Are the risks and returns fair from each party`s perspective?

Report
OPIM 5894 Advanced Project management
The Chad Cameroon Petroleum Development
and Pipeline Project
Team 3
• Richard Buskey
• Jonathan Weiss
• Daniel Mahzonni
• Prashant Mishra
• Vijay Gadigeppa
• Jonathan Koenig
Chad Cameroon Petroleum Dev.
• How are the sponsors financing this deal? How does the financing of the
Field system differ from financing of the Export system?
– Equity financing for the Field System
• Uncertainty with the Oil extraction
• Oil Companies interested in the oil futures; control of oil
– Debt financing for the Export System
• Certainty with the oil sale profits
• Treated as a project
Chad Cameroon Petroleum Dev.
•
Analyze the risks and returns to Chad, Cameroon and the Private sponsors? How were the
returns calculated? Are the risks and returns fair from each party’s perspective?
– Risks
• Environmental Impact
• Indigenous People
• Long-term sustainability
– Risks Mitigation
• 5 years of review and public debate: Sponsors came up with contingency plans on
almost every aspect of the project
–
–
–
–
–
–
–
–
–
–
–
Waste Management
Oil spills
Regional development
Indeginous people
Offsite environment
Community health
Compensation and resettlement
Induced access management
Decommissioning
Cultural properties
Environmental Monitoring & Management
Chad Cameroon Petroleum Dev.
•
Analyze the risks and returns to Chad, Cameroon and the Private sponsors? How
were the returns calculated? Are the risks and returns fair from each party’s
perspective?
– Returns were calculated by
• Oil price ($9 to $42 over the last 18 years with an average of $20 / barrel
• Volume consumptions (Could vary b/w 595 milion barrels to 1,038 million
barrels)
– Fairness to each party
• Chad
– High risk: Environment Impact, Possible re-location of indigenous
population
– History shows Extraction of Oil does not equal development
– Returns: would receive $ 1.8 bill. of cash flow from the project in the
form of income taxes, royalties and dividends.
• Over the 10 years of production (2004 to 2013), income taxes would
represent 16% of the total & royalties and dividends would represent the
remainder.
Chad Cameroon Petroleum Dev.
•
Analyze the risks and returns to Chad, Cameroon and the Private sponsors? How
were the returns calculated? Are the risks and returns fair from each party’s
perspective?
– Fairness to each party (Contd.)
• Cameroon
– Most risk because of the pipeline going thru’ their indigenous
population, impact to the environment;
» Ground water contamination
» Natural reserves, Lob waterfalls getting affected
» No new job creation
– Gets $ 535 million (based on Transit, Pipeline tax and Share of ROE)
Chad Cameroon Petroleum Dev.
•
What is the World Bank/IFC’s role in this deal? Are they likely to be
successful?
– World Bank had extensive lending and policy experience with developing countries
and had been working with Chad and Cameroon for many years
– Project was commercially viable
– Project would jump start Chad’s listless economy.
– Bank could play an important role in protecting the environment as well as the
indigenous people
– Likely to be successful
• Based on their history and experience
• If opportunity is not capitalized, somebody else (Sudan/Libya) would
take it over
• Most of the risks and issues addressed and mitigated as part of the 5
year project review
• Reputation of IFC
• Revenue Management Plan
Chad Cameroon Petroleum Dev.
• Will the Revenue Management Plan work? Are there aspects of the plan
that you think should be changed?
– Project Revenue: $ 14 bill.; Total distributions = $8 bill.
– Chad would receive $ 1.8 bill. of cash flow from the project in the form of
income taxes, royalties and dividends.
– Over the 10 years of production (2004 to 2013), income taxes would represent
16% of the total & royalties and dividends would represent the remainder.
– Govt. would have the discretion over how to spend the income tax revenues
as long as they were used for general development purposes.
Chad Cameroon Petroleum Dev.
• Will the Revenue Management Plan work? Are there aspects of the plan
that you think should be changed?
– Royalties and dividends would be deposited into a Special Petroleum Revenue
account and distributed in the foll. way:
• 10% would be deposited in foreign financial institutions and used to
finance poverty reduction programs for future generations
• Of the remaining 90%,
– 85% would be deposited in the Chadian commercial banks and used
to finance development programs in 5 high priority sectors –
education, health & social services, rural development,
infrastructure, environment and water resources
– 15% would go to the government budget and programs in the Doba
region.
Chad Cameroon Petroleum Dev.
• Will the Revenue Management Plan work? Are there aspects of the plan
that you think should be changed?
– Aspects which need to re-visited
• Little chance of success without the will of the authorities or the
confidence of the population
• Did not specify how decisions would be made; voting power would be
determined
• Not enough representation from the civil society on the oversight
committee; likely to be biased based on the government’s actions
Chad Cameroon Petroleum Dev.
• Would you approve the deal as a World Bank/IFC Board member?
– It is an opportunity; studied the project for 5 years and addressed all issues
and concerns.
– Choice between not doing it or doing it
– Rewards outweighs the risks

similar documents