World Bank fulfills US$700m guarantee for Sankofa project

The World Bank last Thursday approved a US$700 million guarantee for Ghana’s third oil and gas production field, Sankofa-Gye-Nyame, which is said to contain more than 200 million barrels of oil and 1.1 trillion standard cubic feet of natural gas.

The development of the Sankofa fields, expected to produce its first oil in August 2017, is valued at more than US$7 billion, and is about the largest private sector investment in the country’s economy.

The World Bank support is also the largest it has provided for a similar project.

The project will produce predominantly a daily capacity of 180 million standard cubic of natural gas which is enough to generate up to 1,100 megawatts of power, whilst peak oil production could reach 20,000 barrels per day.

According to Alex Mould, Chief Executive Officer of the Ghana National Petroleum Corporation (GNPC), “the guarantee will give investors the confidence that GNPC will have the wherewithal to deliver on the purchases from its partners.”

The Sankofa fields are being developed by Italian oil firm Eni and the guarantee is to provide a cover for sale of gas between the project partners, Eni and Vitol, and GNPC on the other hand.

ENI holds a 44.4 percent stake in the Sankofa Gye Nyame project, Vitol holds 35.6 percent while GNPC holds a combined carried and participating interest of 20 percent.

As part of the security arrangements supporting the GNPC’s payment obligations under the Gas Sales Agreement, GNPC was required to raise a Letter of Credit from an A-rated international financial institution in an amount of US$500 million, supported by a World Bank Partial Risk Guarantee.

Two international banks, HSBC and Standard Chartered Bank are expected to jointly provide the US$500 million Letters of Credit in the context of the World Bank’s Guarantee. While the World Bank’s International Bank for Reconstruction and Development (IRBD) will guarantee another US$200 million under the same agreement.

Speaking at the signing ceremony, Finance Minister Seth Terkper said, in order to ensure that GNPC meets its payment obligations to the gas suppliers (ENI and Vitol), government has put in place structures to ensure consistent and sustainable payment by the Electricity Company of Ghana, and through the value chain to the gas suppliers.

“This is a very important primary consideration and establishes the need for the ongoing financial and operational restructuring of our power and petroleum State Owned Enterprises (SOEs). Progress to date includes VRA debt restructuring and ECG reforms,” Mr. Terkper said.

“A reserved escrow funded by the GNPC currently estimated at approximately US$140 million being equivalent to 4.5 months of gas sales which will be accessible only if the proceeds from the above payment mechanisms are insufficient,” Mr. Terkper remarked.

He explained that the project will have a payment mechanism that will channel receivables of GNPC through a designated offshore account structure to receive proceeds of GNPC’s gas sales to power producers.

He added: “We are seeing a hierarchy of guarantees which will be called upon only when as Ghanaians we fail to pay for the power that we produce.”