DocDmntOf The WorldBank FOR OFFICIALUSE ONLY C A. /> Public Disclosure Authorized Report No. 6059-lD STAFF APPRAISAL REPORT Public Disclosure Authorized BANGLADESH REFINERY MODIFICATION AND LPG RECOVERYAND DISTRIBUTION PROJECT November 11, 1986 Public Disclosure Authorized Public Disclosure Authorized Energy Department Petroleum Projects, Division I This document has a restricted distribution 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. CURRENCY EQUIVALENTS Currency Unit = Taka (Tk) US$1.00 = Tk 31.00 Tk 1.00 = US$0.0323 WEIGHTS AND MEASURES 1 barrel (bbl) 0.159 cubic meters (03) l cubic foot (CF) = 0.028 m I British Thermal Unit (Btu) - 0.252 kilocalories (Kc) I metric ton (mT) of oil 0.85 sp.gr. = 7.4 bbl I kilometer (km) - 0.621 miles MCF - thousand standard cubic feet MMCFD = million standard cubic feet per day BCF = billion cubic feet TCF - trillion (1,000 billion) cubic feet toe - tons of oil equivalent in heating value kgoe = kilogram of oil equivalent in heating value mw megawatt (1,000 kilowatts) MMtoe = million tons of oil equivalent ABBREVIATIONS AND ACRONYMS BOC Burmah Oil Company BOGMC Bangladesh Oil, Gas and Minerals Corporation BPC Bangladesh Petroleum Corporation BPDB Bangladesh Power Development Board CIDA Canadian International Development Agency CNG Compressed Natural Gas ERL Eastern Refinery Limited GOB Government of Bangladesh ICB International Competitive Bidding IDA International Development Associacion IFC International Finance Corporation IoC International Oil Company LNG Liquefied Natural Gas LPG Liquefied Petroleum Gas LP Gas LP Gas Limited LRMC Long-run Marginal Cost MHC Mild Hydrocracker NGL Natural Gas Liquid PIU Project Implementation Unit p.a. per annum UNDP United Nations Development Programme FISCAL YEAR July 1 to June 30 FOROMCIAL USE ONLY Bangladesh Refinery Modificationand LPG Recovery and DistributionPrr ^ct DevelopmentCredit and Project Summary Borrower: People's Republic of Bangladesh Beneficiaries: Eastern Refinery Limited (ERL) and LP Gas Limited (LP Gas), which are subsidiariesof BangladeshPetroleum Corporation (BPC), and BangladeshOil, Gas and Minerals Corporation (BOGMC), Amount: US$47.00 million Terms: Standard On-Lending Terms: The Governmentwould onlend at an interest rate of 11*5% per annum and on repayment terms of 15 years including4 years grace, US$35.5 million of the proceeds of the Credit to ERL for the refinery modificationcomponent; US$4.6 million to BOGMC for the LPG recovery component;and US$5.8 million to LP Gas Limited for the LPG storage and distributioncomponent. ERL, 9OGMC and LP Gas Limited would bear the foreign exchange risk. US$1.1 million will be applied to finance GOB'equity share in a privately- operated LPG distributioncompany to be establisbed. Projiect Description: The project provides assistanceto minimize the cost of petroleum imports to the country by rationalizingthe supply of petroleum products and promoting the substitute use of LPG for kerosene. To achieve these objectives,the project includes: (i) a modificationof the refinery to enhance its flexibilityto better match its productionto the domestic demand for petroleumproducts, thereby reducing the cost of meeting these requirements;and (ii) LPG recovery, storage,distribution and marketing facilitiesfor some 11,000 mTpa of LPG. Risks: The technical,financial and commercialrisks involved in each componentare minimal. The expected economic rate of return from the refinery modificationproject is 21%, based on a margin of $35 increasingto $40 per mT between diesel and fuel oil, a margin below the historicaland prevailing $45 to $50 per mT. At prevailingmargins, the ERR is about 40%. With regard to the LPG component,the LPG market is large and will displace mainly importedkerosene and firewood. The risks of the benefits being eroded to a level to make the project uneconomicare small, as foreign exchange savings are significantwhen LPG displaces kerosene. The non-quantifiablebenefits of reduced deforestationwhen LPG substitutesfor firewood would also be important. Thisdocument has a restricteddistribution and maybe usedby recipientsonly in the performanee of theirofficial duties. Its contentsmay not otherwise be disclosedwithout World Bank authorization. ii - Estimated Project Cost Povei Local a/ Total ----- US$ ilo - I. Refinery Modification (1) Refinery Moc.ificationand Operations Assistance 21.1 6.4 28.1 (2) Project Management Assistance 1.0 0.1 1.1 (3) Training and Technical Assistance 0.5 0.1 0.6 (4) Spare Parts 3.2 0.8 4.0 Sub-total 26.4 7.4 33.8 II. LPG Recovery FaCiliLies LPG Recovery Facilities at Kailashtila 3.5 0.7 4.2 Sub-total 305 0.7 4.2 III LPG Storage and Distribution (1) LPG Bottling Plants 0.6 0.2 0.8 (2) LPG Bottles 3.0 0.6 3.6 (3) LPG Transport (Trucks and Barges) 3.0 0.8 3.8 (4) LPG Retail Filling Units 0.2 0.2 0.4 (5) ImplementationAssistance/Training 0.5 0.2 0.7 (6) InfrastructureFacilities/Port/Land 103 1.3 2.6 Sub-total 8.6 3.3 11.9 Base Cost Estimate (Total.of I, II & III) 38.5 11.4 49.9 Physical Contingencies 3.9 1.1 5.0 Price Contingencies 10.1 3.8 13.9 Total Cost 52.5 16.3 68.8 Iaterest during Construction - 12.5 12.5 Total Financing Required 52.5 28.8 81.3 a/ Local costs include USS8.2 million of customs duties. - Lii - Fincin Plan Foreigl Local Totel (lS$ million)…-- IDA 4 59 1G1 47.0 Government of 8anggadeslh 19.5 19.5 Internal Cash Cene^atioin- 7.3 7.3 Private Investors 6.6 0.9 7.5 52.5 28.8 81.3 Estimated Disbursements (US$ million) (IDA Fiscal Year) 1987 1988 [989 1990 1991 1992 1993 Annual 5.5 ?.6 I il~o 3.6 1.8 0.3 Cumulative 5.5 13.1 30.3 41e3 44.9 46.7 47.0 Economic Rate of Return (i) Refinery Modification PLuject Component 21% (ii) LPG Early Recovery Priject Component (Kailashtila) 17% (iii) LPG Distribution Project Cowponeat (Westecn Zone) 15% BANGLADESH REFINERY MODIFICATIONAND LPC RECOVERY AND DISTRIBUTIONPROJECT Table of Contents Page No. IIs ITHE DENE ION SECTO........ ....... ... .0 *00000.000*OO S . II. THEEB.CROmmErCTI O.......... E.e...... .. ....... * .... ............... A. BetkgroundmProduts.Sbseco............... ..... , .2 B. Commercial Energy Asalanceoo ................ C.'ResourceEdwet.......... ¢&*o**X^v**¢***** D. Sector Planning**. .........Oe6z5 E. Petroleum Products Subsector *..........o.. .........#.9*. 5 1. Consumptionand Supply of Petroleum Products ..............5 2. PetroleumProducts Demand Forecast and Balance.o...... ,....6 3. Refinery Investment Strategy................ .6 F. LPG Consumption and Supply........... .*.... ... a7.0 G. Pricing.** ...0 ...... 8 1. Natural Gas ......... .......... ...... .8 2. PetroleumProducts.*. .. ....... ....to .......... 9 3. LPG9... ........ ...10 H. IDA's Role and Lending Strategy in the Petroleum Sector...... lO III. THE BENEFICIARIES............. **so** ..........ll ............... A. Bangladesh PetroleumCorporation (BPC) ........................ ll B. Eastern Refinery Limited (ERL)........................ *.12 C. LP Gas Limited ........0........ 12 D.OGM ......... o .** *...............................I E. Accounts and Audits ................. ...... 13 IV. THE PROJECT .................................. 14 AL.Project Objectivesand Scope.................................. 14 B. Project Rationale*.........&s........... so..........14 C. Project Description and Implementation..*........ ........oo 15 1. Refinery ModificationComponent..........................15 2. Early LPG Recovery,Storage and Distribution..*..........l7 D. Project Preparation Status ......... 000000000 000 0000000000000.18 E. Capital Cost Estimates...............0 l9 F. Financing Plan ..........e * Go Procurement ..e..**.***.o*... ......2 H. Disbursements ....... 0000000000000000000000000002 I. Monitoring and Reporting.** ..o009. ............. 23 J. Ecology and Safety.......*................. ..... 23 K. Insurance.. ............. This report is based on the findings of a mission that visited Bangladesh in October 1985 and was prepared by Messrs. L. Wijetilleke,J.P. Pinard, F. Manibog, P.T. Venugopaland A.C.W. Vonck. Page No. V, FINANCIAL ANALYSTS. .........................4 0f. .... .o...0 44.... 0.9.24 A. Refinery Modificationi Component:..... ................. o4o,..24 14 ERL's Past F'inancial Perfornmaice.... 9.o ....e *-...e 24 2, Remuneration of FRRL.OO.. - .............. 3. Financiat P.o..t..i.. *.....0* ... *e .25 B. Early LPG Recovery Comipoutentt (BoaCtr4C..t.................o..27 C. LPC Storage and i.sLributiOil Corioip*nt- (I'P Gas Limited) ..... 27 VI. ECONOMIC E.VAL.UATION e * 0e0 4.e**c* * *00 0 -..... 28 A. Introduction - Past Trt'nds. Dr 4 *......o .............. 9 ........ .o28 B. Crude Oil and rdndtuitPrice Asscumptions .... v....0........4 ,*29 C. Refinery Operations ................... ....... 1. Refinery ModificaLion Contponent..4 ....... ............. *30 2. RetiileryAs hk OO^.e ....... ....... eo*.ee #.Dev 4*e30.. D. LPG Recovery, Storage and Distribution e.e4. ............. 3 1. KailashtilaLPG Component- - ..... ............... 31 2. WesLernZofie LPC Campon2ent-- ...... , ............... o*#32 E. Project Risks0........... .9. 00. 4 0...... 0..........o.....32 1. Refinery Modification..... 0 ....... .. .. o 32 2. LPC Recovery, Stor.-geand nistribution ..........0... ... 32 VII. AGREEMENTS0...... 4....... 40.....0.400 .04.40........0.......0 0 33 ANNEXES 2-1 Sectoral Shares in Petroleum Products Consumption 2-2 Consumption of Petroleum Products, 1976-1984 2-3 Petroleum Products Demand Projections