WAGP INVESTMENT COMPLETED FOLLOWING LAST MINUTE

UNCLAS ACCRA 002551 SIPDIS SENSITIVE TREASURY FOR ALEX SEVERENS, LUKAS KOHLER STATE FOR AF/W -- RKAMINSKI STATE PASS OPIC -- EDIE QUINTRELL E.O. 12958: N/A TAGS: ENRG EFIN GH OPIC SUBJECT: WAGP INVESTMENT COMPLETED FOLLOWING LAST MINUTE DRAMA IN GHANA REF: ACCRA 2484 ¶1. (SBU) Summary: On December 17 and 20 the West Africa Gas Pipeline Company (WAPCo) and West Africa Gas Pipeline (WAGP) shareholders completed the final requirements for taking Final Investment Decision (FID). Most investors (excluding Togo and Benin) deposited their financial contributions into escrow December 20. However, Ghana was unable to make payment until early February 23. WAPCo reports that the Government of Ghana (GoG) delivered a last minute payment, and WAPCo was able to sign the major construction contracts December 23 in Houston. Full-scale construction should begin in summer 2005, with first gas expected December 2006. End Summary. ¶2. (SBU) WAPCo's Board of Directors met December 16 in Abuja to approve provisional FID, pending Ghana's passage of three commercial agreements: the WAGP International Project Agreement, the Ghana Consent and Support Agreement (sovereign guarantee for gas purchases),and the World Bank Indemnity Agreement. Other pending issues were the resolution of the Takoradi Insurance Mortgage Agreement between Ghana's Volta River Authority (VRA) and WAPCo/N-Gas, and legal opinions from VRA and Ghana's Attorney General. ¶3. (SBU) Ghana's Parliament passed the three WAGP commercial agreements December 17, under intensive pressure from Ghana's Finance and Energy Ministers and WAPCo representatives, and also following World Bank and Emboff lobbying of Parliamentary leaders. This action cleared away the last major hurdle to FID, and allowed WAPCo to proceed with its request for the investors/shareholders to deposit funds into escrow by COB Monday, December 20. ¶4. (SBU) Randall Ramey, Chevron Texaco's WAGP Project Director confirmed on December 22 that VRA and the Attorney General had rendered satisfactory legal opinions and the VRA insurance issue had been resolved. Ramey also confirmed that most investors had deposited funds into escrow. Neither Togo and Benin put up funds at FID to activate their option to become shareholders. The possible result is that Togo and Benin will not be included as "foundation customers," and therefore would potentially face higher costs for gas. According to Ramey, both Benin and Togo requested a six-month extension to raise their respective two percent stakes. The WAPCo Board will discuss this at its next meeting in early ¶2005. In the interim, Chevron Texaco paid for and will hold Benin and Togo's four percent. ¶5. (SBU) Post learned late on December 23 that VRA's Letter of Credit for USD 80 million was not honored by WAPCo's bank, and, therefore, the GoG was unable pay for its 16.3 percent share before the December 20 deadline. This led to a desperate scramble to obtain Government of Ghana funds in time to avoid cost increases and even save the project. WAPCo sources report that VRA officials held an emergency meeting with Ghana's President Kufuor to come up with the financing. The method of payment (or guarantee) is still unclear, but WAPCo reports that the funds were deposited early in the day on December 23. ¶6. (SBU) With funds reportedly totaling about USD 637 million finally in hand, WAPCo is reported to have signed the major construction contracts late on December 23, including the critical and time sensitive USD 100 million line pipe contract. (Note: The line pipe contract price was set to increase by almost 10 percent on December 22. However, WAPCo was apparently able to negotiate a two-day, no-cost extension through 2:00 PM, December 23. End Note) The signing took place in Houston, Texas. ¶7. (SBU) Ramey and WAPCo Managing Director Dennis Fahy expect full mobilization of the construction companies and resources to take up to six months, so the main construction work should begin in the summer of 2005. However, there will be some activity started in Tema (one of two entry points in Ghana) in March or April, connected with the concrete weight coating plant. Fahy and Ramey expect construction to take roughly 18 months, so first gas should be around December ¶2006. YATES