Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized ReportNo. P-3753-SU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE ASSOCIATION Public Disclosure Authorized INTERNATIONALDEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED SDR 11.6 MILLION (US$12.0MILLION) CREDI' TO THE DEMOCRATICREPUBLIC OF SUDAN Public Disclosure Authorized FOR A PETROLEUM TECHNICAL ASSISTANCE PROJECT June 19, 1984 Public Disclosure Authorized This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCYEQUIVALENTS Unit = Sudanese Pound (LSd) LSd 1.00 = US$0.77 US$1.00 = LSd 1.30 ABBREVIATIONS AND ACRONYMS GMRD = Geological and Mineral Resources Department GPC = General Petroleum Corporation MEM = Ministry of Energy and Mines NEA = National Energy Administration NEC National Electricity Corporation PSR = Port Sudan Refinery WNPC = White Nile Petroleum Corporation WEIGHTS AND MEASURES bbl = barrel BD = barrels per day GWh = gigawatt hour kgoe = kilograms of oil equivalent KW = kilowatt LPG = liquid petroleum gas MMCFD = million cubic feet per day MT = metric tons MW = megawatt NGL = natural gas liquids TCF = trillion cubic feet toe = tons of oil equivalent GOVERNMENT OF SUDAN FISCAL YEAR July 1 - June 30 FOR OFFICIALUSE ONLY DEMOCRATIC REPUBLIC OF SUDAN PETROLEUMTECHNICAL ASSISTANCE PROJECT CREDIT AND PROJECT SUMMARY Borrower : Democratic Republic of Sudan Amount : SDR 11.6 million (US$12.0million equivalent) Beneficiary : The Ministry of Energy and Mining Terms : Standard Project Objectives : The project would strengthen the national petroleum administration,support the Government'sefforts to promote the explorationfor hydrocarbons,and help address issues that have been raised by the discovery of oil and gas in the country. Project The project includes: Description (a) technicalassistance to the Ministry of Energy and Mining, including the provision of resident experts, training,equipment and other facilities; (b) an explorationpromotion component, including gravity field surveys and technical studies (320 man-months),an updated interpretation of Sudan's petroleum geology and a detailed assessment of the petroleum potential of Sudan; and (c) oil and gas utilization studies. Benefits The project would enhance the capacity of the petroleum sub-sector organization,help determine the existence of potentiallysignificant sedimentary basins and help attract foreign capital for intensive explorationwork in areas that have been relinquished and other areas not yet contractedout to private companies. The oil and gas studieswould attempt to resolve the uncertainty concerningthe potential for using Sudan's oil and gas resources to meet its own energy needs. This document has a restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Risks One of the project's risks is that the prospects uncovered by the surveys and studies may not be attractive for companies to enter into exploration contracts. Given the results of past explorations, this risk is considered acceptable. Since the surveys will be located in the north of the country, they would not be affected by the recent security problems in the South. Local unrest could make Sudan less attractive but is unlikely to stop exploration. Estimated Costs US$ Thousand Local Foreign Total A. Assistance to the Ministry of Energy and Mines (1) Contract Economics 15 180 195 (2) Contract Monitoring 15 240 255 (3) Data Collection 10 140 150 (4) Resident Advisor 200 640 840 (5) Promotion 20 530 550 (6) Training 40 920 960 (7) Vehicles, Laboratory Equipment and Other Facilities 610 1,210 1,820 (8) Organization Study 20 220 240 Subtotal 930 4,080 5,010 B. Exploration Promotion (1) Sedimentary Basin Mapping 15 360 375 (2) Gravity and Magnetics 50 1,400 1,450 (3) Seismic Studies 20 630 650 (4) Geological and Well Studies 20 1,825 1,845 (5) Data Interpretation and Exploration Potential Assessment 5 185 190 (6) Project Administration 30 770 800 Subtotal 140 5,170 5,310 C. Oil and Gas Studies 20 410 430 BASELINE COSTS 1,090 9,660 10,750 -- iii - US$ Thousand Local Foreign Total D. Contingencies Physical 110 650 760 Price 100 1,160 1,260 Subtotal 210 1,810 2,020 E. PPF Refinancing - 530 530 TOTAL COST 1,300 12,000 13,300 Financing Plan: IDA - 12,000 12,000 Government of Sudan 1,300 - 1,300 Total 1,300 12,000 13,300 Estimated Disbursements: FY 85 FY 86 FY 87 FY 88 Annual 2,000 5,000 3,000 2,000 Cumulative 2,000 7,000 10,000 12,000 Rate of Return: N.A. Staff Appraisal Report: N.A. Maps IBRD Nos. 18059 and 18102 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 11.6 MILLION TO THE DEMOCRATIC REPUBLIC OF SUDAN FOR A PETROLEUM TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed credit to the Democratic Republic of Sudan for SDR 11.6 million (US$12.0 million equivalent) to help finance a Petroleum Technical Assistance Project. PART I - THE ECONOMY 2. An economic mission vislted Sudan in January 1983. Its report ("Pricing Policies and Structural Balances") No.4528a-SU of November 10, 1983, has been distributed to the Executive Directors. The findings of the mission are reflected below. Summary tables of social, economic and financial data are presented in Annex I. Background 3. Sudan, with an area of 2.5 million square kilometers, is the largest country in Africa. It has a population of about 19.8 million (1982 estimate) and is classified by the UN as a least developed country. Per capita GNP is estimated at about US$460 (1982 Atlas methodology)._/ Much of the country is unoccupied or very sparsely populated and there is relatively little population pressure on the land. Although much of the country is desert or semi-desert, the Sudan has great untapped potential for agricultural development. About two-thirds of the total land area is suitable for crop or pastoral production, but only a small fraction of this land is under intensive use. The economy is heavily dependent on exports of cotton, the major commodity from irrigated land, and on groundnuts, sesame and gum arabic. The manufacturing sector is relatively small and is limited to processing agricultural commodities such as cotton, oil seeds and sugar and to the production of consumer goods and building materials. A development of potential significance to Sudan's prospects is the discovery of oil reserves in the southwestern part of the country. An export pipeline carrying around 50,000 b/d will be constructed, and export is expected to commence in 1987. The public sector has long been important in the Sudanese economy. It embraces all modern irrigation facilities, the railways, virtually all power and water supply, and a significant proportion of industry, commerce and finance. Although some industrial 1/ Based on the official exchange rates for the period 1978-1980/81. Based on the exchange rate as of November 15, 1982 of LSd 1.00 = US$0.769, per capita GNP for 1981/82 would have been about $278. enterprises are being returned to the private sector, about half of the GDP is still generated within the public sector. The Current Crisis 4. The most immediate problem facing Sudan is the balance of payments situation. Between 1972/73 and 1974/75, the deficit on current account increased from US$11 million to about US$470 million and remained between US$450 and US$550 million until 1979/80, when the combination of a doubling of oil prices and a serious decline in cotton production pushed tlaedeficit to over US$900 million. A further reduction in cotton exports and increased petroleum imports led to a current account deficit of US$809 m:illion in 1980/81 and US$1.3 billion in 1981/82. Gross official reserves have fallen to only a few days worth of imports. By end 1982, external payments arrears had accumulated to above $2.2 billion. 5. The crisis is largely the consequence of inadequate economic management policies compounded by external factors, such as the sharply increased cost of petroleum imports, which have constrained Government's ability to respond quickly with effective remedial action. Adverse developments in foreign trade were accompanied by other adverse forces -- reduced flows of external capital after 1976, mounting debt problems, and absorptive capacity constraints. 6. The rapid increase in the value of imports came about partially because of the sharp increase in oil prices a:nd the steep rate of international inflation, particularly in 1973/74 and 1974/75. There was, however, a sharp rise in the volume of imports between 1974/75 and 1977/78; since then, imports have actually declined in real terms. Exports declined in real terms by nearly 50 percent between 1972/73 and 1981/82. The decline was concentrated in cotton; this occurred because of a shift from cotton to other crops and aLso because of falling cotton yields. The volume of cotton exports in 1981/82 was less than 15 percent of the 1971/72 level. Transport difficulties and other infrastructural problems contributed to this decline,,as did declining maintenance in many public irrigation schemes. 7. The rise in development expenditures after 1973 was financed in large measure by external capital, but because of absorptive capacity problems, disbursements of this capital declined unexpectedly in the mid-1970s, dropping from $465 million in 1974 to $332 million in 1977 and 1978. Because of the slow disbursements and accumulating arrears, external donors became less willing to make new commitments. Sudan faced a difficult choice: either to cut back on projects just started or to maintain the projects by running down foreign exchange reserves and borrowing from banks or other sources abroad.