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World Bank/ gov’t in SGN gas price dispute

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Adnan Adams Mohammed
Information reaching Economy Times from Washington reveals that, the World Bank is holding Ghana to ransom demanding that, Ghana accept to adjust downwards the current Sankofa Gye Nyame (SGN) gas price of US$9.8/mmBTU.
The World Bank is warning that, if no downward adjustment is made, due to savings made on the SGN Gas project – which would bring the gas price down from US$9.8/mmBTU to US$7.0/mmBTU – it will not support any new issuances of debt by Ghana relating to the development of the project’s gas field.

The Ghana National Petroleum Corporation (GNPC), led by the Ministry of Energy and Ministry of Finance met with the World Bank within last week over their inability to raise funds of approximately US$160m for the 4.5 months cover reserve account as part of the security package for the OCTP SGN Gas Project agreement.
It would be recalled that the WB supported this OCTP SGN-Fields Gas to power project with a whopping US$700m Guarantee, this being the largest ever guarantee support by the World Bank

The security structure is for a one year non-payment (this will occur if Ghana Gas misses its payments)

 Ghana National Gas Company (GNGC) has not paid GNPC since 2014 and is also owed over US$750m by the power sector thermal generators – VRA and the IPPs

The reason for GNPC and the government team going to the  World Bank is due to the fact that, there is a US$500m Letter of Credit issued by Standard Chartered Bank (SCB) and HSBC, which is backstopped by the WB Guarantee.

Again, there is a Reserve Account held by SCB that should hold 4.5 months Gas Sales and this is the amount that needs to be funded by GNPC but which it is unable to fund and it is thereby resorting to WB for a guarantee to issue a debt instrument.

According the WB, with the savings of US$600-700 million from the project, they expect a price drop of US$3-3.50. This would make the reserve account drop from US$220 million to US$150 million.

Our source disclosed that, “It’s my understanding that ENI Ghana is trying to play a fast one in getting Ghana to approve the use of this savings to drill more wells that is not in the Plan of Development. This is contrary to the agreement.

He added that, Ghana government would have failed if ENI Ghana and Vitol get their way.

Meanwhile, GNPC raised US$100million to pay off BOST debts and has not had this released from the Karpower deal mainly because ECG cannot raise GE Guarantee themselves after three years since the Karpower deal became effective. This is because government is refusing to put in place the much needed power sector revenue cash-waterfall as Ministry of Energy has been advocating; the inertia is coming from Ministry of Finance.
GNPC gave BOST US$100million to pay LITASCO/Trafigura on behalf of BOST upon the government’s instruction.
This financing of BOST by GNPC outside its core financial obligations has hampered GNPC’s ability to raise money for the Reserve Account, and also is hampering GNPC’s ability to fulfill its work programme in the long run.
According to information contained in the GNPC 2018 Work Program and addendum presented to the WB the Government of Ghana requested GNPC to secure a US$100 million pre-export facility to be used to pay off the outstanding debts.
“Two of the fuel suppliers involved with the Karpowership arrangement, Trafigura and Litasco, have at various times supplied petroleum products to BOST and are owed a total amount of about US$100 million, that is US$60 million to Trafugura and US$40 million to Litasco… The paymen
t of the outstanding debt will signal a positive goodwill on the part of GoG. Against this background, GoG has requested GNPC to secure a US$100 million pre-export facility to be used to pay off the outstanding debt.
“GNPC would put in place the necessary arrangement and agreements to ensure that the loan amount and the interest cost will be fully recovered from BOST. BOST has in stock at Tema Oil Refinery crude oil of about US$54 million which has not been processed because of the challenges faced by the Refinery. This stock if monetized, reduces the debt exposure to US$46 million. GNPC will ensure that receivables from the sales of the processed products are used to pay off part of the debt. Any balance outstanding would be recovered from BOST.”  

With these occurrences and if nothing positive is realized soon, GNPC’s balance sheet is likely to be impaired by end 2018.

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