The World Bank’s Board of Directors yesterday approved a record investment of 700 million dollars in guarantees for Ghana’s Sankofa Gas Project — a transformational project that would help address the country’s serious energy short-ages by developing new sources of clean and affordable natural gas for domestic power generation.
The Board approved a unique combination of two guarantees for the Project — an IDA Payment guarantee of $500 million that supports timely payments for gas purchases by Ghana National Petroleum Corporation and an IBRD Enclave Loan guarantee of $200 million that enables the project to secure financing from its private sponsors.
The guarantees together, are expected to mobilise $7.9 billion in new private investment for offshore natural gas, representing the biggest foreign direct investment in Ghana’s history.
Ghana, with a population of 25 million people, has suffered macro-economic shocks in recent years — partly due to challenges being faced by the country’s power sector. A combination of water shortages for hydropower, erratic gas supplies from external sources, and delays in the development of domestic gas resources and new power plants have led to frequent power outages that have affected the poor the most. The Government of Ghana has spent more than $500million on fuel subsidies to the power sector in recent years — significantly draining public resources.
Developing the Sankofa Gas Project located 60 kilometres offshore is expected to bring significant benefits for Ghana by fuelling up to 1,000 megawatts of clean power generation, replacing polluting and expensive oil-burning electricity. Once the Sankofa field starts to produce gas in early 2018, Ghana will be able to reduce its oil imports by up to 12 million barrels a year and cut carbon emissions by 1.6 million metric tonnes of CO2 annually.
“The Sankofa Gas Project is a good example of how Africa can address its infrastructure challenges and lay the foundation for sustained economic growth by providing affordable and reliable power to its population,” said Makhtar Diop, Vice President for the World Bank’s Africa Region. “Innovative use of the Bank’s Guarantee Programme that helps mitigate the perception of risk and mobilises private investment can help unlock billions of much-needed financing for large-scale infrastructure projects on the continent,” he added.
The Finance Minister, Seth Terkper, said the project was a game changer for Ghana and other middle income Sub-Saharan African countries, as it would help shape the country’s energy sector for the next 20 years.
“This project is an essential element of the drive towards consolidating our middle income status, and will help secure our natural gas resources for a more affordable and reliable power supply. This will help boost economic activity and generate more jobs for Ghanaians. It is part of the smart financing we have been talking about, and we are very grateful to the World Bank Group for this major achievement,” he said.
The exploration and commerciali-sation of the gas will be carried out by two private investors, Eni of Italy and Vitol Group of The Netherlands, in close partnership with the Ghana National Petroleum Corporation, (GNPC).
The Sankofa project is part of a much broader programme of support by the World Bank Group for Ghana’s energy sector transformation. This has included technical assistance for energy sector reforms and the drafting of a new renewable energy law, provision of off-grid energy services for remote communities, and support to the distribution utility to improve its operations.
Yesterday’s approval of the World Bank Guarantees is a key step, as it will help pave the way for finalisation and signing of the legal contracts that underpin this landmark private operation.