Chad Camerron Case Analysis

Chad Cameroon Pipeline

Q.1. How are the sponsors financing this deal? How does the financing of the field

The fulldifferent project was planned for $3.7b of system from the financing the export system?
 Field System attributed to $1.5b, and the
Export System for $2.2b


Field System
 300

oil wells

 Financed

by TOTCO

 Corporate


Finance to be applied

Export System
 1070

km pipeline with monitoring mechanism

Q.2. What is the world bank/ifc's role in this deal? Are they likely to be successful? 

IFC provided $100m loan and upto $300m in syndicated loan to TOTCO and COTCO



Helped $900m of financing from Export credit agencies 

$400 bond issue from intl capital market



Commercial lenders would have extended support only with involvement from World Bank



Handled the Revenue management program

Q.3. Analyse the risk and returns to Chad, Cameroon and the Private Sponsors? How were the returns calculated? Are the risks and returns fair from each party's perspective?




Chad :


High risk – Environmental impact, Resistance from people/residents



Political impact



Exploration of oil doesnt always come with development



Expected Returns - $1.8b


Income taxes (16%)



Royalties



Dividends

Cameroon


High risk - Environmental impact, Resistance from people/residents,
Ground water contamination



Returns - $535m


Transit

Required Returns
CAPM model to calculate Return On Assets

Given Asset B=0.6; ERP=6%; Risk free rate =
6%; debt/equity ratio = 60%

CAPM r=r(tax free)* B*ERP
Equity B = 0.6 * (1+0.6)=0.96
Required Retun On Equity = 6+0.96*6=11.76%
Required Return On Asset = 6+0.6*6 =9.6%

Q.4. Will the Revenue Management Plan work?
Are there aspects of the plan that you think should be changed?


Concept – Optimise product availability, Max
(Revenue Growth)



Sell right product to right consumer at best price 

Components
 Poverty

alleviation

 Transparency
 Participation


reg use of revenue

from -govt,