The Southern Africa Regional Gas Project is the first large scale energy project to capitalize on Mozambique's rich natural gas resources, which were first discovered in 1956. It consists of an "upstream project", which includes the development of the Pande and Temane gas fields in Mozambique and the construction of a central processing facility, and a "downstream project", which includes the construction, operation and maintenance of an 865km pipeline to transport the gas to Sasol's Secunda plant in South Africa, with a capital expenditure of approximately $1bn.
Sasol Limited is the primary sponsor of the Project from gas field development in Mozambique to the end user sales in South Africa. It provides full debt service support to the two project companies (SPT and ROMPCO) through ship or pay arrangements and therefore assumes all project related commercial risks as well as a portion of Mozambique political risks. The Mozambique political risk coverage is primarily provided by the Export Credit Insurance Corporation of South Africa (ECIC), MIGA - partially reinsured by SACE of Italy and EFIC of Australia, the World Bank through a Partial Risk Guarantee (PRG), and the European Investment Bank (EIB).
The Southern Africa Regional Gas Project is an example of a successful cross-border transaction despite its complexity in the design and implementation process and highly diverse stakeholder groups. The transaction was key to introduce international banks to Mozambique and raise the country's profile and set high standards for the government. The project is also an example of World Bank Group coordination and cooperation involving two IBRD partial risk guarantees (denominated in South African Rand), a MIGA guarantee and IFC equity support.
BUSINESS | CONSTRUCTION OBLIGATIONS | PRIVATE FUNDING | SERVICE DELIVERY | SOURCE OF REVENUE |
BUSINESS - New: Under the model the project is classified as "new business" as the project involves the construction of the two individual and integrated sub-projects, that is, the development of the Pande and Temane gas fields in Mozambique and the construction of a central processing facility (called upstream project), and, the construction of the pipeline to transport the gas to Sasol's Secunda plant in South Africa (called "downstream or pipeline project"). There is no previous record of demand data, revenue stream or contractual obligations or customer base.
CONSTRUCTION OBLIGATIONS - Build: The project company undertakes the development and construction of new assets (gas fields, processing facilities and the actual pipeline) on a Greenfield basis. Being a large and complex cross-border transaction involving a full spectrum of stakeholders and several groups in both Mozambique and South Africa made SASOL a project riskier from the construction perspective due to potential engineering and geological problems, cost overruns and delays.
PRIVATE FUNDING - Finance: The two individual and integrated sub-projects required upfront financing from sponsors and large commercial debt facilities, which were partially covered by the World Bank, MIGA and ECAs.
SERVICE DELIVERY - Bulk: The gas is transported to South Africa by project sponsor Sasol thorough a 865 km pipeline from the Temane and Pande gas reserves in Mozambique.
SOURCE OF REVENUE - Fee: Project revenues are obtained from the purchase of natural gas from the pipeline by Sasol in South Africa. The gas is transported by project sponsor Sasol thorough a 865 km pipeline from the Temane and Pande gas reserves in Mozambique.