The Chad Cameroon Petroleum Development and

Pipeline Project Case Study

Group C

Dennies Sebastian
Franceseca Sala
Indrajith S
Jaison John
Rahul Gopal

Project history
Conoco, cheveron, exxon and shell discovered oil in
chad
Civil war- Conoco withdrew and cheveron sold its stake
MOU was signed in 1996 between government and the
companies.
In 1999 exxon was the market leader of 40% of market
share followed by Petronas & Chevron

Project description- $3.7 billion

$1.5billi
on

$2.2billi
on

Field system
1.Construction of 300 oil
wells
2.Corporate financing
Export system
1.Construction of pipe
lines(1070km)
2.Implementing monitoring
system to detect leakages

Benefits
CHAD & CAMEROON
1. Reduce poverty
2. Generate employment
3. Infrastructure development
.COMPANIES
1. Availability of resources
2. Improves social and environmental realtionships

Why world bank ?

Experienced and aimed to develop the poorest nations.
Protection for other sponsors and encourage them to
invest
Stabilizing the economy of the chad

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

QUESTION 1
How are the sponsors financing this deal?
How is the financing of the field system
different from the financing of the export
system?

CONSORTIUM

ExxonMobil

40
%

Petroleum Nasional
Berhad

35
%

Chevron
Field System

25
%.
$1.5 billion

Export System

$2.2 billion

TChad Pipeline Co.

(TOTCO)
incorporated joint venture
89 % consortium
11% Government of Chad

Upstream Consortium
unincorporated joint
venture
100 % owned by the
consortium
NO DEBT
ONLY EQUITY
Corporate
finance

Project finance
Cameroon Pipeline Co. (COTCO) incorporated
joint venture
85% Consortium
5% Government of Chad
10 Government of Cameroon

QUESTION 2
What is the world bank/IFC's role in
this deal? Are they likely to be
successful?
In general, their role will be to guarantee to sponsors and banks
protection against political risk, as Chad is an high risk country.
3 main directions:
environment protection
indigenous people
long term sustainability

They are likely to be SUCCESSFUL as soon as they monitor the

program and keep the promises. The
capacity-building programs in Chad and Cameroon to develop
the oil sector are a first fundamental step to the success of this
project.

Question 3
Analyze the risk and returns to Chad, Cameroon and the
PrivateSponsors? How were the returns calculated? Are
the risks and returns fair from each party's perspective?

Beta = 0.5
Risk Premium = 6%
Risk free rate = 6.20% (Average)
Beta (equity) = Beta (asset) * Total Capital/Equity
=

0.5*1/0.624 = 0.801

Cost of equity = 0.062+0.06*0.801

= 0.110 = 11%

Hence, the discount rate of 10% applied by World Bank is

justified.

 Highest risk is associated with Private Sponsors,

which comes up to S.D of 86.9.
While Chad has a S.D of 35.3 and expected
return of 478.78. The risk and returns here are
fairly adjusted.

Question 4
Will the Revenue Management Plan work? Are there
aspects of the plan that you think should be
changed?
Based on the RMP :
$1.8 bn of cash flow income tax, royalty and dividends
Revenue - $14 bn in revenue and $8 bn in total
distribution
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.

The success rate of RMP working out is high, due to the

following reasons:
The government has the discretion of spending the funds, but
the spending will be limited to the development purposes.
They will be periodically reviewed by a committee formed for
the same.
The World Bank would monitor the entire program and review
all expenditures.
The bank has also linked the government performances under
the RMP to future World Bank lendings.

Aspects that need to be revisited :

Composition of members in the committee formed.
A governing board to look into the working of the
committee.
Change in the allocation pattern.
20% of fund to be deposited for poverty allevation.

Q.5. Would you approve the deal as a world

bank/ifc board member?
Opportunity to alleviate Poverty from Chad
Commercially viable Project
RMP Formulation
In-depth Assessment of Environmental and Social
Impact
Other Investment Opportunities - Route through Libya
If self developed then no control over funds Against

CONCLUSION
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 , 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.