Documentof The World Bank

FOR OFFICIAL USE ONLY c k tf/S- 53J Public Disclosure Authorized

Report No. 6628-GH

Public Disclosure Authorized STAFF APPRAISALREPORT

GHANA

PETROLEUMREFINING AND DISTRIBUTION PROJECT

May 20, 1987 Public Disclosure Authorized Public Disclosure Authorized

Energy Department

This documenthas a restricteddistribution and may be used by recipientsonly in the performance of theirofficial duties. Its coutelts may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS

Currency Unit = Cedi (¢ ¢ 159 = US$1.00_

WEIGHTSAND MEASURES

1 Metric Ton (MT) = 1,000 Kilograms(kg) 1 Barrel (BBL) = 0.159 Cubic Meter 1 Metric Ton of Oil (API 30) = 7.19 Barrels 1 Ton of Oil Equivalent(TOE) = 10 MillionKilocalories (39.7 Million BTU) 1 TOE = 1,000 Kilogramof Oil Equivalent(kg OE) 1 Kilocalorie = 3.97 BritishThermal Units (BTU) 1 Gallon = 3.785 Liters

ABBREVIATIONSAND ACRONYMS

BEICIP = Bureaud'Etudes Industrielles et de Cooperation de l'InstitutFrancais du Petrole ECG = ElectricityCorporation of Ghana EIB = EuropeanInvestment Bank ENI Ente NazionaleIdrocarburi GHAIP GhanaianItalian Petroleum Company Limited GNPC Ghana NationalPetroleum Corporation COIL - Ghana Oil CompanyLimited KfW = Kreditanstaltfur Wiederaufbau MFP Ministryof Fuel and Power NEB = NationalEnergy Board PNDC = ProvisionalNational Defense Council UNDP = United NationsDevelopment Program VLTC = Volta Lake TransportationCompany VRA Volta Lake Authority

FISCALYEAR

January 1 - December 31

1/ A dual exchangerate systemwas establishedon September19, 1986 when a foreignexchange auction was institutedfor specifiedtransactions. A t90 rate appliedto the first window (cocoaand residualoil exports, petroleumand essentialdrugs imports,and centralgovernment debt service contractedbefore January 1, 1986);the rate on the secondwindow was establishedat the weekly auction. The two rates were unifiedwith effect from February20, 1987; all transactionsare now valued at the rate emergingin the weeklyauction. In the week endingMay 8, 1987, the marginalrate at the auctionwas ¢159 = US$1. FOR OFFICIAL USE ONLY

GHA

APPAUISALOF PETROLEUMREFINING AND DISTRIBUTIONPROJECT

TABLE OF CONTS

Page No.

I. INTRODUCTION *v***ev***-*v¢**X**v*** 1

II. THE ERGY SECTOR...... 2

A. Energy Resources, Supply and Demand ...... 2

B. Sector Organization ...... 4

C. The Renewable Energy Sector...... 5

D. The PetroleumnSector ...... 55......

1. Hydrocarbon Potential .....* ...... 5 2o PetroleumConsumption 000000000000000000toooeoOO-oO 6 3. Petroleum Refining 000000 00 00000000 000000000*ooOoo* 0000 9 4. Petroleum Product Distribution and Marketing .. o..... 11 5. Petroleum Product Transport via Volts Lake *ooo**.ooo.. 12 6. Distribution in the Rural Areas ...... 12 7, LPG Distribution 000...... 0... 04 0000000. 0 0 O..00000000.00.00 13 8. Petroleum Product Pricing ...... 13 9. Private Sector Activities ...... 15

E. Government'sSector Ob3ectives and Development Plans *e*oe* 15

F. Role of the Bank Group 161...... o.*.o.

III. THE BORROWER AND THE IMPLEMENTING AGENCIES ...... 17

A. Introduction .... .00000.00000000... * ...... 17

B. The Ghana Italian Petroleum Limited *....*...... *e . o* 18

1. Organization .0.0.0.0...... o.o...o...... 18 2. Managementand Staff ...... o 19 3. Accounts and Audit 0000...0 20 4. GRAIP's Finances ...... 20

This reportwas preparedby Messrs.N. Tin and T. Nayar of the Energy Departmentwith the assistanceof Mr. N. Kassatly(Consultant). Mrs. R.M. Colon providedsecretarial assistance.

This documenthas a restricteddistribution and may be usedby recipientsonlb in the perfomae of their oflicialduties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. - ii -

Page No.

C. The Ghana Oil Company Limited ...... *...... 25

I1 Organisation .ooo.o.eoe....ooo*oo...... *...... ,25 2. Management and Staff ...... 25 3. Accounts and Audit ...o,....,.....0.0...... o.....0 26 4. GOIL's Finances o*o*ooooo,.ooo.o*.*oo.oo.ooo,ooooe oo.*. 26

IV. THE PROJECT o.o.o... *oe...... ee...... *.ee...... 29

A. Genesis .o,o.,o o.o..o*.... ooo. oo.o.oooooo*o..oooo..e.oo*.. 29

B. ProjectObjectives oo..o ee 30

C. Project Description oo...... o...... 30

1. Rehabilitationof GRAIP'sTema Refinery Facilities .... 31 2. Rehabilitationof COIL'sBulk PetroleumDepots at Takoradi and Kumasi *.oo5oeo*oo....oe.*oo eO*..O.oso0. 32 3. Rehabilitationof Retail Outlets ...... 0...... 32 4. Expansionof LPG MarketingFacilities o...... 33 5. Petroleum Product Transport via Volta Lake .....o...... 33 6. Farmers' ServiceReseller Outlets o...... ooo..o..oo... 34 7. Trainingfor GOIL Personneland ComputerFacilities oo. 34

D. Project Managementand Implementation ... ** ...... 34

E. Project Schedule ...... 36

Fo Project Cost Estimates ...... 36

Go Financing Plan so,,... .ovsoo**oX*oeoo...ss.s..... 38

R. Procurement e 39

I. Allocation and Disbursement of IDA Credit .0...... 0...... 40

J. Environmentaland Safety Aspects o...... 41

K. ProjectMonitoring and ReportingRequirements .... o...... 42

V. PROJECT JUSTIFICATION AND RISKS ...... oo... o...... eeooo.0*0 43

A. Project Justification o...... ooo oo 0.0.00.0 43

1. Sectoraland Institutional Objectives ...... 0 43 2. Econ%iMicReturns *o..o..o....o..o..o...... ooooooooooo 44 3. GHAIP'sTema RefineryOperating Economics ...... 44 - iii -

S. ProjectRisks *...... ,.o...... *..0,.,00...... *,45

VI* AGREE13MET...... *..,...... * 46

ANNUE$E

2-1 Ghana - EstimatedEnergy Supply/DemandBalance, 1985 2-2 PetroleumProducts Price Structure 3-1 CHAIP - OrganizationStructure 3-2 GRAIP - HistoricalIncome Statements, 1981-1985 3-3 CHAIP - HistoricalBalance Sheets, 1981-1985 3-4 GUAIP - ProjectedIncome Statements, 1986-1992 3-5 GBAIP - ProjectedBalance Sheets, 1986-1992 3-6 QUAIP - ProjectedSources and Applicationof Funds, 1986-1992 3-7 QUA!P - Notes and Assumptionsfor FinancialProjections 3-8 COIL - OrganisationStructure 3-9 COIL - HistoricalIncome Statements,1981-1985 3-10 COIL - HistoricalBalance Sheets, 1981-1985 3-11 COIL - ProjectedIncome Statements,1986-1992 3-12 COIL - ProjectedBalance Sheets, 1986-1992 3-13 COIL - ProjectedSources and Applicationof Funds, 1986-1992 3-14 COIL - Votes and Assumptionsfor FinancialProjections 4-1 ProjectImplementation Schedule 4-2 DetailedProject Cost Estimates 4-3 EstimatedDisbursement Schedule 4-4 ProjectMonitoring Indicators 5-1 EconomicAnalysis 5-2 QUAIP - Tema RefineryOperating Economics

MAPS

Ghana - Existingand ProposedPetroleum Supply and Distribution Facilities(IBRD 20017) Volta Lake PetroleumTransport - AkosomboWorks (IBRD 20018) Volta Lake PetroleumTransport - Buipe Works (IBRD 20019)

DOCUMENTSCONTAINED IN PROJECTFILE

1. Improvementand Expansionof the Volta Lake TransportSystem: Fuel HandlingFacilities at Akosomboand Buipe,VLTS EngineeringConsortium, L&P - GOPA - RRI, April 1986.

2. Regulationsof the GhanaianItalian Petroleum Company Limited.

3. Regulationsof the Ghana Oil CompanyLimited. - iv -

CHANA

PETROLEUMREFINING AMD DISTRIBUTIONPROJECT

CREDITAND PROJECTSUMMARY

Borrower: Republicof Ghana

Beneficiaries: GhanaianItalian Petroleum Company Ltd. (GHAIP)and Ghana Oil CompanyLtd. (COIL)

Amount: SDR 11.7 million (US$15million equivalent)

Terms: StandardIDA

OnlendingTerms: The Governmentwould onlend the full amountof the Credit to GRAIP (SDR 1.3 millionor US$1.7 million equivalent)and COIL (SDR 10.4 millionor US$13.3 million equivalent) at 1.1 times the prevailing (currently7.92X) Bank interestrate for 15 years including3 years of grace. GHAIP and COIL would bear the foreignexchange risk on the Credit.

Colenders: SIB is expectedto provideUS$6.5 million equivalent towards .he financingof GHAIP'sTema refinery rehabilitation.The FederalRepublic of Germany, throughKfW, would provideDM 16 million (US$8.7million equivalent)to Vofta Lake TransportationCompany (VLTC) to financeon a parallelbasis the watersidefacilities of the Volta Lake petroleumtransport system.

ProjectDescription: The proposedproject would increasethe reliabilityand reducethe cost of supplyand distributionof petroleum productsthroughout the countryby furtherimproving the operatingefficiency of CHAIP'srefinery and by rehabi- litatingand improvingCOIL's existing o4tl distribution and marketingfacilities. It would also open a new route of transport(Volta Lake) of petroleumproducts to the north and enable the distributionof diesel and keroser.eto outlying/remoteareas mainly to facilitate movemontof agriculturalproducts. The proposedproject comprisesthe followingcomponents:

(a) Completionof the ongoingrehabilitation of the Tema Refineryof GCAIP (underCredit 1446-GH) particularlyoffsite facilities, utility systems, LPC handling,product shipping facilities and energy efficiencyimprovement of the existing distillationunit, and acquisitionof vehicles; (b) rehabilitationof GOIL's bulk petroleumstorage depots locatedat Takoradiand Kumasi;

(c) rehabilitationof GOIL's existingnetwork of retail outlets;

(d) expansionof the infrastructureand increased availabilityof LPG bottlesand stovesto market additionalLPG that could be made availablefrom the Tema refinery;

(e) provisionof storagetanks and transferfacilities (i.e. land side facilities)at Akoaomboand Buipe to transportpetroleum products on the Volta Lake towardsthe northernparts of the country;

(f) provisionof oil jettiesat Akosomboand Buipe, petroleumbarges and tug boat (i.e. water side facilities);

(g) provisionof transportvehicles to move LPG and other petroleumproducts;

(h) provisionof facilitiesfor farmers'service reselleroutlets to make essentialpetroleum products(mainly kerosene and diesel)available to the farmersin remoteareas; and

(i) projectengineering and managementassistance for CHAIP and COIL, computerfacility for COIL and trainingof GOIL'smanagerial and operational personnel.

ProjectBenefits and Risks: The main benefitsof the proposedproject would be: increasedreliability and reductionof cost in the supplyand distributionof petroleumproducts throughout the country;increased access to petroleumproducts in the northernregions and the outlying/remoteareas to supporttheir economicdevelopment; slowing down deforestationwith f rther distributionof LPG readily availablefrom the Tema refinery;restructuring the operatingand earningbasis of CRAIP and strengthening the commercially-orientedoperations of CHAIP and COIL; and furtherreducing oil pollutionfrom Tema refinery operationsto normal industrystandards. There are no unusualrisks associatedwith the proposedproject. vi -

EstimatedCost: La Local Foreign Total

(i) Rehabilitationof Tem RefineryFacilities 1.4 5.3 6.7 (ii) Rehabilitationof GOIL's Depots at Takoradi& Kumasi 0.2 0.5 0.7 (Mii) Rebabilitationof Retail Outlets 0.5 1.9 2.4 (iv) Expansion of LPG NarketingFacilities 0.9 3.6 4.5 (v) Handlingfacilities at at Akosomboand Buipe 1.4 3.8 5.2 (vi) Jettiesat Akosomboand Buipe, PetroleumBarges and Tug Boat 0.9 7.7 8.6 (vii) Farmer'sService Reseller Outlets 0.2 0.5 0.7 (viii) TransportVehicles - 0.8 0.8 (ix) Trainingfor COIL Personnel 0.1 0.3 0.4 (x) ComputerFacility for COIL 01 0.2 0.3 Base Cost Estimate 5.7 24.6 30.3 PhysicalContingencies 0.7 2.6 3.3 Price Contingencies 1.7 1.0 2.7 Total Project Cost 8.1 28.2 36.3

FinancingPlan:

IDA -- 15.0 15.0 SIB 2.0 4.5 6.5 COIL 5.0 -- 5.0 KfV -- 8.7 8.7 VLTC/VRA 1.1 - 1.1

Total Financing 8.1 28.2 36,3

/a The projectIs exempt riroa1 1 duties and taxes.

EstimatedDisbursement

(Us million) IDA PY 1988 1989 1990 1991 Annual 4e3 6.7 3.2 0.8 Cummulative 4.3 11.0 14.2 15.0

Rate of Return: Rangingfrom 18 percentto 26 percentfor variousproject components.

Staff AppraisalReport: No. 6628-CE

Maps: Ghana - Existingand ProposedPetroleum Supply and Distribution Facilities- IBID 20017 Volta Lake PetroleumTransport- Akosombo Works - IBRD 20018 Volta Lake PetroleumTransport - BuipeWorks - IBRD 20019 I. INTRODUCTION

1.01 Bank Group involvementin the petroleumsector in Ghana began with IDA creditsof SDR 10.2 million in May 1983 for the EnergyProject (Credit 1373-GH)and of SDR 6.6 million in March 1984 for the PetroleumRefinery Rehabilitationand TechnicalAssistance Project (Credit 1446-GE). Through these operations,IDA focussedand assistedin strengtheningthe capabilities and operationsof the sectoralinstitutions, including the newly created NationalEnergy Board (NEB) responsiblefor energypolicy formulation and planning;addressed the key policy issuesof energypricing and investment programing;and acceleratedthe explorationand developmentof indigenous hydrocarbonresources, through the revisionof petroleumlaws and acquisition of seismicdata and basin studiesfor promotionto foreignoil comapnies.

1.02 The Governmentof Ghana has requestedIDA assistanceto financea projectthat would reduce the cost and increasethe reliabilityof supplyand distributionof petroleumproducts in the country. The proposedproject is an outgrowthof studiesby the French consultants,BEICIP, financed under the ongoingRefinery Rehabilitation and TechnicalAssistance Project. It is a result of long discussionswith the Governmenton the petroleumsector and is part of the Government's"core" capital investmentprogram reviewed and supportedby the variousBank's Public ExpendituresReviews and the Energy AssessmentMission in November1985.

1.03 The proposedproject has served as an importantvehicle for continuousdialogues with the Governmenton a numberof importantpolicy issues,namely the rationalizationof the investmentprogram in publicand/or private petroleumrefining and distribution,the roles of the state-owned sectoralentities and of private sectorinvestment in the marketing subsector. With regardto the investmentprograam, the Government,through discussionswith IDA, agreed to postponea major investmentfor a refinery secondaryconversion project (US$85-130 million) in view of the uncertainties in the crude and finishedproduct prices in the internationalmarket and the need to Teduce the publicsector investmentprogram. With respectto the state-ownedsectoral entities including the GhanaianItalian Petroleum Company Ltd. (CHAIP)and the Ghana Oil CompanyLtd. (COIL)responsible respectively for the refineryand distributionoperations, it was agreed that they would operate strictlyon a commercialbasis, and be as efficientas privatesector organizations.On the issue of inducinginvestments by the privateoil companiesoperating in Ghana,which togethermarket nearly two-thirdsof petroleumproducts in the country,the Governmentrecognized that, to remove presentimpediments to such investments,all companiesin the sectorwould have to be allowedto repatriatedividends, In view of the complexitiesof this issue as well as foreignexchange constraints, a resolut:ionwould take a long time to emerge. However,prior to the commencementof the foreign exchangeauction in September1986, the Governmenthad decided,on IDA's suggestions,to releasecertain amount of foreignexchange through normal budgetaryappropriation to the privateoil companiesfor spare parts and materialsto rehabilitatetheir distributionfacilities particularly in outlyingareas. Currentlyforeign exchange for purchasingessential spare parts and materialsis releasedthrough the auctionsystem. This arrangement would achievethe objectiveof rehabilitatingthe distributionsector as a whole, with the privateoil companiesmaintaining their sharesof the market. - 2 -

1.04 The proposedproject consists mainly of: (i) completingthe ongoing rehabilitationof the Tema refineryof GRAIP and improvingthe efficiencyof its operationsthrough increased energy conservationand productionof liquifiedpetroleum gas (LPG); (ii rehabilitatingthe oil depotsat Kumasi and Takoradiand the networkof retailoutlets of COIL; (iii) establishinga new and economicmode for bulk transportof petroleumproducts -- via Volta Lake -- to northernregions; (iv) supportinga pilot schemefor bringing diesel and keroseneto the remoteareas essentiallyaimed at improvingthe movementof agriculturalproductsl and (v) providingoperational and managerialtraining to COIL personnel. The Volta Lake petroleumtransport, which would be cofinancedby the FederalRepublic of Germanythrough Kreditanstaltfiur Wiederaufbau (Kf), would be the backboneof a transport systemthat in the future could also reduce the cost cf supplyingpetroleum productsto neighboringcountries such as BurkinaPaso and northernTogo.

1.05 The total projectcost exclusiveof interestauring constructionis estimatedat US$36.3million equivalent including US$28.2 million in foreign exchange. The proposedIDA credit of US$15 millionequivalent would finance 53 percentof the foreignexchange requirement or 41 percentof the total projectcost. The balanceof the projectcost would be providedby the EuropeanInvestment Bank (RIB) (US$6.5million equivalent or 18 percent),KfW (US$8.7million equivalentor 24 percent),COIL (US$5.0million equivalent or 14 percent)and the Volta Lake TransportationConpany Ltd. (VLTC)and its parent companyVolta Lake AuthoritySVRA) (US$1.1million equivalent or 3 percent). VLTC is the owner and operatorof the port and navigationsystem on Volta Lake.

1.06 The proposedproject was init4allyidentified in early 1985 based on BRICIP'sreports (para. 1.02). SubsequentIDA preparationmissions visited Ghana to help the Governmentand the entitiesinvolved define the scope and cost of the project,as well as to discusscofinancing possibilities with a number of bilateraland multilaterialaid agencies. The projectwas appraised by Messrs.T. Nayar and N. Tin in April/May1986. Follow-updiscussions were held with the Governmentand relevantentities in November1986.

II. THE ENERGY SECTOR

A. EnergyResources, Supply and Demand

2.01 Ghana is well-endowedwith energy resources,of which fuelwoodand hydropowerare the most important. Wood-basedenergy supplies are abundantin the two main forestedareas -- the high forest zone in the southwestand the savannawoodland zone in the northernpart of the country- which together cover about 17.8 millionha or two-thirdsof the total land area. Hydropower resourcesare also abundantparticularly in the centraland westernregions which are drainedby three major areaswith over twenty tributariesand streams. The usable Lydropowerpotential is estimatedat about 2,000 MW, about twice the presentlyinstalled capacity. Two hydropowerplants, constructedwith the financialassistance of the Bank, with respective installedcapacity of 912 NW (Akosombo)and 160MW (Kpong)are locatedon the Volta River. Tappingthe remaininghydropower potential is likelyto be costlierthan thermalalternatives. - 3 -

2.02 Proven petroleumreserves amount to less than 2.5 millionbarrels, but the petroleumpotential is consideredmuch larger,in the offshoreTano and Cape Three Points structureswhere hydrocarbondeposits have been identified. There are no known coal, ligniteor peat deposits. The resources of biomassother than woodfuelscomprise mainly crop residues,the extent of which may be considerable.Solar energy is plentiful,while wind energy is of limitedpotential.

2.03 Domesticenergy outputconsists primarily of wood, hydropower,crop residueand, to a very minor extent,petroleum. It is estimatedat 3.9 million tons of oil equivalent(TOE) in 1985 and covered87% of Ghana's overallenergy requirements.The balancewas met by importedpetroleum. Of the 1985 energy output,firewood accounts for 76%, hydropowerfor 20%. crop residue for 3.6%, and domesticpetroleum for 0.4%. During 1976-85,the increasein domesticenergy output averagedless than 2% per annum,with a considerabledrop in 1982-84due to substantiallyreduced hydropower generationcaused by a severedrought.

2.04 Ghana'snet energy consumptionin 1985 is estimatedat 3.1 million TOE, or about 232 kgOE per capita,which is low even by Africanstandards given the favorableenergy resourceendowment and the relativelyadvanced degree of industrialization.As shown in the tabie below, about 70% is met from fuelwoodand charcoalmainly for urban and rural householdconsumption, followedby petroleumproducts (22%), agricultural residues (4.6%) and electricity(3.4%). Net per capitaconsumption of commercialenergy (i.e., petroleumproducts and electricity)estimated at 59 kgOE in 1985, also is low comparedto other Sub-Saharancountries such as Ivory Coast (136 kgOE in 1982) and Senegal (102 kgOE in 1981). Commercialenergy consumption increased throughoutthe 1970s and early 1980s,spurred by subsidizedprices of petroleumproducts and electricity,but declinedsharply in 1982 as the supply of petroleumand electricitywas drasticallyreduced due to short_geof foreignexchange and drought. An energy supply/demandbalance for 1985 is shown in Aniuex2-1. - 4 -

Ghana- EnergyConsumption - 1985 (ThousandTOE)

Fuel Crop Petroleum Consumption Wood Charcoal Electricity Residues Products Total (t)

Transport ------336.9 336.9 (11.0)

Industry 90.9 -- 48.6 -- 105,5 245.0 (8,0)

Agriculture -- - -- 92 92.8 (3.0)

Commercial -- -- 16,1 -- 43,4 59.5 (2.0)

Residential 1,726.1 312,8 37.6 138.7 106.6 2.321,8 (76,0)

Total 1,817.0 312,8 102,M 138.7 685.2 3,056.0 (100.0) (S) (59,4) (10,2) (3,4) (4,6) (22.4) (100.0)

Sources: Ministry of Fuel and Power,NE@, GNPC, GHAIP, VRA, EOG,

B. SectorOrganization

2.05 The Ministryof Fuel and Power (MPP) is chargedwith the overall respensibilityfor the energy sector. It supervisesthe Ghana National PetroleumCorporation (GNPC) which is responsiblefor petroleumexploration, developmentand production(which have been carriedout by foreignoil companies);GRAIP for petroleumrefining; and GOIL for petroleumproducts distributionand marketing. In the power sector,MPP supervisesthe Volta River Authority(VRA), which is responsiblefor hydroelectricpower generation,transmission and bulk distribution,and the Electricity Corporationof Ghana (ECG) which essentiallydistributes power to the consumersthroughout the country. Aside from the aforementionedGovernment- owned entities,there are four privateoil companieswhich are wholly-owned local subsi'tariesof the major internationaloil companies(BP, Mobil, Shell, and Texaco_T). Their responsibilitiesare limitedto the storage, distributionand marketingof petroleumproducts alloted to them. Although their activitiesare monitoredand controlledby NIP, they enjoy a fair amount of freedomin the actualdistribution and marketingof petroleumproducts.

2.06 There have been seriousinstitutional weaknesses facing the sector, resultingin the inadequacyespecially in energy planningand in the coordinationamong the varioussubsectors and entities. To alleviatethese weaknesses,the Governmentformally established in late 1983 the MEB (para. 1.01) which servesmainly as a policyanalysis and advisorybody to MFP. NEB is responsiblefor formulatingrecommendations of overallenergy policies;

1/ In West Africa includingGhana, Texaco was sold to Shell in December1986. - 5 -

directingdemonstration and developmentprojects in renewableenergy; monitoring/inspectionof petroleumexploration, development, production, refiningand distribution;and enforcingthe terms and conditionsof explorationand productionagreements. NEB commencedits operationsin 1985 with the appointmentof its Board of Directorsand ExecutiveDirector. It receivestechnical assistance from IDA, throughthe EnergyProject (Credit 1373-CH),and the United NationsDevelopment Programme (UNDP).

C. The RenewableEnergy Sector

2.07 More than 95% of Ghanaianhouseholds depend on wood or charcoalfor cookingfuel. Forestbased productsalso meet a substantialproportion of energyneeds in activitiessuch as food processing,and beveragemaking. Fuelwoodconsumption in 1985 is estimatedas 8.6 millionMT or about 802 of total wood use. While there is no overalllack of forestresources and vegetativegrowth, and the supplystill exceedswoodtree demand, the gap is narrowing. In fact, wood consumptionmight exceed the naturalforest incrementin the 1990s if the presenttrend of deforestationand range degradationcontinues. To arrest them, the governmentmay increasethe woodfuelsupply throughimproved forest management, expanded tree planting, higherefficiency of charcoalproduction and increaseduse of wood waste and, at the same time, improvethe end-useefficiency of stovesand develop woodfuelsubstitutes. These issueswould be addressedin a ForestrySector Reviewcurrently under preparation.

2.08 AlthoughGhana's hydroelectric potential has been well studiedwith a view to identifyinglarge scale projects,efforts have been only recentlyto assess the small scale hydroelectircpotential on a country-widebasis. In fact, the surveysby NEB with the assistanceof UNDP and IDA have identified some 40 mini-hydrosites with a total potentialcapacity of 20 NW. It may be economicallyfeasible to supplyelectricity from these sites to isolatedrural areas. NEB is preparinga programfor investmentin renewableenergy with the technicalassistance provided under the Energy Project(Credit 1373-GC).

D. The PetroleumSector

1. HydrocarbonPotential

2.09 Ghana'shydrocarbon prospects are locatedin three onshore sedimentarybasins, the large Volta Basin (104,000sq km) in the north, the Tano basin on the southwestcoast, and the Keta basin in the southeastern coastalarea - and one offshorebasin of about 70,000sq km, includingthe deep offshore. The offshorebasin has attractedmost of the exploration.To date, some 56 explorationwells (36 were offshorewells) have been drilledby foreigncompanies resulting in few commercialdiscoveries. Only the marginallyeconomic offshore Saltpond field was developedin the early 1980s but its operatorsdecided to returnthe field to the Governmentafter productionhad droppedto 650 B/D in mid-1985,down from 4,000 BID around - 6 -

1980.11 More recently,two offshorewells drilledin the Tano basin by PetroCanadaInternational Assistance Corporation (PCIAC) of Carada identified promisingprospectt which are being furtherevaluated.

2.10 With explorationby foreigncompanies tapering off in the early 19809,and with the objectiveof reducingdependence on petroleumimports, the Government,with the assistanceof the Bank/IDAtook steps to rekindleand acceleratehydrocarbon exploration. For this purpose,GNPC (para.2.05) was createdas an autonomousbody responsiblefor explorationand fleld development,including the negotiationof contractswith foreigncompanies. Throughthe Energy Project,the Bank/IDAassisted in the revisionof the petroleumlegislation and the formulationof a draft model agreementas part of the Government'sconcerted efforts to attract foreigncompanies to explore and develophydrocarbon resources. This projectalso financesthe collection and processingof availablegeological and geophysicaldata on the offshore basin to better establishand promoteGhana's hydrocarbon potential; assistancein preparingpromotional packages, contract negotiations and monitoringthe companies'activities; and trainingof GNPC staff in geology, geophysics,engineering, economics and law. The Government'spromotional effortsand invitationto bids for 17 offshoreblocks in 1985 generatedsome interestby the industry. However,thus far, only one explorationcontract was concluded,i.e. with Diamond Shamrock,a U.S. independentcompany, coveringone onshoreblock in the Keta basin and IFC later participatedin this deal. Negotiationswith other internationaloil companiesare in progress.

2. PetroleumConsumption

2.11 By internationalstandards, Ghana is not a petroleumintensive economy. Per capita petroleumconsumption of around 51 kilograms(kg) of oil equivalentis less than half that of other African countrieswith similarper capitaincomes, such as Angola,Kenya and Sudan. Consumptionwas limitedto 0.5 millionMT of crude oil in 1983 throughstrict rationing due to foreign exchangeshortages, but increasedto around0.9-1.0 million MT per year in 1984 to 1986. As shown below, althoughGhana's net petroleumimports have fallenfrom US$248million in 1980 to US$165million in 1985, they still claimedabout 25X of the country'stotal export earningsin 1985. With the drasticreduction in oil pricesbeginning January 1986, Ghana'snet petroleum importsdecreased to US$98 million in 1986, representing12 percentof total exportearnings for the year.

1/ Productionfrom Saltpondcommenced in 1978 and met nearly 5S of Ghana's crude requirements.Production started to declinein 1982 and by the time the field was shut-inin mid-1985,about 3.5 millionbarrels had been recovered. Ghana- PetroleumImports (USSmillion)

1980 1983 1984 1985 1986 Crude Oil Imports(millon MT) 0.986 0.482 fa 0.80 0.949 0,893 RefinedProduct Imports(million MT) 0.030 0,029 0.024 - 0.085 PetroleumImports 284.0 155,4 173.0 199.0 113.6 PetroleumExports b 36.0 20,0 23.0 33.5 16.0 Net PetroleumImports 248,0 135.4 150.0 165.5 97.6 TotalExport Earnings 1175.0 478.0 604,0 671.0 818.0 PetroleumImports/Export Earnings (%) 21,0 28.3 24.8 24.6 12.0

/a Drasticreduction due to severedistruption of supplyand foreignexchange shortages, /b Mainly fuel oil.

Sources:Ministry of Fuel and Power;Bank Ot Ghana and IMF for 1981-84; Estimatesfor 1985.

2.12 Ghana'spetroleum consumption profile, as in most other developing countries,is dominatedby middle distillates(kerosene and dieseloil). Keroseneis used primarilyin rural areas for lightingwhile diesel is used for mass and freighttransportation and fishingboats. Middledistillate consumptionin 1986 was around 60 percentof total domesticpetroleum product consumption. Light and middle distillateconsumption increased slightly from about 90 percentof the domesticmarket, to 92 percentin 1986. This trend towardsincreasing distillate demand and decreasingfuel oil demand is expectedto continueinto the future. The past consumptionof petroleum productsis given in the followingtable: - 8 -

Ghana - PetroleumProducts Consumption (thousandNT)

1980 /a 1981 /a 1982 1983 1984 19-5 1986

Products

LPG 6.9 6.1 6.2 4.5 6.0 6.0 6.2 Gasoline 243.0 255.0 236.0 181.0 174.0 213.0 227.2 Kerosene/ATF 158.0 162.2 124.3 /b 117.0 105.0 129.0 142.5 Diesel c 233.8 229.7 194.7 190.0 191.0 225.0 241.7 Fuel Oil 66.4 58.1 47.7 23.0 23.0 33.0 48.1 Bitumen 6.4 7.4 _74 N.A 5.0 12.0 10.3 Subtotal 714.5 718.5 616.3 515.5 504.0 618.0 676.0

Bui'kerDiesel 57.6 60.6 60 6 lb 42.e 41.0 56.0 43.9 BunkerFuel Oil 5.4 6.4 6:4 Lb 2.0 5.0 7.0 0.1 Subtotal 63.0 67.0 67.0 44.0 46.0 63.0 43.9

Total Products 777.5 785.5 683.3 559.5 550.0 681.0 719.9

/a Figureswere convertedfrom barrelsto metric tons using the following specificgravities: LPG .56, gasoline .73, kerosene/ATF.80, diesel .84, fuel oil .94, and bitumen1.01. /b Estimated. 7T Includesindustrial and marine diesel.

Source: Ministryof Fuel and Power.

2.13 During the period 1982-84,consumption of keroseneand diesel oil declinedsubstantially as a result of Governmentrationing. In the future, opportunitiesto reducepetroleum consumption without seriously hurting economicactivity appear limited. The transportsector, the largestpetroleum consumerwith 65 percentof the total consumption,has only limitedenergy efficiencyimprovement possibilities in the near future. Industrialand comercial sectorsalso have limitedscope for reducingpetroleum consumption since their petroleumuse is comparativelylow (22 percent). Price increases and frequentshortages have alreadydriven some privatesector industries to improveefficiency and/or shift to wood or electricityto meet their energy needs. Petroleumuse in the residentialsector (11 percent)consists almost entirelyof illuminatingkerosene used in the rural areas,and could only be reducedthrough substitution of other energy forms (electricityor LPG), which does not, however,appear immediatelyfeasible.

2.14 In view of limitedpotential for reducingpetroleum consumption throughconservation, it appears that reductionin the total petroleumbill can best be achievedthrough more efficientcrude/product procurement, optimizationof the refineryoperation to reducecost and match the refined productsto domesticrequirements and increasedefficiency of an improved distributionsystem. -9-

3. PetroleumRefining

2.15 Ghana has a 28OOO barrels per streamday (bpsd)or 1.25 millionMT per annum refinerylocated at Tems, near Accra. The facilitiesin the refineryconsist of a crude oil distillation,catalytic reforming and treating units for light naphtha and kerosene/jetfuel (ATK). The refineryalso has tho necessaryoffaite facilities and an oil jetty (32 feet draft) connectedto the refinerycrude tank-farmthrough an 8-kilometer24/16 inch pipeline. From the tanker,crude oil is unloadedinto the pipelinethrough two 8-inch diameterunloading arms, with a similar-sizeunloading arm as a standby.

2.16 The refineryfacilities were commissionedin 1963 by Snamprogettifor GHAIP, then owned by Ente NazionaleIdrocarburi (ENI) of Italy. In November 1977, SNI transferredits 100l ownershipof GRAIP to the Governmentas part of a negotiatedsettlement. The refinerywas designedfor Iraqi Kirkuk crude oil. However,in order to maximizedistillate products to meet the market requirementsand minimizefuel oil production,the refineryhas been processinglight crude oils from Wigeriaduring the past few years. In spite of the lightercrudes being processed,excess fuel oil continuedto be produced,and had to be exportedinvariably at depressedprices. In the absenceof any secondaryconversion facilities, the refineryis unable to furtherreduce the fuel oil production. Quantitiesof crude oil processedand the productsproduced from 1981 to 1986 are shown in the sable below.

Ghana- CrudeOil Processedand Products (thousandMT)

Products 1981 S 1982 % 1983 1984 A 1985 £ 1986 A

LFIG 6.8 0.6 7.1 0.7 533 0.7 4.7 0.6 5.7 0.6 6e2 0.7 Gasoline 255.9 22,7 245.4 23.6 126.5 26.3 173.6 23.2 223.9 23.4 203,2 22.5 Kerosene/Jet165.1 14.6 163.7 15,7 75.3 15.7 101,4 13.6 148.2 15.5 127.8 14.2 Diesel 318.2 28.2 286.2 27.5 121,5 25.3 208.5 27*9 284*4 29.7 271.2 30.0 FuelOil 316.2 28.0 279,0 26.6 117.0 24,3 198,0 26.6 232,3 24.3 239,3 26.5 Total 1,004.1 94,9 1,062.2 94.1 981.4 94.3 443.6 92.3 686.2 91.9 847.7 93.9

Fueland Loss 66.4 59 59.0 5.7 37.0 7.7 60.5 8.1 63.2 6.6 55,4 6.1 Crude Processe 1.128,610010 1,040.4 100.0 480,6 100,0 746.7 100,0 957.8 100.0 903.1 100.0

Source:Ministry of Fueland Pwoer,

2.17 In additionto the problemof excess fuel oil (para 2.16), the refinery,due to its design limitationsand shortageof maintenanceparts, incursan unusuallyhigh fuel consumptionand loss of over 6% againsta norm of 4.0X of crude throughputfor refineriesof similarsize and configuration.This problemis being partiallyrectified under the ongoing RefineryRehabilitation and TechnicalAssistance Project (Credit1446-GH) by providingadequate spare parts, repairingleaking storage tanks and improving - 10 -

the efficiency of the existing boilers. There are also some institutional problems,most notablythe lack of coordinationand accountabilityin crude oil procurement(para. 3.05).

2.18 Prior to IDA involvementwith the Tema refinery,oil leakagesfrom corrodedand worn out facilities(especially the oil jettiesand loadingarms, crutdeand productpieplines, storage tanks, truck loadingarms and pumps) have resultedin oil spills. IDA has assistedGNAIP in alleviatingthese problems by eitherreplacing or repairingsuch facilitiesthrough the ongoingfirst phase refineryrehabilitation. Additional provisions under the proposed project,in particularthe installationof a ne,wAPI oil separatorto remove the oil from the refineryeffluent water, would reduceoil pollutionof the environmentto normal industrystandards (paras. 4.04 and 4.25).

2.19 Tema refinery,operating exclusively for the domesticconsumption of petroleumproducts and situatednear a large crude oil (lightand low sulfur) producingcountry (Nigeria) and away from the surplusmarkets in Western Europe/Mediterranean,enjoys certainoperating advantage, mainly in the differentialof crude and producttransport cost, that makes it economically viable as comparedto importof finishedproducts. The crude and product freightadvantage, on an average,amounts to US$12.50per MT (US$1.68per batrel).Currently operating at aboeit21,000 barrelsper day capacityusing Bonny Light crude from Nigeria,the refineryis able to produceall the productsrequired in the countrywith minimumof surplusresidual fuel oil. Since the crude is extremelylow in sulfurand other metal content,the surplusfuel oil also has a ready market outsideas crackingfeedstock at premiumprices. With these specificadvantages, the Tema refineryhas an annual savingsranging from US$11.6million in October 1985, to US$6.7 million in December1986 as shown on page 2 of Annex 5-2. By implementingadditional energy conservationmeasures envisaged in the proposedproject, the refinery's operatingcost would be furtherreduced by about US$1.0million at curtent fuel oil price.

2.20 Since the main advantagefor the Ghana refineryis in the crude and productfreight differential, it is importantto note that the West Africa region as a whole is a net importerof petroleumproducts of about 7 million MT per year (equivalentto approximately150,000 barrels/day refinery capacity). WesternEurope/Mediterranean is the main sourcefor these imj.orts, so that this is the pricingbase for the region (e.g. surplusproducts from the Abidjanrefinery are exportedon the basis of North West Europe/Medi- terraneanFOB pricesplus freightto the region). Currentinformation on the fifteenrefineries in the West Africa region (Mauritaniato Angola)is given in Annex 5-2.

2.21 Under the ongoingrefinery rehabilitation project, the consultants studiedvarious optionsfor secondaryconversion in the refineryand concluded that thermalcracker (TC) or fluid catalyticcracker (FCC) would be the most suitableoptions with investmentcosts rangingfrom US$85 million to US$130 millionfor TC and FCC respectively.In view of the prevailinguncertainties in crude and finishedproduct prices in the internationalmarket and the need to reduce the public sector investmentprogram, the Government,on IDA's suggestion,decided to postponethe secondaryconversion in the Tema refinery and removedit from the "core" investmentprogram for the energy sector (para. 1.03). 4. PetroleumProduct Distribution and MarketinA

2.22 All products,except lubricants and bitumen,come from the Tema refineryfinished product tankage; about SO of the productsgoes by road tanker directlyto retail outlets,reseller points and large "volume" customers,mostly in the Accra-Temaarea (see the Map of Ghana at the end of the report). Most of the remainingproduct is transhippedfrom Tema to distributiontankage in Takoradi(15) to serve the WesternRegion and parts of the CentralRegion, and Kumasi (35X) to serve the Ashanti,Brong Ahafo, and the Northernand Upper Regions. Two tankagedepots exist in Takoradi- one owned and operatedby COIL and the other by BP, with Mobil and Shell/Texaco making use of the BP facilities. Ocean tankersof 18,000-25,000DiT vessels from Tema supplythese depotswhich have a total tankagecapacity for all productsof about 33,000MT. In Kumasi,Shell, BP, COIL and Mobil own tankage totalling5,000 MT. The depot in Kumasi is suppliedfrom Tema mostly by large road tankers,with very limitedvolumes suppliedby rail tank wagons due to the unreliabilityof the rail system. The approximatemarket sharesof the distributorsand the number of their retailingoutlets are shown below. It is noted from this table that while COIL and Shell currentlyhave about equal market shares,COIL has almost twice as many retailoutlets as Shell. This reflects,to a large extent,the fact that COIL, as a Government-owned company,is bcund to distributethroughout the country,while the private companiesoperate where financialviability is optimized.

Ghana - PetroleumProducts Market Share and RetailingOutlets

Market Shares RetailingOutlets (2) Number (X)T COIL 33 352 41 Mobil . 17 119 14 Shell } 17 }a 84) 10) Texaco} 17 34 94 118 11 21 BP 16 199 24 Total 100 848 100

a/ Shell purchasedTexaco's facilities in December1986, thus increasedits total market share in Ghana to 34 percent. - 12 -

2.23 The main problemsfaced in the distributionand marketingof refined productsare the lack and/or the poor conditionsof the infrastructures includingthose necessaryto bring fuels especiallydiesel and keroseneto reote/outlyingareas as veil as the lack of financialincentive to distribute productsto those areas. In particular,GOIL's depotsat Takoradiand Kumasi are in poor conditionfor lack of spare parts, poor maintenanceand worn out machinery;the product-transferpipelines from the refineryto Tema harbor are badly corroded;the retail outletpumps, underground storage tanks and support facilitiesare in poor conditiondue to corrosionand wear; and the road tank cars which constitutethe main transportsystem for the whole countrypartly are in poor conditiondue to lack of spare parts and partlydue to the extremelybad conditionsof the road. These problems,which threatento disruptthe supplyand distributionof petroleumproducts in the country, would be remediedunder the proposedproject. The necessaryincentive, i.e. marketing/distributionmargin, to inducethe distributionof productsto the remote/outlyingareas would be part of an appropriatepricing structure currentlybeing studiedwith UNIDO assistance(para. 2.27).

5. PetroleumProduct Transport via Volta Lake

2.24 As an alternativeto the long distancemovement of productsto the northernregion by road tank cars, Volta Lake could be used for transporting productsfrom Akosomboto Buipe by barges (a distanceof about 385 km,,see Map IBRD-20017at the end of this report). At presentdrr cargosare moved by bargesfrom Akosomboto variouspoints along the lake in the North. VRA/VLTC have alreadysigned contracts for the developmentof jetty facilitiesat Buipe for dry cargo handlingwith financialassistance from the FederalRepublic of Germany(through KfW). The Governmentand VRA/VLTCare very keen to build facilitiesfor petroleumproducts transportation from Akosomboto Buipe,which will reduceoverall transportation cost, as part of the port developmentat Akosomboand _Ape. Becauseof the very poor conditionsof the existingroad, particularlyfrom Kumasi to the North, the life of the road trucks is greatly reduced,and operatingand maintenancecosts increased. Even if the road is rehabilitatedin the future,bulk transportationby barges over the lake is found to be more cost effective. Lake transportationfrom Akosomboto Buipe would avoid the road transportationto the North by about 500 km, and would increasethe reliabilityof supply to the interiorlocations in the North and, at a later stage,to the neighboringBurkina Faso. At present,supplies of petroleumproducts to these areas are often interrupted.

6. Distributionin the Rural Areas

2.25 While the number of retailingoutlets, if rehabilitated,would meet the needs of the urban areas, the facilitiesfor distributingessential petroleumproducts (mostly kerosene and diesel)for the agriculturalcommunity in the rural areas are inadequatedue to lack of infrastructureand inadequate marketingmargins. The four privateoil marketingcompanies and GOIL are not willingto extend such facilitiesdue to the small volume of trade and comparativelyhigher cost of transportationinvolved. Local private entrepreneurs,if at all interested,invariably expect pricesassociated with black marketconditions. The Governmentattaches high priorityto extend basic minimumfacilities to such areas,especially to amelioratethe movement of agriculturalproducts in the North. The Governmentencourages the local administrationauthorities to form farmers'cooperatives to distribute - 13 -

essentialfuels. As a pilot scheme,the Governmenthas proposedto establish initially125 such outletsall over the interiorlocations at a cost of about US$5.0million. This pilot schemeis includedin the proposedproject.

7. LPG DistributionFacilities

2.26 The five oil marketingcompanies together currently market about 6,000 MT per year of LPCt producedin the Tema Refinery. The refineryhas a potentialproduction capacity of 12,000MT per year at the currentcrude throughputlevel (20,000bpd) withoutrequiring any additionalinvestment. The major constraintsto increasedmarketing of LPC are insufficientstorage and bottle fillingplant, LPG bottles,table-top cooking stoves, and LPG bulk transportvehicles. Marketingof another6,000 MT per year of LPG would enhancethe refinery'soperating economies and would lead to a substitutionof about 24,000MT per year of wood fuel and charcoal. The marketingcompanies are confidentthat the domesticmarket would be capableof absorbingthis additionalvolume of LPG within a relativelyshort periodof time.

8. PetroleumProduct Pricing

2.27 Petroleumproduct prices are fixed by the Governmentat the ex- refinery,wholesale and retail levels. Ex-refineryprices are currentlybased on an allocationof total crude cost and refineryprocessing fee. The refineryfee is paid to the refinery(GRAIP) to cover operatingand administrativeexpenses and earn a certainreturft on its share capital. Retail (ex-pump)prices are obtainedby adding the followingitems to the ex- refineryprices: dealer'smargin, marketer's margin, transportation costs, specialfund and energy fund contribution.A table showingthe build-upof ex-pumpprices from the ex-refineryprices is shown in Annex 2-2. Petroleum productas well as distributionmargins are currentlyapplied contrywide. In order to inducethe companiesto distributethe productsin the outlyingaras, the Governmentrecognized that, in additionto providingthe necessary infrastructurewhich is the primaryconstraint, the pricingsystem may need to be modifiedto allow varyingdistribution margins. This issue is being addressedin the ongoingpetroleum products pricing study discussedin the followingparagraph.

2.28 Petroleumproduct prices have been revisedupwards substantially over the past three years, as shown in the table below, in line with the Government'spolicy of maintainingprices that generallyreflect international levels. It is noted that, in consultationwith the IMF, the Government instituteda secondwindow auction system in September1986 which covers all importsexcept for petroleumand consumergoods. Thus oil importswere temporarilyexcluded from the auctionrate and continuedat exchangerate of Cedi 90 per US$1.0. This exclusionwas, however,terminated in late February 1987 and since that time oil importsare based on the auctionrate. Concurrentwith the unifyingof the exchangerate, petroleumprices were raised substantiallyas shown in the table below. It is noted from this table that the exchangerate of Cedi 158 per US$1.0,retail prices of petroleumare above CIF prices. - 14 -

Ghana - PetroleumProduct Prices (Cedisper U.S. Gallon)

Gasoline(Regular) Gasoline(Super) Kerosene Diesel Fuel Oil

Mid 1983 18.00 20,00 11.00 13.00 7.00 Oct. 1983 25.00 28,00 16.00 19.00 11.00 March 1984 40.00 44,00 24.00 29.00 16.00 Sept. 1984 45.00 48.00 28.00 37.00 - Dec. 1984 66,61 70,77 38.30 58.29 - April 1985 74.93 79.10 41.63 66.61 - March 1986 112.50 116.70 66,70 95.83 54.17 June 1986 120.83 125.00 66.70 108.33 58.33 Feb. 1987 150,00 158.33 91.66 137.50 100,00

CIF, Tema /b April 1985 /c 45.54 47.65 45.54 44.57 35.23 February1987 /d 72.00 78.00 87.00 81.00 55.50 May 1987 Io 80.60 86.90 80.60 79,00 66.40

Ia Fuel oil Is sold directlyfrom the refineryand Takoradidepot tanks. /b CIF, Tema price was estimatedon the basisof Mediterraneanspot price plus US$14.0 per ton for freight,insurance and ocean loss. For fuel oil dirty tankerrates are assumed. /c Usingofficial exchange rate of US$1.0a Cedi 57 In April 1985. ,/d Using auctionrate of US$1.0= Cedi 150. Ye Usingauction rate of USS1.0n Cedi 159.

Source: GOIL

2.29 Under the Energy Project(Credit 1373-GH), the Governmentagreed to carry out a petroleumproduct pricing study which would address,among other things,the variousrefinery and marketing/distributionmargins. Although consultantswere identifiedfor the study,the Governmentsubsequently decided that the study would be carriedout with technicalassistance to be obtained throughbilateral assistance (grant money). UNIDO approvedin late 1986 the Government'srequest for such technicalassistance and the study is underway. The Governmenthas agreed to establisha pricing systembased on the recommendationsof this study beforecredit effectiveness, and to implementsuch an agreed systemby December31, 1987. Furthermore,the Governmenthas confirmedthat it will in principlemaintain petroleum prices at or above internationallevels. The Governmentintends to reviewwith IDA the progress/statusof productdistribution by June 30, 1989 to ascertain whether there would be a need to institutea differentialdistribution margin upon completionof the Volta Lake petroleumtransport system and take appropriateaction accordingly. - 15 -

9. PrivateSector Activities

2.30 Petroleumoperations in Ghana, from explorationto marketing/distri- bution,were entirelyin the hand of the privatesector until the early 1970s when the ItalianCompanies (ENI, Agip s.p.a.and SNAM s.p.a.)decided to leave Ghana and turnedover their operationsto the Government. As a result of this transfer,the Government,through GHAIP and GOIL, handlesthe refinery operationand distributedabout one-thirdof the petroleumproducts, i.e. the market share of Agip in Ghana. The Government'spolicy continues to put strongemphasis on privatesector investment. With regardto hydrocarbon exploration,as mentionedin para. 2.10, the Government,with the assistance of the Bank/IDA,revised the petroleumlaws and establisheda legal framework suitablefor the purposeof promotingforeign investments. As a resultof these promotionalefforts, Diamond Shamrock of the US signeda contractfor an acreagein the Keta basin in late 1985 and negotiationsare ongoingwith two major internationaloil companies(para. 2.10). Recently,the IFC entered into a joint-venturewith DiamondShamrock to furtheraccelerate the work programon its blocks.

2.31 With regard to the marketing/distributionsector, three privateoil companiesare currentlydistributing two-thirds of the petroleumproducts. The issues faced in this area are mainly the lack of incentivesto invest in the expansion,or even rehabilitationof their storageand distributionsystem apparentlydue to the questionof repatriationof profitsand to distribute petroleumproducts to outlying/remoteareas. The Governmentis obviously concernedabout these issues;following suggestions of the Bank/IDAduring the preparationof the proposedproject, the Governmentwas willingto provide privatesector companies with foreignexchange for their rehabilitation requirementsalthough this courseof actionwas no longernecessary when the auctionsystem was introducedin September1986 (para.1.03). The issue of regionaldistribution and the relatedmarketing margin would be addressedin an appropriatepricing system being studiedwith the assistanceof UNIDO. The Government,through a componentof the proposedproject (farmer's service reselleroutlets), attempts to furtherpromote private sector investment in the distributionof petroleumproducts in the outlying/remoteareas. The Government,following the reviewof the petroleumsector investment program with the Bank/IDA,has also decidedto earmarka viablelube oil blending projectfor investmentby the privatesector.

E. Government'sSector Objectives and DeveLopmentPlans

2.32 The Government'soverall objectives for the energysector are: (a) to improvethe availabilityof long-termsecurity of supplyof energy at reasonablecost to sustainthe developmentof all geographicregions and economicsectors of the country;(ii) to reducethe country'svulnerability to short-termsupply disruptions, particularly for petroleumproducts and hydroelectricpower; (iii) to rationalizethe developmentof indigenousenergy sourcesto meet the growingneeds of the economyand to substitutefor importedfuels; and (iv) to promotemore efficientuse of energythrouigh appropriatepricing and demandpolicies.

2.33 During the past three years, the Governmenthas made important progressin a numberof areas,most notably,in securingarrangements for crude oil importsfrom Nigeria,in reactivatinghydrocarbon exploration and - 16 -

developmentactivities through private sectorinvestment as well as bilateral assistance,in initiatinglong overduerehabilitation of energy sector infrastructure,and in rationalizingthe organizationalframework of the energy sectorincluding the establishmentof two new statutoryentities, GNPC and NEB. The Government'sstrategy for the next few years is to expand on these initiatives,especially to completethe ongoingrehabilitation of all existingenergy sectorinfrastructure/facilities, to complete the appraisalof hydrocarbondeposits at Tano basin and initiatetheir development,to strengthenand expand the capacityand flexibilityof petroleumrefining and distributionfacilities and to increaseaccess to electricityof different geogr&phicregions. On the institutionalaspects, further work still needs to be done to betterdefine the functionsof the sectoralorganizations and the relativeroles of Governmentand public entitiesoperating on a commercial basis. The managementimprovement study for GHAIP and COIL (para. 3.04) and the rationalizationof the crude procurement/bulkproduct sales responsibilities(para. 3.05) would be importantsteps in this direction.

F. Role of the Bank Group

2.34 The Bank/IDAhave been closely involvedin the developmentof the energy sector in Ghana. In the power sector,the Bank/IDAhave approvedover the past twenty-fiveyears seven projectswith total financingof US$150 millionfor power generation,distribution and rehabilitationof the power systems. Anotherproject, the NorthernGrid ExtensionProject, approved by IDA in February1987, would bring hydro-basedgrid to the northernregions and furtherstrengthen the power sectorentities. The Bank/IDAinvolvement in the petroleumsector began recently,with IDA Creditsof SDR 10.2 million for the Energy Projectin May 1983 and af SDR 6.6 millionfor the PetroleumRefinery Rehabilitationand TechnicalAssistance Project in February1984. Both of these projectsare under implementation.Through the EnergyProject IDA supportsthe Government'spromotion of the explorationand developmentof indigenoushydrocarbon resources and the strengtheningof sector institutions.It also attemptsto addressthe petroleumproducts pricing and energy planningissues through the financingof a pricingstudy and a gas utilizationstudy, both of which are currentlyunder preparation.Through the RefineryRehabilitation and TechnicalAssistance Project, IDA financedthe first phase rehabilitationof the Tema refineryand studiesto review the petroleumsupply and distributionsector and the managementof the sector organization.The implementationof the managementstudy, however, has been delayedas explainedin para. 3.04.

2.35 The proposedproject is a resultof long discussionswith the Governmenton the petroleumrefining and distributionsubsector covering a number of importantsectoral issues on institutionalaspects including the roles of the state-ownedsector entities, on development/investmentplans and petroleumpricing. With regard to the institutionalaspects, the Bank/IDA would help improvethe efficiencyand commercialorientation of CHAIP'sand GOIL's operations,by restructuringthe operating/earningsbasis for GHAIP away from the hithertocost-plus basis and transferringto it the responsibilityof bulk procurementof crude/bulkmarketing of products,and by exposingtheir seniorpersonnel, especially GOIL's to internationaloperating practicesand standards. The Bank/IDAwould also ensure that the management improvementstudy for GHAIP and GOIL be completedand that a plan of action would be agreedfor the implementationof the recommendations.With respect - 17 -

to the development/investmentplans, the Bank/IDAhave criticallyreviewed these plans with the Governmentand have persuadedthe Governmentto drop a major investment(US$8S-130 million) for refinerysecondary conversion and adopt a least-costinvestment plan for the refiningand distribution subsector. Such decisionwas justifiedin view of the uncertaintiesin the pricesof crude oil and finishedproducts in the internationalmarkets and the need to reduce the size of the public sectorinvestment program. On petroleum productprices, which are currentlyabove internationallevels, the ongoing pricingstudy with UNIDO assistance(para. 2.26) would also focus on an appropriatestructure that would provide incentivesfor the privatesector to distributepetroleum products to the outlyingregions and remoteareas to supporttheir economicdevelopment efforts.

2.36 In financingthe proposedproject, the Bank/IDAwould directly supportthe Government'spolicy for acceleratingeconomic development in the regions. The proposedproject would increasethe reliabilityand reducethe cost of supplyof petroleumproducts throughout the country. It would bring the much neededdiesel fuel to the remoteareas to facilitateespecially the movementof agriculturalproducts. It woula also double the amountof distributedLPG readilyavailable from the refineryto counter the deforestationproblems in the country. In addition,the proposedproject would open a new and economicalsupply route via Volts Lake to northern regions,which would form the backboneof a transportsystem that could supply petroleumproducts economically to neighboringcountries in the north. Finally,the proposedproject would reduce the oil pollutionresultiag from Tema refineryoperations to normal industrystandards.

III. THE BORROWERAND THE IMPLEMENTINGAGENCIES

A. Introduction

3.01 The proposedcredit would be made to the Governmentof Ghana and on- lent to the Ghanaian-ItalianPetroleum Company Limited (GEiAIP) and the Ghana Oil CompanyLimited (COIL),which are responsiblefor the implementationof their respectivecomponents of the proposedproject. GRAIP and GOIL were set up in the early 1960s by ENI/Agip/Snamof Italy and were transferredto the Governmentwhen the Italiancompanies left Ghana in the mid-1970s. With a view to strengtheningthe organizationand managementof the petroleumsector, a study was includedin the IDA-financedRefinery Rehabilitation and Technical AssistanceProject to reviewthe organizationalstructures, financial managmentand accountingsystems of all the sectoralentities. This study, however,has been delayeddue to a reorganizationof the sector(creation of GNPC) and the Government'sinsistence in findinggrant money for the study. AlthoughUNDP has financedthe study for GNPC, no grant funds have been obtainedfor GHAIP/GOILstudy. The proposedcredit would supportthe completionof this managementimprovement study for GHAIP/GOILand formulation of a plan of actionfor implementationof the recommendedchanges (paras.3.04 and 3.23). - 18 -

B. The GhanaianItalian Petroleum Company Limited

1 Organization

3.02 GHAIP was incorporatedin 1963 as a privatecompany under the CompaniesCode to construct,own and operate the Tema refinery. The company was wholly-ownedby ZVI of Italy until 1977 when, as originallyprovided for in the company'sregulations, all the company'sshares were acquiredby the Governmentof Ghana. In a transferagreement between ENI and the company,ENI provideda teem of 14 experts to assistGHAIP's Ghanaian managerial and technicalpersonnel in graduallyassuming the responsibilityfor the managementand operationof the refinery. This technicalassistance program proved to be successfuland was graduallyphased out with the last Italian technicalexpert leavingGHAIP in 1983.

3.03 Accordingto GHAIP's .-egulations,the generaldirection of the companyis vested in a Board of Directors,which in turn delegatesthe responsibilityfor the day-to-dayoperations to a ManagingDirector. However, since 1983, a Joint ConsultativeCommittee was appointedto act in lieu of the Board of Directors. This Committee,which meets once a month, comprisesonly GHAIP'spersonnel (including the ManagingDirector, Re!inery Manager, Chief Accountant,one representativeof the middle managementand two staff representingthe Committeefor the Defenseof the Revolution,and one representingthe local workers'union) and, therefore,would not benefit from advicesfrom outsideBoard or Committeemembers. CHAIP'sdecision making processwould be strengthenedwith the reappointmentof a proper Board of Directors. As shown in the organizationstructure in Annex 3-1, GHAIP has ten departments/offices,of which four (Technical,Maintenance, Production and ProductionPlanning and Control),are directlyresponsible for the refinery operationsand reportto the ManagingDirector through a RefineryManager, and the remainder(Personnel, Commercial, Accounts, Solicitor/Secretary, Medical Resources,and RefineryRehabilitation Projects Office) report directly to the ManagingDirector. CHAIP's organizationstructure including the role and compositionof its Board of Directorswill be reviewedin the management improvementstudy discussedbelow.

3.04 Under the RefineryRehabilitation and TechnicalAssistance Project (Credit1446-GH), approved by IDA in March 1984, it was agreed that studies would be carriedout for the im,rovementof the organizationand managementof the petroleumrefinery sector, including CHAIP, GOIL and the former Petroleum Departmentof MFPP (The PetroleumDepartmentt which was then responsiblefor the bulk purchaseof crude oil as well as bulk sales of productsto the oil marketingcompanies, was subsequentlyabolished and partiallyabsorbed into the newly createdGNPC.) These studieswere to focus on the organizational structures,financial management and accountingsystems, auditing, refinery's profitabilityand staff developmentand training. The implementationof these studieswas delayeddue to the aforementionedchanges in the sectoral organization(namely, the abolishmentof the PetroleumDepartment and the creationof GNPC) and to the Government'sgeneral decision to request assistanceon a grant basis from bilateraland multilateralAid agenciesto carry out such studies. While UNDP subsequentlyprovided assistance to GNPC for the organizationand managementstudy carriedout by Braspetro(Brazil), no assistancehas been obtainedfor GHAIP and COIL. The Governmenthas now selectedthe consultantsas agreed under Credit 1446-CH(based on the terms of - 19 -

referencealready agreed with MPP) to carry out the managementimprovement study for OHAIP and COIL. The Governmenthas agreed that the consultants' reportwill be jointlyreviewed with IDA and that a plan of action for implementingthe recommendationswill be agreedwith IDA by December31, 1987.

3.05 AlthoughGRAIP's regulations allow the companyto engage in petroleum refiningas well as supplyand distributionof petroleumproducts, it has operatedto date essentiallyas a toll processingrefinery. GHAIP basically processesthe crude oil procuredand deliveredto the refineryby GNPC and turnsover the refinedproducts to GNPC from the storagetanks at Tema. CHAIP'sservices are compensatedfor by GNPC througha processingfee which coversall operatingand maintenancecost plus a 12.5 percentreturn on its share capital,as furtherelaborated in para 3.10. In an attemptto improve the efficiencyof the refineryoperation and the coordinationof bulk procurementof crude,discussions have been held within the Governmentto transferthe bulk procurementof crude oil and bulk marketingof finished productsand re-exportof fuel oil from GNPC, which is mainly involvedin petroleumexploration and development,to GHAIP,and to change the processing fee basis to convertthe refineryoperation into a commercialoperation. This would enableGHAIP to procurethe appropriatetypes and volumesof crude at the right time as requiredby its refineryoperations. This arrangementwould also bring about a measureof accountabilityand controlby GRAIP for the quantityof crude oil purchasedand received,and any lossesthereafter, from the loadingports, through the unloadingport at Tema and the processingat the refinery,to the storagetanks of finishedproducts. The Governmenthas agreedthat its final decisionon this bulk procurement/marketingarrangement satisfactoryto IDA will be made beforecredit effectiveness and that such final arrangementswill be put into effectby January 1, 1988. As an interim measure,GNPC is expectedto enter into an agencyagreement with GRAIP to be effectivenot later than June 30, 1987, wherebyGRAIP will be responsiblefor the operationalaspects of bulk procurementof crude oil and bulk marketingof petroleumproducts (i.e. decisionswith regardto quantity/qualityof oil productsto be procured,tanker scheduling,measurement and oil accounting). With respectto the processingfee as discussedin para. 3.12, the government and OHAIP have agreedon a systemthat will periodicallyadjust the processing margin for GRAIP taking into considerationthe prevailingcomparable internationallevels, international market pricesfor crude and productsand the financialviability of GHAIP. Furthermore,this systemwill be applied to GHAIP beginningwith financialyear 1988.

2. Managementand Staff

3.06 CHAIP has an experiencedtop managementteam, most of whom started their careerswith the companywhen the refinerycame into operation. The currentManaging Director has held this positicnsince 1978. He is an able and competentmanager. GHAIP'stotal staffnumbers around 650. Staff turnoveris low. The technicalstaff, particularly those dealingwith the refineryoperation, are competentas evidencedby their successfulassumption of the responsibilityfor the runningof the refinerywith the gradualphasing out of ENI technicalassistance (para. 3.02). They clearlyhad benefitedfrom the varioustraining programs over the past years, both on-and off-the-job. Recently,as part of the RefineryRehabilitation and TechnicalAssistance Project(Credit 1446-GH), a staff development/trainingprogram was prepared by BEICIPfor the technicalstaff. This programhas been approvedby IDA for - 20 -

implementation.On the financialmanagement and accountingside, there is room for improvement,in terms of fillingvacancies as well as upgrading qualifications.CHAIP has initiatedaction to fill the vacancies. The developmentand trainingof financeand accountingscaff would be dealt with as part of the pendingmanagement improvement study (para.3.04).

3. Accountsand Audit

3.07 GHAIP'saccounting and managementinformation systems, which were adoptedsince the early years of the refineryoperations, could be improved particularlywith regard to cost accounting,financial planning and control. In addition,a comprehensivesystem of oil accountingshould be developedto monitorthe actualand permissiblelosses of oil at each stage (transfer, storage,processing, etc.) and identifypotential problem areas for remedial actions. This oil accountingsystem would be essentialespecially when the responsibilityfor bulk procurementof crude oil is transferedto GHAIP. The accountingsystem is partly computerizedat present;it is expectedto be fully computerizedwith the computerequipment being purchasedunder the ongoingRefinery Rehabilitation and TechnicalAssistance Project. The above accountingand financialmanagement aspects are to be dealt with in the afore- mentionedmanagement improvement study (para.3.04).

3.08 GHAIP is makinggood progressin keeping its accountsup-to-date. While the 1984 accountswere not auditeduntil eighteenmonths after the close of the years,due to shortageof qualifiedstaff and machinebreakdown, the 1985 accountswere auditedwithin eleven months after year-endand the 1986 accountsare expectedto be auditedwithin six months after year end as agreed under Credit 1446-GH. CHAIP'saccounts have been auditedby Pannell,Kerr and ForsterChartered Accountants, a privateauditing firm. The qualityof the audit is good. CHAIP has agreed that the auditedaccounts, together with the auditor'sreport, will be submittedto IDA not later than six months after the close of the year.

4. GHAIP's Finances

(a) Past OperatingResults and FinancialPosition

3.09 GHAIP'soperating results and financialposition for the period 1981- 1985 are shown in the auditedIncome Statements and BalanceSheets in Annexes 3-2 and 3-3 and summarizedbelow: - 21 -

GHAIP- SummaryFinancial Statements, 1981-1985 /a (in currentmillion Cedis)

1981 1982 1983 1984 1985

CrudeProcessed (fT '000) 1,128.6 1,040.4 480,6 746.7 973.7

ProcessingFees 44,4 38.8 92.0 183.4 360.3 Store Sales 0.9 0.9 3.1 2.*1 6.3 TotalSales Revenue 45.3 39.7 9Sol 185.5 366.6

TotalOperating Costs 41.3 37.1 86.7 172,2 347.1

OperatingIncome 4,0 2.6 8,4 13.3 19.5

InterestExpense 0.8 0.5 4.1 6.8 8*6

TaxableIncome 3,2 2.1 4.3 6.5 10.9 Incme Tax < 0.0 2.2 4.4 8.8

Net Income 2.1 2.1 2.1 2.1 2.1

Cash 5.2 6.7 6.0 65,5 85*5 A>countsReceivable 15e2 13,3 40,3 103.4 253,8 TotalInventories 12.1 13.2 26.5 47.2 100,5 TotalCurrant Assets 32.5 33,2 72,8 216,1 439.8

TradeInvestments - - - -- 29.0 Net Fixed Assets 15,6 19.7 26.6 40,4 98.7

Total Assets 48,1 52,9 99.4 256.5 567.5

AccountsPayable 18.0 23,4 60.1 147.8 384,4 Other CurrentLiabilities 9,1 6,4 16,8 11.2 16.2 Total CurrentLiabilities 27.1 29.8 76,4 159,0 400.6 EmployeeBenefits -- - - 74,4 143.9

ShareCapital 16.8 16,8 16,8 16.8 16,8 RetainedEarnings 4.2 6.3 _60.3 6,3 6.3 Total Equity 21,0 23.1 23.1 231 23

Total Liabilities 48,1 52,9 99.4 256.5 567.5

CurrentRatio 1.2 1.1 1,0 1.3 1.1 Equity/TotalLiabilities 44/56 44/56 23/77 10/90 4/96 Not Ir.come/Revenues(S) 4,6 5,3 2.2 1.1 0.6

/a Audited - 22 -

3.10 The financialresults of CHAIP are largelydetermined by the processingfee establishedin the "ProcessingAgreement" dated June 18, 1965 betweenCHAIP and the Government. This agreement,which is still in force betweenCHAIP and GNPC, providesfor CHAIP to be paid a fee coveringall refiningexpenditures (operating costs, generaland administrativeexpenses, amortizationof the refineryassets, interests on loans,and taxes) plus a return (dividends)on the paid-upcapital not exceeding12.5% per annum. Thus, with paid-upshare capitalremaining unchanged at Cedi 16.8 million (or US$0.10million at currentauction exchange rate) as shown in the above table, CHAIP earneda net incomeafter taxes of only Cedi 2.1 millionevery year during 1981-1985. This resultedin extremelylow and decliningprofitability ratios. Furthermore,CHAIP's earnings have been drasticallyreduced in real terms as the Cedi was steadilydevalued during this periodfrom Cedi 2.75 per US$1.0 in 1981 to Cedi 54.0 per US$1.0 in 1985, and no provisionwas made for the revaluationof GHAIP'sassets and equitybase. The net resultwas that CHAIP was unable to build up any reservesfor its rehabilitationneeds. The rise of the total liabilities-equityratio from 56/44 at end-1981to 96/4 at end-1985reflects the effectsof inflationon assetsand liabilities,but shouldnot cause great concernas CHAIP in fact had no outstandinglong-term debt'and had been able to maintaina currentratio of 1.0 to 1.3 during this period.

3.11 It is noted from the summarytable in para. 3.09 that, in 1985, the refineryearned a processingfee of US$6.8/MTor US$0.95per barrel (with the Cedi being convertedat Cedi 54.0/US$1.0during that year). Althoughthis fee is net of internalfuel consumptionwhich, under the existing"Processing Agreement"is chargeddirectly to the Covernment/GNPC,it is a rather low margin,reflecting the fact that CHAIP'sfixed assetshad almostbeen fully amortizedand that the returnon equityhad not been adjustedfor inflation.

(b) FinancialProjections

3.12 Under the "ProcessingAgreement" as describedin para. 3.10, which is essentiallya cost-plusfee arrangement,CHAIP does not have any incentiveto improveits operationalefficiency and profitability.Furthermore, since interestson loans and amortizationof assets are apart of the processingfee, GRAIP normallywould not be encouragedto incur any expendituresbeyond the bare minimumto keep the refineryrunning. This has led to the accumulated deteriorationof the refineryfacilities as well as the inadequacyof its safetyand environmentalprotection equipment which are being addressedunder the ongingRefinery Rehabilitation and TechnicalAssistance Project and the proposedproject. For the above reasons,IDA has recommendedand the Governmenthas agreed that the refineryshould be allowedto operateas a commercially/financiallyviable entity, with a processingmargin delinkedfrom share capitaland sufficientfor GHAIP to meet operatingrequirements and to contributetowards investment requirements. Furthermore, this margin should be reviewedfrom time to time to ensure increasedefficiency/ competitiveness of the refineryoperation. Along these lines,the processingagreement should be discontinuedand the refineryoperation converted into a commercial operationwith value additionto the crude oil importedin line with internationalproduct prices and with operationalefficiency comparable to internationalstandards for similarrefineries. A mechanismto achieve this objectiveis expectedto emergeas a resultof the ongoingpetroleum product pricing study financedby UNIDO (para.2.29). The managementof GHAIP would - 23 -

also be improvedthrough the recommendationsof the managementstudy (para. 3.04). A processingmargin establishedthrough negotiations with the Governmenttaking into accountthe prevailingcomparable international refiningmargins, international market prices for p'oductsand the financial viabilityof CHAIP (para.3.05) would be the main featuresof the proposed mechanism. Financialprojections presented below on a processingfee of Cedis 420 (US$2.55equivalent) per barrel, includingabout Cedis 150 (US$0.90 equivalent)per barrel to cover internalfuel consumption,indicate that CHAIP would be able to maintainsatisfactory financial conditions. Of this fee, the Aet margin to CHAIP would be about Cedis 270 (US$1.65 aquivalent)per barrel which is in line with the levelsfor comparablerefineries in Kenya, Costa Rica, and Jamaica,etc.

3.13 CHAIP'sprojected operating results and financialposition for 1986- 1992 are shown in the projectedincome statements,balance sheets and funds flow statementsin Annexes3-4, 3-5 and 3-6 and summarizedbelow. The notes and assumptionsused in these projectionsare given in Annex 3-7.

GiAIP- SummaryProjected Financial Statements, 1986-1992 (incurrent million CedIs) 'a

Year 1986 1981 1988 1989 1990 1991 1992

Crude Processed('000 MT) 985.2 1,013.4 1,042.4 1,072.2 1,102.8 1,160.1 1,220.3 Total Sales Revenue /b 498.6 1,039.4 3,444.7 3,805.6 4,029.8 4,333.4 4,713.2 Total Operating Costs 489.4 631,0 2,259.8 2,469.7 2,484.1 2,659.1 2,797.3 (ofwhich: Internal fuel consumptionco ) (-) (1,426.7)(1,444.3) (1,389.6) (1,420.9) (1,470.7) OperatingIncome 9.2 408.4 1,184.8 1,335.9 1,545.8 1,674.2 1,915.9 Net income 2.1 110,6 - 397,3 447.8 566,2 660.4 810.6

TotalCurrent Assets 348,2 617.9 1,670.4 1,836.2 2,203.2 2,710.3 3,683.0 Net FixedAssets 718,9 2,032,1 2,761.1 3,115.4 3,204.9 3,030.0 2,855,1 TotalAssets 1,067.1 2,650.0 4,431.5 4,951.6 5,408.1 5,740.3 6,538.1 TotalCurrent Liabilities 385.3 727,9 1,551.1 1,386.4 1,465.6 1,493.4 1,814,4 TotalEquity 21.0 131.7 529,0 976.9 1,429.8 1,958.1 2,606.6 TotalLiabilities 1,067.1 2,650,0 4,431.5 4,951.6 5,408,1 5,740.3 6,538.1

CurrentRatio 0.9 0,8 1.0 1.3 1.5 1.8 2,0 Equity/TotalLiabilities 2/98 5/95 12/88 20/80 .26/74 34/66 40/60 TimesDebt Serv, Coverage 3.3 1.0 1.4 1.6 1l7 1.9 2.4

/a Projectedinternational and domestic inflatlor rates and exchangerates are givenIn Annex3-7. /b Basedon existing"Processing Agreement" through 1987 and new processingmargin beginning 1988 onward. /c lIternalfuel consumption Is chargeddirectly to Government/GNPCunder existing "'Processing Agreement"assumed to be terminatedat end-1987.Under new processingmargin arrangement from 1988 onwards,It wouldbe chargedto GHAIP'saccounts. /d IncludingCedis 2.1 millionreturn on sharecapital and Cedis108.5 million of debtservice covered underexisting "Processing Agreement". - 24 -

3.14 ProcessingRevenues. GCAIP'sfuture productionis projectedon a growthrate of 2.8 percentuntil 1989 and 5.2 percentfrom 1990 onwards. It has been assumedthat the "ProcessingAgreement" would be discontinuedat the end of 1987 and, beginningin 1988, GRAIP would be paid a processingfee of Cedis 420 (US$2.55equivalent) per barrelin real terms includingCedis 150 (US$0.9equivalent) per barrel to cover internalfuel consumption(para. 3.12). While the processingfee will be the key elementto improvingGHAIP's profitablilty,internal fuel consumptionwhich is expectedto drop, as a resultof the first phase refineryrehabilitation and the proposedproject, from its currentlevel of 6.0 percentof total throughputto 5.0 percentupon projectcompletion in 1990 would also resultin substantialsavings.

3.15 Liquidity. The projectionsshow a relativelyhigh level of short- term indebtednessin the form of accountspayable which result in a current ratio of 0.8 in 1987. However,liquidity is expectedto improvegradually as a resultof the new processingmargin ag*eementto be appliedbeginning in 1988. Currentratios will rise graduallyfrom 1.0 in 1988 to 2.0 in 1992. Such a liquidityposition is satisfactorysince fuel inventoriesfor internal consumptionpurposes would be held by the Government.

3.16 Leverage. The projectedprocessing margin will allow GHAIP to rebuildits equitybase and improveits leverageratios providedthat it pursuesa reasonabledividend policy. The projectionsassume that GRAIP will pay no dividendsduring the constructionperiod and thereafterretain 20 percentof its net incomeas a legal reserveand distribute25 percentof the remainderin the form of dividendsto Government. The balancewill be held as a supplementaryreserve to strengthenits equitybase. Under such conditions, the resultingequity/debt ratio would improvefrom 2/98 in 1986 to 26/74 upon projectcompletion in 1990 and 40/60 in 1992.

3.17 Cash Generation. CHAIP is expectedto improveits operatingmargins once it is granteda more realisticprocessing fee. The projectionsindicate a ratio of operatingincome/sales of about 37 percenton average during the constructionperiod, riking gradually to 41 percentin 1992. Likewise,the net income/salesis expextedto rise from 12 percentto 17 percentover the same period. GRAIP shouldbe able to generatesufficient funds from operationsto financeits working capitalneeds. Total projectedcash generationby 1990 is Cedi 1,770 million (US$10.7million) of which Cedi 850 million (US$5.1million) will serve to retire long-termdebt and the balance Cedis 920 million(US$5.6 million) to financenet workingcapital increases.

3.18 Debt Servicing. Assumingthat the new processingfee would take effectfrom 1988 onwards,GHAIP's debt servicingratios will remain at acceptablelevels. Debt servicecoverage is projectedto improvefrom 1.0 in 1987 to 1.4 in 1988 and 2.4 in 1992.

(c) FinancialCovenants for GHAIP

3.19 CHAIP has agreed that it will (a) maintaina debt servicecoverage of at least 1.4 in 1988 and 1.5 in 1989 and onward; (b) maintaina currentratio of at least 1.0 in 1988 and at least 1.1 thereafter;and (c) pay no dividends during the projectconstruction period. In addition,it will reviewwith IDA every year beginning1988 its rollingthree-year investment program. As statedin para 3.05, the Governmentand GHAIP have agreed that, beginningin - 25 -

1988, the refineryprocessing margin will be adjustedperiodically taking into considerationthe financialviability of CHAIP, the prevailingcomparable internationallevels, and internationalmarket pricesfor crude and petroleum products.

C. The Ghana Oil CoIpanyLimited

1. Organization

3.20 COIL was establishedin 1960 under The CompanyCode as Agip Ghana CompanyLtd., with share capitalwholly-owned by AGIP s.p.a.and SNAM s.p.a. Its main businessis marketingof petroleumproducts in Ghana. In 1974, the Governmentconcluded negotiations with AGIP and SNAM for the purchaseof all the company'sshare-, and COIL becamewholly-owned by the Government.

3.21 The generaldirection of the Company'soperations is set by the Board of Directors,which comprisesof not more than nine members. The Board delegatesthe responsibilityfor the day-to-dayoperations to a Managing Director. As in the case of GAIP (para.3.03), its Board was abolishedin 1983 and a Joint ConsultativeCommittee was appointedto act in lieu of the Board. This committee,which consistsof seven members includingthe General Manager, two departmentmanagers, two senior satffand two juniorstaff, meets once every two months. The Committeeconsists entirely of COIL staff,and thus lacks outsideviews and advice. COIL'sdecision making processwould be strengthenedwith the reappointmentof a properBoard of Directors. This aspect,among others,will be examinedin the managementimprovement study elaboratedin para. 3.04.

3.22 The ManagingDirector is assistedby six departmentmanagers for operations,commercial, fianuce, personnel, solicitor/secretary, and internal auditing. Under the commercialdepartment, there are four regionaloffices responsiblefor the commercialoperations in their respectivegeographical areas. The organizationstructure of COIL is shown in Annex 3-8.

3.23 As discussedin para. 3.04, the organizationstructure and staffing of COIL is being reviewedas part of the managementimprovement study to be carriedout in connectionwith the RefineryRehabilitation and Technical AssistanceProject. The Governmenthas agreedthat the study report will be jointlyreviewed with IDA and that a plan of action for implementingthe recommendationswill be agreedwith IDA by December31, 1987.

2. Managementand Staff

3.24 COIL's top managementwas apparentlywelL experienced. However,the ManagingDirector's position recently became vacant. Agreementwould be soughtduring the negotiationsthat the Governmentwill appointbefore credit effectivenessa ManagingDirector with the necessaryqualifications and experiencein oil marketing.

3.25 COIL has a total staff of about 400 includingsome 70 at supervising levels. The staff seem well motivated. The turnoverrate is low at around 5%. Althoughthe COIL'smanagers and staff seem to perform their work well in accordancewith the company'spractices which were establishedin early years under Agip management,they need to be exposedto the more modern practicesof - 26 -

the leadingoil marketingcompanies elsewhere in the world. The proposed projectincludes provision for a trainingprogram particularly for COIL managersto attend short coursesoverseas preferably with internationaloil marketingcompanies (para. 4.10). COIL has preparedthe detailsof the proposedtraining program satisfactory to IDA.

3. Accountsand Audit

3.26 COIL'saccounting and managementinformation systems, which were originallyimplemented by Agip, are acceptable;nevertheless, they could be improvedespecially with regardsto cost accounting,financial planning and control. The accountingsystem is partiallycomputerized and would be fully automatedwith the computingfacilities to be providedunder the proposed project. Improvementswith regard to the accountingand financialmanagement aspectsare to be dealt with in the managementimprovement study (para.3.04)

3.27 GOIL'saccounts are normallyup-to-date except for 1984 when the financialmanager's position was vacant. The annual accountsare auditedby Pannell,Kerr and Forster,a privateauditing firm, and are of satisfactory quality. COIL has agreed that its annualaccounts will continueto be audited by qualifiedexternal auditors and that the auditedaccounts, together with the auditors'report, will be submittedto IDA not later than six months after the cloie of the year.

'f.. GOIL'sFinances

(a) Past OperatingResults and FinancialPosition

3.28 GOIL'soperating results and financialposition for the period 1981- 1985 are shown in the auditedIncome Statements and BalanceSheets in Annexes 3-9 and 3-10 and summarizedbelow: - 27 -

GOIL - SummaryFinancial Statements, 1981-1985 /a (in currentmillion Cedis)

1981 1982 1983 1984 1985

Total Sales Revenue 366.4 338.7 1,012.0 2,387.8 3,952.2 Total OperatingCosts 330.3 299.5 930.6 1,960.4 3,477.5 OperatingIncome 21.5 17.8 52.0 427.5 474.6

Non-OperatingIncome 1.4 2.1 4.4 11.2 41.8 IncomeBefore Taxes 22.9 19.9 56.4 438.7 516.4 IncomeTax 14.0 (6.4) 32.4 249.0 297.0 Net Income 8.9 26.3 24.0 189.7 219.4

Cash 62.4 74.0 314.5 433.1 583.3 AccountsReceivable 65.0 73.6 129.0 379.5 911.5 FinishedProducts 12.4 17.8 47.5 248.6 645.1 Total CurrentAssets 139.8 165.5 491.0 1,061.1 2,139.9 Net Fixed Assets 10.6 11.4 12.7 17.7 71.5 Total Assets 150.3 176.9 503.8 1,078.9 29211.4 CurrentLiabilities 125.3 132.6 442.4 840.2 1,768.5 Share Capital 1.9 1.9 1.9 1.9 1.9 Legal Reserve - 10.0 20.0 70.0 120.0 RetainedEarnings 23.1 32.4 39.4 166.8 321.2 Total Equity 25.0 44.3 61.3 238.7 443.1 Total Liabilities 150.3 176.9 503.8 1,078.9 29211.4

CurrentRatio 1.1 1.3 1.1 1.3 1.2 Equity/Liabilities 16/84 25/75 12/88 22/78 20/80 Net Income/Revenue(X) 2.4 7.8 2.4 7.9 5.6

/a Audited

3.29 In the face of risingprices and the successivedevaluations of the Cedi, GOIL has been able to maintaincomfortable distribution margins of over 5 of sales from 1981 to 1983. This marginwas substantiallyhigher in 1984 due to a twofoldincrease of petroleumproducts retail prices in line with the Governmentpolicy of maintainingprices in relationsto internationallevels, and GOIL'shigh inventoriespurchased at lower prices the year before. This howeverwas accompaniedby more than a proportionalincrease of accounts receivablewhich were about 900 millionCedis due by severalGovernment agenciesat the end of 1985. The Governmenthas initiateddiscussions involvingMFP and the CentralBank to resolvethis issue '--solutionof this

issue is part of the ongoingstructural adjustment credi: * .-ration. The Governmenthas confirmedunder this projectthat it will ensure that all arrearsbetween COIL and other state-ownedenterprises will be settledwith a timetableacceptable to IDA. - 28 -

(b) FinancialProjections

3.30 GOIL's projectedoperating results and financialposition for 1986- 1992 are shown in the projectedincome statements, balance sheets and funds flow statementsin Annexes3-11, 3-12 and 3-13 and summarizedbelow. The notes and assumptionsused in these projectionsare given in Annex 3-14.

GOIL- SummaryProlected Financial Statem"nts, 1986-1992 (incurrent million Codis)

Year 1986 1987 1988 1989 1990 1991 1992

TotalSales (UT '000) 174.9 185.1 196.2 208.2 221.2 235.4 250.8 TotalSales Revenue 6,390.6 10,269.4 14,770.9 16,706.3 18,133,6 19,586.521,442.2 TotalOperating Costs 6,025.4 9,558.613,655.6 15,469.4 16,798,4 18,300.7 20,025.3 OperatingIncome 365.2 710.8 1,115,2 1,236.9 1,335,2 1,285.8 1,416.9 NotIncome 181.3 338.1 498.9 519.5 547.9 530.1 606.1 TotalCurrent Assets 2,469,0 3,944.4 5,519.06,227.6 6,833.6 7,452,18,378.8 Net FixedAslett 1,080,6 1,243.22,429.5 3,404.9 3,677.0 3,506.3 3,335.6 TotalAssets 3,549.6 5,187.6 7,948,5 9,632,5 10,510.610,958.4 11,714.4 TotalCurrent LIabilIties 1,994.6 3,289.6 4,759.6 5,411,0 5,942.6 6,307.4 6,940,9 TotalEquity 1,555.11,730.9 1,990,32,260.4 2,545.32,820.9 3,136.1 TotalLiabilities 3,549.6 5,187.6 7,948.5 9,632.5 10,510.610,958.4 11,714,4

CurrentRatio 1.2 1.2 1,2 1e2 1,1 1.2 1.2 Equity/total Debt 44,56 33/67 25/75 23/77 24/76 26/74 27/73 TimesDebt Serv. Cowerage NA NA 10.1 5,0 2.7 2.3 2,6

3.31 Sales Revenue. GOIL's total sales volume for all productsin 1986 is estimatedto reach 175,000MT, about 4% higher than in 1985. Sales are expectedto increaseat an averageannual rate of 6.5Z approximatelyover the next 10 years. In line with the Governmentpolicy of concentratingon diesel transportvehiclesp diesel consumption has been assumedto increaseby 10% annuallywhile other productsexcept gasolineto increaseby 2.51 annually.

3.32 Liquidity. GOIL's liquidityposition will remainwithin acceptable levelswith a currentratio of over 1.0 during 1987-92even with a dividend payout ratio of 60% of net incomeafter providingfor a 201 reserveassumed in the projections.

3.33 Leverage. While GOIL has been able to maintainits margins in the face of rising inflation,the value of its fixed assetswhich were still carriedat book value until the end of 1985 have been eroded. This has resultedin an undervaluedequity positionand high leverageratios. COIL's managementhas decidedto revaluecertain fixed assets;as at December1986, land propertywith a book value of Cedis 6.9 millionwas writtenup to Cedis 372.3 millionand plant and machinerywith a book value of Cedis 3.8 million was writtenup to Cedis 656.2 million. As a result of new long-term borrowing,the equity/debtratio will fall from 44/56 in 1986 to 24/66 upon Dorier ;et elat,;nn ; n 1 qn- - 29 -

3.34 Cash Generation. It is expectedthat GOIL will maintainrelatively high marginswith a ratio of operatingincome/sales of 7.0% on averagefrom 1987 onwards. Net income/saleswill remainabove 2*7% even upon project start-upwhen it will have to face high interestpayments on its new long-term commitments. The projectionsindicate that COIL would be able to generate sufficientfunds from operationsto financethe local cost componentof the projectand increasedworking capital needs. Total cash generationby 1990 is projectedat Cedi 2,070 million (US$12.6million) of which Cedi 730 million (US$4.5million) would cover the capitalexpenditures while the balancewould financeincreases in net workingcapital amounting to Cedis 600 million (US$3.6million) and dividendstotalling Cedi 740 million (US$4.5million).

3.35 Debt Servicing. Since COIL is currentlyfree from long-termdebt, its debt servicingratios are projectedto remainat very satisfactory levels. Debt servicecoverage is projectedto be 10.1 in 1988 decliningto 2.3 in 1991, but increasingto 2.6 in 1992 and onwards.

(c) FinancialCovenants for COIL

3.36 COIL has agreed that it will maintaina debt servicecoverage of at least 1.5 and a currentratio of at least 1.1 in 1988 and thereafter. In addition,it will reviewwith IDA every year beginning1988, its rolling three-yearinvestment program.

IV. THE PROJECT

A. Genesis

4.01 The proposedproject is the result of continuousdiscussions with the Governmenton the petroleumsector. Its preparationhas servedas an importantvehicle for dialoguewith the Governmenton certainkey policy issuessuch as the rationalizationof the investmentprogram in petroleum refiningand distribution,the strengtheningof the commercialorientation of the state-ownedGUAIP's and COIL'soperations and promotionof the private sectorinvestment in the marketingsubsector. A Bank mission that visited Ghana for the Public ExpendituresReview in June 1985, reviewedwith the Governmentall investmentoptions studied by the consultants,BEICIP, under the ongoingRefinery Rehabilitation and TechnicalAssistance Project (Credit 1446-GH),in the petroleumrefining, supply and distributionsector in order to identifytheir relativepriorities. As a resultof these discussions,the Governmentagreed to postponea large investmentfor secondaryconversion facilities(US$85-130 million) in the Tema refinery. The rehabilitationof the facilitiesfor productstorage, distribution, and marketingwas recognized as urgentlyrequired and of high priotityfor investment.Other priority investmentsalso identifiedwere facilitiesfor marketingall the LPG that can be producedwithout additional investment in the refinery;for marketing essentialpetroleum products in the remote locationsof the country;and for transportationof productsvia Volta Lake to the northernregions. Subsequent IDA missionsassisted the Governmentand the entitiesconcerned (MFP, CHAIP, GOIL, VRA,VLTC)in definingthe detailedscope and costs of the proposed project. - 30 -

B. ProjectObjectives

4.02 The main objectivesof the proposedproject are:

(i) to rationalizethe investmentplan in the petroleumrefining and distributionsubsector which resultsin least cost to the economy; (ii) to increasethe reliabilityand reduce the cost of supplyand distributionof petroleumproducts in the countryby improvingthe operatingefficiency of the Tema refinery throughadditional LPG recoveryand energy conservation measures,and rehabilitating/amelioratingthe existingoil distributionand marketingfacilities; (iii) to furtherreduce oil pollutionrelated to Tema refinery operationsto normal industrystandards through installation of an API separator(to separateand collecttraces of oil from refinery effluent water);

( iv) to establisha new and economicmode and a backbonefor bulk transportof petroleum products -- via Volta lake -- to the northernregions of Ghana and potentiallyto its neighboring countries;

(v) to improvethe movementof agriculturilproducts in the remote areas by bringingdiesel and keroseneto such areas;

(vi) to counterdeforestation with the increasedavailability of LPG and kerosene;

(vii) to restructurethe operating/earningbasis of the Tema refinerythat would encourageit to operatemore efficiently and to rationalizethe responsibilityfor bulk crude procurement/bulkmarketing of petroleumproducts; and

(viii) to strengthenthe organization,management and operating practicesof the sectoralentities involved (GHAIP and GOIL) and to ensurerhat they operateon commercialbasis.

C. ProjectDescription

4.03 The proposedproject comprises the followingcomponents:

(i) Completionof the ongoingrehabilication of the Tera Refinery of GHAIP (underCredit 1446-GH)particularly offsite facilities,utility systems,LPG handling,product shipping facilitiesand energy efficiencyimprovement of the existing distillationunit, and acquisitionof vehicles;

(ii) rehabilitationof GOIL's bulk petroleumstorage depots locatedat Takoradiand Kumasi;

(iii) rehabilitationof GOIL's existingnetwork of retail outlets; - 31 -

(iv) expansionof the infrastructureand increaseavailability of LPG bottlesand stovesto marketadditional LPG that could be made availablefrom the Tema refinery;

(v) provisionof storagetanks and transferfacilities at Akosomboand Buipe (i.e. land side facilities)to transport petroleumproducts on the Volta Lake towardsthe northern parts of the country;

(vi) provisionof oil jettiesat Akosomboand Buipe,petroleum bargesand tug boat (i.e. water side facilities);

(vii) provisionof transportvehicles to move LPG avd other petroleumproducts and for the projectmanagement;

(viii) provisionof facilitiesfor farmer'sservice reseller outlets to make essentialpetroleum products (mainly kerosene and diesel)to the farmers in remoteareas; and

(ix) trainingof GOIL's managerialand operationalpersonnel and computerfacility for COIL.

These projectscomponents are furtherelaborated in the followingparagraphs.

1. Rehabilitationof GHAIP'sTema RefineryFacilities

4.04 The ongoingRefinery Rehabilitation and TechnicalAssistance Project jointlyfinanced by IDA (Credit1446-GH) and EIB is expectedto be completed by December1987. Due to the limitedfinancing available at that time, certainitems recommendedfor rehabilitationand energy conservationby the consultants(BEICIP) had to be postponed;these items would be implemente4 under the proposedproject, including:

(a) Improvementsin LPG treatment,storage and transferfacilities: The existingLPG treatingfacilities do not have caustic coalesceror sand filterresulting in high carry over of caustic soda to the storagetanks. A number of fittingsin the LPG storagetanks and truck and marine loadingfacilities need replacementand/or improvementin order to maintaingood safety requirements.Existing LPG transferlines to COIL depot and jetty requirerepairs and replacement.Under the proposed project,necessary hardware required to rectifythese shortcomingswill be procuredand installed;

(b) API oil separator: A new API separatorwith air floatation facilitieswill be installedto improveenvironmental protection facilitiesin the refinery(para. 4.25);

(c) Improvementin furnaceefficiency: The flue gas leavingthe furnaceof the crude distillationunit has temperaturesabove 450°C causinghigh energy loss from the furnace. To rectify this deficiency,the furnacewill be providedwith new efficient burners,and its convectionsection will be modified to transfer additionalheat to the crude oil. - 32 -

(d) Productvigelines: Existingcrude and productpipelines from the refineryto jetty are corrodedat placeswhere they are buried0 These corrodedportions will be replaced,and the pipes will be laid overgroundto preventsuch corrosionin the future;

(e) Jet fuel tankst Three existingjet fuel tanks will be repaired and providedwith cone roof with internalfloating screens to reducevaporizatiots losses;

(f) Boiler improvement: The three existingboiler drums will be providedwith mist eliminatorsto preventcarry over of water from the steam drums that was causingsuper heater tube rupture, prematureshutdowns and increasedmaintenance costs;

(g) Fire alarm sz8tem: As a safetyprecaution, a fire alarm system will be providedin the refinery;

(h) Chlorinationsystem: In order to reduce seawaterfouling of plpes and exchangertubes, chlorinationfacility, which includes chlorinegeneration, and continuousand shock chlorine injection,will be provided;

5i) Crane: In order to facilitateremoval and repairs of heat- exchangers,condensers, etc. and to reduceoverall maintenance time, a 27-ton crane will be provided;and

(j) LaboratoryInstruments: Certainurgently required laboratory equipmentinstrument for samplingand measurementof environmentalpollutants in the wastewaterleaviLng the refinery, and instrumentworkshop items are also includedin the project scope.

2. Rehabilitationof GOIL's Bulk PetroleumDepots at Takoradiand Kumasi

4.05 GOIL's facilitiesover the years, like those of other public sector companies,have been badly maintaineddue to seriousshortages of foreign exchange. The proposedproject would thus providefunds for the accumulated backlogrehabilitation and maintenancerequirements. In the Takoradidenot, replacementof firefightingwater pumps with drives,product shipment pumps with drivesand motor controlcenters, truck loadingarms, new facilitiesfor collectionand safe disposalof oil and oil contaminatedwastes, and repairs of the rail loadinggantry with suitablearrangements for collectingoil spillageare required. In the Kumasidepot, replacementof firefightingwater pumps with drives;product shipment pumps with drives and motor control center,truck loadingarms, safetyprecautionary measures for the LPC storage and fillingareas, and new facilitiesfor collectionand safe disposalof oil and oil contaminatedwastes are required.

3. Rehabilitationof Retail Outlets

4.06 As mentionedin para. 4.05, the proposedproject would providefunds mainlyto cover GOIL'saccumulated rehabilitation requirements. Specifically, - 33 -

replacement/repairsof dispensangpump meters; replacementof air compressors, pneumatichoists, lubrication facilities, and, in a few cases,replacement of undergroundstorage tanks are requiredfor the rehabilitationof the GOIL's retailoutlets. Foreignexchange provided under this project(about US$2.2 millio.')for the distributionoutlets is intendedto cover the overhangof accumulatedmaintenance requirements and improveGOIL's operatingand maintenancesystems and procedures. For the recurringmaintenance, GOIL would buy the foreignexchange from the auctionmarket out of its operationcash flow in the same way as any privateoil companywould. To prevent deteriorationof the facilitiesin the future, the projectprovides for trainingGOIL managementand personnel,establishment of an operationand mainteaanceprograms and procedures,and appropriatemonitoring system to ensurethat COIL's maintenanceneeds are met. In order to maintaina well- balanceddistribution network throughout the countryafter the rehabilitation, it is also necessaryto providespares and materialsfor the facilitiesof the privateoil companiesat specifiedlocations. The Governmenthas providedthe requiredforeign exchange for this purposethrough the foreignexchange auctionso that the privateoil companiescould purchasethe sparesand materialsfor rehabilitatingtheir facilities.

4. Expansionof LPG MarketingFacilities

4.07 Safety relief valvesand facilitiesfor fire protectionin the existingLPG storageand fillingplants of COIL are not adequate. Necessary equipmentand materialsto rectifythis deficiencyare includedin this component. In order to market the additional6,000 MT per year of LPG readily availablefrom the refinery,three fillingplants at Accra, Takoradiand Kumasiwould be installedand additionalLPG bottles,regulators and table top stoveswould be provided. For the safe operationof the fillingplant and maintainingsafety of the LPG bottles,necessary spares and equipmentfor testingand repairsare also included. Additionalbulk transportvehicles and pick-uptrucks are providedfor the bulk transportationof LPG and distributionof LPG bottles.

5. PetroleumProduct Transportation on Volta Lake

4.08 Tank truck unloadingfacilities and storagedepot consistingof one tank each for gasoline,kerosene, and diesel;interconnecting pipes and pipe fittings;safety equipment;and oil spill collectionand disposalfacilities, are requiredat Akosombo. A similarstorage depot, truck loadingfacilities, interconnectingpipes and pipe fittings,safety e4uipment, oil spill collectionand disposalfacilities are requiredat Buipe. Essentialutilities such as electricity,and water will be purchasedfrom VLTC/VRAfacilities. VL1C/VRAwill also provide,with financialassistance from KfW (para.4.11), separateoil jetty facilitiesat Akosomboand Buipe,and separatepetroleum bargesfor carryingthe productsover the Volta Lake. The works at Akosombo and Buipe are shown in the Maps (IBRD-20018and 20019)at the end of this report.

4.09 VLTC/VRAwith financialassistance from the FederalRepublic of Germanythrough KfW has developedjetty facilitiesand navigationalaids for generalcargo movementover the Volta Lake from Akosomboto Buipe. For the petroleumproduct movement, VLTC/VRA will provideseparate oil jetties,two petroleumbarges and one pusher tug (i.e. water-sidefacilities) for which the - 34 -

foreignexchange cost of US$8.7million will be financedby KfW, and VLTC/VRA will providethe local cost of US$1.1million. The Governmenthas confirmed that the water-sidefacilities will be providedfor the Volta Lake petroleum transportsystem by December31, 1989, and that an agreementbetween VLTC and GOIL for the bulk transportof petroleumproducts will be finaiizedby December31, 1987.

6. Farmers'Service Reseller Outlets

4.10 Two small overgroundstorage tanks mountedwith hand pumps for keroseneand diesel,essential safety equipment and a small office facilities are requiredfor each of the farmers'service reseller outlets. The outlets would be constructedby COIL and would be owned and operatedby local agriculturalcooperatives or privateindividuals. Each outlet is estimatedto cost about US$8,000according to standarddesign preparedby COIL and acceptableto IDA. IDA funds are requiredonly for the purchaseof steel plates,pipes, hand pumps and safetyequipment. The socio-economicimpact of these facilitiesis expectedto be substantialsince they are intendedto providethe most essentialrequirement of the farmersin the rural areas. The proposedproject includes about 125 pilot stationsin differentregions for the time being. The programwould be expandedif this pilot schemeproves successful. The Governmenthas agreed to evaluatethe socio-economicimpact of this pitot schemeand preparean evaluationreport for reviewwith IDA not later than two menths after its completionbut not later than June 30, 1989.

7. Trainingfor COIL Personneland ComputerFacilities

4.11 Being a Government-ownedentity without external assistance, GOIL's personnelin charge of supplyand distributionare not exposedto modern techniquesused elsewherein the industry. Coursescovering up to date practicesin petroleummarketing; operation and maintenanceof facilitiesused in the industry;safety regulations and environmentalprotection measures used in the industry,and petroleummeasurements and accountingpractices will be organizedby experiencedagencies. A few key personnelwill be given on-the- job trainingand exposurein well establishedpetroleum installations abroad as part of the trainingscheme (para. 3.25). For the purposeof GOIL's managmentimprovement, a suitablecomputer and essentialperipherals will be providedunder the proposedproject.

D. ProjectManagement and Implementation

4.12 GRAIP would be responsiblefor the implementationof the rehabilitationof its Tema refineryfacilities (project component (i) in para. 4.03). The implementationof other projectcomponents, items (ii) through (ix) exceptfor (vi) in para 4.03, would be handledby COIL. With regard to the Volta Lake transportsystem, while the land-sidefacilities (storage tanks and transferfacilities) are implementedby COIL, the water-sidefacilities (item (vi) in para. 4.03), as elaboratedin paras. 4.08 and 4.09 at Akosombo and Buipe would be implementedby VLTC/VRAas an additionto its ongoing co;-structionof Akosombo/Buipeport facilities.

4.13 GRAIP will implementits portionof the proposedproject through an existingProject Unit which was establishedin connectionwith the ongoing first phase refineryrehabilitation (Credit 1446-CH) and with the assistance - 35 -

of engineeringconsultants provided under the proposedproject. CIAIP has agreed to maintainthe ProjectUnit at least until the completionof the proposedsecond phase refineryrehabilitation. It will also retain engineeringconsultants (around 33 man-months)on terms and conditions acceptableto IDA to assist in the implementationof.this project component. GHAIP intendsto employBEICIP, the engineeringconsultant currently working on the first phase refineryrehabilitation, for the necessarydesign, preparationof bid documentsand evaluationas well as projectsupervision. This arrangementis adequateand an addendumto the existingBEICIP contract would be submittedto IDA for approval.

4.14 As discussedwith IDA at the time of appraisal.COIL has set up a ProjectUnit to be responsiblefor the implementationo` its project components. This ProjectUnit, which is coriposedof a mechanicalengineer, a civil engineer,a projectaccountant and a procurementofficer, will be assistedby an experiencedengineer consultant (Advisor) for a period of about two years providedfor under the proposedproject. The missionwas satisfied that COIL, with this technicalassistance to its ProjectUnit, is sufficiently equippedto implementthe rehabilitationcomponents (project components (ii) and (iii),para 4.03) which are of relativelyroutine maintenance nature, as well as straightforwardprocurement of other projectitems includingLPG bottlesand stoves,trucks, etc. (components(iv), (vii), (viii),(ix), para 4.03). In fact, COIL has satisfactorilycarried out work of this nature in the past. However,COIL would need technicalassistance for the implementationof the land-sideVolta Lake petroleumtransport facilities (projectcomponent (v), para 4.03). Thus, COIL has agreed that it will employ engineeringconsulting services (around 30 man-months)under terms and conditionsacceptable to IDA for the detaileddesign, preparation of bid documentsand evaluationand constructionsupervision for the storagedepots and handlingfacilities at Akosomboand Buipe. Some of the civil works needed for the implementationof the water side facilities(project component (vi), para 4.03) at Akosomboand Buipe carriedout by VLTC/VRAwith their engineeringconsultants and contractorsis currentlyongoing. COIL and VLTC/VRAhave maintainedclose coordinationin the implementationof the Volta Lake petroleumtransport system.

4.15 ContractingArrangements. The rehabilitationof the Tema refinery facilitieswould involvea number of contractsincluding an extensionof an existingBEICIP engineeringcontract (para. 4.13), a supplyand erection contractfor the distillationfurnace convection section (para. 4.16) for which a contractor(Foster Wheeler, France) has been selectedon the basis of internationalcompetitive bidding, and various small supplyand/or erection contractsto be tenderedinternationally or locallyas appropriate. With regard to COIL'sfacilities at Akosomboand Buipe, in additionto the engineeringconsultancy contract mentioned in para. 4.14, GOIL will employa contractorfor the constructionof these facilities. In view of the small amount and geographicallocation of the works, this contractwould be tendered among internationallyexperienced contractors currently engaged in other projectsin Ghana. Rehabilitationof COIL's oil depots and retailoutlets would be implementedby the company'sown technicalservices team complemented,where necessary,by local contractorsto be financedby GOIL and selectedthrough local competitivebidding. The work involvedis mostly replacementof worn out equipmentand parts and minor civil works. Since the specificationsare alreadyavailable from originalsuppliers and no design and - 36 -

engineeringis involved,COIL with the assistanceof the Advisorprovided under the project(para. 4.14) should be able to organizeand implementthe work in an efficientmanner.

E. ProjectSchedule

4.16 Most of the componentsincluded in the proposedproject involves procurementof items that requirevery littleengineering and could be completedwithin 18 months of credit effectiveness.However, a few items involvedesign, engineering and fabricationan4 would take 24 months for completion. The implementationschedule for variouscomponents of the proposedproject is shown in Annex 4-1. CHAIP discoveredduring its regular 6-week shut down inspectionat the time of the appraisalthat one item in the proposedproject, namely the rehabilitation/modificationof the distillation furnaceconvection section, needs to be implementedwithout delay at the time of the next scheduledshutdown in October/November1987. Since the procurementof hardwaretakes about nine months,GRAIP has proceededwith advance implementationof this work in accordancewith Bank/IDAprocurement guidelines(para. 4.15); the foreignexchange expenditures estimated at US$0.8 millionas from January1, 1987 but prior to credit signing,would be retroactivelyfinanced from the proposedIDA credit.

F. ProjectCost Estimates

4.17 The estimatedtotal cost of the proposedproject is about US$36.3 million. This includesUS$9.8 million for the water-sidefacilities (jetties, petroleumbarges and pushertug) for the Volta Lake petroleumtransport componentto be financedby KfW (US$8.7million equivalent for foreign exchangecost) and VLTC (US$1.1million equivalentfor local cost). Foreign exchangecosts would be equivalentto about US$28.2million, or 78 percentof the total projectcost. The cost estimatesare detailedin Annex 4-2 and summarizedbelow: - 37 -

Summaryof ProjectCost Estimates (January1987 Prices)

Cadl Million/a USS Million ProjectCoMponents Local ForeIgn Total Local Foreign Total

51) Rehabilitationof Tame RefineryFacilities 232e7 874,5 1.107.2 1*4 5.3 6.7 22.2

(11) Rehabilitationof GOIL's Depotsat Takoradi& Kumasi 39*6 75.9 115.5 0,2 0.5 0*7 2.3

(III) Rehabilitationof Retail Outlets 77*6 311.9 389.5 0.5 1.9 2*4 7.8

(iv) Expap.Aonof LPG Marketing Facilities 156.8 587.4 744.2 0.9 3.6 4.5 14.9

(v) HandlingFaclitles at Akosomboand Buipe 234.3 627.0 861.3 1.4 3.8 5S2 17.3

(vi) Oi Jettiesat Akosomboand Buipe,Barges and Tug Boat 143.6 1,275.5 1,419.1 0,9 7.7 8.6 28.5

(vii) Farmar'sService Reseller outlets 39*6 82,5 122.1 0.2 0.5 0.7 2.5

(vill)Transport Vehicles - 123.8 123.8 - 08 0.8 2*5

(Ix) Trainingfor 60IL Personnel 9.9 49.5 59.4 0.1 0.3 0.4 1.0

(x) ComputerFacility for GOIL 9.9 33.3 42.9 0.1 0.2 0.3 1.0

Base Cost Estimate 944.0 4,041.0 4,98S.0 5.7 24.6 30.3 100.0

PhysicalContingencies 117.2 425,7 542,9 0.7 2,6 3.3 11.0

Price Contingencies 283.8 171.6 455,4 1.7 1.0 2.7 9,0

TotalProject Cost 1.345,0 4,638.3 5,983.3 8,1 28.2 36.3 120.0

/a Base Cost estimatesare convertedat USS1.0= Cedi 165. Errorsdue to rounding. VLTC. - 38 -

4.18 The cost estimatesare consideredto be realistic. They are exclusiveof dutiesand taxes. They were preparedby the consultantson the basis of the contractsawarded by CHAIP under the ongoingproject, and the quotationsthat CHAIP and GOIL have obtainedfrom potentialsuppliers. The estimatedcost includeda physicalcontingency of 11 percentand price escalationfor foreigncosts based on the internationalinflation rates in dollar terms of 3 percent in 1987g 1 percentper annum in 1988 through 1990, domesticinflation rates of 18 percentin 1987, 15 percentin 1988, 10 percent in 1989 and 7 percentin 1990, and exchangerates per US$1.0of Cedi 165 in 1987, Cedi 180 in 1988 and 187 in 1989 and onwards.

G. FinancingPlan

4.19 The proposedIDA creditof US$15 millionequivalent would meet 53 percentof the foreignexchange and 41 percentof the total financing required. The proposedfinancing plan is summarizedin the followingtable.

FinancingPlan (US$ MillionEquivalent)

% of Component Source Local Foreign Total Subtotal

I. CHAIP IDA - 1.7 1.7 21 EIB 2.0 4.5 6.5 79 Subtotal 2.0 6.2 8.2 100

II. GOIL IDA - 13.3 13.3 73 GOIL 5.0 - 5.0 27 Subtotal 5.0 13.3 18.3 100

III. VLTC KfW - 8.7 8.7 90 VLTC 1.1 - 1.1 10 Subtotal 1.1 8.7 9.8 100

TOTAL IDA - 15.0 15.0 42 EIB 2.0 4.5 6.5 18 KfW - 8.7 8.7 24 GOIL/VLTC 6.1 - 6.1 16 Total 8.1 28.2 36.3 100

4.20 The proposedIDA creditwould be made to the Governmentto be onlent to GHAIP and GOIL. Of the total IDA creditof US$15 million,US$1.7 million would be onlent to GHAIP and US$13.3million to GOIL. The onlendingterms would be for 15 years includinga grace periodof 3 years at interestrate equal to 1.1 times the prevailingIBRD interestrate (presently7.92%). The foreignexchange risks would be borne by GHAIP and GOIL. The onlending agreementsbetween the Governmentand GHAIP/GOILwill be finalizedbefore crediteffectiveness. GOIL would financelocal costs of US$5.0million equivalentfrom its internalcash generation. Interestsduring construction - 39 -

would be financedby GOIL, but capitalizedfor CHAIP. The water-side facilities(jetties, barges ant pusher tug) at Akosomboand Buipe would be financedby KfW and VLTC/VRA(paras. 4.08 and 4.09).

4.21 EIB has committedto provideUS$6.5 millionequivalent to bridge the foreignexchange financing gap for the refineryrehabilitation estimated at aroundUS$4.5 million equivalentand related local costs amountingto US$2.0million equivalent.

H. Procurement

4.22 The procurementof various equipmentand materialsto be financedby IDA that are not proprietaryitems or need not match with existingequipment (the specificitems would be firmed up with EIB beforethe negotiations)would be throughinternational competitive bidding (ICB) in accordancewith Bank/IDA guidelines. The rest would be purchasedby directcontracting amounting to US$0.4million for the engineeringconsultants (BEICIP), who are currently assistingGHAIP in the implementationof the ongoingfirst phase refinery rehabilitation;Local CompetitiveBidding (LCB) for civil works relatedto the refineryand '0IL's land-sidefacilities at Akosomboand Buipe and for certain specializeditems to match with existingcomponents. Also, small items (costingup to US$50,000)would be procuredunder contractsawarded after obtainingat least three quotationsfrom reputablesuppliers (up to a maximum of US$0.5million). There will be an advancecontracting up to US$1.0million equivalent(paras. 4.15 and 4.16). Projectitems to be financedby eofinanciersare expectedto be procuredin accordancewith their guidelines. Procurementarrangements for the over all financingand for the proposedIDA credit are summarizedin the table below. - 40 -

ProcurmentArrang!emnt (USSMillon Equlvalent)

Prolect Component ICB LCB Other a/ Total

(I) Rehabilitationof Tmeo Refinery Facilities (1.3) 6.5 (0.4) 8.2 (1.7) (11) Rehabilitationof Dspots at Takoradiand Kumasi (0.6) 0.3 (0.1) 0.1 1.0 (0.7) (111) Rehabilitatlonof Retail Outlets (0,7) 2,1 (1.3) 0.1 2,9 (2.0) (1v) Expanslonof LPG MarketingFacilities (3.3) 2.0 (0.8) 0.1 5.4 (4.1) (v) Handlingof Facilitiesat Akoeomboand Buipe (2.8) 3.6 (1.6) - 6e4 (4,4) (vi) Jetties at Akosomboand Buipe, Barges and Tugs for VLTC - - 9.8 c/ 9.8 - (vii) Farmers ServiceReseller Outlets (0.6) 0.3 - 009 (0.6) (vill)Transport Vehicies (0.8) - - 0.8 (0.8) (Ix) Trainingfor GOIL Personnel - 0.5 (0.3) - 0.5 (0.3) (x) Computerand Peripheralsfor Management Training (0.4) - - 0.4 (0,4) Total (10.5) 15.3 (4.1) 10.5(0,4) 36.3 (15.0)

- FiguresIn parentheses denote IDA credit. /a "Others" Include cost of 601L's force accounts. ob Extensionof consultancyservices of the presentconsultant, BEICIP (France), which Is appointed underthe ongoing Refinery Rehabilitation and Technical Assistance Project (Credit 1446-01). /c Projectcomponent financed by Kf{ (WestGermany) for VLTC.

I. Allocationand Disbursementof IDA credit

4.23 The allocationof the proposedIDA credit is shown in the table below. The estimatedquarterly disbursement schedule for the proposedIDA credit,shown in Annex 4-3, has been based on the implementationschedules for individualproject componentsto be financedunder the credit,given that there is no previousdisbursement profile for this type of projects. This scheduleis consideredrealistic given the advancedstatus of preparationby CHAIP for project implementation,and the fact that a substantialamount of equipmentand materialswould be purchasedoff the shelves. To facilitate projectimplementation, the Governmentand IDA have agreed for CHAIP and COIL to open SpecialAccounts in respectiveamounts of US$200,000and US$750,000to be used for expendituresmade by them under the proposedproject. The accountswill be held in a commercialbank, and operatedon terms and conditionsacceptable to the Association. Withdrawalapplications will be submittedwith full supportingdocuments, except for paymentsagainst civil works contractsof less than $100,000equivalent, owher contractsof less than $50,000equivalent, and individualtraining programs, which will be reimbursed on the basis of statementsof expenditures(SOEs). Supportingdocuments relatedto SOEs will be retainedin a centrallocation by CHAIP of GOIL, AnM made availablefor reviewby visitingmissions. Aa part of the annualaudit of each implementingagency, auditors will specificallyreview accountsand documentsrelated to amountswithdrawn on the basis of SOEs, and give their opinionon the adequacyof these records. - 41 -

IDA CreditAllocation (US$ MillionEquivalent)

CUAIP GOIL TOTAL Disbursement

Equipmentand Materials 1.0 11.8 12.8 1OOZ of foreignexpenditures

Civil Work and Erection 0.3 1.0 1.3 1002 of expenditures

Engineeringand Project Management 0.4 0.2 0.6 100l of expenditures

Training - 0.3 0.3 100l of expenditures

TOTAL 1.7 13.3 15.0

J. Environmentaland SafetyAspeets

4.24 In general,environmental pollution from petroleumrefining could occur throughgaseous effluent and liquidwaste. Gaseouseffluent consists of high sulfurgases containinghydrogen sulfide and mercaptansthat escape into the atmosphereand flue gases from processfurnaces, boilers and refinery flare system. Liquidwaste releasedfrom the refinery,if not treated properly,could containtraces of oil, phenoliccompounds, and derivativesof chromium,depending on the technicaltreatment and processconfiguration employedin the refinery. Temn refinery,as describedin para. 2.15, is a simplehydro-skimming refinery processing low sulfurNigerian Bonny light crude oil withoutany complicatedchemical treatment or crackingunit. Since the refinerydoes not processany high sulfurcrude, the productionof unacceptablelevel of hydrogensulfide and sulfuroxides throughthe fuel burned in the furnaces,boilers and flare systemdoes not exist. Therefore, no treatmentfor the gaseouseffluent from the refineryis required. Similarly,in the absenceof chemicaltreatment using chromiumchemical and crackingunit, the refinerywastewater does not containany toxic compounds such as phenolicchronium deratives, arsonic, etc.

4.25 The only significantpollutant the refineryreleases through its wastewateris tracesof oil. The existingoil separationfacilities (generallycalled API separator)is outmodedand is not effectivein collectingoil from the refinerywastewater at level acceptableto industry norms. It was noted that Ghana has no regulatorylimit for oil content admissiblein the refinerywastewater and that the refinerywas not keeping recordsof the extentof oil relea"edthrough wastewater. Since the water ultimatelyflows to the sea near the harbor, the accumulatedeffect of the oil over the years potentiallycould endangermarine life in the area. Since there are no other refineryor oil processingfacilities (petrochemical plants)in the area, the existinglevel of pollutionis not in an alarming proportion. Nevertheless,as recommendedby the appraisalmission, GHAIP agreed to installa modernAPI separatorto remove the oil from the refinery wastewaterto levelsnormally acceptable to industrystandard (less than 30 parts per million). This API separatorwill be designedand constructedas per standardslaid down by the AmericanPetroleum Institute. Biological - 42 -

oxygen demand (BOD) is anotherquality that is not being maintainedin the wastewaterfrom the refinery. At the suggestionof the mission,suitable facilitiesare includedin the proposedproject to controlthe BOD as per industrynorm. The API separatorand the equipmentto measure/monitorthe BOD in the refinerywastewater are fundedunder the project (para.4.04 (b)). GHAIP has agreedto measure the oil contentand BOD in the refinerywastewater on a regularbasis and maintainthem at limitsas per appropriateUS EnvironmentalProtection Agency standardor its equivalentand to report these data in the quarterlyreports to be submittedto IDA (para.4.27).

4.26 All the componentsof the proposedproject are plannedwith environmentaland safetyaspects meeting API standardsand/or World Bank environmentalguidelines whichever stricter. Replacementof corrodedcrude and productlines connectingthe oil jetty would reduce oil pollutionof the environmentto the normal industrystandards. Similarly,rehabilitation of the Takoradiand Kumasidepots would reducethe oil spillsfrom these depots to normal industrystandards. In designingthe Volta Lake transportsystem and additionalLPG marketingfacilities, all necessaryprecautions would be taken to limit environmentalpollution and maintainsafety standardsthat would meet normal industrypractices. IncreasedLPG marketingwould reduce deforestationsince it would replaceabout 24,000 MT per year of wood fuel and charcoal.

K. ProjectMonitoring and ReportingRequirements

4.27 Various indicatorsfor monitoringproject implementation and the operationsof CHAIP and GOIL (Annex4-4) have been agreedwith GHAIP and COIL. These would be includedin the requiremertsfor GHAIP'sand GOIL's periodic(quarterly) progress reports to IDA. The Government,CHAIP and GOIL have also agreed that within three months after the completionof the project, they will jointlyprepare a "ProjectCompletion Report" on the basis of an outlineto be agreedwith IDA.

4.28 As part of the Government'sstrucutral adjustment program, 14 prioritySOEs with major budgetand fiscal impactwill be expectedto prepare corporateplans for review by Governmentand to negotiateperformance agreements(based on the plans)with Governmentsetting out SOE's objectives, performancetargets, performance incentives, and levelsof Government financing(if any). The petformance agreements are designedto increase managerialautonomy in day-to-dayoperations while also increasing accountabilityto Governmentthrough setting performance targets and providing incentivesbased on actualresults. Preparationand implementationof the corporateplans on an agreed timetablefor the 14 prioritySOEs is an agreed actionunder the structuraladjustment program. Satisfactoryprogress is a conditionof the SAL secondtranche release. In accordancewith this timetable,GHAIP and COIL have agreed to preparecorporate plans for 1988-90 by December31, 1987, and concludeperformance agreements with the Government based on these plans by June 30, 1988 and implementthem thereafter. - 43 -

V. PROJECTJUSTIFICATION AND RISKS

A. ProjectJustification

1. Sectoraland InstitutionalObjectives

5.01 Prom the sectoralperspective, the proposedproject with its various componentsrepresents the most logicaland urgentlyrequired investment in Ghana'spetroleum supply and distributionsector. The proposedproject, particularlythe rehabilitationcomponents, would correctthe present dilapidatedconditien of GOIL's supplyand distributionfacilities which threatensto disruptthe vital supply of petroleumproducts to end users. These rehabilitationrequirements have been accumulatedover the past years due to the country'ssevere shortagesof foreignexchange; future maintenance work would be carriedout as part of the companies'normal operation. A disruptionof the petroleumsupply most likelywould have seriouseffect across the sectorsof the Ghanaianeconomy. The proposedproject would also establishand start up a new cost effectivepetroleum transport mode via Volta Lake, thus layinga frameworkfor supplyingpetroleum products to Ghana's northernregions and potentiallyto its neighboringcountries such as Burkina Faso, Northern Togot etc.

5.02 The proposedproject emerged from fruitfuldialogues between the Governmentand the Bank on the developmentstrategies and investmentplans for the petroleumsupply and distributionsector. It is indeeda part of the "core"public investmentprogram discussed and supportedby the Bank through publicexpenditure review and energyassessment exercises (paras. 1.02 and 4.01). In addition,through the developmentof the project,the Government recognizedthe need to promoteprivate sector investmentin the petroleum distributionsector and was preparedto provideforeign exchange through budgetaryallocation to the privateoil marketingcompanies operating in Ghana to purchasespare parts and materialsfor their maintenancerequirements. Such provisionswere no longernecessary with the institutionof the auction schemein September1986, throughwhich these companiescan obtain the requiredfnreign exchange (paras.1.03 and 406).

503 Prom the institutionalstandpoint, the proposedproject would enhance the commercialorientation of the operationsof GHAIP and COIL and would rationalizethe responsibiliyof bulk procurementof crude/bulkmarketing of productsby transferingit to CHAIP. It would furtherimprove the efficiency of CHAIP'sTema refineryoperations by strengtheningthe crude oil procurement functionand restructuringthe operating/earningbasis for the Tema refinery operationby settingthe processingmargin on a periodicbasis in a manner that would encouragethe refineryto operateat maximumefficiency and, at the same time, ensure that CHAIP maintainsufficient financial strength to upkeep and modernizeits facilitiesin the long run. The transferof bulk crude procurementresponsibility to CHAIP would give the refinerythe flexibilityof processingpossible crude slatesthat would yield more economicproduct patternstaking into accountthe country'spetroleum product requirements. The proposedproject would expose GOIL'smanagerial staff to the current practicesof the internationaloil marketingcompanies with a view to improvingthe managementof their own operations. - 44 -

2. EconomicReturns

5.04 The proposedproject has componentswhich are mainly intendedto rehabilitatethe existingfacilities, increase the safetyaspects especially against fire hazards,and effectpollution control. Justificationfor such componentsshould be mainly on the basis of safe operatingpractices and the needs for environmentalprotection. Whereverthe operationalefficiency is increasedto effect improvedproductivity and reducecost, it is taken into account in evaluatingthe economicviability of the investment. For the economicevaluation, the project componentsare regroupedand their economic returnsare estimatedas follows:

ProjectComponents EconomicReturn(%)

(i) RefineryRehabilitation 24

(ii) Rehabilitationof retailoutlets, depotsand additionaltransport vehicles 24

(ii) Farmer'sService Retail Outlets 26

(iv) Volta Lake transportationfacilities 18

(v) LPG productionand distribution 19

5.05 It has also been calculatedthat comparedto road transport,the Volta Lake petroleumtransport system would resultin a net savingsof about US$2 milliona year to the economy(assuming an annual cargo of 50,000MT). Details of the above economicreturn calculationsare shown in Annex 5-1.

3. CHAIP's TemaRefinery Operating Economics

5.06 The proposedrehabilitation of the Tema Refinerypresupposes that the refineryoperation is economic. Assessmentof the refineryeconomics has thus been carriedout as elaboratedin Annex 5-2. The economicsof the Tema refineryhinges largelyon: (i) the type of crude mix that would best meet the domesticwhite productrequirement and, at the same time, minimizethe productionof .esidualfuel oil (to be re-exportedat very low prices); (ii) the extentthat fuel consumptionand hydrocarbonlosses in the refining processcould be reduced;and (iii) the savingson transportcosts, resulting from lower freightcosts for bringingcrude oil to Ghana from nearby Nigeria comparedto bringingfinished petroleum products from WesternEurope. As shown in Annex 5-2, the operatingeconomics have been assessedunder different historicalcrude and productprices scenariospwhich indicateqthat the refineryoperation would be economicat prevailingcrude and productprices in the past even when refineryfuel consumptionand hydrocarbonlosses were assumedat the presentrate of 6% on crude. Anotherway to assess the economic viablityof Tema refineryoperation is to compareits refinerymargin per barrelafter takingaccount the transportationadvantage (savings resultingfrom bringingcrude from nearby Nigeriain lieu of finishedproducts from northwestEurope/Middle East) accrued to the economywith the differentialbetween crude and productFOB prices (say Rotterdam)per - 45 -

compositebarrel. As shown in Annex 5-2S over the past 12 years except for the period 1979-81when the marketwas destabilized,this differentialbetween crude and productprices per barrelvaried betweenUS$2.28 and US$4.68,which was above the Tema refinerybreakeven margin (includingtransport savings) of US$0.95per barrel. Thus Tema refineryoperation has been economically viable. In the future,while the operatingeconomics of the refinerywould greatlydepend on the movementsof crude and productprices, it is certain that the refinery'soperational efficiency would improvedue to the rehabilitationand energyconservation improvement achieved under the ongoing project(Credit 1446-GH) as well as the proposedproject, which when completed,would furtherreduce the fuel consumptionand losses to about 51 on crude throughput.

B. ProjectRisks

5.07 Since the projectpreparation is well-advancedand the project componentsare identifiedwith specificdetails, no major risk is anticipated in the implementationof the proposedproject. Three major componentsof the project-rehabilitationof the GHAIP'sTema refinery,GOIL's depots at Takoradi and Kumasi,and GOIL's retailoutlet facilities- are existingfacilities in continuousoperation with reasonableeconomic viability, especially if the investmentsin the existingfacilities are consideredsunk cost. Rehabili- tationof these facilitieswould increasethe operatingefficiency of these facilitiesand consequentlytheir economicand financialviability.

5.08. In view of the currentlyunmet demand for LPC and high price for charcoal,no difficultyis expectedto market the additionalLPG (about6,000 MT per year) once the proposedfacilities are established. Since the additionalproduction is out of gases burned in the refineryfurnaces and flare stack,there is also no uncertaintyabout its availability. Investments proposedfor the farmer'sservice reseller outlets have been scaleddown considerably,and only the bare minimumfacilities will be provided. It is intendedfor the most essentialneeds of the farmingcommunities in the remote areas for which the Governmentattached very high priority. Since COIL is fully equippedto organizethe manufactureof the tanks and installthe facilities,the only risk associatedwith this projectcomponent would be the extentthat the potentialowners (farmerscooperatives, private investors, etc.) would come forwardto invest in and operate such facilities. This risk, however,is minimizedgiven the supportof regionaland local authoritiesfor this orojectcomponent. Furthermore,this componentwould be implementedon a pilot basis under the proposedproject and would be expandedif the scheme proved to be successful.

5.09 The other main componentof the project- facilitiesfor transpor- financialassistance from the FederalRepublic of Germanythrough KfW. This KfW-financedsystem, which includesthe main harborfacilities, pusher tugs and barges,navigational aids, other infrastructurearound Volta Lake, and technicalassistance to VLTC, are nearingcompletion. Only bare minimum additionalfacilities are proposedto be added for the transportationof petroleumproducts, arnd no specificrisk in projectimplementation is expected. Coordinationarrangements among the VLTC/VRA,COIL and MFP are adequateand shouldnot pose any specialproblemso - 46 -

VI. AGREEMENTS

6.01 Agreementshave been reachedwith the Governmentthat:

(a) the Governmentwould introducea new petroleumpricing system satisfactoryto IDA by December31, 1987 and maintainpetroleum pricesat or above internationallevels (para.2.29);

(b) the Governmentwould bring into effect by January1, 1988 the final arrangementsfor the bulk procurementof crude oil and bulk marketingof products(para. 3.05);

(c) the water-sidefacilities (jetties, barges and navigational aids) would be prdvidedby December31, 1989, to transport petroleumproducts between Akosombo and Buipe (para.4.09);

(d) an agreementbetween GOIL and VLTC for the bulk transportof petroleumproducts via Volta Lake would be finalizednot later than December31, 1987 (para.4.09); and

(e) the Governmentwould preparean evaluationreport for review with IDA two months after the completionof the pilot schemefor farmers'service reseller outlets but not later than June 30, 1989 (para.4.10);

6.02 Agreementshave been reachedwith the Governmentand/or GHAIP that:

(a) the managementimprovement study for GHAIP would be jointly reviewedwith IDA and a plan of action for implementingthe recommendationswould be agreed by December31, 1987 (para. 3.04);

(b) beginningwith 1988 financialyear, the refineryprocessing margin for GHAIP would be establishedperiodically taking into considerationthe prevailingcomparable international levels, internationalmarket prices for productsand the financial viabilityof GHAIP (paras.3.05 and 3.12);

(c) CHAIP'sannual auditedaccounts, together with the auditor's report,would be submittedto IDA not later than six months after the close of the year (para.3.08);

(d) GHAIP would maintaina debt servicecoverage of at least 1.4 in 1988 and at least 1.5 in 1989 onward,and a currentratio of at least 1.0 in 1988 and at least 1.1 thereafter;also, it would pay no dividendsduring the constructionperiod and would review with IDA each year its rollingthree-year investment program(para. 3.19); - 47 -

(e) GHAIP would maintainthe existingProject Unit at least until the completionof the proposedsecond phase refinery rehabilitation(para. 4.13);

(f) GRAIP would retain qualifiedconsultants to assist in the implementationof the refineryrehabilitation included in the proposadproject (para.4.13);

(g) CHAIP would measurethe oil contentand BOD in the refinery wastewateron a regularbasis and maintainthem as per appropriateUS EnvironmentalProtection Agency standardor its equivalentand that GHAIP would report these data in the quarterlyr4lporte to be submittedto IDA (Para.4.25); and

(h) GHAIP would preparea corporateplar. for 1988-90by December31, 1987, and concludeperformance agreement with the Government based on this plan by June 30, 1988 and implementit thereafter (para.4.28).

6.03 Agreementshave been reachedwith the Governmentand/or GOIL that:

(a) the managementimprovement study for GOIL would be reviewedwith IDA and a plan of action for implementingthe recommendations would be formulatedby December31, 1987. (para.3.23);

(b) GOIL'saudited annual accounts, together with the auditor's report,wot-ld be submittedto IDA not later than six months after the close of the year (para.3.27);

(c) COIL would maintaina debt servicecoverage cf at least 1.5 and a current*atio of at least 1.1 in 1988 and thereafterand would reviewwitht IDA each year its rollingthree-year investment program (piira.3.36);

(d) COIL would maintainthe ProjectUnit at least until the completionof its componentsof the proposedproject and employ an experiencedengineer consultant for about two years to assist the ProjectUnit (para.4.14);

(e) GOIL would employand retainqualified consultants to assist in the design and implementationof the land-sidefacilities at Akosomboand Buipe (para.4.14); and

(f) COIL would preparea corporate plan for 1988-90by December31, 1987 and reach Performanceagreement with the Governmentbased on this plan an1 implementit thereafter(para. 4.28).

6.04 Beforecredit effectiveness,the Governmentwill:

(a) agree with IDA on a petroleumproduct pricingsystem based on the recommendationsof the ongoingpricing study (para.2.29);

(b) make a decisionon a final arrangementsatisfactory to IDA for bulk procurementof crude oil/bulkmarketing of petroleum products(para. 3.05); - 48 -

(c) appointa ManagingDirector for GOIL (para.3.24); and

(d) finalizethe on-lendingagreements with CRAIP and COIL (para. 4.20).

6.05 Based on the above agreements,the proposedproject is suitablefor a proposedIDA Credit of SDR 11.7 million (US$15million equivalent). The proposed creditwould be onlent to CHAIP (US$1.7million equivalent) and GOIL (SDR 10.4 millionor US$13.3million equivalent) under on-lendingagreements satisfactoryto IDA (para.4.20). Retroactivefinancing of US$0.8million for the rehabilitationof the convectionsection of the heater for CHAIP (para. 4.16) is also recommended,and is includedin the amountmentioned above.

Energy Department May 1987 - 49 - ANNEX2-1

GHANA

PETROLEUMREFINING AND DISTRIBUTIONPROJECT

Estimated Energy Supply/Demand Balance, 1985

*nid. Pa- ow- 0q Ur. in aw- an 01 U a ty- ft". Ld ow MI Ial101. WPOU arw e

( pt.~ - (01t)

WOW Prht_m 471.6 8kvo 0.0 35. 0.0 0.0 0.0 0.0 0.0 &.0 0.0 21W.Q -.Kto 0.0 0.0 0.0o .6 0.0 0.0 0.0 0.0 23. 0.0 23.9 7 trsy _na 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.610.0 -ockf wa (- 0.0 0.0 0.0 51.9 -32 -3.6 -. 3 -0.6 -02 14. 0.9 0.0 T-a 471.6 8,60 0.0 .6 -362 -3.6 -. 3 -0.6 2L. 14.8 2%.8 1.4D.0

i"S n' o oI 0.0 0.0 0.i -1156 M0 3.0 11D.2 5.7 25.2 231.5 8W16 0.0 SIMttd 1 0*0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -10.3 0.0 -10.3 24.0 =n1 ftabla 0.0 -3.3260 40.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 =W400510uma 0.0 0.0 0.0 -71.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TWi 11tUhuib. Lm 0.0 00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -2%.0 _ W 16471,5,344.0 4U,%0 0.0 2WA 34.4 113.9 5.1 29N.6 63 90.1 1.21S.0 U lo t 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.0 -0.2 -216.7 -219.9 0.0 = Om 471.6 5,1t.0 40.0 0.0 2.8 24.4 113.9 4.1 290.4 27.6 69.2 1,235.0 N Me ~ 0.0 0.0 0.0 0.0 111.2 0.0 0.0 0.0 14 3LI 32.1 0.0 IaauyAUulrq 0.0 170..0 .0 0.0 16.8 0.0 %54 1.0 46.2 24.5 93.9 615.0 .ploalwwffUhtq 0.0 117V5 0.0 0.0 9.7 0.0 1.6 0.0 S3. 0.0 99.6 0.0 Id/3L4MC 0.0 a8 w10o 0.0 13.0 0.0 2.2 0.0 30.4 0.0 45.6 162.0 bsoldmu 471,6 4,6 00 0.0 0.0 0.0 1. 3.1 0.0 0.0 W.9 430

PdLy f m 13L8.7 2,9342 0.0 1l. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 746.8 ,8S3. 0.0 0.0 0.0 36.6 0.0 0.0 0.0 0.0 23.9 0.0 23.9 36.3 98 Iklaw 218ofto 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0*0 0.0 0.0 -2 .5 402L5 S G% (- 1omG) 0.0 0.0 0.0 51.9 -3. -3.6 6.4 -0.6 -.02 13.6 -. 5 00 51.4 lcl 138. 2,9).2 0.0 16 -3.3 -3.6 -64 4.6 2L38 16 2.5 62.5 4^ 5

Ringa Rllbt 0.0 0.0 0.0 '0.5 20.7 L.3 121.8 6.1 MS. 213.4 M5S5 0.0 Nctd" Qnma 0,0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.3 0.0 -10.3 2.0 aOm hbl 0.0 -331L 312.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -mLmin 0.0 U404. 0.0 40.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -245.5 .31.03l ini& I , ,gb.1m 0.0 3.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 o0. 0.0 -22 -. LO NMtO y 138. 1,817.0 312.8 0.0 221.4 24.7 II54 5.5 2".8 227.0 36. 10.3 3,270S _m9 i t 0.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.1 -0.2 -321.6 -3L3 40.0 -3.1 In1tIbawoug c <138.7 18'170 31u 0.0 34 26.7 115.4 4.4 296 25.10 85.8 103 3,07.6 -- I 0.0 0.0 0.0 0.0 l. 9 6.7 0.0 0.0 133.9 2.8 3A7.3 0.0 27.3 JaSqflhzdng 0.0 9.9 0.0 0.0 17,2 0.0 54 1.1 4.4 2L6 9L7 23 .9 0.0 0.0 0.0 0.0 100 0.0 1.6 0.0 3.7 0,0 30.2 0.0 1402 / -A, GnCIO 199 6.8 0.0 13.4 0.0 2.2 0.0 .6 0.0 46. 133.8 36. m 1uaI 138. 1.417.2 360 0.0 0.0 0.0 106.1 3.3 0.0 0.0 1094 37.2 2,^6

bant lNetY d PI ad Mr Wl*; 613 1 01 Iar trnz s.

Energy Department May 1987 6WWA

PETROLEUMREFINING AND DISTRIBUTIONPROJECT

PETROLiUMPRODUCT PRICE STRUCTUIE/a (All Prices Are in Cadis Per lmperial Gallon).

Product Ex-Refinery Taxes Included In Dealer's Marketer's Transporterts Ex-PumP Price Price Ex-Reftinery Prices Excise Margin ar£gin Margin lwperiai U.S. Road Fund Energy Fund Duties Gallon Gallon

Premium 144.30 5.0 1.0 21.0 2.60 5.60 tO.50 190.00 158.33 Regular 139.30 5.0 1.0 16.0 2.60 5.60 10.50 1s0.OO 150.83 Kerosene 89.30 1.0 1.0 - 2.60 5.60 10.50 110.00 91.46 Gas Oil 109.30 10.0 1.0 26.0 2.60 5.60 10.50 165.00 137.50 A.T.K. 170.00 ------170.00 141.67° R.F.O. 110.00 5.0 - 5.0 - - - 120.00 100.00 L.P.G. (per pound) 11.40 0.2 - 2.0 1.50 2.05 2.85 20.00 -

/a Effective February 1987

Source: Ghana NationalPetroleum Corporation GHANA PETROLEUMREFINING AND DISTRIBUTIONPROJECT Ghalp OrgonIzation Chart

MonogwV Dftelw~~~~~~~~~~~~~~~~cla6n&3~7

g~~~~~C4wom{ E E53 {g 1~~~~~~~~~~~~~~~~ sw1 ;7tt =, 2 J l Irll II Ll ~~~f~L IJfl. 11

r*X~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Wlr06r7 . So k} 9Z - 52 - ANNEX 3-2

GHN

PETROLEUMREFININO AND DISTRIBUTIONPROJECT

GHAIP- HistoricalIncome Stalsusnts, 1981-1985 (MlillIonCedis)

YearEnding December 31 1981 1982 1983 1984 1985

SalesVoius CrudeProcessed MT ('000) 1,128.6 1,040,4 480U6 748.7 973.7

ProcessingFees 44.4 386, 92.0 183e4 360.3 Store Soles 0.9 O 4.4 2.1 6.3

Total Sales Revenue 443 39.7 96.4 185.5 366*6

MaintenanceMaterials 10.0 4.4 26.3 26.0 61.5 Chemicals 0.2 0*2 0.6 0,9 1.3 utilities 1.1 1.2 0.9 5*4 0.0 OtherIndustrial Costs 2.7 4e1 3.8 22.7 62,5 Personnel 23.0 23.8 41.7 111.6 190.5 Depreciation 0.' 055 155 1,0 3.2

Cost of GoodsSold 37,7 34.2 74.9 167.5 327.0

Gen.& Admin.Expenses 3.9 2.9 13.1 4.7 20,1

TotalOperating Costs 41.3 37.1 88.0 172.2 347.1

OperatingIncome 4.0 2.6 8.4 13.3 19.5

Interest 0.8 O's 4.1 6.8 8.6

IncomeBefore Taxes 3,2 2,1 4.3 6,5 10.9

Incom Tax 1.1 0.0 2,2 4.4 8.8

Net Income 2.1 2.1 2.1 2.1 2.1

8a3s 3a*= *33 =333 3=2=

S C.G.S,/Sales 82.6 86.2 77.7 82.1 89.2 S Operating Income/Sales 8.8 6*4 8.7 7,8 5.3 % Not Income/Sales 4.6 5.3 2.2 1.1 0.6

/a Audited

Energy Department January 1987

GHA-AX3-2(li4C) - 53 - ANVIl 3-3

PETOLEWUNREFINI AND DISTRIBUTIONPROJECT

AI4AP- HistoricalBalance Sheet, 1961-1985 (MllI I on Cedis)

Yew EndingDecembr 31 1961 1982 1963 1964 1985

ASSETS

TotalCash a Investments 5.2 6.7 6.0 65.5 65.S

AccountsRecelvabie 15,2 13.3 40,.3 1OS.4 253.6 Stocks 12.1 3.2 26.5 47.1 10.5

TotalCurrent Asts 32.5 33.2 72.8 216.1 439.8

Bul ldings 6.0 8.0 6.0 6.O 8.0 Machinery& Equipment 36.6 63.2 S6.4_8. 147.8

TotalFixed Assets 66.6 71.2 79.7 94.4 155.8 Accum.Depreciation 51.0 51.5 53.1 54.0 57.2

Not FixedAssets 15.6 19.7 26.6 40.4 96.6 Trade I nvestmnts .0 .0 .0 .0 29.0

TOTALASSETS 48.1 52.9 99.4 256,5 967.5

LIABILITIES *=**amass= Short-Term Borrowings 1.6 1.2 5.6 - 4.6 AccountsPayable 16.0 23.4 61.0 147.8 384.4 TaxesPayable 5.2 3.2 5.4 3.9 7.3 DividendsPayable 2& 2.1 4.2

TOTALCURRENT LIABILITIES 27.1 29.8 16.4 159.0 400,6

EmplooyeBenefits - - - 74.4 143.9 ShareCapital 16.8 16.8 16.6 16.8 16.8 RetainedEarnings 4.2 6.3 6.3 3 6.3

TOTALE9UITY 21.0 23.1 23.1 23.1 23.1

TOTALLIABILITIES 48.1 52.9 99.4 256.5 567.5

CurrentRatlo 1.2 1.1 1.0 1.3 1.1 S Equity/TotalLiabilities 44/56 44/56 23/77 10/90 4/96

Ia Audited

Energy Department may 1987

GHA-AX3-3(RMC) - 54 - ANNEX3-4

CANA PETROLUMREPININC AND DISTU8UTIOI PRWECT

GRAIP- Project Income Statements,, 1986-1992

Dar~u 31 1986 1987 1999 1999 1990 1991 1992 uillian Cedis - - -- - mm MM CDudeProcessd NT('000) 995.2 1,013.4 1,042.4 1,072.2 1,102.8 1,160.1 1,220.3

PRcing Fee 0.0 0.0 3,386 3,720.1 3,937.1 4,2.1 4,610.8 Stre SWles 60.0 65.4 76.1 95.5 92.7 99.2 102.4 Refiningfee until 1997 43.6 974.0 0.0 0.0 0.0 0.0 0.0

TMLS RENEIIE 499.6 1,039.4 3,444.7 3,9(5.6 4,029.8 4S3M4 4,713.2

NaintwkwcMaterials 122.9 181.1 254.9 281.3 297.9 320.3 348.7 ChuicalsU5ed 2.9 4.2 5.9 6.6 6.9 7.5 9.1 Utilities 7.1 10.4 14.7 16.2 17.2 18.5 20.1 OtherIdmatrial CWSt5 50.8 74.8 105.2 116.2 123.0 132.3 144.0 Pw5wnel 213.0 238.9 285.9 330.3 369.4 410.7 450.3 Star Sales 62.0 9E99 121.5 130.4 134.2 137.3 142.1 RefineryCasuwption 0.0 0.0 1,426.7 1,444.3 1,389.6 1,420.9 1,470.7 DPIATI(N 8.2 9.2 16.6 112.2 112.2 174.9 174.9

osTOF MOMSSOD 466.9 606.5 2,231.3 2,437.6 -,449.3 2,622.3 2,759.9

EN.&ADMIN. EXRENS 22.5 24.5 28.6 32.1 34.8 36.9 39.4

TDTALOPERATINB CSTS 489.4 631.0 2,259.8 2,469.7 2,484.1 2,659.1 2,797.3

OPERATIINOIE 9.2 408.4 1,184.8 1,333.9 1,545.8 1,674.2 1,915.9

LG&B-rTERDEET INTEREST 0.0 138.9 243.6 273.3 272.9 249.7 213.3 STDETCDEPGJSIT) INTEREST 4.4 23.6 SB.2 67.S 14.8 (43.1) (98.8)

TOTALGOMR EXPEIES 4.4 162.5 301.8 340.7 287.6 206.6 114.5

SNDE EF TAXES 4.8 245.9 993.0 995.2 1,259.1 1,467.6 1,801.4

TAIE IN= 4.8 245.9 P83.0 995.2 1,258.1 1,467.6 1,801.4 DME TAX 2.6 135.2 4956 547.3 692.0 807.2 990.9

Er mE 2.1 110.6 397.3 447.9 5662 660.4 810.6 -= ==s_

X C.B.S.t MMq 93.6 5M.3 64.9 64.1 60.8 60.5 585 %aR. INVE/amES 1.9 39.3 34.4 35.1 39.4 38.6 40.7 X MT DNIE / SS 0.4 10.6 11.5 11.8 14.0 15.2 17.2

Energy Department May 1987 - 55 - ANNEX3-5

GAN

PETIOL II4WINIC AND DISIBUTIOIN PROCT

GlAIP - Projected Balance Sheets, 1986-1992

31 196 19w7 19g 199 1990 1991 1992 sillim Cadis ------

=#_ SIWWSCa 0.0 0.0 0.0 0.0 268.5 637.6 1,437.1 MINRIUI1YU 27.9 35.9 129.4 136.0 136.8 143.3 151.3 TOTALCASH 27.8 35.9 129.4 136.0 405.3 791.0 1,59.3

fmNT6REIUwLE 1E12.2 379.8 1,23L6 1,390.5 1,472.4 1,5.3 1,722.1 RN KATEIMS 139.2 202.2 22.3 309.7 32.5 346.0 372.5

TurALINNIWlES 138.2 202.2 2923 309.7 W2.5 346.0 372.5

TOTALa1 AETS 349.2 617.9 1,670.4 1,62 2,2032 2,710.3 3,63.0

TOTALFIXED ASSETS 784.3 2,105.6 2,851.1 3,317.7 3,519.3 3,519.3 3,519.3 AM1 [8RECIATWNo 65.4 7&.5 90.1 202.3 414.5 489.4 664.2

tETFIXED A 719.9 2,0=1 2,761.1 3,115.4 3,204.9 3,03D.0 2,85.1

1TOTLASETS 1,067.1 2,650.0 4,431.5 4,951.6 5,40.1 5,740.3 6,5S.1

UABIUTIB

SlRT-TERMDIM NM 102.9 236.0 598.6 36.2 0.0 0.0 0.0 AMMITSPAMR. 164.0 129.2 239.4 191.7 32.4 268.5 422.2 aL rAT.L.T.D. 113.7 277.5 227.5 279.7 331.9 285.6 239.3 TAXESPAYULE 2.6 1.2 45.6 547.3 692.0 907.2 990.8 DIVIDMOSPAYAI.E 2.1 0.0 0.0 0.0 113.2 132.1 162.1

TOTALU4T LIDILITIE 385.3 727.9 1,$1.1 1,386.9 1,465.6 1,493.4 1,814.4

ROVFNEMEUIT 175.0 210.8 27 303.2 38.5 420.1 467.6 tElI 1WTEIMDMT 599.5 1,807.1 2,32.1 2,564.2 2,496.2 2,154.2 1,868.6 LESSal AlRTITIES 113.7 227.5 227.5 2m.7 331.9 2F5.6 239.3

NETLUD NO EITS 67 1,790.4 2,351.4 2,587.8 2,512.7 2,297 2,117.0

S9 CNITAL 16.8 16.8 16.8 16.8 16.8 16.8 16.8 LEIL FE 0.4 22.6 102.0 191.6 304.8 436.9 599.0 RETAINEDEIINS 3.8 92.3 410.2 768.5 1,108.2 1,504.4 1,990.8

TOTALEQUITY 21.t, 131.7 529.0 976.9 1,429.8 1,958.1 2,606.6

TOTALLIWILITIES 1,067.1 2,650.0 4,431.5 4,951.6 5,408.1 5,740.3 6,538.1 eao := ==== - ==

0ildT RATIO 0.9 0.8 1.1 1.3 1.5 1.9 2.0 EQUITYJ TUrL LUA. 2.0 5.0 11.9 19.7 26.4 34.1 39.9 Energy Department May 1987 _ 56 - AM=EX3-6

lP - Projected ources and Appication of Fd, 198-12

31 196 1997 18 1969 1990 1991 1992 A111e tadi------

IT mDE 2.1 110.6 37.3 447.8 566.2 60.4 810.6 En oATO 92 92 16.6 112.2 112.2 174.9 174.9 TOOALFRl 1MTIO 10.3 119 413.9 560.0 6794 G3L3 595 lU3-19II ET Dam 599.5 1,321.4 745.5 466.5 201.6 0.0 0.0 TO1TLFRU DMW m99.5 1,321.4 745.5 466.5 201.6 0.0 0.0

TOTAL9UURES 609.8 1,440.2 1,I59.4 1,0266 90.0 9.3 995

DDiTM610 FIE AI 5999.5 1,321.4 745.5 466.5 201.6 0.0 0.0 OTALMDITII4- 599.5 1,321.4 745.5 466.5 201.6 0.0 0.0

LTA.D 0.0 113.7 227.5 227.5 279.7 M.q 2E.6 DNIIII AID 4.2 2.1 0.0 0.0 0.0 113.2 132.1 O^E IN NIRD PI1M. 311 3L. 229.3 W.1 45.9 451.8 64 O1 INBPLY WEF f3.0) (35.9) (42.9) (49.6) (M.3) (61.6) (67.5)

T1TAL CATI= 609.8 1,440.2 1,159.4 1,0. 90.0 03L3 95.

tO DK MY-.MlME 33 1.0 1.4 1.6 t.7 1.9 2.4

luragy Departust may 1987 - 57 - ANVEX 3-7 Page 1

OUWA

PBTOLIN REFININGAID DISTUIIUTMOV

GCAIP- Notes mnd AeusIptionsfor FinancialProjections

I. General

1. The financialprojections are based on CGHIP'shistorical accounts, estimated1986 accountsand the staff'sbest judgementon futureproduction levelsand investmentprogram. The followingdomestic and international inflationrates and exchangerates hav been used in the projections: 1987 1988 1989 1990 1991 1992

Domestic(Z) .8.0 15.0 10.0 7.0 5.0 3.5 Foreign (S) 3.0 1.0 1.0 1.0 3.5 3.5 Exchangerate (Cedisper US$1.0) 165 180 187 187 187 187

II* IncomeStatement

2. Revenues. For 1986and 1987,processing fees have been projectedon the basisof the "ProcessingAgreement" which has been in forcesince the beginningof the Tema refineryoperation. Accortding to this agreement,the fee is establishedto cover:

OperatingCosts; Depreciationof the total cost of the refinery; Generaland administrativeexpenses; Nunicipaland Incometaxes; Localcurrency cost componentof the investmentprogram; and Dividendsto Governmentfree of Tax not exceeding12.52 per annum on the paid up capitalof the company.

From 1988 onwards,this processingfee would be establishedthrough negotiationswith the Covernmenttaking into accountthe prevailingcomparable internationalrefining margins, international market prices for crude and petroleumproducts and the financialviability of QUA!P. It has been assumed thatGHAIP would earn a processingfee of US$2.55equivalent per barrel includingUS$0.9 equivalent per barrelto cover internalfuel consumption. This marginis escalatedaccording to the intenationalrate of inflationshown in para.1.

3. StoreSales are salesof chemicalproducts to GNPC and/orcommercial entities.Sales volume is expectedto remin constant,prices are escalated accordingto the domesticrate of inflation.

G*4A-ANX3-?(RMC) - 58 - ANNEX 3-7 Page 2

4. OperatingCosts:

(a) Operatingcosts are basedon CHAIP'sbudget for 1986 escalated by inflationand productionlevels. They includemaintenance materials,chemicals, industrial costs and storesales of additivesas well as the refinery'sfuel consumptionwhich are escalatedat the foreignrate of inflationand adjustedannually at the prevailingexchange rate. Personnelcosts and utilities are escalatedat the domesticinflation rate. (b) RefineryFuel Consumption:This representsfuel consumed internallyin refineryoperation. For 1986and 1987,this amountdoes not show in the incomestatements since, under the existing"Processing Agreement", is covereddirectly by the Government/CNPCand not chargedto the accountsof CHAIP. Under the new processingfee arrangementexpected to be effectivefrom 1988 onward,such fuel consumptionwould be chargeddirectly to CHAIP. It has been assumedthat the internalfuel consumption would be reducedto 6% of total throughputin 1988 as the first phaserehabilitation program begins to take effect,and decrease graduallyto 5X of totalthroughput in 1990 and thereafter.

5. Depreciationof the new assetsis calculatedaccording to the straightline methodover 20 years:

6. Incometaxes are 55Z of income. 7. Dividends. It has been assumedthat no dividendswill be paid during the projectconstruction period, i.e. up through1989. From 1990 onwards, dividendsare projectedat a levelof 25% of net incomeafter retaininga reserveof 20% whichwill maintainsatisfactory liquidity ratios.

III. BalanceSheets and FundsFlow Statement

8. Cash. Minimumcash is basedon averagehistorical requirements of 21 days of cash operatingcosts. Extracash is assumedto be investedin short- term instrumentsyielding 10X per annum.

9. AccountsReceivable rose from 122 days of salesin 1981 to 218 days in 1984 and 253 days 5- 1985. They are expected to decline to 134 days from 1986 onwards.

10. Inventoriesare based on historicalrequirements of 122 days of consumablesand maintenancematerials excluding internal fuel consumption requirements,the latterbeing financedby Government.

11. Plantand Equipmentare basedon CHAIP'sinvestment program.

12. ShortTerm Debt has been assumedto carryan interestrate of 15% per annum. CHAIP is projectedto incursome short-termdebt to financeincreases in workingcapital requirements since CHAIP's cash generationis limitedby the ProcesssingAgreement until 1987.

GNA-ANX3-7(MN) ANNEX 3-7 Page 3

13. AccountsPayable rose from 178 days of operatingexpenses isi 1981 to 407 days in 1985. The latterfigure however includes payments due to contractorsand suppliersfor capitalexpenditures. They are expectedto declinegradually fFom 75 days in 1987 to an averageof 45 days thereafter.

14. FinancingPlan for the ProposedProject. It has been assumedthat the proposedIDA creditand EIB loan would be onlentto CKAIP at 1.1 timesthe prevailingBank rate (currently7.922) over 15 years including3 years grace. Interestduring construction would be financedby Covernment,and the localcurrency portion of the project(about US$2.0 million equivalent) by EIB and onlentto CRAIPon the same termsand conditionsas the foreignloan. Debt serviceand increasesin workingcapital would be financedby internal cash generationfrom 1988 onwardswhen the new processingfee would take effect.

Energy Department May 1987

GHA-ANX3-7(RMC) 4 If

ii E

- 09 - - 61 - ANNEX 3-9

PElTOLEUMlEFININD ANDDISMIRITION PROJECT

GOIL- Historicallcoc Statements.1961-1965 (MIIlIon Codis)

YoerEnding Oes*er 31 1961 1962 1983 1964 196S

TotalSales Revenue 36.4 338.7 1,012.0 2,387.8 3,952,2

Fueland Lubrieants 32330 292.4 9*83 1,772.9 3,213.2 Deot & StationExpense 6.1 539 20.8 14.3 56.7 Dapreciation td2 1.2 06,C.A8

Gen,& Admi.Expeans 14.6 21.3 29.4 172.7 196.9

TotalOperatin Cost 3 320.8 11f960,4 3g477,6

OpratIng Inome 21,5 17.6 52.0 427.5 474.6 Non-orwatingncoMe 4.4 2l.2 41.8

inom BeforeTaxes 22,9 19.9 56.4 438.7 516.4 inomeTax 604) 32.4 249.0 297.0

Not IncDan 6.9 26.3 24.0 189.7 219.4

S C.S.S.J5a1es t901 I8.4 92.0 74.9 83.0 S0eating Inoem/sales 5g.9 5.3 S.1 17.9 12.0 S Not Income/Sales 2.4 7.6 2.4 7.9 5.6

/a Audited

Energy Departmnt may 1987

GNA-AX3-9(MC) - 62 - AMX 3-10

GHANA

PETROLEUMREFINlINB AND DISTRIBUTIONPROJECT

GOIL - Historical Balance Sheets, 1981-1985 (Million CodIs)

Year Ending December 31 1981 1982 1983 1984 1985

ASSETS

Cash 62.4 74.0 314.5 433.1 583.3

Accounts ReceIvable 65.0 13,6 129,0 379.5 911.5 Finished Products 12.4 17.8 47.5 248.6 645.1

Total Current Assets 139.8 165.5 491.0 1,061,1 2,139,9

Total Fixed Assets 20,0 22.0 23.9 29.4 92.2 Accum. Depreciation 9*5 10.6 11.2 11.7 20,7

Net Fixed Assets 10.6 11.4 12.7 17.7 71.5

TOTALASSETS 150.3 176.9 503.8 1,078*9 2,211.4

LIABILITIES

Accounts Payable 95.5 101.2 397*6 552.5 1,207.6 Taxes Payable 29.8 17.4 21.0 237.4 482.9 Dividends Payable 0.0 7,0 14.0 26.4 27.3

TOTALCURRENT LIABILITIES 125,3 132.6 442,4 840.2 1,717,8

Share Capital 1.9 1.9 1.9 1.9 1.9 Legal Reserve 10.0 20.0 70.0 120.0 Retained Earnings 23.1 32,4 39.4 166,8 321.2

TOTALEQUITY 25,0 44j 61.3 238,7 443,1

TOTALLIABILITIES 150,3 176,9 503.8 1,078,9 2,211.4 3333a 3=333 s3n33 3=3333= 333w32

Current Ratlo 1.1 1,3 ,l1 1,3 1,2 % Equity/Total Liabilities 17/83 25/75 12/88 22n8 20/80

/a Audited

Energy Department May 1987

GHA-AX3-10 (lMC1 - 63 - ANMIK3-11

"wRaOM uwiuiuo AnD DI8UTIlIOI PIIOJ8CT

_OIL- Projected Income Stateasota 1986-1992

IDced 31 1986 1987 199 1999 1990 1991 1992

h4WV Nff I000) 38.7 39.6 40.6 41.6 42.7 43.7 44.9 Nwbl MT('DD) 11.4 11.4 11.4 11.4 11.4 11.4 11.4 Kerune NfTI'OO) 17.6 18.0 18.5 18.9 19.4 19.9 20.4 ansO 1 l( 00) 81.4 89.5 99.5 103 119.2 131.1 144.2 FuelDil K1WOO) 14.3 14.6 15.0 15.4 15.8 16.2 16.6 L19 hT(OCO) 2.2 2.2 2.3 2.3 2.4 2.4 2.5 LihricantsIT C000) 9.2 9.5 9.7 10.0 10.2 10.5 10.7 Omtuca1s19'('00) 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Sip 1,502.7 2,576.4 3,610.5 3,973.3 4,190.7 4,392.4 4,659.7 W irmi 452.0 722.6 99.0 1,060.7 1,09.5 1,116.1 1,15.2 Kerome 395.2 699.7 979.1 1,077.5 1,136.4 1,191.1 1,263.6 Ganm1 2,416.3 3,944.1 5,931.5 7,0052 7,929.0 9,918.7 10,154.0 FuelM1 261.5 393.7 W7.7 591.7 624.1 64.1 693.9 J1B 564 97,2 136.2 149.9 1SI.I 165.7 175.9 Ldrlicats 1,164.9 1,761.4 2,468.4 2,716.4 2,865.0 3,002.9 3,195.7 Owicals 61.6 a 3 119.5 131.5 13.7 145.4 154.3

uTriLMmS hE 6,:90.6 10,269.4 14,770.9 16,706.3 19,136 19,565 21,442.2

&W Cost 1,523.2 2,490.2 3,475.6 3,824.9 4,034.1 4,229.3 4,45.7 Norl ot 43L6 694.7 949.8 1,019.7 1,049.3 1,073.0 1,110.5 KwomsseCost 379.0 657.5 921.3 1,013.9 1,069.4 1,120.9 1,189.1 an ml aost 2,2M9.7 3,751.9 5,642.4 6,63. 7,526 8,49.0 9,6S9.1 Fuel l st 239.9 350.6 491.3 540.7 570.3 597.7 634.1 LP9Cast 45.9 82.4 1155 127.1 134.0 140.5 149.0 Lubricant Cast 734.1 1,077.2 1,509.6 1,661.3 1,752.2 1,8365 1,949.3 Oulcals dst 47.9 70.3 994 1l0S 114.3 119.9 127.1 DScIATIU 9.8 41.4 41.4 49.9 32.6 170.7 170.7

*MTOF GME SIID 5,702.0 9,206.1 13,245.4 15,0096 16,298.7 17,771.2 19,473.5

.L& ovN. EFB2S.4 3.5 410.2 460.8 499.6 529.4 51.9

TT FMTDNasm 6,OM4 9,ML6 13,6S.6 15,469.4 16,799.4 18,3D0.7 20,02i.3

MATIOGJDE 365.2 710.8 1,115.2 1,23.9 1,M.2 1,285.8 1,416.9

LiNETamMUT INIE8I 0.0 0.0 59.5 141.8 186.1 199.8 172.0 STIlE8OSIT IIEISz (37.61 (405) (s2.G) tS9.4) (69.5) (81.0) (101.9)

TOL. OIKREWB (37.6) (40.5) 6.6 8Z4 117.6 107.8 70.1

ME T4E 40.8 751.3 1,108.6 1,154.4 1,217.6 1,177.9 1,346.

TA.E DAE 40L. 751.3 1,106 1,154.4 1,217.6 1,177.9 1,346.8 INDE TAX 221.5 413.2 609.7 634.9 669.7 647.9 740.7

ET D33.11 181.3 "9.9 519.5 547.9 530.1 606.1

I C..S. I MM 89.2 89.6 99.7 99.9 99.9 90.7 S0.9 aW. W / Ks1f 5.7 6.9 7.6 7.4 7.4 6.6 6.6 %NETDMEI KB 2.8 3.3 3.4 3.1 '.0 2.7 2.8 Ehergy Departmt May 1987 - 64 - AMU 3-12

'WJIU hP:IS0DISIUI3IWI FUJUCT

COIL - ftzoEctel Siaice Sbeeto, 19S6-1192

D 2CEnW31 1986 199 19 1989 1990 1991 119

U CDI =.32a8 517.3 592.5 6.7 783. 916.6 1,223.7 I"NWII W1 231.4 B66. 53 64.8 69.3 763.6 T1MLGAo4 54.2 9.3 1,116.1 1,247.8 1,428.4 1,613.9 1,7.4

AMl1 IEYIILE 1,229.0 1,974.9 8S6 ,22. 44P.2 3,766 4,13 FINISO1PRFIUMS 675.9 1,996.2 1,562.3 1,767.0 1,918.0 2,071.6 2,267.9

TOTALD60IM 6.9 1,4862 1,2.3 1,767.0 1,918.0 2,071.6 2,267.9 TOTALDIJIR S15 2,469.0 3944.4 5,59.0 ,227.6 6,936 7,41 0,78

TOTALFIXED AREM9 1,110.1 1,314.2 2,561.0 3,62 3,870.9 3870.9 3,.9 AC4. MEITCIU 29.5 70.9 112.4 161.3 1939 36.6 53.2

Et FIXEDIrS 1,990.6 1,243.2 2,429.5 3,404.9 3,677.0 3,S6.3 333L6

TOtALASM 3,59.6 5,187.6 7,9485 9,625 10,510.6 .0,99%4 11,714.4

LIUITIB

OM9 PAYAILE 1,69.1 2,114.2 3,910.4 4,430.4 4,17.3 5,212.5 5,716.6 O.HOET WT. L.T.L 0.0 0.0 0.0 63 192.6 1l. 192.6 TARMESPMYAIE 221.5 413.2 609.7 .9 669.7 647.9 740.7 DIVIIMIBPAYEE 87.0 I23 29.5 249.4 263.0 254.4 290.9 mWm.QI LW TB 1,994.6 3,38.6 4,7W.6 5,411.0 942.6 s37.4 6,940.9

LW-RTEMMD0 0.0 167.1 1, 19.6 2,97.4 2,215i4 2,022.7 1,90.1 LESSITR MWtITIES1 0.0 0.0 0.0 93 19 19.6 192.6

M(T O1I-R DEST 0.0 167.1 1,16 1,9I.1 2,0=7 1,.1 1,67.4

am APITAL 1,019.0 1,019.8 1,019.8 1,019.8 1,019.0 1,019.8 1,019.9 LElBILRE-JE M13 .9 =623 427.5 537.1 t1 764.3 lETA1IEDENs 379.0 407.2 648 813.1 9994 1,1s.0 1,.0

TOTALWilly 1,5.1 1,730.9 1,990.3 29260.4 2,9543 2,82L9 ';13L1

TlTAL L tL;T11 3,59.6 5,17.6 7,948S 9,63.5 10,510.6 10,094 11,714.4

a MTIo 1.2 1.2 1.2 1.2 1.1 1.2 1.2 % M?f /1TAL L. 438 334 2.0 2LS324.2 2L7 2L8

buerg Department May 1987 - 65 - ANOEX3-13

GUAXA

PROLEM REFIUINGAND DISTRIBUTION PROJECT

COIL - Projected Sources and Aplication of Funds, 1986-1992

0c12iw31 1986 1987 1988 1989 1990 1991 1992 million Cudis - - - - -

ES3 aF RIGS

ET INDE 191.3 339.1 498.9 519.5 547.9 530.1 61 DSIECIATION 8.9 41.4 41.4 48.9 32.6 170.7 170.7

TtO0LFAI UI TMN 190.1 3m.5 540.3 569.4 SO.5 700.7 776.7

OK CAITALf IWU E1] 1,017.9 0.0 0.0 0.0 0.0 0.0 0.0 LS-1EM DM DiIf 0.0 167.1 1,031.5 m8 254.3 0.0 0.0

MTALF MMOM M90 1,017.9 167.1 1,031.5 8358.8 254.3 0.0 0.0

TOTAL901 1,20&0 546.6 1,571.8 1,427.2 834.8 700.7 776.7

WUFATIG6

ADITIMNSTOFIXED AETS 1,017.9 204.1 1,227.7 1,024.4 304.7 0.0 0.0

TOALADDITIOB 1,017.9 204.1 1,227.7 1,024.4 304.7 0.0 0.0

L.T.D. REPAY#NS 0.0 0.0 0.0 0.0 96.3 192.6 192.6 DIVIWS PAID 27.4 97.0 162.3 239.5 249.4 263.0 24.4 OWE IN MINBCAPITOL iA7 ZL6 191.8 163.4 184.5 245.1 329.6

tM.rWNP TI( l,28.0 546.6 1,571.8 1,427.2 934.8 700.7 776.7

El] foLdting fri .qivalent ets revaluationin 1996

TME T SWI. MNElA N N 10.1 5.0 2.7 2.3 2.6

Energy Department hay 1987 - 66 - ANNEX3-14 Page 1

CuA PEMTLEUMWPININC ANDDISTRIBUTION PROJECT

COIL - Notes and Assumptionsfor Financial Projections

I. General 1. The financial projections are based oh COIL's historical accounts, estimated 1986 accounts and the staff's best judgement on future production levels and inyestment program. The following domestic and international inflation rates and exchange rates have been used in the projections: 1987 1988 1989 1990 1991 1992 Domestic(X) 18.0 15.0 10.0 7.0 5.0 3.5 Foreign(t) 3.0 1.0 1.0 1.0 3.5 3.5 Exchangerate (Cedisper US$1.0) 165 180 187 187 187 187 II. IncomeStatements 2. Revenuesare basedon the net retailsales prices set by the Governmentin 1987and escalatedaccording to the domesticrate of inflation.Sales volumes for the variousoil productsis expectedto grow at an averagerate of 31 per annum. 3. Operatingcosts are basedon GOIL's1986 estimatesescalated by sales volumeand the domesticrate of inflation. 4. Depreciationof the new assetsis calculatedaccording to the followingschedule: (i)depots:straight line method over a periodof 20 years;and (ii)equipmentand transportvehicles: straightline method over a periodof 10 years. 5. IncomeTaxes are 55X of incume. 6. Dividendsare projectedat a levelof 60X of net incomeafter providingfor a reserveof 20X. III. BalanceSheets and FundsFlow Statements 7. MinimumCash is basedon averagehistorical requirements of 15 days of cashoperating costs. 8. ExtraCash is the resultof reservesbuilt up over the yearsand fundsgenerated from operations.These are investedin shortterm instruments and yield10.0% per annum.

GCA-AX3-14(RMC) - 67 - ANNEX 3-14 Page 2

9. Accounts receivableare expected to remain at 70 days of sales from 1986 onwards.

10. Inventoriesare based on average historicalrequirements of 43 days of oil productcosts and maintenancematerials.

11. Plant and Equipmentare based on GOIL's investmentprogram.

12. Accounts Payableare expected to remain constantat 108 days of operatingexpenses from 1986 onwards.

13. FinancingPlan for the ProposedProject. It has been assumed that IDA and other foreign loans would be onlent to GOIL at 1.1 times the prevailingBank rate over 15 years including3 years grace. The local currencyportion of the project as well as interestduring constructionwill be financedby internalcash generation.

Energy Department May 1987

GHA-AX3-14(RMC) GH

PETROLEUREFINING AN) DISTRIBUTICNWOJECT

Pro.let loplmntation Schedule

PROJECTCOPNTS fDnths: 0 2 4 6 8 10 12 14 16 16 20 22 24 1. Rehabilitation of To Raffinwy Fwcl tios

(a) Rahabilitation In LPGtreatment, storage nd transfer facilltles DE t TP I FS | C I S (b) API separator with air floatation facilities DE I 1P FFS L c I s (c) Heaster convection sclon modifications DE | P | FS C S I (d) Repairs for pipolles-tojetty JE I P FS | C | S | (e) spalrs of three Jet ful tanks DE I TP IFS I C | S | (f ) Mist elominetors for existing boilers CE I TP FFS L C L S | (g) Sa wtwr chlorination system DE I 1P I FS I C I S 2. Rehabilitation of SOIL's 03pots as Takoradi and Kumesi DE I TP | FS I C I S 3. Rehabilitation of Retall Outlet CE _ TP I _ S I C | S I 4. Expansion of LPOmarketing facilities OE I TP FS I C I S | 5. Farmers' service reseller outlets CE | TP FSF i C | 6. Training for GOIL personnel TP I I

DE a Design and Enginering TP a Tenderingand Procuremont FS r Fabricationand Supply C = Construction O S a Start-up I = implemntatlon GHANA PETROLEUMREFINING AND DISTRIBUTIONPROJECT Fuel Handling FacIlItles catAkosombo

1. FME.tAGJETTY 1 2 3 4 6 _7 9 *0 44 12 - 2 3 4 5 6 7 8 |9 40 | 42

. _ -. - Dolphi & Guide Plis

Acess Dom & ___ . - -

& - _ _ -______t

B. TAMNFARM & FUN STATION

- - UndepOund Wod -- -_ -tl I I I I I - I II-I

S"cW Tanks - -

Tank ITck UrlooadingSt|tion |

Buldingsr I -

AuxilO,y FacIlItIes

World Bank-3067974 - 70 -

ANNEX4-1 Page 3

-_ _ --

_ _ _-_ ___-t

CIO 8&~- -- 1 <

m S o~~~-X E-l

oss° WAT j L40 X0.V S

0, ,' - 71 - ANNEX4-2 Page 1

GHANA

PETROLEUMREFINING AND DISTRIBUTION PROJECT

Detalled Project Cost Estimates (USSMillion Equivalent, January 1987 Prices)

Foreign Quantity Exchange Local Total 1, REFININGREHABILITATION

LPG Storage truck and marine loading Improvements 0.320 - LiP 6" dlam6ter pipelineto Jetty 0.630 - API separator with air flostation facilItIes 0.435 - LPG sand filter 0.085 - Distillation Heseter convection sectionmodifications 0.800 - Repairsto pipelines to Jetty 0.475 - Repairs for 3 Jet fuel tanks C.285 - Mist *leminators for existing boilers 0.170 - Laboratory equipment 0.250 - Steel plates and materialsfor tank repairs 0.500 27-ton crane for maintenance 0,235 - Fire alarm system 0.520 - Chlorination system 0.365S Instrument work shop 0.105 - Vehicles 0.125 Subtotal 5.300 ! 410 6.710

2. VOLTALAKE TRANSPORTATION - GOIi FACILITIES

(a) AKOSOMBO

(1) Earthwork 0.140 0.260 (11) Underground & Pavement work 0.300 0.100 (111) Tanks, Pipelines, truck unloading station 0.510 0.100 (iv) Firefighting facilities 0.100 0.030 (v) Electrical Installation 0.300 O.00 (vi) Miscellaneous 0.100 0.140

Subtotal 1.450 0.710 2.160

GHA-ANX4-2(RMC) - 72 - AMl 4-2 Page 2

Foreign Quentlty Exchange Local Total (b) CUIE

(1) Earthwork 0.280 0.075 (ii) Underground& Pavement 0,350 0.150 (Iii) Tanks,Pipolines, truck unloadingstation 1.09S 0.200 (iv) FirefightingfecilItels 0.125 O.05O (v) Electricalinstalletion 0.350 0.0g9 (vI) Miscellaneous 0.150 0.150

Subtotal 2.350 0.870 3.060

3, VLTC'SINVESTMENT FOR JETTIESAND BARGES FINANCEDB3Y KfW 7.730 0.670 S.600

4* EXPANSIONOF LPG iNANETINGFACILITIES

Kosangas regulators 60,000 0.240 - Kosangas cyllandrvalves 60,000 0.170 - 2-point LPGfilling plant 3 0.203 - Repairsond testingequipment 6 0.002 - Speresfor two years - 0,004 - Pressuretesting equlpmnt - 0.021 - 15 kg. gas cylinders 60,00 1.390 - Portable 3-burnergas cookers 60,000 1.360 -

ITEMSFOR TEMA LPG FILLING PLANT

4-Portsafety valves 3 0.006 - Stand-bygenerators (25 kva) 1 0.010 - Fork lifts 3 0.054 - Cylinderrepair kits 2 0.001 - Weighingscales 3 0.002 - LPG loadingpumps with drives 2 0.005 - LPGtanks for filling plant,20M 3 6 0.092 -

Subtotal 3.560 0.950 4.510

5. TRANSPORTVEHICLES

7-tontrucks 6 0.120 - 2-tonpick-ups 6 0.036 - 30-ton prime-movers 1 0,035 - 15-tonchassis with 13,5001, bullets 4 0.440 - Fourwheel drives 6 0,069 - Stationwagows 2 0.050 -

Subtotal 0.750 01750

GHA-ANX4-2(RMC) - 73 - AtMlK4-2 Page 3

ForeIgn Quantity Exchange Local Total 6. REHABILITATIONOF RETAILOUTLETS

Items roquiredfor 32 stations 1540 - Sparesfor existingpumps and oqulpmant 00350

Subtotal 1.890 0.470 2.360

7, REHABILITATIONOF TAMORADIAND KUMASIDEPOTS

Product loadingpumps with electric drivesand two motor controlcontres 10 0.035 - Fire water pumps with electricdrives 2 0.030 - Fire water pumps with diesel drlves 2 0.080 - Truck loadingarms (4 in each set) 3 0.020 - Breather valves for tanks 15 0.008 - Gate valves for tanks (16 x 6" + 14 x 10") 30 0.008 - Waterhydrant pipeline (3" and 6") metres 1100 0.018 - Stand-by genorating sets (25 kva) 2 0.020 - ForkI-lifts 3 0.060 Bunkering pump with diesel drive 1 0.025 - Steel pipes (6" and 3") metres 1200 O0b39 - Pipe fittings - 0°030 - MIscellaneous - 0.052 - Earthingmaterials, metros 300 0.010 - Spares for above matorials - 0.025 -

Subtotal 0.460 0.240 0.700

o HNM PIWS AND STEELPLATES FOR FAMIR'S SERVICERESELLER OUTLETS 0,500 0.240 0.740

9. TRAININGFOR QOIL PERSONEL 0.300 0.060 0.360

10. C0WUTERAND PERIPIfRAL FOR SOIL MANAGEMENT IMR0VEMENT 0.200 0.060 0.260

BASEOOST ESTIMATE 24.490 5,720 30,210

Physical Contingencies 2.580 0.710 3.290

Price contingeneies 1,040 1,720 2.1760

TOTALPROJECT COST 28.110 8.150 36.260

Energy Department May 1987

GHA-ANX4-2(MC) - 74 -

AMEX4-3

GltANA

PETROLEUMREFINING AND DISBURSEMENTPRNOJECT

Estimated Disburseent Schedule

Disbursement(USS million) FlscalYoar uar_ter Quarterly Cummulative

FY 1988 11 0.80 0.80

III 1.20 2.00

iV 2*30 4.30

FY1989 1 1.60 5.90

II 1170 7.60

III 2,00 9.60

IV 1.40 11.00

FY1990 1 1,70 12.70

Ii 0.70 13.40

IIl 0.40 13.80

IV 0.40 14,20

FY1991 1 0.40 14.60

I I 0.40 1S.OO

EnergyDepartment may 1987 75 -

ANNEX4-4 Page 1

PEMIOLCUNREFINING AID DISTU BUTIONPROJECT

ProjectMonitoring Indicators

During negotiations,indicators pertinent to the project implementationand efficientoperation of the two organizations(GHAIP and GOIL) involved,along the lines outlinedbelow, would be discussedand agreed with the representativesof the Governmentand the organizationsas the basis for establishingan agreed projectmonitoring system.

GHAIP

(i) Measuringand recordingof the fuel consumedand hydrocarbon lost in the refineryoperation with a view to control the consumptionand losses within the limits expectedas a result of the implementationof energy conservationand rehabilitation envisagedin the proposedproject.

(ii) Evaluationof the cost of labour employed in the operationand maintenanceof the refineryperiodically in order to control it within the limits comparablefor refineriesof similarsize and configuration.

(iii) Maintainingup-to-date record of inspectionhistory of all importantequipment and macbinery,and necessaryspares and materialsrequired to carry out timely preventivemaintenance.

(iv) Maintainingstrict safety standardspertaining to the storage and handlingof petroleum,particularly liquified petroleum gas (LPG).

(v) Maintainingup-to-date record of pollutantsmeasured, particularlyoil contentand biologicaloxygen demand,at least once in a week in order to monitor the harmful effect of the waste water leavingthe refineryto internationAllyacceptable industrystandards and maintaintheir levels in the wastewater at appropriateUS EnvironmentalProtection Agency standardor its equivalent.

(vi) Maintain up-to-daterecord of all technicaland financial informationrequired to assess the refineryprocessing margin periodically(such as consumptionof fuel, utilities,catalysts and ecbmicals;cost of labour,maintenance and administration; and quantityand cost of crude processedand products delivered).

(vii) PrepArationof quarterlyand annual financialstatements for review with IDA.+

GHA-AX4-4(RMC) - 26 - ANNEX 4-4 Page 2

(viii) Preparationof quarterlyreports on the physicaland financial progressof the project,status of procurementand contracting, and disbursementschedule. COIL

(i) Maintainingup-to-date record of productsreceived, marketed and list in storage,transportation and handling in order to evaluate the efficiencyof each stage of COIL's marketing operation.

(ii) Evaluationof the cost of labour employedand other marketing expensesperiodically in order to assess the overalloperational efficiency.

(iii) Maintainingup-to-date record of inspectionhistory of all importantequipment and machinery,and necessasryspares and materialsrequired to carry out timely preventivemaintenance.

(iv) Kaintainingstrict safety standardspertaining to the storage and handlingof petroleum,particularly liquified petroleum gas (LPC).

(v) Preparationof quarterlyand annual financialstatements for review with IDA.

(vi) Preparationof quarterlyreports on the physicaland financial progressof the project,status of procurementand contracting, and disbursementschedule.

Energy Department May 1987

CNA-AX4-4(MNC) - 77 - ANNEX 5-1 Page 1

GHANA

PITROIEUNREFINING AND DISTRIBUTIONPROJECT

Economic Analysis

A. Introduction

An economicanalysis and the resultingeconomic rate of return is shown below for the followingproject componentswhich have relevanteconomic costs and benefits:

(i) RefineryRehabilitation

(ii) Volta Lake Transport

iii) LPG Productionand Distribution

A financialanalysis and the resultingfinancial rate of retus4 is shown for the followingproject components which do not have directlymeasurable economic costs and benefits. These will have importantqualitative benefits however,by increasingreliability and generallystreamlining the processof productsdistribution to the industrialand farmingsector.

(i) Rehabilitationof Retail Outlets

(ii) FarmersService Retail Outlets.

Assumptionsand calculationsfor these componentsare shown in detail. All costs and revenuesare in constantAugust 1986 terms and exclusiveof duties and taxes. Local costs and revenues 'ncludea shadow pricingfactor of 1.85 for economicrate of return calculationonly.

B. Refinery Rehabilitation

This componentcomprises an API separatorwith air floatation facilities,modifications to the distillationheater convectionsection, repairs to the jetty pipelines,repairs (;f three jet fuel tanks, mist eliminatorsfor the existingboilers, a 27-ton maintenancecrane and chlorinationsystem for sea water used for cooling.

Capital cost is US$3.39million of which US$2.77million is in foreignexchange and US$0.62million is in local cost. The residualvalue of assets is 132 after 15 years of operation.

OoeratingCost. No additionaleconomic costs can be allocatedto these comp%ientsas they are being implementedfor their cost saving and productionstreamlining benefits. The cost of production*v alreadyaccounted for in the existingcost structureof the refinery.

GHA-ANX5-1(RmC) - 78 - ANNEX 5-1 Page 2

Benefitsconsist of the followingsavings:

-- US$0.17million per year in oil loss due to new efficientAPI separator,based on 1,500 tons (0.15% of total throughput)and an averageprice of US$112.0per ton.

-- US$0.28million per year in fuel savingsdue to the moderni- zation of the heater convectionsection, based on 3,000 ton of fuel at US$92.28 per ton.

-- JUS$0.26million per year in oil savingsdue to repairsof crude and productpipelines to the jetty, based on 2,000 tons at an averageprice of US$130 per ton.

-- US$0.08million pee year in maintenancecost savingsdue to the use of the 27-ton crane.

== US$0.08million per year due to savings in cost of chlorine, based on 335 tons at US$190 per ton plus US$38 for freight.

Cost/BenefitsStreams for the base case are shown in the table below. The economicrate of return is 24.51.

TABLE

Fiscal Capital Working Operating Net Year Cost Capital Costs Benefit Benefit

1987 -0.68 0.00 0.00 0.00 -0.68 1988 -1.18 0.00 0.00 0.00 -1.18 1989 -1.53 0.00 0.00 0.62 -0.91 1990 0.00 0.00 0.00 0.87 0.87 1991 0.00 0.00 0.00 0.87 0.87 1992 0.00 0.00 0.00 0.87 0.87 1993 0.00 0.00 0.00 0.87 0.87 1994 0.00 0.00 0.00 0.87 0.87 1995 0.00 0.00 0.00 0.87 0.87 1996 0.00 0.00 0.00 0.87 0.87 1997 0.00 0.00 0.00 0.87 0.87 1998 0.00 0.00 0.00 0.87 0.87 1999 0.00 0.00 0.00 0.87 0.87 2000 0.00 0.00 0.00 0.87 0.87 2001 0.00 0.00 0.00 0.87 0.87 2002 0.00 0.00 0.00 0.87 0.87 2003 0.00 0.00 0.00 0.87 0.87 2004 0.44 0.00 0.00 0.87 1.31

ZE.R.R 24.5

GHA-ANX5-1(RMCI - 79 ANNEX 5-1 Page 3

SensitivityAnalysis

This componentis equally sensitiveto capitalcost and prices. Since no operatingcosts can be allocatedto this component,it is not a criticalvariable and has no impact on the economic rate of return. The resultsof the sensitivityanalysis are shown in the table below:

Change of Critical Capital Variable from Base Case X Cost Prices

20 20.0% 29.6% 10 22.1% 27.0% 0 24.5% 24.5% -10 27.3% 21.8% -20 30.9% 19.1%

C. Volta Lake Transport

This componentcomprises jetty facilities,petroleum barges and pusher tugs financed throughKfW, earthworks,underground and pavementworks, storage tanks and truck/ unloadingstations, firefighting and electrical installations,and miscellaneousequipment. Works will be undertakenboth at the Akosombo and Buipe locations. For the economicevaluation, the cost of one diesel barge that is included in the ongoing VLTC project is also included to arrive at the overall cost ard benefits. The cost of the storagetanks and truck loadingfacilities at Buipe is excludedfrom the cost of the Volta Lake system since it is provided in lieu of the facilitiesrequired for buildinga supply depot at Tamale, and includedin the rehabilitationof retail outlets.

CapitalCosts is US$13.89million of which US$1.31million equivalent is local and 12.58 is foreign. The residualvalue of assets is 10% after 19 years of operation.

OperatingCosts of the barges is US$0.30million per year which includescost of labour, fuel, lubricantsand spares.

Benefits. Annual average savingswould be US$2.75 million for a movementof 50,000 tons of petroleumproducts over 500 km from Tema to Buipe at the esti ated road transportcost (economiccost) of US$0.11 equivalent/ ton/km. The annual movement is expectedto be 25,000 tons in 1989, 50,000 tons in 1990 and will grow by 5% per year for five years and 3% subsquently.

Cost/BenefitsStreams for the base case are shown in the table below. The economicrate of return is 18.4%. In an alternativecase, if 40,000 tons per year are exported to Burkina-Fasoover and above Ghana's own requirement,the economicrate of return of the Volta Lake transportcomponent is 27.2%.

GHA-ANX5-1(RMC) - 80 - ANNEX 5-1 Page 4

TABLE

Fiscal Capital Working Operating Net Sales Year Cost Capital Costs Benefit Benefit Volume

1987 -2.78 0.00 0.00 0.00 -2.78 (000t) 1988 -4.86 0.00 0.00 0.00 -4.86 0.00 1989 -6.25 0.00 -0.15 1.33 -5.07 0.00 1990 0.0Q 0.00 -0.30 2.75 2.45 25.00 1991 0.00 0.00 -0.32 2.89 2.57 50.00 1992 0.00 0.00 -0.33 3.03 2.70 52.50 1993 0.00 0.00 -0.35 3.18 2.84 55.13 199A 0.00 0.00 -0.36 3.34 2.98 57.88 1995 0.00 0.00 -0.38 3.44 3.07 60.78 1996 0.00 0.00 -0.39 3.55 3.16 62.60 1997 0.00 0.00 -0.40 3.65 3.25 64.48 1998 0.00 0.00 -0.41 3.76 3.35 68.40 1999 0.00 0.00 -0.42 3.88 3.45 70.46 2000 0.00 0.00 -0.44 3.99 3.56 72.57 2001 0.00 0.00 -0.45 4.11 3.66 74.75 2002 0.00 0.00 -0.46 4.23 3.77 76.99 2003 0.00 0.00 -0.48 4.36 3.89 79.30 2004 0.00 0.00 -0.49 4.49 3.83 81.68 2005 0.00 0.00 -0.50 4.63 4.46 84.13 2006 0.00 0.00 -0.52 4.77 5.10 86.65 2007 1.39 0.00 -0.54 4.91 6.95 89.25

Z E.R.R 18.4

S.nsitivityAnalysis

This componentis equally sensitiveto capitalcost and sales volume. Since operatingcosts are small in relationto sales revenue the former have a limited impact on the economicrate of return and is not a criticalvariable. The resultsof the sensitivityanalysis are shown in the table below.

Change of Critical Capital Operating Sales Variable from Base Case Z Cost Costs Volume

20 15.0X 17.91 22.5X 10 16.51 18.1Z 20.5Z 0 18.4X 18.4X 18.4Z -10 20.5% 18.61 16.11 -20 23.01 18.81 13.8Z

GHA-ANX5-I (I C) - 81 - AN=X 5-1 Page 5

D. LPG Productionand Distribution

This componentcomprises LPC truck and marine loading improvementsin the refinery,replacement of a 6" diameterpipeline to the jetty, LPG sand filters,expansion of GOIL's LPG marketing facilities,additions to TomeaLPG fillingplant, and transportvehicleso

Capital Cost is US$4.51 million of which US$0.50million equivalent is local and US$4.10million is foreign. Residual value of assets is 10X after 15 years of operation.

OperatingCosts. There are no incrementalcosts associatedwith the additionalLPG production.

Benefits from the projectare US$1.14 million per year based on US$190 per ton of LPC ex-refineryand an additionalproduction of 6000 tons of LPG. Productionbuild-up is 70X of capacity in year 3 and full capacity in year 4.

Cost/BenefitsStreams are shown in the table below. The base case economic rate of return is 19.4X.

TABLE

Fiscal Capital Working Operating get Year Cost Capital Costs Benefit Benefit

1987 -0.90 0.00 0.00 0.00 -0.90 1988 -1.58 0.00 0.00 0.00 -1.58 1989 2.03 0.00 0.00 0.00 -2.03 1990 0.00 0.00 0.00 0.80 0.80 1991 0.00 0.00 0.00 1.14 1.14 1992 0.00 0.00 0.00 1.14 1.14 1993 0.00 0.00 0.00 1.14 1.14 1994 0.00 0.00 0.00 1.14 1.14 1995 0.00 0.00 0.00 1.14 1.14 1996 0.00 0.00 0.00 1.14 1.14 1997 0.00 0.00 0.00 1.14 1.14 1998 0.00 0.00 0.00 1.14 1.14 1999 0.00 0.00 0.00 1.14 1.14 2000 0.00 0.00 0.00 1.14 1.14 2001 0.00 0.00 0.00 1.14 1.14 2002 0.00 0.00 0.00 1.14 1.14 2003 0.45 0.00 0.00 1.14 1.59

7E.R.R. 19.4

GHA-ANX5-1(RMC ) - 82 - AM EX 5-1 Page 6

SensitivityAnalysis

This componentis equally sensitiveto capitalcost, prices and sales volume. Since no operatingcosts can be allocatedto chis coomponent,the former are not critical variableand have no impact on the economicrate of return. The resultsof the sensivityanalysis are shown in the table below.

Change of Critical Capital Sales Variable from Base Case X Cost Prices Volume

20 16.19% 23.12 23.1% 10 17.65% 21.3% 21.3Z 0 19.44% 19.4% 19.4% -10 21.53% 17.5% 17.5% -20 24.01% 15.4% 15.4%

E. Rehabilitationof Retail Outlets

This componentcomprises the rehabilitationof the Takoradi and Kumasi depots includingloading pumps, fire water pumps, miscellanous equipment,rehabilitation of 32 stationswith spares for existing pumps and equipment,and installationof storagetanks and truck loadingfacilities at Buipe.

Capital Cost is US$4.6 million of which US$0.76million equivalent is local and US$3.84million is foreign. Residualvalue of assets is 10% after 15 years of operation.

Oeration Costs are already accountedfor in the existing operations. There are no incrementalcosts.

Benefitsare US$1.31million based on savingsof liquidsproduct sales at a rate of 4.5 Cedis per I.C.

Cost/BenefitsStreams are shown in the table below. The base case financialrate of return is 24.0%.

GHA-ANXS-1(R4C) - 83- ANNEX 5-1 Page 7

TABLE

Fiscal Capital Working Operating Net Year Cost Capital Costs Benefit Benefit

1987 -1.38 0.00 0.00 0.00 -1.38 1988 -2.30 0.00 0.00 0.00 -2.30 1989 -0.92 0.00 0.00 0.65 -0.27 1990 0.00 0.00 0.00 1.31 1.31 1991 0.00 0.00 0.00 1.31 1.31 1992 0.00 0.00 0.00 1.31 1.31 1993 0.00 0.00 0.00 1.31 1.31 1994 0.00 0.00 0.00 1.31 1.31 1995 0.00 0.00 0.00 1.31 1.31 1996 0.00 0.00 0.00 1.31 1.31 1997 0.00 0.00 0.00 1.31 1.31 1998 0.00 0.00 0.00 1.31 1.31 1999 0.00 0.00 0.00 1.31 1.31 2000 0.00 0.00 0.00 1.31 1.31 2001 0.00 0.00 0.00 1.31 1.31 2002 0.00 0.00 0.00 1.31 1.31 2003 0.00 0.00 0.00 1.31 1.31 2004 0.46 0.00 0.00 1.31 1.77

z I.R.R. 24.0 SensitivityAnalysis This componentis equallysensitive to capitalcost, prices and sales volume. sinceno incrementaloperating costs can be allocatedto this component,the formerare not a criticalvariable and have no impacton the financialrate of return. The resultsof the sensitivityanalysis are shown in the tablebelow.

Changeof Critical Capital Sales Variablefrom Base Case % Cost Prices Volume 20 20.0% 28.5% 28.5% 10 21.9% 26.3% 26.3% 0 24.0% 24.0% 24.0% -10 26.6% 21.6% 21.6% -20 29.7% 19.1% 19.1%

F. FarmersService Retail Outlets This componentcomprises hand pumpsand steelplates for fuel tanks whichwill be assembledlocally.

GHA-ANX5-1(Rf4C) - 84 - ANNEX 5-1 Page 8

Capital Cost is US$0.77million of which 0.22 million is local and 0.55 million is foreign. Residualvalue of assets is 20Z after 16 years of operation.

OperatingCosts amount to US$0.6 millionequivalent when the pilot scheme is in full operation.

Benefitsare US$0.81million per year based on a dealer margin of 2.1 Cedi per I.G. and an additional3.5 Cedi per I.G for transportationand a total volume of 50,000 MT per year of diesel and kerosene.

Cost/BenefitsStreams are shown in the table below. The base case economic rate of return is 26.2%.

TABLE

Fiscal Capital Working Operating Net Year Cost Capital Costs Benefit Benefit 1987 -0.23 0.00 0.00 0.00 -0.23 1988 -0.39 0.00 -0.14 0.20 -0.33 1989 -0.15 0.00 -0.42 0.57 0.00 1990 0.00 0.00 -0.58 0.78 0.21 1991 0.00 0.00 -0.60 0.81 0.21 1992 0.00 0.00 -0.60 0.81 0.21 1993 0.00 0.00 -0.60 0.81 0.21 1994 0.00 0.00 -0.60 0.81 0.21 1995 0.00 0.00 -0.60 0.81 0.21 1996 0.00 0.00 -0.60 0.81 0.21 1991 0.00 0.00 -0.60 0.81 0.21 1998 0.00 0.00 -0.60 0.81 0.21 1999 0.00 0.00 -0.60 0.81 0.21 2000 0.00 0.00 -0.60 0.81 0.21 2001 0.00 0.00 -0.60 0.81 0.21 2002 0.00 0.00 -0.60 0.81 0.21 2003 0.00 0.00 -0.60 0.81 0.21 2004 0.15 0.00 -0.60 0.81 0.37

gI.R.R. 26.2

SensitivityAnalysis

For this component,the financialrate of return is extremely sensitiveto price and sales volume variations:a 10% drop would lower the financialrate of return to 15.4% while a 20% drop resultsin a very low rate of return of 2.5%. Sensitivityis not very critical to capitaland operating costs which will remain at 21.62 and 18.1% for a 20% increasein capitaland operatingcosts respectively.

GHA-ANX5-1(R4C) - 85 - ANNEX 5-1 Page 9

Change of Critical Capital Operating Sales Variable from Base Case X Cost Costs Prices Volume

20 21.62 18.1X 45.81 45.91 10 23.7Z 21.81 36.22 36.2Z 0 26.21 26.21 26.2X 26.2X -10 29.21 31.2Z 15.41 15.41 -20 32.81 36.81 2.5Z 2.51

Energy Department May 1987

GHA-ANX5-1(ACM) - 86 - ANNEX 5-2 Page 1

GHANA

PETROLEUMREFIING AND DISTRIBUTIONPROJECT

GHAIP - Tema RefineryOperating Economics

1. CHAIP'sTema Refinervis a simple hydroskimmingrefinery consisting of 28,000 bpd crude distillation,catalytic reformer, product treating units and usual auxiliaryfacilities including electri- power generation. The refinerynormally operates at around 75% capacity(21,000 bpd) to meet exclusivelythe white productsrequirement of the domesticmarket. Being a hydroskimmingrefinery, it producesconsiderable quantities of residualfuel oil which is exportedat very low prices. Thus to improveits operating economics,the refineryshould select the right type of crude mix that will more or less meet the domesticwhite productrequirement and, at the same time, minimize the productionof surplusresidual fuel oil. In the absenceof suitablecondensates or surplusfinished products at the West African crude oil export points,CHAIP's choices for crude are limitedto light crude oils such as Bonny Light and Brass River from Nigeria. Betweenthese two crudes, Bonny Light, with its high contentof middle distillates,best suits the requirementof Ghana and the configurationof the Tema Refinery.

2. In order to furtherimprove the operatingeconomics of the refinery, the Governmentrelaxed the specificationsfor diesel and fuel oil which resultedin additionalproduction of diesel (about6% on crude) at the expense of surplusresidual fuel oil. In addition,fuel consumptionand hydrocarbon losses are being reducedconsiderably as a resultof the first phase refinery rehabilitationfinanced under the ongoingRefinery Rehabilitation and TechnicalAssistance Project (Credit 1446-GH). These losseswill be further reducedwith the second-phaserehabilitation included in the proposed petroleumrefinery and distributionproject.

3. Beside the improvedoperating efficiency through rehabilitation, the refinery'soperating economics depends greatly on the savingson transport costs, i.e. lower freightcosts for bringingto Ghana crude oil from nearby Nigeriaas comparedto bringingfinished petroleum products from Western Europe. On an average,the differentialin freightrates amount to about US$12.50per ton. With this freightadvantage, coupled with the quality advantageof NigerianBonny Light crude oil, the Tema Refineryis able to generatea respectableprofit most of the time in spite of the fluctuating nature of the internationalprices for crude and products.

4. Since the economicviability of the refinerymainly depends on crude and productfreight differential, the possibilitiesof obtainingfinished productsfrom the West Africa region itself have been considered. The fifteen refineriesin the West Africa region (Mauritaniato Angola)have a total refiningcapacity of about 567,000barrels per day (25.0 millionMT/year), of which 254,000barrels per day (11.5 millionMT/year) capacity is in the three refineriesin Nigeria. Due to operationalproblems and mismatch between demand and production,only about 180,000barrels per day (8.0 million

ANX5-CHANA(RMC) - 87- ANNEX 5-2 Page 2

MT/year) capacityis in regularoperation, and at presentNigeria is a net importerof productsto the tune of about 4.5 millionMT per year. Nigeria's plans for buildinga large refineryat Port Hartcourthas not materializeddue to financialconsttaints. OutsideNigeria, only the 70,000 barrels per day Abidjanrefinery in Ivory Coast, and the 20,000 barrelsper day Gabon refinery have secondaryconversion facilities; all the rest being simple hydroskimming refineriesas in the case of Ghana'sTema refinery. Ivory Coast at present has a surpluscapacity of about 35,000 barrelsper day (1.75 millionMT/year) which is being fully utilizedfor export by internationaloil companies, mostly by Chevron. Cabon operatesat about 70X capacityfor its own domestic use. Among the remainingrefineries in the region,Ghana's Tema refineryis in the forefrontwith more than 75% capacityutilization solely for domestic requirements. Surplusproducts from other hydroskimmingrefineries in the region,even if they are operatedat full capacity,would not be competitive with products from Ghana'sown refinerysince they are being operatedwith costly expatriateassistance and with less operatingefficiency than the Tema refinery. In addition,the crude and product freightadvantages that those refineriesenjoy would not be more than the advantagethat Tema refinery enjoys at present. As a result,the West Africa region at present is a net importerof petroleumproducts to the tune of about 7.0 million MT per year. WesternEurope/Mediterranean is the main sourcefor these imports.

5. Regardingprices for productsfrom West Africa refineries,even the surplusproducts from Abidjan refineryare exportedon the basis of FOB prices ex NorthwestEurope/Mediterranean plus freight. Under those circumstances, Ghana'schoices for petroleumproducts are limitedto direct importsfrom N.W. Europe/Mediterraneanor refiningBonny Light crude oil in its refinery. As shown below, the crude refiningoption is economicallymore advantageousthan the product importoption.

6. The historiccrude and product price differentials(FOB Rotterdam) during 1974-1986are presentedin page 5. The effect of these price differentialson the compositebarrel producedfrom the Tema refinerybased on Ghana'sdomestic consumption pattern of productsis shown in a graphicalform on page 6. The price differentialrequired to make the refineryoperation break-evenis estimatedat US$0.95per barrel or US$7.06per ton (page 7 for details)which is shown in the graph in a dotted line. It is observedthat over the past 12 years, except for the period 1979-82when the market was destabilizedmainly due to the sudden effect of the breakoutof war between Iran and Iraq, the price differentialvaried betweenUS$2.28 and IS$4.68per barrelwhich was considerablyabove the Tema refinerybreak-even margin of US$0.95per barrel. Hence it is safe to assume that the Tema refinery operationwould continueto be economicallyviable as comparedto product importsunder stablemarket conditions. The energy conservationmeasures and managementimprovement expected under the proposedproject would further improvethe economicviability of the refinery.

7. The operatingeconomics of the Tema Refineryhave been assessedunder differenthistorical crude and productprices scenarios. It shouldbe noted that the productpattern is based on fuel consumptionand losses (6%) currentlyobtained in the refineryafter the completionof some of the rehabilitationjobs under IDA credit 1446-GH. It is expected to further reduce to 5-5.5% when the rehabilitationis completedunder the proposed project, The operatingeconomics of the Tema Refineryare summarizedbelow. Assumptionsused in the calculationsare shown on page 4 of this Annex.

ANX5-CHANA(RMC) - 88 - AMX 5-2 Page 3

PTROLEUMREtlNING AND DISTRIBUTION PROJECT

TENAREFItERY OPERATING ECOMICS

Requirements October 1985 August 1986 December1986 Products MT/Year SM 4 S/Ton W61M S/Ton M/YR

LPG 12,000 300.00 3.600 200.00 2.400 170,00 2.040 Gasoline 220,000 290.36 63,879 160.48 35.306 144.90 31.878 Kerosene/Jetfuel 142,000 305.95 43.445 143.82 20.422 164.40 23.345 Diese 320,000 284.30 90,976 136.77 43.766 139.90 44.768 Fuel Oil (DOostic) 60.000 163.13 9.708 81157 48994 107.72 6,463 754,000 211.688 10.7681 108.494

TerminalCost 1.538 1.538 1.538 TotalCost of Prouct imports 213.226 108.326 110.032 costof Crude 973,700 220.13 214.341 99.13 95.523 111.79 108.850 Cost of Refining 9390 9.390 9.390 Subtotal 223.731 105.913 118.240

Fuel Oil ExportCredit 161,700 136,87 22.132 56.43 9.125 92.28 14,922 Not Cost of Refining 201.59 96.788 103.318

Annual Savings In Refining vis-a-vis product liport 11.627 11,53 6.714

Energy Department February 1987

ANX5-GHANA(1MC) - 89 -

ANNEX5-2 Page 4

PETOLEUNREPINIG ANDDISTRIBUTION PROJECT

CHANA - Tema RefineryOperating Economics

Assumptions

- Crude processed : NigerianBonny Light - Crude transportationfrom Nigeria to Tema : 50,000DWT vessels - Crude oil freightis estimatedat W.S. 100 for 50,0OO DWT vessels. Productfreights are estimatedat W.S. 150 for 25,000 DVT vessels from NorthwestEurope. Pricesof crude and productsare based on Platt'sOilgram price reports from October 29, 1985, August 11, 1986 and December2, 1986. Since Ghana has entered into long term contract (1 year) with Nigeriaon "net-back" basis, the actual prices of crude oil would be slighttylower than the going spot market prices. Insuranceand ocean lossesare estimatedat 0.7X of the FOB + freightcost for crude and products. The refineryfuel consumptionand losses,product pattern, capacity 'tilizationand operatingcosts are assumed to be the same as currently experiencedafter completionof some of the rehabilitationjobs under IDA Credit 1446-CH. Additionalsavings would be achievedwhen the refinery rehabilitationis completed. Price of LPG was estimatedas per market informationat differentperiods in the absence of actual postings. The refinerydoes not have any long term debts, and the existingplant and machineryare fully depreciated. Terminalcost for productimport includescost of persornel,utilities, chemicals,etc. for operationand maintenanceof productstorage and handlingfacilities.

Energy Department February1987

ANX5-GHAVA(RMC) - 90 - ANNEX 5-2 Page 5

GHANA

PETROLEUMREFININC AND DISTRIBUTIONPROJECT

GHAIP - Tema Refinery OperatingEconomics

HistoricalProduct and Crude Prices for 1974-86 (in US$/Ton)

Jet Premium Diesel Fuel Crude Kerosene Gasoline Oil Oil Oil

1974 110.29 140.2 95.9 69.5 79.0 1975 115.58 128.8 100.5 62.1 86.3 1976 122.48 149.2 106.5 67.2 91.9 1977 135.47 141.9 117.8 76.2 98.2 1978 147.89 170.3 128.6 75.7 100.5 1979 357.54 346.5 310.9 133.6 133.0 1980 353.17 369.7 307.1 170.3 219.8 1981 343.51 371.2 298.7 183.5 249.0 1982 337.41 339.6 293.4 164.7 246.7 1983 292.10 293.0 254.0 171.0 218.1 1984 276.00 265.5 240.0 178.3 206.8 1985 (Jan) 271.98 231.0 236.5 188.9 207.0 -986(Dec) 142.60 148.5 124.0 76.5 107.5

a) Crude and productprices are averagefor the year except for 1985 and 1986. b) Crude prices are for ArabianLight (34 API) FOB Rotterdam. c) Productprices are FOB Rotterdam.

Energy Department February 1987

ANX5-GHANA(RMC) - 91 -

- ~ j -- jj i ! , ' Annex 5-2 - CtIU.& I P.6ageg-

PETROL,ETREFIPNS ANDDISTRIBUTION PROJECg

GHAIPi TEMA REFINZRYOPERATINM ECONOMICS

I .

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4.0

lBreakevenPtice Differentialbetwern,

1.0 r Crude and P6oducts Prices for TemaiRefinery ' _

_~~~~~~~~~~~~~~~~~~~~~~~~~~~ :

1914 75 t6 77 18 79 19*0 81 42 83 84 85 46

Energy Department j

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