ENH, SacOil, CPP Conclude $6Bn Mozambique Gas Pipeline Cooperation Agreement

A Cooperation Agreement that will result in the construction of the estimated US$6 billion 2 600km, large-diametre pipeline to transport natural gas from Mozambique’s Rovuma Basin to Gauteng in South Africa, has been signed between Empresa Nacional de Hidrocarbonetos E.P (ENH), the national oil and gas company of Mozambique, Profin Consulting Sociedade Anónima,  a Mozambican private sector consortium, SacOil Holdings Limited and the China Petroleum Pipeline Bureau, a leading Chinese and international pipeline construction company that will bring a wealth of technical expertise to the pipeline project.

The agreement assures the financing commitments required for the pre-investment and engineering studies and the speedy and effective construction and implementation of the project.

The signing is a culmination of events that started on 8 December 2014 when a Joint Development Agreement (JDA) with the Public Investment Corporation SOC Limited (PIC) and The Instituto de Gestão das Participações do Estado (IGEPE) was signed.

The JDA set out the terms for an evaluation of the technical and commercial feasibility of the construction of a gas pipeline and distribution facility intended to carry natural gas from Mozambique’s Rovuma fields to South Africa, with off-takes to other neighbouring Southern African Development Community (SADC) countries.

ENH, the main statutory agency responsible for the development of Mozambique’s hydrocarbon industry, replaces IGEPE. Profin’s participation assures a leading role for the Mozambican private sector on the Project. As EPC Contractor, CPP brings a wealth of world class construction, debt and equity financing expertise to the Project.

In accordance with its investment mandate, the PIC will not be active in the pre-investment phase but remains committed to the development of the Project. The PIC will retain its position as member of the South African consortium that is being formed and intends to become a party to the Joint Venture agreement when it is concluded. The pre-investment consortium therefore consists of ENH, Profin, SacOil and CPP.

The Cooperation Agreement Partners will focus on ensuring that the Project achieves bankability by assuring a solid investor group drawn from China, Mozambique and South Africa.

The CA supersedes the JDA and leads to the incorporation and operation of the Joint Venture Project Development Company, which will have Chinese, Mozambican and South African consortiums of investors as shareholders. The South African Consortium will include SacOil and the PIC.

The JV Company will develop and manage all the initial activities of the Project including requisite pre-investment studies, which will be performed by CPP. CPP will pre-finance the studies up to bankable feasibility.

CPP will also be the Lead Arranger and shall be responsible for procuring the debt financing equal to 70% of the total project cost from Chinese financial institutions.

Rationale for the Project

If constructed, it is proposed that the 2 600km main pipeline from northern Mozambique to South Africa will, en route, deliver gas to key towns and settlements in all provinces of Mozambique, thereby stimulating industrial growth in the country. The indicative gas requirements of, as well as benefits to, Mozambique and South Africa therefore justify such a pipeline.

The estimated US$6 billion Project is being designed to make energy affordable to a greater proportion of the population, promote clean energy, reduce oil import bills, lower carbon footprint and carbon tax. These are challenges experienced by South Africa and other economies in the region.

Commenting on today’s announcement, SacOil’s CEO Dr Thabo Kgogo said,

“The Mozambique gas project is central to the growth strategy of SacOil to become a leading Pan African oil and gas company. The inclusion of ENH and Profin strengthens our partnership with local Mozambican companies in the area of Oil & Gas and the Energy sectors. Additionally, the Cooperation Agreement with ENH, Profin and CPP is also in line with our strategy of developing strong strategic partnerships. We look forward to working with our partners to solve the energy demands of the SADC region.”