millions of dollars in assistance to back a regional power transmission pool that could help link up power generated to other customers across West Africa. But progress is slow. Infrastructure needs to be installed or overhauled for the pool system to be effective.

In the meantime, the Volta River Authority might end up using much of the extra gas to supply power to the Volta Aluminium Company, partly owned by aluminium giant Alcoa.

Despite delays, the pipeline is at least a reality, compared with plans to build a 4000km pipeline from Nigeria to Algeria for the supply of gas to European markets.

Copyright The Financial Times Limited 2006

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