The World Bank has approved a US$700million guarantee component of the Sankofa Gas Project, as government steps up effort to increase gas supplied from the Offshore Cape Three Points (OCTP) enclave for power generation.
The Bank’s Board of Directors met yesterday and approved the US$700million guarantee component of the project.
The Board approved a unique combination of two guarantees for the Project — an IDA* Payment guarantee of US$500million that supports timely payments for gas purchases by Ghana National Petroleum Corporation and an IBRD** Enclave Loan guarantee of US$200million that enables the project to secure financing from its private sponsors. Together, the guarantees are expected to mobilise US$7.9billion in new private investment for offshore natural gas, representing the biggest foreign direct investment in Ghana’s history.
Developing the Sankofa Gas Project — located 60 km offshore — is expected to bring significant benefits for Ghana by fuelling up to 1,000 megawatts of clean power generation, replacing polluting and expensive oil-burning electricity. Once the Sankofa field starts to produce gas in early 2018, Ghana will be able to reduce its oil imports by up to 12 million barrels a year and cut carbon emissions by 1.6 million metric tonnes of CO2 annually.
“The Sankofa Gas Project is a good example of how Africa can address its infrastructure challenges and lay the foundation for sustained economic growth by providing affordable and reliable power to its population,” said Makhtar Diop, Vice President for the World Bank’s Africa Region. “Innovative use of the Bank’s Guarantee Programme that helps mitigate the perception of risk and mobilises private investment can help unlock billions of much-needed financing for large-scale infrastructure projectson the continent.”
Finance Minister SethTerkper said the project is a game-changer for Ghana and other middle-income sub-Saharan African countries, as it will help shape the country’s energy sector for the next 20 years.
“This project is an essential element of the drive toward consolidating our middle-income status, and will help secure our natural gas resources for a more affordable and reliable power supply. This will help boost economic activity and generate more jobs for Ghanaians. It is part of the smart financing we have been talking about, and we are very grateful to the World Bank Group for this major achievement.”
The exploration and commercialisation of the gas will be carried out by two private investors, Eni of Italy and Vitol Group of the Netherlands, in close partnership with Ghana’s National Petroleum Corporation, (GNPC).
The Sankofa project is part of a much broader programme of support by the World Bank Group for Ghana’s energy sector transformation. This has included technical assistance for energy sector reforms and the drafting of a new renewable energy law, provision of off-grid energy services for remote communities, and support for the distribution utility to improve its operations
The Sankofa Gas Project entails the development and exploration of two offshore natural gas fields within the OCTP exploration block located 60km offshore of Western Ghana — comprising the Sankofa and Gye Nyame gas fields, and the physically distinct Sankofa East oil field.
It is expected to cost about US$8billion and the guarantees are expected to help mobilise much-needed private investment in Ghana’s domestic gas sector. It will be one of the largest foreign private investments in sub-Saharan Africa in recent years.
The World Bank Group’s involvement follows a request from the Government of Ghana to support the Sankofa Gas Project through a package of World Bank Guarantees.
The country’s gas deposits off-shore Cape Three Points are now available for processing by the recently-built Ghana Gas Processing Plant, sited at Atuabo.
The importance of the project lies in the use of the cheap-fuel, natural gas, for thermal power processing to bridge the widening shortfall in power generation; brought on by poor rains and unreliable natural gas supply from Nigeria.
Prior to the development of compressor system challenges on the FPSO Kwame Nkrumah that has led to a shutdown of the facility to remedy the problem, the Plant was supplying in excess of 60million standard cubic feet of gas daily and had indicated it’s preparedness to ramp up production to 120mscf
The total budget for the project was US$1billion, made up of a US$850million China Development Bank (CDB) facility and government of Ghana counterpart funding of US$150million.
The Sankofa project is seen as the long-awaited cheaper energy solution to the problem of fuel to power the 2,104.5mw installed power plants in the country.
Developing the Sankofa Gas Project is a priority for Ghana because it has the potential to fuel nearly 1,000mw of power generation, helping to improve the reliability of power services in-country and replacing the current use of relatively expensive crude oil with cleaner and more affordable gas resources.
Ghana’s economy, which had been performing well for more than a decade, has recently suffered macroeconomic shocks caused partly by challenges in the power sector. With an increasing dependence on expensive and imported oil-based power generation caused by constraints of Ghana’s hydropower generation assets and delays in developing Ghana’s own natural gas resources, government has provided more than half a billion dollars of fuel subsidies to the power sector.
This is unstainable fiscally and it crowds out other important public spending. The Project will contribute to alleviating Ghana’s electricity shortages, improving the country’s power sector, and boosting economic growth. It will generate fiscal revenues for Ghana through royalties, income tax and GNPC’s 20% interest in the project.
The project sponsors have conducted an Environmental, Social, and Health Impact Assessment (ESHIA) that has been reviewed and disclosed by the World Bank Group.
The ESHIA identified several positive impacts of the Project on the local community, including skills development, jobs, and contracting opportunities for goods and services to the Project. The ESHIA also indicates that development of the OCTP could potentially lead to the economic displacement of farming in the area, and provides for mitigation measures in line with the World Bank Group’s Performance Standards.
Other potential environmental, social, health and safety impacts of the planned activities are low to moderate and can also be mitigated.
The World Bank Group’s engagement in the energy sector is intended to help Ghana secure the affordable, reliable, and sustainable energy supply needed for development, poverty reduction and the promotion of shared prosperity.