GNPC Guru Says No Cause For Alarm But Sources Close To MODEC & JUBILEE PARTNERS Press The ‘Caution Button’!

Mr. Kwame Ntow Amoah, Head of Economic Evaluation Team of the Ghana National Petroleum Corporation, has stated that the decision of the Multinational Investment Guarantee Agency (MIGA) , a member of the World Bank Group, to suspend its $260 million political risk insurance cover for the FPSO Kwame Nkrumah, should not affect the production of first oil from Ghana’s Jubilee Field.

MIGA’s ‘suspension action’, effective July 29, 2010, was taken in response to the on-going multiple due diligence being undertaken by the IFC World Bank, MODEC, MIGA and the Jubilee Partners. Speaking to both Joy FM and Citi FM, two leading radio stations based in Accra, Mr. Ntow Amoah was confident that the due diligence investigations would in no way stifle progress of work relative to the production and development programme of the Jubilee Field, especially the issue of first oil delivery.

“IT (MIGA’s FPSO INSURANCE SUSPENSION ACTION) SHOULDN’T HAVE THE EFFECT OF DELAYING FIRST OIL BECAUSE THE PARTNERS; TULLOW, KOSMOS, ANADARKO, GNPC HAVE THE PRIMARY RESPONSIBILITY OF MAKING SURE THAT THE FIELD THAT WAS DISCOVERED, THE JUBILEE FIELD, IS DEVELOPED. THAT IS THE PRIMARY RESPONSIBILITY. THE LEASE STRUCTURE THAT HAS BEEN CHOSEN BY THE PARTNERS IS THE FINANCING MECHANISM, YOU KNOW, THEY ARE TRYING TO IMPROVE, ONE; THE DEVELOPMENT PLAN WAS APPROVED BY THE GOVERNMENT OF GHANA (GOG); IN THAT DEVELOPMENT PLAN THE PARTNERS HAVE PROMISED THAT THEY WILL DELIVER CERTAIN TARGETS. OK? SO IT IS THEIR RESPONSIBILITY TO ENSURE THAT THAT CONTRACTUAL ARRANGEMENT IS MAINTAINED”, articulated Mr. Ntow Amoah.

Mr. Ntow Amoah, according to Joy FM, was unable and/or unwilling to comment on “the specifics” of the $5m MODEC/StratOil Advisory Services Contract which is the object of the on-going multiple due diligence except to say “I think we should just allow the due diligence process to go ahead and the conclusions of that due diligence process will be there for all”. Readers will recall that the Business Intelligence Desk (BID) of The New Crusading GUIDE in its July 27, 2010 edition, reported that “the Multinational Investment Guarantee Agency (MIGA) had taken a decision to suspend its insurance cover for the FPSO, apparently in response to the on-going due diligence exercise jointly being undertaken by the International Finance Corporation (IFC) and the World Bank (WB) on the Jubilee Partners’ award of the FPSO Contract to MODEC and the latter’s award of an Advisory Services Contract to Mr. Tsatsu Tsikata’s Strategic Oil & Gas Resources (SOG) Company”.

Notwithstanding prompt and emphatic denials of the July 27, 2010 story by the Chief Executive of the State Insurance Corporation (SIC), Mr. Bernard Acolatse and the Executive Secretary of the Insurers Association of Ghana, Mr. Atsu Menyawovor on Joy FM, Citi FM and Oman FM, The New Crusading GUIDE, produced two follow-up reports which sought to authenticate and substantiate the July 27, 2010 story in our July 28 and August 2, 2010 editions, with the latter sourced directly to an official statement jointly issued by MIGA, MODEC and the latter’s wholly owned subsidiary, MV 21, published on MIGA’s website on July 29, 2010.

The joint statement under reference said MIGA, MODEC & Co had “TODAY (JULY 29, 2010) MUTUALLY AGREED TO SUSPEND MIGA’S POLITICAL RISK GUARANTEE CONTRACT FOR THE FLOATING PRODUCTION, STORAGE AND OFFLOADING (FPSO) VESSEL THAT WILL PRODUCE AND PROCESS OIL AND GAS FROM THE JUBILEE OFFSHORE OIL FIELD IN GHANA”. The parties, as we reported, also noted that they had “AGREED ON A SUSPENSION BECAUSE OF THE IMPORTANCE OF THE PROJECT IN GHANA AND THEIR SHARED INTENTION TO HAVE ALL ISSUES RESOLVED AS SOON AS POSSIBLE SO THAT THE PROJECT CAN BE RESUMED”.

The same report indicated that the suspension of MIGA’s political risk insurance (guarantee) cover for the FPSO could technically render the FPSO inoperational, thus assuring and/or ensuring delay of first oil. However, as argued by Mr. Ntow Amoah the ‘MIGA suspension action’ should not affect the timeline for first oil because those with the primary responsibility for the production and development in the Jubilee Field are the partners; Tullow, Kosmos, Anadarko and GNPC, and not MIGA.

However, as indicated in our August 2, 2010 report, an internal MODEC record/document intercepted by our Business Intelligence Desk (BID) quoted A TOP MODEC OFFICIAL AS CONCEDING THAT THE MIGA POLITICAL RISK INSURANCE (GUARANTEE CONTRACT) WORTH $260 MILLION WAS (IS) ESSENTIAL FOR THE LEASE FINANCING OF THE PROJECT.

The MODEC official was also concerned about the postponement of the execution of the Loan Agreement and Shareholders Agreement for MODEC Financing which had been slated for July 15, 2010 at the request of the IFC pending the outcome of the due diligence exercise.

“AS SUCH WE HAVE BEEN ASKED TO EXTEND THE DEADLINE IN THE ADVANCED PAYMENTS AGREEMENT SO THAT ON THE 15TH JULY WE CANNOT TRIGGER THE EPCI. WE HAVE DISCUSSED THIS WITH ANADARKO PETROLEUM CORPORATION (APC) AND KOSMOS AND PROPOSED A ONE WEEK EXTENSION WHICH WE WILL TABLE TO MODEC TOMORROW (JULY 14, 2010) (ASSUMING YOU ARE IN AGREEMENT). THE ONE WEEK EXTENSION GIVES TIME TO SEE WHERE THIS IS GOING BUT NOT TOO MUCH TIME THAT RESULTS IN DRIFT AND LOSS OF BANK COMMITMENTS”, a senior official of one of the equity holders in the FPSO Project, communicated to the Jubilee Partners andGNPC.

“STATING THE OBVIOUS IF IFC INVESTIGATIONS GIVE THEM SUFFICIENT REASON FOR CONCERN AND THEY ARE UNABLE TO SIGN THE SHAREHOLDERS AGREEMENT (SHA) THIS KILLS THE LEASE AND FORCES US TO ENGINEERING, PROCUREMENT, CONSTRUCTION AND INSTALLATION (EPCI)”, the internal record/document (correspondence) amplified. Similar official internal records and documents intercepted by our BID, suggested that if the IFC and WB found any wrongdoing in the award of the FPSO contract they will pull their funding which is likely to lead to the other banks doing the same.

“IN THIS CASE, THE BEST OUTCOME IS THAT THE PARTNERS WOULD HAVE TO DO AN EPCI INSTEAD OF A LEASE CONTRACT WHICH ADDS $1 BILLION TO THE COST OF THE JUBILEE PROJECT. IN THE WORST CASE SCENARIO, WHAT THE INTERNAL DOCUMENT DOESN’T SAY IS THAT THE PARTNERS, UNDER THE TERMS OF THE CONTRACT WITH MODEC, HAVE THE OPTION TO END THE CONTRACT AND THE FPSO WILL THEN HAVE TO LEAVE GHANA AND THE PROJECT WILL BE DELAYED WITH NO FIRST OIL FOR AT LEAST TWO YEARS IF A NEW VESSEL HAS TO BE BUILT”, indicates one of the confidential internal records at the disposal of the Business Intelligence Desk (BID) of The New Crusading GUIDE.

The Guarantee Holder of the FPSO Kwame Nkrumah MV 21, Jubilee Ghana MV 21 B.V., located in the Netherlands (Investor country) with Ghana being the host country, has a gross exposure of $260 million. According to MIGA’s documentation, “the investor has applied for MIGA guarantees covering their equity and shareholder loans totaling $260 million for a period of up to 15 years against the risks of expropriation and war and civil disturbances. The investor has applied for financing from the International Financial Corporation (IFC), a member of the World Bank Group”.

As a member of the World Bank Group, MIGA’s mission is to promote foreign direct investment (FDI) into developing countries to help support economic growth, reduce poverty, and improve people’s lives. It does this by providing POLITICAL RISK INSURANCE (GUARANTEES) to the private sector.

“Concerns about investment environments and perceptions of political risk often inhibit foreign direct investment, with the majority of flows going to just a handful of countries and leaving the world’s poorest economies largely ignored. MIGA addresses those concerns by providing political risk insurance for foreign investments in developing countries and dispute resolution services for guaranteed investments to prevent disruptions to developmentally beneficial projects…”

Since its inception in 1988, MIGA has issued guarantees worth more than $21 billion for more than 600 PROJECTS in 100 developing countries. An International Investment Analyst told The New Crusading GUIDE last nite that while Mr. Ntow Amoah may have a point that the “MIGA suspension action” by itself may not automatically lead to delay in first oil, the suspension would affect the lease financing for the MODEC FPSO Project, and that could affect the financial commitments and cash flow towards the operations of the FPSO.

He rationalised that some of the Jubilee Partners are themselves beneficiaries of the certain financial instruments provided by some banks who feel comfortable with the MIGA Guarantee Cover.

“MOST OF THE SYNDICATE BANKS, EQUITY HOLDERS AND INVESTORS INVOLVED IN THE LEASE FINANCING FOR THE FPSO WILL NOT BE COMFORTABLE IF MIGA’S ‘SUSPENSION ACTION’ PERSIST FOR LONG. THINGS CAN GET WORSE IF THE IFC PULLS ITS FUNDING. LET’S HOPE THE SITUATION DOESN’T GET OUT OF HAND. THE JUBILEE FIELD PROJECT IS TOO CRUCIAL FOR BOTH GHANA AND THE INVESTORS TO BE ALLOWED TO GET DERAILED”, underscored the International Financial Analyst.

He cautioned the Ghanaian Government to sit up and critically examine the developments occurring on Ghana’s Oil Industry front if the country’s new found oil industry and the nation’s general investment climate are not to suffer any unnecessary distractions and distortions. Meanwhile, a bird within the corridors of the GNPC has whispered into our ears that the GNPC Board may hold an emergency/urgent Board Meeting tomorrow, August 5, 2010 to discuss critical issues confronting the GNPC and related matters.

Stay tuned for further developments…

Vol.02 No.118 August 5, 2010 Thursday