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