Chad Cameroon Pipeline. Challenges in Project Financing

1. Chad Cameroon Pipeline
Project
PRESENTED TO
PROF. LALIT KHURANA
PRESENTED BY
DARSHIT PAUN 20131010
MANIT BRAHMBHATT 20131020
PREETI PAL 20131034
RAMAN SHAHI 20131040
RAVI BHUT 20131042

2. Project Site

3. 3
$ 3.7 Billion Chad-Cameroon Petroleum
Development and Pipeline Project
Field System Export System
Chad - Cameroon
Exxon 40%
Petronas 35%
Chevron 25%
 Corporate Financed
 $ 1.5 Billion to extract oil fro
m Doba Basins
 Develop 300 Wells
 Treatment facility to upgrad
e Oil
 Operation Centre to Suppor
t Production
 Probable Reserves – 917 Bb
n
 Project Finance
 $ 2.2 Billion for 1070 Kms
Export Pipeline
 Buried 1 Mtr Undergroun
d
 Through Cameroon at Kri
bi Coast

4. Equity-$2.3 Bn
62.4%
Exxon - $883 Mn
Petronas - $772 Mn
Chevron - $551 Mn
Total - $2.206 Billion
Chad Govt. - $37 Mn
Cameroon Govt. - $70 Mn
Total - $0.117 Mn
Debt-$1.5 Bn
37.6%
Capital Markets - $400 Mn
ECA Loans - $600 Mn
Total - $1 Billion
IFC A – Loan - $100 Mn
IFC B – Loan - $300 Mn
Total - $400 Mn
Financing

5. • Own and Finance the Field System
Upstream Consortium
100% Equity - $1.521 Bn
• JV between Upstream(89%) and Tchad
Government(11%) for Chad Pipeline
TOTCO - $322 Mn
38% Equity- 62% Debt
• JV between Upstream(89%) and Tchad(5%) and
Cameroon(10%) Government for Chad Pipeline
COTCO - $1.88 Bn
36% Equity-64%
Debt
• Wholly Owned Subsidiary of Exxon for Project
Coordination and Upstream Operation
EssoChad

6. Project Insecurity
Chad
• War Country
• Political Instable
• Poorest Country
• Overflow of cash
may lead to Havoc
• Closed Land
Cameroon
• Highly Corrupt
• Dense Forest
• Environmental
Issues
• Indigenous People
Private Players
• Political Risk
• High Finance Risk
• Nationalization
• Long Term
Sustainability

7. Project Returns
• Returns are calculated on Oil Prices Scenario ($9 to $42)
averaging at $20
• On Oil Reserves (595 Billion Barrels to 1038 Billion Barrels)
Chad
• Low Risk High
Returns
• $1780 Million for the
whole Project
• GDP growth by 50%
• Poverty Reduction
• Economic Growth
Cameroon
• $535 Million Revenue
from taxes, royalties
etc.
• IRR of 34 to 40% as
Low investment
Private Players
• High Risk High
Returns
• $ 5753 Gain on
normal scenario
• IRR of 0 to 27%
• Long Term Returns

8. Why World Bank ??
 Experience and Motive to develop the poorest countries of world
 Develop a Risk Mitigation Plan for all the risks identified such as Environme
ntal impacts, resettlement of indigenous people etc.
 Protection to other lenders and encourage them to invest in the project
 Stabilizing the economy of Chad as it is one of the poorest economy of the
world
 Chad would lose the opportunity of investment
 Large influx of revenue could lead to economic distortion

9. Revenue Management Plan
Formation of Special Petroleum Revenue Account
10% - For Future Generation
76.5% - For Five Sectors (Health, Education, Social etc)
13.5% - Govt. Budget and Doba Region
9 Member Committee (7 Govt, 2 NGO)
Planned Annual Expenditure under the monitoring and approval of World
Bank – Contractual Obligation in form of Loan

10. Will RMP work?
Lacks detailed insight and effective oversight
No outlay to take decision in committee
No Detailed Layout of Expenditure by Region / Sector
Lack of Will from authority and people to accept the RMP

11. Should the World Bank approve the Pr
oject?
For
 Opportunity to alleviate Poverty from
Chad
 Commercially viable Project
 RMP Formulation
 In-depth Assessment of Environmenta
l and Social Impact
 Other Investment Opportunities
 If self developed then no control over
funds
Against
 High Corruption
 Inefficient RMP
 Irreversible Environmental Damages
 Past History of Private Players
 Chad would be in War Culture
 No Real Transparency, no participatio
n and no oversight from Local Authori
ty

12. Other Risks
 Construction risk: very low with “super majors” in the oil industry.
 Operating risk: low. But can be influenced by sovereign risk.
 Financial risk: low. (Very high debt service coverage ratio, ex-4a). but
high country credit rank (country default chance), high total debt % of
GDP, volatile exchange rate are somewhat worrisome.
 Sovereign risk: High. Civil unrest, threat from rebel groups, high
corruption perception index (Cameroon). (All stakeholders) Mitigated
by WB?
 Environmental risk: high. Groundwater contamination from oil leak
(Cameroon)
 Other social risk: human rights issues from resettlement of local
residence. (Chad & Cameroon)

13. Conclusion: Is it fair deal to all parties
in regarding returns and risk?
 The project could bring higher returns to the otherwise underdeveloped
chad. The money if effectively used will create a win-win situation for all
the stakeholders.
 Private sponsors bear most oil reserve risk in terms of its NPV till 2012,
while private sponsors get the largest portion of projected return and
NPV.
 The return and risk distribution to Cameroon seems appropriate, but most
environmental risk should be borne by them.

14. Thank You