The West Africa Gas Pipeline (WAGP) project was originally proposed in 1982 by the Economic Community of West African States (ECOWAS) as one of its key regional economic policy projects. Over time, the World Bank confirmed the commercial feasibility of building a natural gas pipeline to transport Nigeria’s abundant natural gas to satisfy the energy needs of Benin, Ghana and Togo. Following the World Bank’s findings, the governments of the four nations signed an accord which provided a framework for the project’s development. Once completed, the pipeline will extend from Nigeria’s Niger Delta region via an offshore route to Takoradi-Sekondi, in Ghana, while delivering gas along the way to customers in Benin and Togo as well.
The pipeline is being built by the West African Gas Pipeline Company (WAPCo), whose major shareholders include ChevronTexaco West African Gas Pipeline Ltd (41.87%), Nigerian National Petroleum Corporation (NNPC) (25.25%), Shell Overseas Holding Ltd (16.5%) and Takoradi Power Company Ltd (VRA) (16.38%). It is estimated that the total project will cost over $620 million.
Nigeria has tremendous natural gas reserves, estimated at approximately twice the size of its oil reserves. Since much of Nigeria’s natural gas is associated with its oil fields, with little immediate local application, its natural gas output had typically been flared over the years. The decision to capture this gas and transport it to neighboring countries marks a significant milestone in regional economic development, presents a significant revenue earner for Nigeria, and provides a needed long-term fuel source for Benin, Ghana and Togo.
Energy users in all three neighboring countries are likely to gravitate from liquid fuels toward natural gas over time, and energy demand is likely to increase at the same time. Ghana’s demand for reliable electricity, for example, has been growing steadily in recent years, and increased demand for natural gas is also expected in Benin and Togo, with public sector electric power utilities being the primary end users. Use of cleaner burning natural gas is expected to benefit the region’s environment as well as its economy.
Investors in WAPCo sought to mitigate the political risks of the project, particularly the risks associated with gas sales to government-owned power companies. The magnitude and tenor of the insurance required, and the importance of having participation by influential public sector entities, meant that both public and private sector sources needed to be tapped. A unique combination of public and private sector insurance and guarantee support was assembled to yield the coverage required by the investors.
Notably, the Ghanaian component of the pipeline carries the participation of Zurich, the Overseas Private Investment Corporation (OPIC), Multilateral Investment Guarantee Agency (MIGA) and the International Development Association (IDA). Zurich (through its emerging markets unit) and MIGA are providing political risk coinsurance coverage to the transaction, while OPIC is providing facultative reinsurance to Zurich. Meanwhile, the World Bank Group’s International Development Agency (IDA) is providing a “partial risk guarantee” as a key risk mitigant for the transaction.
Bringing together a private sector insurer, a national insurer and two multilateral sister institutions to provide custom-tailored coverage for a large, complex, multi-country transaction required considerable cooperation, innovation, and determination among all parties. In order to comply with the disparate requirements of the individual insurers, it was necessary to conclude properly interlocking arrangements for coinsurance and reinsurance. Close coordination and an early start proved keys to finding timely solutions to potentially difficult problems in achieving common wordings and structural coherence, for the benefit for both insurers and the insured. According to Julie Martin of Marsh, the Project Political Risk Insurance Adviser, “In the end, through a structure that involved co-insurance between MIGA and Zurich, and an arrangement under which OPIC provided reinsurance capacity for Zurich’s direct exposure, the client’s needs were addressed. This outcome was critical to the initiation of pipeline construction, for a project that will yield considerable benefits for West Africa.” ■