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Improving the environment for cross-border infrastructure investments in Africa

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Cross-border infrastructure projects characterised by complexity and ... through the pipeline and sell to Volta River Authority (VRA) of Ghana and ... – PowerPoint PPT presentation

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Title: Improving the environment for cross-border infrastructure investments in Africa


1
Improving the environment for cross-border
infrastructure investments in Africa
  • Peter Robinson
  • Director for Africa Region

Africa Investor Projects SummitLagos, 7-8
November 2007
2
Cross-border infra projects
  • Cross-border infrastructure projects
    characterised by complexity and exceptionally
    high levels of risk
  • Political risks
  • expropriation, breach of contract, dispute
    resolution risks
  • security risk law and order enforcement
  • Commercial risks
  • planning, design, construction risks
  • volume, supply, payment, exchange rate, interest
    rate risks

3
What is needed in a cross-border infra project?
  • Good project design
  • cost reflective tariffs
  • secure revenue streams to cover project costs and
    financing
  • Single project operator
  • a cross-border project can have complex ownership
  • but in transmission networks need single operator
    for day-to-day management of the system
  • Properly structured contractual framework
  • minimisation of risks
  • for example take-or-pay contracts to minimise
    volume risk

4
What is needed in a cross-border infra project?
  • Harmonised and predictable regulatory environment
  • stable / predictable tariffs and operating
    environment
  • no differences as borders are crossed
  • Legal recourse in the event of disputes
  • agreed dispute resolution procedures and
    mechanisms essential
  • use of international DR may be useful
  • Risk mitigation instruments in place
  • risks reduced by all above requirements, further
    risk reduction though use of risk mitigation
    instruments
  • Partial risk guarantees or insurance to cover
    political risks
  • Partial credit or export credit guarantees to
    cover political and commercial risks

5
Cross-border gas projects
  • Recent success stories
  • SASOL Mozambique-South Africa
  • 865 km pipeline from Mozambique coast to
    petrochemicals plant in South Africa
  • 3 bcm initially, can be doubled later
  • West African Gas Pipeline (WAGP)
  • gas transmission project (2-6 bcm, 1033km,
    US590m) serving small national markets (Benin,
    Togo, Ghana) from Nigeria
  • PPP (major oil companies are principal
    shareholders, one contracted as operator)

6
Bilateral cross-border projects
  • Bilateral projects
  • national responsibility for infrastructure within
    each territory
  • simple agreements sufficient
  • Sasol Mozambique-South Africa
  • simple cross-border treaty
  • Gas Commission set up to oversee gas trade and
    harmonise regulatory requirements
  • later Bi-lateral Agreement on Natural Gas Trade
    to develop Moz gas for markets in both countries

7
Financing of SASOL Project
  • Hybrid of corporate debt and project financing,
    most originating in South Africa
  • Producing company (SPT) and transporting company
    (ROMPCO) required 230 m political risk coverage
    within Mozambique
  • World Bank (IBRD Enclave PRG)
  • Export Credit Corporation of SA
  • MIGA, part reinsured by
  • SACE of Italy
  • EFIC of Australia

8
Multi-country cross-border projects
  • Issues much more complex in multi-country
    projects
  • National regulatory authorities have key role in
    promoting inter-regional projects
  • Four major issues
  • operational coordination
  • tariff-setting
  • anchor loads and demand growth
  • in networks third party access waiver may be
    needed (at least initially)

9
West African Gas Pipeline
  • Benin, Ghana, Nigeria, Togo
  • Two special purchase vehicles
  • WAPCo (West African Gas Pipeline Company Ltd) to
    build, own and operate the gas pipeline
  • N-Gas Ltd to buy the gas at source, transport it
    through the pipeline and sell to Volta River
    Authority (VRA) of Ghana and Communauté
    Electrique du Bénin (CEB)
  • Main legal agreements for the WAGP project
  • IPA interational project agreement between the 4
    countries and WAPCo,
  • GTAs as transport agreements between WAPCo and
    N-Gas and
  • GSAs gas sales agreements between N-Gas and the
    foundation customers
  • GCSA Ghana Government Consent and Support
    Agreement guaranteeing performance obligations of
    VRA to N-Gas and WAPCo.

10
Financing of WAGP
  • The 590 m initial project costs is financed by
    direct equity and shareholder loans to WAPCo from
    the sponsors
  • Partial risk guarantees from
  • IDA (US50 m)
  • MIGA (US75 m)
  • Steadfast/Zurich (US125 m, reinsured by OPIC)
  • these cover payments owed by the government of
    Ghana should VRA fail to meet its obligations
  • IDA guarantee is structured to cover the
    termination payment by the government to WAPCo

11
Improving the environ-ment for cross-border
investments
  • Cross-border projects need
  • co-ordinated operational environment
  • regulatory environment that is sound, predictable
    and encourages investment
  • mitigation of specific risks
  • exclusive access (third party access waiver)
  • financing risk mitigation instruments (partial
    risk guarantees, export credit guarantees etc)

12
Actions required
  • Developers and financers
  • seek out and structure cross-border
    infrastructure projects
  • Policy makers need to work on
  • strengthening and harmonising regulatory
    frameworks
  • minimising perceived political risks, in part
    through deepening regional integration
  • Impact
  • bigger pipeline of bankable cross-border
    infrastructure projects
  • lower costs of financing and hence lower costs of
    infrastructure services

13
Thank you!
  • Peter Robinson
  • Director for Africa Region
  • Economic Consulting Associates
  • peter.robinson_at_eca-uk.com
  • Phone 44-7604-4546
  • Mobile 44-7809-835-077
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