Document of The World Bank Public Disclosure Authorized
Report No. 13014-BD
STAFF APPRAISAL REPORT
BANGLADESH Public Disclosure Authorized
GAS INFRASTRUCTUREDEVELOPMENT PROJECT
APRIL 7, 1995 Public Disclosure Authorized
Public Disclosure Authorized InfrastructureOperations Division Country Department I South Asia Region CURRENCY EOUIVALENTS (as of September 1994)
Currency Unit = Taka (Tk) US$ 1.00 = Tk 40.25 Taka 1.00 = US$ 0.025
MEASURES AND EOUIVALENTS
BCF = billion cubic feet kgoe = kilogram oil equivalent kWh = 1,000 watt hours MMCFD = million standard cubic feet per day MCF = thousand standard cubic feet TCF = trillion (1,000 billion) cubic feet
1 metric ton of oil = 41.2 thousand standard cubic feet
ABBREVIATIONS AND ACRONYMS
ADB = Asian Development Bank BAPEX = Bangladesh Petroleum Exploration Company
BGFCL - Bangladesh Gas Fields Company Limited BGSL = Bakhrabad Gas Systems Limited BPC = Bangladesh Petroleum Corporation BPDB = Bangladesh Power Development Board DESA = Dhaka Electric Supply Authority ERL = Eastern Refinery Limited ESA = Environmental and Safety Assessment ESAC = Energy Sector Adjustment Credit GOB = Government of Bangladesh GTCL = Gas Transmission Company Limited ICB = International Competitive Bidding IOC = International Oil Company JGTDSL = Jalalabad Gas Transmission and Distribution Company LIB = Limited International Bidding
LPG - Liquefied Petroleum Gas
LRMC - Long Run Marginal Cost MEMR = Ministry of Energy and Mineral Resources MSIP = Managentent System Improvement Program NGL = Natural Gas Liquids
00 - Operating Company ODA = Overseas Development Administration PAP = Project Affected Person Petrobangla (BOGMC) = Bangladesh Oil, Gas and Minerals Corporation
PHC - Petrobangla Group Holding Company PIP = Priority Investment Program PSC = Production Sharing Contracts REB = Rural Electrification Board SCADA = Supervisory Control and Data Acquisition SGDP = Second Gas Development Project
SGFL - Sylhet Gas Fields Limited
TGTDC - Titas Gas Transmission and Distribution Company
Fiscal Year
July 1 to June 30 BANGLADESH
GAS INFRASTRUCTURE DEVELOPMENT PROJECT
Credit and Pro-ect Summary
Borrower: People's Republic of Bangladesh
Beneficiaries: Gas Transmission company Limited (GTCL), Sylhet Gas Fields Limited (SGFL), and Bangladesh Oil, Gas and Minerals Corporation (Petrobangla)
Amount: SDR 83.4 million (US$ 120.8 million equivalent)
Terms: Standard, with 40 years maturity
Onlendincr Terms: The Government of Bangladesh (GOB) would onlend the proceeds of the credit to GTCL, SGFL and Petrobangla at an interest rate of 8% per annum, repayable over 15 years, including 5 years of grace. The beneficiaries would bear the foreign exchange risk.
Proiect Description: The principal objectives of the project are to help alleviate gas supply shortages and support further reforms to improve overall gas sector management. The project would also assist the sector entities in their institutional development. The project would finance: (a) a 58 km, 30- inch diameter gas transmission pipeline from Ashuganj to Bakhrabad; (b) SCADA and telecommunication facilities for the gas trunkline from Kailashtilla to Chittagong; (c) three production wells at the Rashidpur gas field; (d) a gas processing plant for the above wells; and (e) technical assistance.
Benefits and Risks: Benefits would include increased availability and improved reliability of gas supply, and resource savings from substitution of gas for imported alternative fuels. The institutional support would improve sector entities' operational efficiency and safety. The project would also contribute toward mitigating the impact of energy use on the quality of the environment. The project would not pose any special technical risks. The potential risks for the project are delays in procurement and shortfalls in the beneficiaries' project management capacity. To minimize these risks, advance procurement actions have been initiated, and adequate technical assistance is provided to assist in the implementation and construction supervision of project works. To keep the overall project on track, GOB would carry out a joint annual review with IDA of project progress as well as GOB's progress in carrying out further reforms in the gas sector. - ii -
Estimated Costs:l/
Local Foreicn Total ------US$ million------
Ashuganj-Bakhrabad pipeline 12.5 41.8 54.3 SCADA and Telecom System 9.5 10.4 19.9 Emergency Response Equipment 0.5 1.6 2.1 Development of Three Wells 4.0 16.4 20.4 Gas Processing Plant 5.0 15.5 20.5 Consultancy Services 3.7 15.5 19.2 Training 0.3 1.8 2.1 Base Cost 35.5 103.0 138.5
Physical Contingencies 3.6 10.3 13.9 Price Contingencies 2.4 6.8 9.2
Total Project Cost .5120.1 161.6
Interest During Construction 10.1 0.0 10.1
Total Financing Required 51.6 120.1 171.7
FinancinQ Plan: Local Foreian Total ------US$ million------]
IDA 18.3 102.5 120.8 ODA 9.3 17.6 26.9 GTC 5.0 - 5.0 SGFL 7.7 7.7 GOB 11.3 - 11.3
Total 51.6 120.1 171.7
Estimated IDA Disbursements:
IDA Fiscal Year FY95 FY96 FY97 FY98 FY99 FY2000 (US$ Million)
Annual 9.6 30.2 30.2 30.2 14.5 6.1 Cummulative 9.6 39.8 70.0 100.2 114.7 120.8
Economic Rate of Return: About 33%
Poverty Cateaorv: Not Applicable
M: IBRD 25735
I/ Including US$ 8.9 million in duties and taxes. - iii -
BANGLADESH
STAFF APPRAISAL REPORT
GAS INFRASTRUCTURE DEVELOPMENT PROJECT
Table of Contents
Page No.
CREDIT AND PROJECT SUMMARY ...... i
I. THE ENERGY SECTOR
A. Energy Resources ...... 1 B. Energy Consumption .2 C. Energy Sector Organization .2 D. GOB's Energy Sector Strategy ...... 3 E. Energy Pricing .4
II. THE GAS SECTOR
A. Gas Reserves ...... 6 B. Gas Supply Systems ...... 6 C. Gas Demand and Supply Outlook ...... 7 D. Sector Constraints ...... 9 E. Directions of Reform ...... 10 F. IDA's Role ...... 12
III. THE BENEFICIARIES
A. Background ...... 14 B. Organization and Management ...... 15 C. Staffing and Training ...... 15 D. Accounts and Audit ...... 16 E. Beneficiaries ...... 16
:V. THE PROJECT
A. Project Objectives ...... 17 B. Project Description ...... 17 C. Status of Project Preparation ...... 20 D. Environmental and Safety Aspects ...... 21 E. Land Acquisition and Resettlement ...... 22 F. Project Costs ...... 24 G. Project Financing and Terms ...... 25 H. Procurement and Disbursement ...... 27
tis reportis basedon the findingsof an appraisal mission in Jure 1993 and a subsequent post-appraissl mission In upte.ber199. The reportwas preparedby Mmes./Messrs.M. Zhao (Sr. FinancialAnalyst, Task Manager),H. Morsi ;r.Petroleum Engineer), 0. Koenig(Sr. Economist), and M. Tumaliwan(Operations Analyst). Messrs. S. Khwaja(Sr. is SpecIalist),A. Jerve (Anthropologist),J. Thonms (Geologist, Consultant), B. Mink (ProcessEngineer, Consultant), ZawAn (ResettlementSpeciaList, Consultant), and R. Islam(Program Officer, Resident Mission) participated In the .ojectappraisal and post-appraisal.Peer reviewersare Messrs.C. Khelil(Petroleum Group Leader)and J. Bond (Pr. iergySpecialist). The reporthas been endorsedby Mr. P. Isenmn (Director,SAI) and Ns. M. Garcia-Zumor(Chief, ,11N). Secretarialsupport was providedby Mes. P. Reed and B. Duggal. - iv-
Paae No.
I. Project Implementation ...... 29 J. Project Monitoring and Supervision ...... 30 K. Project Risks ...... 31
V. FINANCE
A. Introduction ...... 31 B. Past Financial Performance ...... 31 C. Financial Outlook ...... 34
VI. PROJECT JUSTIFICATION
A. Justification ...... 36 B. Project Benefits ...... 37 C. Economic Rate of Return ...... 37
VII. AGREEMENTS TO BE REACHED AND RECOMMENDATION ...... 37
1.1 Natural Gas Tariffs 1985-1994...... 5 2.1 Gas Demand Forecast FY95-2000 ...... 8 4.1 Project Cost Estimate ...... 25 4.2 Project Financing Plan ...... 26 4.3 Procurement Arrangements ...... 27 5.1 Petrobangla Group's Operating Performance FY86-93 ...... 32 5.2 Financing of Investment FY86-93 ...... 33 5.3 SGFL's Operating Performance FY86-93 ...... 34 5.4 SGFL-Summary of Projected Financial Performance ...... 35 5.5 GTCL - Summary of Projected Financial Performance ...... 35
ANNEXES
1.1 Natural Gas Tariffs FY86-94 1.2 Retail Prices of Petroleum Products FY87-94
2.1 Gas Reserve Estimates 2.2 Gas Consumption FY80, 85-94 2.3 Gas Demand Forecast FY95-2000 2.4 Petrobangla Group's Priority Investment Program
3.1 Staff Composition of Petrobangla Group 3.2 GTCL Organization Chart 3.3 SGFL Organization Chart
4.1 Project Description 4.2 Terms of Reference for Institution Building Technical Assistance 4.3 Training Program 4.4 Summary of Environmental and Safety Assessment 4.5 Detailed Project Procurement Arrangements 4.6 Disbursement Profile 4.7 Implementation Schedule 4.8 Project Reporting Requirements 4.9 Indicative Supervision Plan v
4.10 Performance Indicators
5.1 Historical Financial Statements 5.2 SGFL and GTCL Projected Financial Statements 5.3 Assumptions used in the Financial Projections
6.1 Economic Analysis
7.1 Selected Documents and Data Available in the Project File
BANGLADESH
GAS INFRASTRUCTURE DEVELOPMENT PROJECT
STAFF APPRAISAL RZPORT
I. THE ENERGY SECTOR
A. Enerza R-sources
1.1 Bangladesh's indigenous energy resources consist of substantial reserves of relatively low cost natural gas, limited hydroelectric power potential and a large base of traditional fuels in the form of crop residues, animal dung and fuelwood. About 55% of the country's overall energy supply is based on traditional fuels, with the balance being met by natural gas (24%), imported oil and coal (19%), and hydroelectricity (2%). The potential of economically recoverable oil and coal resources has yet to be determined.
1.2 Natural Gas. Natural gas is Bangladesh's most important source of commercial energy. During the last two decades, the gas sector has undergone major expansion. Natural gas output increased from 11.5 billion cubic feet (BCF) in FY72 to 210 BCF in FY93, and now accounts for about 60% of the country's commercial energy supply. Current estimates of gas reserves in place are about 21 trillion cubic feet (TCF), of which about 12.4 TCF are considered as recoverable. The known gas fields also contain a substantial quantity of condensates; under conventional separation systems, about 65 million barrels of condensates could be recovered in association with gas production. Prospects for proving up new gas reserves in the numerous known field extensions as well as in the new exploration blocks are very good with the implementation of a more intensified field appraisal program in the near term and a comprehensive exploration program in the longer term.
1.3 Oil. Apart from the discovery of a limited quantity of oil in the Sylhet gas field area, exploration carried out thus far has not found any significant accumulation of oil. Recognizing that Bangladesh lacks the capital and technology required to competently explore and develop its hydrocarbon endowment, and encouraged by the visible successes of other countries in attracting international private participation in their petroleum/gas sectors, the Government of Bangladesh (GOB) announced in July 1993 a new petroleum policy to seek participation of international oil companies (IOCs) in hydrocarbon exploration and production through production sharing contracts (PSCs). To date, four PSCs have been signed and are now under implementation (para. 2.17).
1.4 Hvdropower. Bangladesh's total hydropower potential is estimated at about 1,500 Gigawatt hours (GWh)/year, of which 1,050 GWh/year has been developed with the installation of 330 MW capacity on the Karnafuli river at Kaptai (near Chittagong). The remaining potential is located at two other sites whose development would flood prime agricultural land and require the relocation of about 30,000 people. In view of the high cost involved and potential social impact, its development is not being considered at this time.
1.5 Coal. Recent work by the Geological Survey of Bangladesh in the Barapukuria area of Dinajpur district has located several thick coal seams, with an estimated in-situ reserve of about 300 million tons. A feasibility study funded by the Overseas Development Administration (ODA) of the UK was completed in 1990. In March 1994, GOB signed an agreement with a Chinese - 2 -
consortium for the development of an underground coal mine with a production capacity of one million tons of coal per year. Because of the long lead time involved, it is not expected that the proposed mine could come into operation before the year 1998. Bangladesh is giving due importance to exploration of coal and has advertised internationally for foreign investors. Recently, GOB has signed a production sharing contract with BHP, USA for exploration and development of coal deposits in northwestern region of the country.
1.6 Traditional Fuels. Traditional fuels are the predominant sources of energy in rural areas. However, biomass supplies are continually diminishing on a per capita basis due to deforestation and rapid population growth. Increasing fuelwood planting to meet the supply gap is not feasible due to the high population density and pressure for agricultural land. The decline in the relative contribution of traditional fuels to the country's energy supply, from above 65% in the early 1980s to the current level of 55%, reflects the role of gas as the main source of supply to meet the country's incremental energy requirements.
B. Enercrv Consumption
1.7 Bangladesh's annual per capita energy consumption is estimated at about 100 kilograms of oil equivalent (kgoe), among the lowest in the world. Per capita annual consumption of commercial energy is estimated to be only 45 kgoe. In FY93, gross commercial energy consumption was about 5.2 million tons of oil equivalent, of which natural gas accounted for 60%, petroleum 32%, hydropower 4%, and coal 4%. The consumption of commercial energy increased at about 7% a year during the 1980s, compared to an annual average growth rate of about 4% for real GDP. With the development of indigenous gas supply, the share of natural gas in total commercial energy consumption increased from 26% in FY81 to 60% in FY93, making it possible to contain annual imports of crude and petroleum products to around two million tons.
C. Enerov Sector Organization
1.8 The principal institutions responsible for energy sector policy and management are: (a) the Planning Commission, responsible for macroeconomic planning; including Five-Year Plans and Annual Development Plans, and (b) the Ministry of Energy and Mineral Resources (MEMR), responsible for overseeing the operations of the five publicly-owned energy sector entities that produce, transport and deliver most of the commercial energy in Bangladesh. The entities are the Bangladesh Oil, Gas and Minerals Corporation (Petrobangla), the Bangladesh Petroleum Corporation (BPC), the Bangladesh Power Development Board (BPDB), the Dhaka Electric Supply Authority (DESA), and the Rural Electrification Board (REB).
1.9 Petroleum/Gas Sector. The gas sector in Bangladesh is dominated by the Petrobangla group consisting of eight state-owned companies responsible for the exploration, production and delivery of natural gas, as well as the exploration for and development of oil and solid minerals, including coal. Until mid-1993, the Petrobangla Group consisted of the holding corporation (Petrobangla), one exploration and drilling company, two production companies, three transmission and distribution companies and a natural gas liquids company. In May 1993, the Cabinet approved the establishment of the Gas Transmission Company Limited (GTCL) to operate the recently completed Kailashtilla-Ashuganj (North-South) pipeline and' the new Ashuganj-Bakhrabad pipeline to be constructed under the project, with a view to achieving optimal gas supply despatch and providing pipeline access to eventual private gas producers when excess capacity is available in the system.
1.10 BPC is responsible for purchasing and refining crude oil, and importing and marketing petroleum products. Refining is carried out at Bangladesh's only refinery, the Eastern Refinery Limited (ERL), a BPC subsidiary. Liquefied Petroleum Gas (LPG) is bottled and sold to private distributors by LPG Limited (LPGL), another BPC subsidiary. Three other BPC subsidiaries (Jamuna, Meghna and Padma oil companies) market petroleum products.
1.11 Power Sector. BPDB is responsible for electricity generation, transmission and distribution, except in areas served by DESA and REB. DESA distributes electricity in the Greater Dhaka area, whereas REB is responsible for the construction of rural electrification schemes and organizing prospective consumers into semi-autonomous cooperatives called Palli Bidyut Samities (PBSs) which buy electricity from BPDB and distribute it to their consumers.
D. GOB's EnerQ'y Sector StrateQv
1.12 Sectoral Obiectives. In recognition of gas's pivotal role, accelerating development of domestic gas resources has been the primary focus of GOB's energy sector strategy in the Third and Fourth Five-Year Plans (FY86- 95). GOB's principal energy sector objectives are to: (a) expand domestic natural gas supply to meet energy demand and reduce the country's dependence on oil imports; (b) adjust energy prices to promote the efficient and economic use of energy, taking into account social objectives; (c) increase the availability and improve the quality of electricity supply and reduce system losses; (d) improve energy sector entities' performance; and (e) encourage private sector participation in energy sector development, particularly in oil and gas exploration. To underscore the priority accorded to the sector's development, energy accounted for 16% of the total public sector investment allocation during the Third Five-Year Plan, of which 29% (US$ 690 million) was earmarked for the gas sector.
1.13 In the pursuit of the above objectives, the main thrust of GOB's gas sector strategy in the 1970s was to develop the fields at Titas, Bakhrabad and Habiganj to take advantage of their relative proximity to the main markets of Dhaka and Chittagong. To ensure adequate long-term supply and optimal development of the country's hydrocarbon endowment, a parallel effort was initiated in the mid-1980s to develop the large gas fields in the northeastern part of the country and to link them with the main consumption centers through an integrated gas transmission network.
1.14 Sectoral Development. Progress in implementing the energy sector strategy has been uneven. Overall, the gas sector has played an important role in the country's development during the past decade. The availability of low-cost indigenous natural gas has been the basis for the expansion of the power sector and the rapid development of the fertilizer industry in Bangladesh. Currently, about 90% of power generation is based on natural gas, and all of the agricultural sector's urea fertilizer requirements (1.4 million tons p.a.) are met by local production using gas as feedstock. Power generation and fertilizer production account for about 46% and 35%, respectively, of the total gas consumption, with the remaining 19% accounted for by industrial, commercial and residential consumers. Unlike many other public enterprises, the gas sector has been a significant source of revenue for the Treasury. Through payment of excise duty (at a level equal to 62% of gross sales revenue in FY93), a 50% corporate tax and dividends, Petrobangla's contribution to GOB has been increasing steadily, from Tk 2.0 billion in FY86 to Tk 7.3 billion (US$ 183 million) in FY93, reflecting the results of a 10% average annual increase in the volume of gas sales and average gas tariff.
1.15 By comparison, the development of the power sector has been seriously affected by the continuing poor performance of the two main sector entities -- BPDB and DESA, as evidenced by the inordinately high system losses, low level of collections and extremely weak finances. To assist GOB in effecting a significant and sustained improvement in power sector performance, IDA together with other donors has been pursuing an intensive dialogue with GOB over the last few years, focussing on the need for GOB to undertake basic reforms to address fundamental deficiencies in sector governance. Resumption of new lending for power by IDA (and some other major donors) depends on GOB's formulating and initiating implementation of a credible reform program.
E. Energy Pricing
1.16 Natural Gas. Under IDA's Second Gas Development Project (SGDP, Cr. 1586-BD), GOB adopted the principle of pricing natural gas based on the estimated economic costs of supply, including a depletion premium. In accordance with that agreement, the average price of gas was increased by 20% on July 1, 1985 and July 1, 1986, respectively. Starting from 1987, in the course of preparing the Energy Sector Adjustment Credit (ESAC, Cr. 1999-BD), GOB endorsed the approach of setting gas prices closer to that of substitute fuels to mobilize resources for the budget. In line with this, during 1987- 1992, gas prices were increased on average by 105%, or about 13% p.a., as against 9% p.a. average domestic inflation. In March 1994, GOB announced a 10% increase in end-user tariffs for power, fertilizer, industrial and commercial uses retroactive March 1, 1994; monthly charges for unmetered domestic consumers were raised by 27% for single burner and 16* for double burner. The evolution of gas tariffs for the period 1985-1994 is summarized in Table 1.1 and given in greater detail in Annex 1.1. The prevailing end- user tariffs for bulk supply to power and fertilizer and the weighted average tariff of Tk 54 per thousand cubic feet (MCF) (US$ 1.35/MCF) are comparable to the latest estimates of economic costs of supply. However, as can be seen from Table 1.1, GOB's excise duty on gas sales has remained high and is the root cause of Petrobangla group's weak financial performance. The need for further reforms in the levels of retail prices and margins allowed to the sector operating companies is discussed in para. 2.19. TabLe 1.1: WaturaL Gas Tariffs 1985-1994 (In Taka/mcf)
7/1/85 7/1/86 7/1/87 7/1/88 7/1/89 7/1/90 7/1/91 5/1/92 3/1/94
End User Prices Power 15.66 19.09 24.82 28.54 33.00 37.95 39.08 43.04 47.57 FertiLizer 15.66 19.09 24.82 28.54 28.54 32.82 33.98 37.38 41.34 IridustriaL 43.20 52.14 52.14 59.96 70.00 80.50 85.24 93.73 103.07 Co=merciaL 54.24 65.39 85.00 97.77 110.00 126.50 134.23 134.23 147.53 ResidentiaL 40.80 44.8 56.10 56.10 65.00 74.75 74.75 82.12 82.12 Tea Estates 40.05 40.05 40.05 83.15 83.15 95.62 100.25 110.15 113.27
Of which:
GOB - Excise Duties Power 12.80 15.72 20.30 23.28 25.96 25.96 27.26 27.18 26.16 Fertilizer 12.80 15.72 20.30 23.28 23.28 23.28 24.44 24.35 22.74 Industrial 28.13 35.73 35.73 41.99 48.01 48.01 52.81 52.67 56.69 CommerciaL 37.54 47.02 62.70 72.90 80.24 80.24 88.27 88.07 81.15 ResidentiaL 27.77 31.24 40.21 40.21 45.55 45.55 45.55 45.59 45.17 Tea Estates 37.15 37.15 37.15 45.83 45.83 45.83 50.41 50.41 62.30
PetrobanglaGroup Margin Power 2.86 3.37 4.52 5.26 7.04 11.99 11.82 15.86 21.41 Fertflizer 2.86 3.37 4.52 5.26 5.26 9.54 9.54 13.03 18.60 Industrial 15.07 16.41 16.41 17.97 21.99 32.49 32.43 41.06 46.38 Couercial 16.70 18.37 22.30 24.87 29.76 46.26 45.96 46.16 66.38 ResidentiaL 13.03 13.64 15.89 15.89 19.45 29.20 29.20 36.53 36.95 Tea Estates 2.90 2.90 2.90 37.32 37.32 49.79 49.84 59.74 50.97
1.17 Petroleum Products. In the pursuit of its economic efficiency and resource mobilization objectives, GOB has maintained domestic prices of petroleum products significantly above border prices. Under the ESAC, GOB agreed on a pricing formula which would ensure that the weighted average domestic petroleum product prices, net of distribution, marketing and other handling costs, would always exceed border prices by at least 15%; it also agreed not to reduce the weighted average retail price of petroleum products below levels existing in FY87. Except for a brief period in early 1990, GOB has followed these principles and, in fact, responded very promptly to the Gulf crisis in late 1990 with a cumulative increase in petroleum product prices of about 85% between August and October 1990. These adjustments have also brought the relative pricing structure of domestic prices closer to that of border prices. Although world oil prices have now generally returned to pre-Gulf crisis levels, GOB's present plans are to maintain the high prices for purposes of resource mobilization. Retail prices of petroleum products for FY87-94 are given in Annex 1.2.
1.18 Electricitv. During 1987-91, BPDB's average tariff rate was increased about 39%, or about 91 p.a. in nominal terms, as against domestic inflation of about 9t p.a. over the same period. The average revenue from electricity sales in FY93 at Tk 2.3 per kilowatt hour (kWh) (US¢ 5.8/kwh) is estimated to be about 65-70% of long-run marginal cost (LRMC). - 6 -
II. THE GAS SECTOR
A. Gas Reserves
2.1 Natural gas was first discovered in Bangladesh by private companies -- Pakistan Petroleum Limited at Sylhet, and Shell at Kailashtilla, Rashidpur, Habiganj, Titas and Bakhrabad. These companies, together with the state-owned Oil and Gas Development Corporation (OGDC), were exploring for oil and gas on a limited scale during the 1950s and 1960s. Immediately after independence, GOB took over the private interests in the gas sector, and efforts were made to continue exploration and develop the fields at Titas, Habiganj and Bakhrabad which are closest to the main markets of Dhaka and Chittagong. By 1990, these three fields were supplying 93t of the gas used in Bangladesh.
2.2 The development of the gas fields in Bangladesh is still at a very early stage. There are presently 17 known gas fields; however, only the first round of appraisal drilling has been made, and only three fields -- Titas, Bakhrabad and Habiganj -- have sufficient wells and production data to allow reasonably accurate estimates to be made of gas reserves in place and recoverable. Because of this, gas reserve estimates have been made in a subjective fashion under several studies. The most conservative estimate puts the total gas reserves at 21 TCF, of which 12.4 TCF are considered as recoverable. Five fields -- Kailashtilla, Rashidpur, Habiganj, Titas and Bakhrabad -- account for two thirds of the known gas reserves. The reserve estimates by each gas field together with the production in FY94 are given in Annex 2.1.
2.3 While the current reserve estimates appear to be small, there is significant potential for proving up new gas reserves in the numerous current field extensions as well as in new prospects. Several major studies by international petroleum consultants indicate that the Bengal Delta Basin, which underlies most of Bangladesh, is gas-prone. The likelihood of significant increases in the reserve base over and above what is required to sustain domestic supply indicates a potential for export.
B. Gas SuDDly Systems
2.4 The development of gas supply infrastructure in Bangladesh reflects the concentration of economic activity in the country. Presently, gas is supplied through three systems, all located in the east zone: (i) the Titas system covering the Greater Dhaka area and the Brahmaputra Basin northwest of Dhaka, which receives gas from the Titas, Habiganj and Bakhrabad gas fields, having maximum daily peak demand of around 560 million cubic feet (MMCFD); (ii) the Bakhrabad system covering the southeasternpart of the country, including the Chittagong area, which takes gas from the Bakhrabad and Feni gas fields, having maximum daily peak demand of around 110 MMCFD;and (iii) the Jalalabad system covering the Sylhet area, which receives gas from the Kailashtilla, Sylhet, and Habiganj gas fields, having maximum daily peak demand of 40 MMCFD. The Rashidpur field, a newly developed gas field under the SGDP, is now producing at a rate of 82 MMCFD for supply to the Jalalabad and Titas franchise areas. Cumulative gas production as of the end of FY94 was about 2.2 TCF, half of which was drawn from the Titas gas field, followed by Habiganj (0.4 TCF) and Bakhrabad (0.4 TCF). - 7 -
2.5 Until the mid-1980s, the three gas supply systems were not interlinked. Recognizing the capacity constraint of the Titas gas field in meeting the projected incremental gas demand in the Titas franchise area, GOB adopted the strategy of focusing on developing the large gas fields at Kailashtilla, Rashidpur and Habiganj in the northeastern part of the country to cover gas supply shortages in the Titas franchise via the Kailashtilla- Ashuganj (North-South) pipeline. Further integration of the three supply systems into one grid via the Ashuganj-Bakhrabad (A-B) pipeline was planned for a later stage. To support GOB's effort, the SGDP (Cr. 1586-BD, approved in April 1985) was conceived, which provided financing for appraisal and development drilling (nine wells), installation of gas and condensate treatment facilities, and construction of the North-South pipeline and a parallel condensate pipeline.
C. Gas Demand and SupplY Outlook
2.6 Past Trend. Annual gas sales more than tripled during the 1980s, increasing from 45.7 BCF in FY80 to 159.9 BCF in FY90, equivalent to an average annual growth of 13%. The growth tapered off to around 7% during FY91-94, partly due to the power sector's inability to undertake planned generation capacity expansion investments as a result of donors' suspension of new lending to power. Gas sales to each sector for FYBO-94 is given in Annex 2.2. During this period, power and fertilizer combined accounted for 83% of the incremental gas sales. In FY94, power generation and fertilizer production accounted for about 46% and 35t, respectively, of the total gas consumption, followed by industry (10%), domestic (7%) and commercial (2%).
2.7 System Loss Reduction Plan. Gas supply to domestic consumers expanded rapidly during the past decade, and the total number of connections rose from some 225,000 in 1985 to about 528,000 in 1993. The vast majority of domestic consumers (404,000) are supplied by the Titas Gas Transmission and Distribution Company (TGTDC). Domestic users are offered the option of a single or double burner connection, which forms the basis for the flat rate billing system adopted by the three distribution companies in the late 1980s. This arrangement replaced the former system based on metering because of major problems arising from faulty meters and insufficient replacements. Unfortunately, the flat rate system has been abused as customers hook up additional appliances or commercial users seek to be classified as domestic connections. Meter tampering, illegal connections and underbilling have also contributed to the problem. As a result, the difference between total gas sales and purchases in TGTDC rose from 2% in FY81 to 9t in FY93. To stem loss of revenues, during the processing of ADB's Third Natural Gas Development Project, TGTDC/GOB agreed to implement a system loss reduction plan. The main elements being pursued include: (a) increase in the assessed volume of gas consumption by non-metered domestic consumers; (b) disconnection of delinquent consumers; (c) installation of 60,000 meters in the first phase, starting with households with multiple appliances; and (d) contracting out meter-reading, billing and collections in selected service areas. While GOB has raised the expectations that TGTDC bring down its overall system losses to 2% by June 30, 1995, a gradual reduction to about 4% by FY97 appears more realistic and achievable.
2.8 Gas Demand Forecast. Given the dominance of power generation in gas utilization, growth in electricity supply will continue to be a key determinant of gas demand. To support higher economic growth required for a significant reduction in poverty, provision of adequate electricity supply is - a -
essential. Given the economic benefits of gas use in combined-cycle power plants and its environmental benefits, gas offers the least cost option for the country's power generation requirements.
2.9 The gas demand forecast for FY95-2000 is summarized in Table 2.1 and given in more detail in Annex 2.3. The forecast is based on the planned generation capacity additions, totalling 1529 MW, during the forecast period, commissioning of new fertilizer plants, and a projected aggregate growth of 10% p.a. for the remaining consumer categories in line with the historical trend. Total gas sales are projected to grow on average at 9% p.a., with the share of power generation in gas consumption increasing to 55% by FY2000. About half of the projected incremental demand, 500 MMCFD by FY2000, would be in the Bakhrabad franchise area; the known new loads include: the KAFCO joint venture fertilizer plant (commissioning date January 1995), the second 210 MW steam turbine power generating unit at Raujan near Chittagong (financed by supplier's credit from China, commissioning date January 1997), and 600 MW of combined-cycle generating capacity at Meghnaghat (commissioning date December 1998 onwards).
Table 2.1: GasDemand Forecast FY95-2000 (in BCF)
1994 1995 1996 1997 1998 1999 2000 (actuat)
Power 97.3 115.0 126.0 134.4 145.5 172.1 191.5 Fertilizer 74.5 89.6 92.6 95.8 97.5 97.5 97.5 IndustriaL 18.5 18.8 21.0 23.4 26.1 28.0 30.2 Cooe rciaL 2.9 3.9 4.4 4.9 5.4 5.8 6.2 Domestic 15.4 17.5 19.7 22.0 24.6 26.2 27.9 Other ..1.7 1.9 2.0 2.2 2 4 J2.5 2.7
TotalSeles 210.3 246.6 265.7 282.6 301.7 332.5 356.3
by Franchise: Titas 152.4 169.5 180.1 190.4 201.3 204.0 206.8 Bekhrabad 42.7 60.5 64.6 65.5 71.3 99.0 119.6 Jolalaabd 15.2 16.6 20.9 26.7 29.1 29.5 29.9
Losses 13.1 12.7 11.7 10.7 9.4 9.9 10.4 in X 56 4.9 4.2 3.7 3.0 __.9 2.5
TotalPurchases 36.7 477.3
Field Use 0.2 0.4 0.4 0.4 0.4 0.5 0.5
Production 223.5 259.6 277.7 293.8 311.6 342.9 367.2
Ave.Dafly(IMCFD) 612.3 711 761 805 854 939 1006 Max Daily (NNCFD) 804 860 909 865 1062 1137 Max DailyPeak 751.0 947 1013 1072 1137 1251 1340
Source:IDA estim_tes. 2.10 SupplY Outlook. While Bangladesh has significant gas reserves, the country is currently faced with a major supply constraint. Because of cumulative delays in the completion of gas field development, pipeline infrastructure and surface facilities, demand started to outstrip deliverable supply capacity in 1993. The tight gas supply situation is partly responsible for the high flow rates imposed on the producing wells and for deferring much- needed well workover in the Titas and Bakhrabad fields. Consequently, Bakhrabad has been showing pressure drop in recent years; out of the eight production wells, three need workovers and two are producing at half capacity. In view of that the current production level of 150 MMCFD at the Bakhrabad field barely satisfies the present demand and is not sustainable, development of production capacity at the large, known fields in the north and transfer of surplus gas supply to the gas-deficient southern region through interconnecting the two transmission subsystems represents the least-cost approach.
2.11 Priority Investment Proaram. To balance supply with demand in the medium term, a priority investment program (PIP) to be implemented during FY95-2000 has been drawn up. The PIP, estimated at about US$ 600 million in 1994 prices, consists primarily of (a) development drilling of 15 new wells and installation of associated gas treatment facilities; (b) workover of eight existing wells at Titas and Bakhrabad gas fields; (c) integration and expansion of the high pressure transmission grid by construction of the Ashuganj-Bakhrabad pipeline (58 km), the Habiganj-Ashuganj loopline (53 km), addition of compressor capacity, and installation of a new Supervisory Control and Data Acquisition (SCADA) and pipeline telecommunication system; and (d) upgrading and expansion of gas distribution network. Details of the PIP are given in Annex 2.4. The proposed project, together with assistance extended by the Asian Development Bank (ADB) and the Overseas Economic Cooperation Fund (OECF) of Japan, would help finance the most urgently needed components of the PIP; private sector financing of investments scheduled for the outer years of the PIP is being pursued. Any delay in execution of those investments, for which financing is yet to be arranged, will not affect the implementation or the viability of the proposed project (para. 6.5). To ensure satisfactory implementation of the PIP, it was agreed during negotiations that, prior to the beginning of each fiscal year, GOB will review with IDA the gas sector's PIP and its implementation in the current fiscal year, as well as the implementation plan for the three succeeding fiscal years.
D. Sector Constraints
2.12 Bangladesh's gas sector is now at a critical juncture. The sector has a large potential for increased contribution to the country's economic growth. However, experience of the past decade clearly indicates that, for the country to fully benefit from its hydrocarbon endowment, GOB needs to take steps to address the major constraints on the sector's development, i.e., the country's limited financial resources and technology limitations, and the Petrobangla group's weak institutional capability.
2.13 Capital Shortages. Funds required to enable accelerated sector development far exceed what the GOB can manage to allocate to it. Minimum investments required up to the year 2000 to balance supply and domestic demand are estimated at about US$ 600 million in 1994 prices (para. 2.11). This amount could increase significantly depending on the pace of the sector's future development. - 10 -
2.14 PetrobanQla GrouD's Canabilitv. Notwithstanding its contribution to resource mobilization, Petrobangla group's limited implementation capability has impaired the delivery of prior gas sector investments. Presently, the group has insufficient in-house capability to plan, design and supervise the sector's expansion program. Moreover, operation and maintenance capabilities need to be built up commensurate with the system expansion that has so far been undertaken.
2.15 Several factors have contributed to the Petrobangla group's weak institutional capability and inadequate performance. First, since its inception, the Petrobangla group has been operated like an extension of the Government. Besides tariff setting, many operational decisions are controlled by GOB. The group is governed by the Government salary scales and internal procedures, and requires approval from the Government agencies for investments, operating budgets, procurement and staffing. Operating budgets are not tied to annual and long term corporate plans, and there are no agreed sets of specific, annual and quantified performance targets for the group and individual operating companies. Thus, the accountability of the group's management for performance is severely undermined. Second, GOB's excessive levy of excise duty on gas sales has resulted in OC margins that neither meet financial requirements nor reflect cost structures; this is the root cause of the group's low earning capacity and weak financial position. Third, being a state-owned monopoly and having two state-owned entities -- BPDB and the Bangladesh Chemical Industries Corporation, BCIC -- as its major consumers, the group faces no competition and, therefore, has not been spurred to improve performance.
E. Directions of Reform
2.16 In order to mobilize the capital required for accelerated sector development and improve the performance of the existing sector entities, GOB has recognized the need to overhaul the prevailing.sector arrangements. The main initiatives being pursued by GOB relate to increasing private sector participation, particularly by IOCs, and commercializing/privatizing existing operations.
2.17 Private Sector Particilation. With its potential hydrocarbon endowment, Bangladesh would benefit immensely from the risk capital, management expertise, efficient operations, technical advances and global experience that IOCs could provide under favorable conditions. Until recently, Bangladesh was unsuccessful in attracting private capital in hydrocarbon development, basically because incentives offered were not attractive. During the preparation of the proposed project, IDA has been pursuing a continuing dialogue with GOB on the need to create an enabling environment to promote private participation in the gas sector. Over the past two years, GOB has made significant progress in this regard. In July 1993, GOB announced a new Petroleum Policy which offers significantly liberalized contractual terms for production sharing contracts (PSCs), including tax exemptions and the direct linkage of gas producer prices to the international fuel oil price. Furthermore, highly prospective exploration blocks originally reserved for Petrobangla have now been opened for private bidding. In May 1993, the Cabinet approved the establishment of GTCL, which will provide equal access to private gas producers and operate on the basis of a wheeling charge. GOB also lifted the long-standing ban on the importation of LPG to enable private entry in LPG imports, bottling and distribution. In September 1993, GOB with IDA's assistance held an investment promotion roundtable in Houston, - 11 - which was attended by representatives of 45 IOCs. To date, the responses from the IOCs have been encouraging; four PSCs have been signed, and negotiations with interested IOCs for other exploration blocks are proceeding in earnest.
2.18 Commercialization/Privatization of Petrobanala Group. There is a broad consensus at the Government level that privatization of the Petrobangla group would help transform the individual OCs into efficient businesses. GOB is planning to float a portion of its shareholding in two OCs -- Bangladesh Gas Fields Company and Titas Gas Transmission and Distribution Company -- in the local capital market. To make the eventual privatization offerings successful, GOB needs to carry out a range of readying steps. These include (a) letting OCs operate under private company law in form and substance with adequate managerial autonomy; (b) reforming gas tariffs to enable OCs to operate on a commercial basis; (c) decentralizing operational decision-making and developing competition in the sector, with each OC becoming an independent entity charged with being financially self-sufficient and placing its financial relationship with other OCs and GOB at arm's length; and (d) establishing a regulatory framework and institutional arrangements to monitor operator performance, prevent abuses of market power, and promote the development of competition. Under the ADB's Third Natural Gas Development Project, consultants are being engaged to help GOB formulate an action program for (i) the restructuring/ divestiture/privatization of the existing gas sector entities; (ii) the establishment of an appropriate petroleum/gas sector regulatory framework and a national regulatory function for a decentralized petroleum/gas sector with mixed ownership; and (iii) the implementation of a rational gas pricing structure. It was confirmed during negotiations that GOB will, by December 1995, carry out a joint review with IDA and other donors of its action program for strengthening the institutional and regulatory frameworks for the petroleum/gas sector.
2.19 Gas Tariff Reform. Given the fact that Bangladesh is presently a net oil importer, and the country has potential for developing gas export, an appropriate benchmark in setting gas prices is the cost of substitute fuel (e.g., fuel oil) or the value of gas export that would have to be foregone to satisfy domestic demand. Using fuel oil as a comparator, the import-parity price of gas is about $ 2.2/MCF, or about twice the present tariff for electricity geheration. To provide adequate incentives to attract private investment in natural gas development, GOB has decided to use 75% of the international price of high sulphur fuel oil (less a negotiable discount) as the benchmark in determining the wellhead price of non-associated gas to be offered to private gas producers. To implement the above pricing formula and to enable the public gas sector entities to operate on a commercial basis and be self-sustaining, GOB needs to implement a phased program of tariff reform to: (i) raise wellhead gas price to the above-mentioned benchmark; (ii) ensure an adequate margin for the gas production companies through reducing GOB's excise duty; and (iii) rationalize the margins allowed to the gas transmission and distribution companies based on the costs incurred in meeting the demands of various consumer groups, taking into account the financial objectives of the entities involved and appropriate socio-economic considerations. As a first step, GOB increased the average end-user gas tariff by 1Ot effective March 1, 1994 with a parallel reduction of GOB's excise duty from 62% to 55%. At the same time, GOB decided to implement the following: (i) 2% of the gas transmission and distribution OCs' gross sales revenue will be withheld, on a time-bound basis, by GOB to recoup the amount required for servicing the external debt incurred in connection with the past operations of the Bangladesh Petroleum Exploration Company (BAPEX); (ii) upto 2% of gross gas - 12 -
sales revenue will be withheld on a time-bound basis and administered by Petrobangla to meet BAPEX's expenses during its restructuring; and (iii) a hydrocarbon development fund to the tune of 2.5% of gross gas sales revenue will be established to help strengthen the OCs' self-financing capabilities; the amount of revenue so appropriated will be allocated among the gas production, transmission and distribution OCs on the basis of their respective shares of group margins and volumes of operations. The net impact of the above raised the combined margins of the gas production, transmission and distribution OCs from 36% to 41% as of March 1, 1994. During negotiations, GOB agreed that it will, before the start of each fiscal year, review with IDA the margins allowed to the gas operating companies in respect of such year.
F. IDA's Role
2.20 Past ExDerience. IDA's involvement with Bangladesh's energy sector began in 1979 when a credit of US$ 28 million was made to GOB to help finance the electricity distribution system for the Greater Khulna area. To date, IDA has made 14 credits for the energy sector in Bangladesh. IDA funds committed through these operations have totalled US$ 903 million, representing about 16% of total IDA resources committed to Bangladesh. Seven of the credits (US$ 454 million) were for power projects, two (US$ 186 million) for gas, four (US$ 146 million) for petroleum exploration promotion, refinery modification and LPG development, and one (US$ 116 million) for the Energy Sector Adjustment Credit (ESAC). Eleven projects have been completed. Projects currently under implementation include two power distribution projects and the LPG Transport and Distribution Project (Cr. 2263-BD).
2.21 The two IDA-financed gas sector projects -- the Bakhrabad Gas Development Project (Cr. 1091-BD) and the Second Gas Development Project (Cr. 1586-BD) -- featured substantial cofinancing from several bilateral sources, including the Canadian International Development Agency, the Directorate General Voor Internationale Samenwerking (the Netherlands), the UK Overseas Development Administration (ODA), the Japan Overseas Economic Cooperation Fund (OECF), the OPEC Fund for International Development, and the United Nations Development Programme (UNDP). The Bakhrabad Gas Development Project was approved in December 1980 and consisted of: (a) drilling of five wells at the Bakhrabad gas field, (b) the installation of associated gas treatment facilities, (c) a 24-inch, 177 km pipeline from Bakhrabad to Chittagong, and (d) a 88 km distribution network in and around Chittagong. The project was successfully implemented with only a slight delay from the original schedule.
2.22 The Second Gas Development Project (SGDP) suffered an initial implementation delay of almost three years, due primarily to the delay in procuring and mobilizing the bilaterally financed drilling rig for the project's drilling component. In the absence of drilling results, the design and procurement for the gas and condensate treatment facilities and the Kailashtilla-Ashuganj (North-South) pipeline could not proceed. The project finally started in 1988; the drilling component was successfully completed in December 1990, followed by the completion of the Kailashtilla-Ashuganj gas and condensate pipelines in May 1992. The drilling results have been very encouraging. All nine new wells drilled were successful and completed as production wells; besides providing a total productive capacity of about 300 MMCFD, they proved about 4 TCF of recoverable gas reserves, increasing the country's proven recoverable gas reserves from about 8 TCF to 12 TCF. - 13 -
2.23 In response to the findings that the Kailashtilla field contains much larger reserves than previously estimated and is relatively rich in natural gas liquids (NGLs) including propane and butane, extensive consultations between GOB/Petrobangla, IDA and other cofinanciers took place and a decision was reached to change the original design of gas treatment facilities proposed for the Kailashtilla field with a view to extracting propane and butane to produce LPG. The agreed configuration comprises: (i) a 90 MMCFD molecular sieve turbo-expander at Kailashtilla to extract NGLs (financed by ODA); and (ii) a fractionation plant at Ashuganj to fractionate the NGLs which would be transported from Kailashtilla to Ashuganj using the North-South condensate pipeline already constructed under the SGDP. The contract for the turbo-expander was awarded in December 1991. However, funds provided under the SGDP for the proposed Ashuganj NGL fractionation plant were not utilized because of the failure to award the contract in time. The credit for the SGDP was closed on December 31, 1993 after three one-year extensions.
2.24 To find a suitable solution, GOB requested IDA to finance the fractionation plant through the restructuring of the LPG Transport and Distribution Project (Cr. 2263-BD). The above credit for SDR 49.8 million (US$ 67.2 million) was approved on June 11, 1991 to fund investments for the downstream storage, transport, bottling and cylinder distribution of LPG to be made available by the proposed Ashuganj NGL fractionation plant; the credit was signed on June 21, 1991 and became effective on September 30, 1992. Because contract award of the Ashuganj NGL fractionation plant is a condition of disbursement, implementation of the LPG Project has practically been on hold. On the other hand, GOB's recent decision to allow private entry in LPG imports, bottling and distribution has opened the possibility of securing private financing for the LPG storage facilities, bottling plants and cylinders, valves and regulators included in the LPG Project. In response to GOB's commitment to seek private sector involvement, IDA is now considering GOB's request to modify the project scope and reallocate credit proceeds for financing a NGL fractionation plant. As an interim arrangement, the molecular sieve turbo-expander has been modified to permit re-injection of the propane and butane fractions back into the pipeline gas stream. The-turbo-expander, together with the two wells at Kailashtilla, was commissioned in November 1994.
2.25 Lessons Learned. In summary, GOB's protracted procurement procedures, high turnover of key personnel in the project implementation unit, and complexity resulting from multiple parallel cofinancing arrangements are the primary implementation impediments. Based on the lessons learned from the SGDP, a number of safeguards have been included in the project design to minimize implementation slippages. These include: (a) beneficiaries taking direct responsibilities for project implementation coupled with an adequate provision of project implementation support technical assistance; (b) advance procurement actions to minimize procurement delays; and (c) IDA's close project supervision through annual and mid-term reviews against a set of agreed project implementation targets (para. 4.44).
2.26 Rationale for IDA Involvement. Given the gas sector's importance to the country's economic development, IDA's country assistance strategy approved by the Board on February 17, 1994 seeks and supports reforms by GOB to open the sector for private participation and improve overall sector management. The policy reforms recently undertaken by GOB evolved to a large extent from the intensive dialogue with IDA over the past two years. - 14 -
Nevertheless, the reform process in the gas sector has only just begun and much remains to be done. In this context, IDA's lending strategy in the gas sector is focused on: (a) supporting the creation of an enabling environment for increased private sector participation; (b) partially financing Petrobangla's urgent investment requirements to help balance supply with demand in the immediate term, thereby minimizing the costs of impending supply shortages to the economy; and (c) assisting sector entities to build technical and managerial capabilities in key areas essential for efficient and safe operation of an integrated gas supply and delivery network. The proposed project, together with a restructured LPG Project, would help remove imbalances/bottlenecks in the gas supply and delivery infrastructure and support the implementation by GOB of ongoing and further sector reforms.
III. THE BENEFICIARIES
A. Backcround
3.1 Under the Petroleum Act of 1974, the Bangladesh Oil, Gas and Minerals Corporation (BOGMC) was established as a state corporation entrusted with the exploration for and production of oil; import, refining and marketing of petroleum products; and exploration, production and delivery of natural gas. In 1976, the functions relating to import, refining and marketing of petroleum products were transferred to the newly established Bangladesh Petroleum Corporation (BPC). By 1985, BOGMC consisted of five regional operating companies: the Bangladesh Gas Fields Company Limited (BGFCL) and the Sylhet Gas Fields Limited (SGFL), operating the fields at Titas and Habiganj, and at Sylhet, Chattak and Kailashtilla, respectively; the Bakhrabad Gas Systems Limited (BGSL) responsible for producing the Bakhrabad gas field and delivering gas in the Bakhrabad franchise area; the Titas Gas Transmission and Distribution Company (TGTDC) and the Jalalabad Gas Transmission and Distribution Systems Limited (JGTDSL) dealing with gas transmission and distribution in the Titas and Jalalabad franchise areas, respectively.
3.2 The organization of BOGMC owed much to progressive historical developments, with the production and distribution activities growing out of the previous private sector operations. During the preparation of the SGDP, an international management consultant was retained to examine its organizational structure and management systems with a view to determining how far, and in what manner, existing structure and systems would need to be changed so as to best serve future development. Based on the consultant's recommendations, a program for the reorganization of BOGMC was agreed during the ESAC negotiations. The main thrusts of the reorganization were to divest BOGMC of all operational activities and to reorganize them, together with those of the existing OCs, under a new set of operationally independent OCs organized along functional lines. BOGMC would then operate as a holding company, holding equity in the OCs on GOB's behalf and being responsible for investment planning and monitoring as well as sector policy formulation. The reorganization was to be carried out in two phases; the first phase focussed on the legal restructuring of BOGMC, followed by institution- building technical assistance to help individual OCs establish appropriate accounting, financial management and management information systems in the second phase.
3.3 To date, BOGMC's reorganization has been partially implemented. In July 1989, BOGMC was restructured into a holding corporation named Petrobangla, and seven operating companies -- two gas production companies, - 15 -
three regional transmission and distribution companies, a national exploration and drilling company, and a natural gas liquids company. However, measures to accord adequate managerial as well as financial autonomy to the OCs, thereby enabling them to operate on a full commercial basis, are yet to be implemented. Implementation of the second phase was basically stalled due to a difference between GOB and the donor agency (ODA) regarding the terms of reference and the extent of external assistance. ODA has agreed to resume the technical assistance under the proposed project (para. 4.12).
B. OrQanization and Management
3.4 Petrobangla is answerable to the Ministry of Energy and Mineral Resources (MEMR) and is managed by a GOB-nominated nine-member Board including the chairman. Five directors are responsible, respectively, for Operations, Planning, Mines & Minerals, Finance, and Administration. In broad terms, all decisions relating to gas pricing, operating and development budgets of individual oCs, organizational set-up and staffing, and major procurement exceeding Taka 75 million (US$ 1.9 million) must be referred to GOB.
3.5 The Petrobangla group's highly centralized decision-making is characterized by a practice of strictly hierarchical communication and very limited horizontal coordination. Management attention is mainly concentrated on day-to-day operations, on fulfilling GOB's administrative requirements with respect to project sanctioning and procurement, and on cumbersome internal procedures resulting from inadequate delegation of operational responsibility to the OCs.
C. Staffing and Training
3.6 As of end 1993, the Petrobangla group had about 7,500 employees. A summary of staff composition by each operating company is given in Annex 3.1. The three transmission and distribution OCs had a combined staff level of about 4,200 people serving about 536,000 consumers, yielding a consumer/employee ratio of 127:1. Currently, there are serious staffing imbalances in the group; for example, the consumer/employee ratio of BGSL at 59:1 is only one third of the level achieved in TGTDC (177:1). Besides the problem of overstaffing in some OCs, the group has been suffering from shortages of motivated and experienced technical and professional staff. To overcome these manpower problems will require both short-term and long-term measures, including reform of the compensation and reward system to enable OCs to attract and retain the high- quality staff needed to operate the gas supply system in an efficient and effective manner.
3.7 Mainly due to the cumbersome GOB approval procedures pertaining to the selection of candidates for training, staff training has not received adequate attention during the past decade. Despite provisions made by each of the co-financiers under the SGDP, training undertaken was very limited. Recognizing the urgent need to develop and upgrade the skills of its staff to operate a gas supply and delivery system of growing size and complexity, Petrobangla management has decided to initiate a training program to develop in-house capabilities in all aspects of gas sector operations. The proposed project would help train the Petrobangla group's staff in key areas (para. 4.13). Attention would be given to the selection of both hosting organizations and target groups. Progress and effectiveness of the training component would be closely monitored through quarterly progress reporting and IDA supervision missions. - 16 -
D. Accounts and Audit
3.8 Accounts. Petrobangla and its OCs are required by law to prepare full commercial accounts. A recent review carried out by an ODA-financed consultant concludes that basic accounting systems are in place in all the OCs excepting BAPEX. To improve the timeliness and accuracy of financial data, and to build up the capability of Petrobangla's/OCs' management to use financial data for better operational control, a management system improvement program (MSIP) would be implemented under the project with ODA financing (para. 4.12). The MSIP would include an extensive training program for financial, accounting and internal audit staff.
3.9 Audit. The Petrobangla group of companies is subject to two types of external audit. The first audit is by a firm of chartered accountants. Accounts are required to be ready for external audit within six months following the end of the financial year and are audited within three months after submission. The quality of audit reports and the degree of information provided in audit reports produced by Bangladeshi chartered accounting firms is very variable. The second form of audit for state-owned enterprises is GOB's commercial audit. These audit arrangements are adequate, except for the timeframes for the preparation of statements and their audit. To ensure accountability for resources used by the project beneficiaries, it was agreed during negotiations that Petrobangla, SGFL and GTCL will submit to IDA audited annual accounts together with the auditor's reports within six months of the end of the fiscal year under consideration.
E. Beneficiaries
3.10 GTCL. With the recently completed North-South pipeline and the A-B pipeline to be constructed under the proposed project, Bangladesh would have an interconnected high pressure gas transmission system in the eastern zone of the country. Effective dispatching of gas supply to allow greater flexibility in field management and increased supply reliability would be significantly enhanced by the creation of the GTCL, which would operate the North-South pipeline and the A-B pipeline. The Cabinet approved the establishment of GTCL in May 1993; subsequently GTCL was incorporated under the 1913 Companies Act in December 1993 as a public limited Company with an initial authorized share capital of Tk-lo billion (US$ 251 million). GTCL's Memorandum and Articles of Association allow it to operate as a common carrier and permit it to form joint ventures with private partners; thus, its formation would also facilitate equal pipeline access by private gas producers. GTCL's organizational set-up is given in Annex 3.2. Appointment of GTCL's Board and key staff has been made and GTCL started operations as of December 14, 1993. Institutional support will be provided under the project through a (twinning) arrangement with an established gas transmission company which can provide broad-based technical assistance in key operational areas (para. 4.9).
3.11 SGFL. SGFL was set up in 1972 when GOB took over the operations of the former Pakistan Petroleum Limited and entrusted their management to the newly created company. SGFL is responsible for operating the northern gas fields, including Kailashtilla, Rashidpur, Beani Bazar. In FY94, SGFL accounted for 10% of total gas supply in Bangladesh; however, with the commissioning of existing and planned supply capacity at Rashidpur and Kailashtilla, SGFL's operation would expand rapidly and its share in total gas supply is projected to increase to 33% by FY98. SGFL currently has 310 employees; its organization chart is given in Annex 3.3. - 17 -
IV. THE PROJECT
A. Proiect Obiectives
4.1 In line with GOB's energy sector objectives and IDA's lending strategy in the gas sector (paras. 1.12 and 2.26), the proposed project's objectives are:
(a) to alleviate the worsening gas supply shortages through partially financing the sector's priority investments;
(b) to assist GOB in implementing further reforms to improve the enabling environment for private sector participation in the sector; and
(c) to develop the sector entities' institutional capabilities, particularly in the areas of operations and maintenance, safety, environmental protection, and accounting and financial management.
B. Proiect Description
4.2 To achieve the project objectives, the project consists of the following components:
(a) a 58 km, 30-inch diameter gas pipeline from Ashuganj to Bakhrabad;
(b) a Supervisory Control and Data Acquisition (SCADA) and pipeline telecommunication system for the entire transmission trunkline from Kailashtilla to Chittagong and integration with existing facilities;
(c) three production wells at the Rashidpur gas field;
(d) a gas processing plant to purify gas from the new wells;
(e) technical assistance consisting of:
(i) project implementation support through consulting services to prepare designs and bid documents, assist in bid evaluation and provide construction supervision/management for the components listed in items (a), (b), (c) and (d) above;
(ii) institution-building assistance through consultancy and management services to develop GTCL's managerial and technical capabilities, establish a group-wide environmental and safety management system, strengthen reservoir management, and improve the Petrobangla group's management systems; and
(iii) training of Petrobangla staff in key aspects of gas sector operations.
Details of the specific components are outlined below. Full details of the project's physical components are given in Annex 4.1 and their geographic locations shown on Map IBRD 25735. - 18 -
Aszhuani-Bakhrabad PiDeline (USS 63.3 million)
4.3 To transport gas from the northern fields of Rashidpur, Habiganj and Kailashtilla to the gas-deficient southeastern region, the need for, and the urgency of, the A-B pipeline is self-evident. The A-B pipeline will link the recently completed North-South pipeline (170 km long, 24-inch diameter, 320 MMCFD capacity) with the Bakhrabad-Chittagong gas transmission system (176 km long, 24-inch diameter, 320 MMCFD capacity). The pipeline would have a diameter of 30 inches and an initial flow rate of 200 MMCFD. The large diameter is chosen to minimize gas transmission pressure drop and, more importantly, to allow a considerable increase in the line's capacity (up to 1000 MMCFD) through compression, which is expected to be required at a much later stage. The pipeline route has been surveyed and selected taking into account possible future offtake points and the need for minimizing involuntary resettlement. The route runs through a poorly drained lowland which is aubject to annual flooding. The pipeline would be buried in the ground to a minimum depth of 1.2 meters. To prevent the pipeline from floating during the monsoon season, concrete weight coating would be applied to the entire length of the pipeline. Construction of the pipeline would involve three river crossings (the Titas/Pagla River near Ashuganj, and the Buri and Gumti Rivers near Bakhrabad), and is estimated to cost US$ 63.3 million (39% of total project cost).
SCADA and Telecommunication System (USS 23.2 million)
4.4 Except for the recently completed ADB-financed Brahmaputra basin distribution network, which has a SCADA system (without dispatch center), the existing gas transmission and distribution networks are not equipped with SCADA. These networks have been operated independently with microwave radio links supplemented by telephone facilities. After completion of the A-B pipeline, efficient management of a major gas trunkline, which runs form Kailashtilla in the northeast to Chittagong in the southeast, requires a complete SCAQDA system with dispatch center and telecommunication link. This would allow accurate monitoring and control of all transmission parameters such as gas flows at supply and offtake points, current line pressures throughout the network, movement of gas and condensate volumes, and quality of gas being supplied to the system by the producing companies. Furthermore, the SCADA would provide pipeline integritymonitoring, leak detection and alarm, metering values of gas and condensate at each of the inlet and outlet points, open-closed status of all line and station valves, direct digital data transmissionand voice communication. To allow data transmission,the microwave analog radio system of the Bakhrabad-Chittagongpipeline would be upgraded (digitized)to match the new system. The proposed SCADA and telecommunicationsystem would be of a modular type to facilitate its operation and maintenance. The installationof the SCADA system with dispatch center and telecommunicationwould cost about US$ 23.2 million (14% of the project cost).
Development of RashidDur Gas Field (USS 47.7 million)
4.5 The Rashidpur gas field is located about 80 km northeast of Ashuganj, near the recently completed North-South pipeline. Discovered in 1960, no activity was undertaken at this field until 1989, when two appraisal wells (later completed as production wells) were drilled and workover of two existing wells was carried out under the SGDP. The drilling results indicate the drilled area contains some 2.2 TCF of proven gas reserve and constitutes - 19 -
Bangladesh's fourth largest gas accumulation, after Titas, Kailashtilla and Habiganj. The field has two gas-bearing zones; the lower zone contains a moderate amount of condensate. Two separate gas processing schemes are adopted for the four wells completed under the SGDP: the upper zone with dehydration (water removal) only, using a simple liquid desiccant glycol process; the lower zone with dehydration and condensate recovery, using a more complex process with dry desiccant silica gel. The glycol plant (60 MMCFD) was commissioned in December 1993. Since the commission of the silica gel plant (70 MMCFD) in March 1994, all four wells have been into production.
4.6 To meet the impending gas supply shortfall, Petrobangla needs to commission at least 300 MMCPD of additional gas supply capacity by FY98-99. The choice of Rashidpur field as one of the three primary sources for capacity addition (the other two being Habiganj and Kailashtilla) was made after a careful field-by-field review, taking into account reserve availability, infrastructure requirements, and construction lead time. The three wells to be drilled at Rashidpur would produce 622 BCF of gas and 149,000 tons of condensate over a 20-year period, and would firm up additional reserve estimates for the field. A 90 MMCFD capacity silica gel plant is proposed to dehydrate and process gas from the new wells. The drilling, completion and tie-in of three wells, and construction of the proposed gas treatment plant are estimated to cost US$ 47.7 million (30% of the total project cost).
Technical Assistance (US$ 24.9 million)
4.7 Technical assistance provided under the project will assist the Petrobangla group as detailed below.
4.8 Proiect Imnlementation SuvDort (GTCL and SGFL). In view of the current limitations of GTCL and SGFL, project engineering and implementation support consultancy services will be provided through resident experts. These experts will assist in preparation of component specifications, engineering design and bidding documents, bid evaluation, contract execution and construction supervision. Altogether, some 300 consultant-months of expatriate consultants' services would be provided through the project implementation period. To ensure know-how transfer through active participation in the above tasks, terms of reference for the above consultancies include counterpart training requirements.
4.9 Twinning (GTCL). To assist the newly formed GTCL in establishing appropriate organization structure and mantagement systems and building up its capability commensurate with the operation of a modern gas utility, broad- based technical and management support is required. The project will finance a twinning arrangement between GTCL and a mature foreign gas operating entity. It is intended that the twinning partner identify itself fully with the needs of GTCL and provide GTCL with continuing services, advice and experienced personnel over a number of years to the point where GTCL can independently and efficiently carry out its operations. To enhance the effectiveness of twinning in the transfer of managerial and technical skills and systems, the proposed twinning anticipates a direct operational involvement of the foreign partner through placing a team of expatriate personnel into line management positions who will, together with GTCL's top management, have joint responsibility for overseeing day-to-day operations and implementation of systems, procedures and practices. Agreed terms of reference are given in Annex 4.2. - 20 -
4.10 Environmentaland Safety Management (PetrobanrlaGroun). Given that the Petrobanglagroup currently has no well-definedsafety engineering standards and environmentalregulation, nor does it have an adequate institutionalframework and capability to properly administer the safety and environmentalaspects of its operations,the project provides technical assistance to help it (a) develop adequate safety standards and environmental protection rules for its entire operations,and (b) implement a group-wide environmentaland safety management system. Agreed terms of reference are given in Annex 4.2.
4.11 Reservoir Management. Under the SGDP, consultantswere engaged to carry out reservoir studies of six gas fields and provide training to Petrobanglagroup staff in the areas of field management and production planning. The above technical assistancewas instrumentalin the establishmentof the Reservoir EngineeringDepartment at Petrobangla. Notwithstandingthe positive results obtained to date, the paucity of reservoir information,resulting from inadequatemonitoring and evaluation of the performance of each producing well due to the lack of an integrated program for pressure testing/monitoringand shortage of trained staff, continues to be a major constraint to the optimal development of the country's hydrocarbon endowment. To address this situation, the project includes provision of state of the art reservoirmanagement tools and consultancy services to assist in the developmentand implementationof a comprehensive pressure testing program.
4.12 Management System ImDrovementProaram (PetrobanqlaGroup). To improve the timeliness and accuracy of financial reporting for better operational control and planning, a management system improvementprogram (MSIP) will be implementedunder the project. The MSIP provides for the group-wide implementationof (i) improvementsin accounting and financial policies and procedures, (ii) improvementsin the management information systems; (iii) a program of computerization;and (iv) a related program of staff training. Agreed terms of reference are given in Annex 4.2.
4.13 Training (PetrobanqlaGrouD). To assist the Petrobangla group develop its staff capabilitiesto properly operate and maintain a growing gas supply system, a program providing a total of 300 staff-monthsof training would be implementedunder the project. The program will complement the training to be provided under the twinning, MSIP and environmentaland safety management consultancies,and will cover training needs in geophysics, geology, well drilling, well completion,gas treatmentprocesses, gas transmission system management, and safety engineering. Annex 4.3 outlines the priority areas of training. Petrobanglawill prepare and furnish to IDA for review a detailed training program identifying staff to be trained in each area, proposed hosting organizations,schedules and locations. A 3-4 year timeframe is envisaged for the program.
C. Status of Prolect Preparation
4.14 The project is at an advanced stage of preparation. A contract for the turnkey constructionof the A-B pipeline has been awarded in accordance with IDA's procurement guidelines. Land acquisition and requisition for the A-B pipeline has been completed and GTCL has taken legal possession of the land required. The consultant for the A-B pipeline construction supervision was appointed in June 1994 in accordance with IDA guidelines. TORs and shortlists - 21 -
for all other consultancy services to be financed under the proposed credit (except for the training program) were agreed and proposals invited, which are now under evaluation. Regarding the SCADA/pipeline telecommunication component to be implemented with ODA financing, preparation work to define the scope, system configuration and cost estimate has been completed with the assistance of ODA-financed consultant; the implementation management consultant will be mobilized in April to prepare detailed design and bid documents for the turnkey contract construction of this component.
D. Environmental and Safety Aspects
4.15 The proposed project is a category A project under IDA's Operational Directive for environmental screening. TOR for the Environmental and Safety Assessment (ESA) of the project were prepared jointly by Petrobangla and IDA. The ESA was carried out by Petrobangla with the assistance of international consultants. As part of the environmental assessment process, a comprehensive baseline data acquisition program for the project area was carried out during July 1993 - July 1994; this provides a sound basis for future environmental mitigation and monitoring. Annex 4.4 provides the summary of the ESA report.
4.16 The proposed project would have significant environmental benefits. Increased gas supply and utilization would reduce consumption of liquid petroleum products and fuelwood, wnich would in turn reduce emission of SO2 and CO2 , and alleviate the pressure on deforestation. Gas produced from known fields contains no sulphur. Furthermore, gas used in combined-cycle power plants -- the typical technology for generation capacity addition, emits only half as much CO2 as a oil-fired power plant. The reduction in Co2 emission offers a highly effective response to the greenhouse effect.
4.17 Potential significant negative environmental impacts include: (a) surface/ground water contamination which may be caused by improper handling of wastes from well drilling sites, process facilities and the A-B pipeline during both the construction and operational phases; and (b) soil erosion which may arise from the construction of the A-B pipeline. The ESA report fully addresses these potential impacts and recommends appropriate mitigation actions. The pipeline route has been selected based on the criterion of minimizing involuntary resettlement. Directional drilling underneath the river beds would be used for river crossing in order to eliminate impact on river flow regimes and fish habitat. Location of drilling well sites and surface facilities would be chosen to minimize land requirement and degradation. The entire project design and construction would conform with international engineering and safety standards as well as sound environmental management practices. Based on the results of an already completed soil survey, a topsoil restoration program would be executed by the pipeline contractor along the pipeline route.
4.18 The safety aspect of gas transmission, distribution and storage is regulated by Bangladesh's existing law, i.e., the 1991 Natural Gas Safety Rules. However, the lack of adequate formal, uniform standards and technical procedures within the Petrobangla group tends to inhibit the effectiveness of the above legislation. As part of the environment and safety assessment, a team of experts from British Gas was engaged in August 1993 to carry out a safety audit of the group's entire operations. The audit concludes that all operating companies are generally operating an adequate system. Nevertheless, - 22 -
to properly manage potential hazards associated with a growing gas network, the audit recommends that Petrobangla:
(a) adopt a common set of safety standards and codes that are comprehensive, up-to-date and are disseminated to managers and supervisors;
(b) carry out technical audits of existing facilities and systems to ensure their compliance with the requirements of the 1991 Gas Safety Rules;
(c) adopt common emergency response procedures; and
(d) provide formal and certificated training for managers, supervisors and operatives particularly with regard to Ci) regulator design, operation and maintenance; (ii) pipeline maintenance; (iii) leak detection and pipeline surveillance; and (iv) corrosion prevention.
These recommendations have been incorporated in the terms of reference for the environmental and safety management technical assistance to be implemented under the project.
4.19 Notwithstanding its good operational safety records and its commitment to adhere to the laws issued by the Government for the protection of the national environment and the health and safety of its employees, consumers and the general public, as manifested in the December 15, 1992 Environmental and Safety Policy Statement, the Petrobangla group currently has no well-defined safety engineering standards and environmental regulation, nor does it have an adequate institutional framework and capability to properly administer the safety and environmental aspects of its operations. Recognizing the critical need to address this deficiency, Petrobangla has recently created an Environment and Safety Division which would serve as the focal point for coordinating among all operating companies (i) development and dissemination of a comprehensive set of safety standards and environmental protection rules, and (ii) implementation of an environmental and safety management system. Technical assistance will be provided under the proposed project to help Petrobangla develop and implement a group-wide environmental and safety management program, including the implementation of a sound monitoring system (para. 4.10).
E. Land Acauisition and Resettlement
4.20 Bangladesh is administratively divided into districts which are subdivided into thanas and further into unions. The project area totals about 17.5 km2, involving three districts -- Habiganj District where the Rashidpur gas field is located, and the Brahmanbaria and Comilla Districts through which the A-B pipeline is routed. About 60% of the project area is under cultivation throughout the year.
4.21 Construction of the A-B pipeline would require permanent acquisition of a 10-meter wide strip for pipeline right of way and temporary requisition of a 15-meter wide strip for construction purposes. IDA is generally satisfied with the effort made by Petrobangla to minimize involuntary resettlement in selecting the pipeline route. Population displacement by the A-B pipeline is very limited, involving twelve households; the amount of land acquired per owner is very small. Land acquisition (about - 23 -
5S hectares) and requisition (about 91 hectares) has been completed. In the Rashidpur area, the main land ownership rests with GOB (the Ministry of Forestry). The new gas processing plant will utilize the existing acquired site. To minimize taking of land for the drilling operation, directional drilling will be adopted wherever practical, and use of a single common drilling operations camp and closed drilling systems will be specified in the drilling contract. Land required for the drilling sites would not exceed 1.5 hectares. Existing access roads and pipeline rights-of-way will be used wherever possible to minimize impact of road construction.
4.22 Affected landowners are compensated as per recorded land value plus a SOW premium as per the 1993 Amendment to the 1982 Acquisition and Requisition of Immovable Property Ordinance. In addition, affected farmers are compensated for loss of crops according to the current market prices. Assurance has been given by Petrobangla that, as per its practice, the affected land owners have the additional benefit of cultivating the land acquired by Petrobangla after the completion of pipeline construction except for the periods for emergency and/or maintenance work.
4.23 Taking the lessons of experience from the construction of the North-South pipeline, Petrobangla has recognized the need to improve the information provided to the people affected by the project (PAPs) and for monitoring of the compensation and land acquisition/requisition process. Specifically, Petrobangla, with the assistance of a local consultant, has undertaken the following steps:
On information/consultation:
(a) establish Public Consultation and Grievance Committees at thana level. The role of the committees is to hear any grievances of PAPs, including sharecroppers, and bring the matter to the appropriate authority (District Commissioners or Petrobangla). Each Committee would have one representative from the affected communities, one appointed by the District authorities and one from Petrobangla. The Committees would hold their meetings close to the affected areas, according to a timetable announced well in advance;
(b) prepare and distribute brochures explaining the project, the commitments of Petrobangla in assisting affected people, and the grievance mechanism;
(c) issue separate notices of eviction at least four months prior to the contractor being given possession of the land;
On compensation:
(d) arrange with District Commissioners (DCs) for retroactive payment of a full 50% premium on the compensation for loss of land (i.e., payment of an additional 30t premium);
(e) compile records of the names of all affected property owners, based on the files of the DCs. Information on lost properties, compensation amount, and compensation received will be recorded. The database will be made available to the Public Consultation and Grievance Committees; - 24 -
(f) carry out a complete registrationof all households subject to relocation and assist them, on a case-by-casebasis, in finding replacementhomestead land;
(g) postpone auctioning of acquired houses to the greatest extent possible, to allow the households concerned maximum time for relocation;and
(h) announce that a person is entitled to his/her full compensation before vacating the acquired property. Petrobanglawill actively assist those persons who has problems in getting their compensation.
F. Prolect Costs
4.24 The total cost of the project, including price and physical contingencies,duties and taxes, is estimated at US$ 161.6 million, with a foreign exchange component of US$ 120.1 million. Duties and taxes would amount to about US$ 8.9 million. Project base costs are at mid-1994 price level.. Physical contingenciesare included at 10% of base cost. Price contingenciesfor foreign costs are based on an average annual price increase of 2.5% for 1995-2000. Price contingenciesfor local costs are based on projected annual inflation rate of 4% for FY95-97, 4.5% for FY98-99, and 5% for FY2000. Purchasingpower parity is assumed for exchange rate changes over the life of the project. Total price contingenciesamount to 6% of the base cost plus physical contingencies. Project cost estimates are summarized in Table 4.1. - 25 -
TabLe 4.1: Proiect Cost Estimate
[Taka miLlion] [USs million] Local Foreign TotaL LocaL Foreign Total
Ashuganj-BakhrabadGas PipeLine 503.1 1682.4 2185.6 12.5 41.8 54.3
SCADA and Telecom System 382.4 418.6 801.0 9.5 10.4 19.9
Emergency Response Equipment 20.1 64.4 84.5 0.5 1.6 2.1
Development of Three WeLLs 161.0 660.1 821.1 4.0 16.4 20.4
Gas Processing PLant 201.3 623.9 825.1 5.0 15.5 20.5
Technical Assistance:
Project ImptementationSupport 88.6 346.2 434.7 2.2 8.6 10.8 Capacity Building 60.4 277.7 338.1 1.5 6.9 8.4 Training 12.1 72.5 84.5 0.3 1.8 2.1
Total Base Cost 1428.9 4145.8 5574.6 35.5 103.0 138.5
Physical Contingencies 142.9 414.6 557.5 3.6 10.3 13.9 Price Contingencies 185.7 528.6 714.3 2.4 6.8 9.2
TotaL Project Cost 1757.5 5088.9 6846.4 41.5 120.1 161.6
InterestDuring Construction 421.6 0.0 421.6 10.1 0.0 10.1
Total Financing Required 2179.1 5088.9 7268.0 51.6 120.1 171.7
G. Proiect Financing and Terms
4.25 The total financing required, including interest during construction, would amount to US$ 171.7 million. The proposed IDA credit of US$ 120.8 million would finance 85% of the project's foreign cost and 56' of the local cost, covering about 79% of the total project cost net of duties and taxes. ODA will provide US$ 26.9 million equivalent in grant financing for the SCADA/telecommunication component and the MSIP technical assistance. The remaining local cost financing requirement of US$ 24.0 million equivalent would be met by GTCL (US$ 5.0 million), SGFL (US$ 7.7 million), and GOB's equity contribution tb GTCL (US$ 11.3 million) I/ Table 4.2 summarizes the financing plan.
1/ including US$ 8.5 million in custom duties. - 26 -
Table 4.2: Proiect Financing Plan (US$ million equivalent)
Local ForeiQn Total *
IDA 18.3 102.5 120.8 70 ODA 9.3 17.6 26.9 16 GTC 5.0 - 5.0 3 SGFL 7.7 _ 7.7 4 GOB 11.3 - 11.3 7
Total 51.6 120.1 171.7 100
4.26 Retroactive financing up to US$ 6.5 million equivalent (about 5 of the proposed credit) for expenditures incurred after July 1, 1994 is provided for the A-B pipeline turnkey construction and supervision consultancy contracts; advance contracting for the same totals about US$ 50 million equivalent.
4.27 The proposed IDA credit would be provided to GOB on standard IDA terms. GOB would onlend the proceeds of the credit to GTCL, SGFL and Petrobangla under three separate Subsidiary Loan Agreements (SLAs) at a rate of 8t p.a., repayable over fifteen years, including five years of grace, with GTCL/SGFL/Petrobangla bearing the foreign exchange risk. Based on the spread between the projected increases in international prices and local inflation rates and assuming purchasing power parity, the effective annual interest rate is expected to reach 16% by 1999, compared with the weighted average interest rate on domestic commercial bank advances of 14.5t p.a. in March 1993. The signing of SLAs between GOB and GTCL/SGFL/Petrobangla under terms and conditions acceptable to IDA and signature of the ODA grant agreement are conditions of credit effectiveness. - 27 -
H. Procurement and Disbursement
Procurement
4.28 Procurement arrangements are summarized in Table 4.3 below.
Table 4.3: Procurement Arrm nts (in U#SmIllion)
ProcurementMethods Project Elements ICB LCB Other UF Total
(1) Turnkey Contracts Construction of Gas Pipeline 63.3 63.3 (55.9) (55.9) Construction of Gas Processing Plant 23.9 23.9 (22.5) (22.5) SCADA& TeLeconmunication 23.2 S/ 23.2 (2) Works Construction & Maintenance of Wall Locations 1.8 1.6 (1.3) (1.3) (3) Eouimnent &Materials 9.7 6. 8 / 16.5 (9.2) (6.0) (15.2) (4) Technical Services Drilling Rig Service 5.0 5.0 (5.0) (5.0) Cementing, Logging & other Services 3.0 k' 3.0 (3.0) (3.0) (5) Technical Assistance & Training Project Implementation Support: A-B Pipeline 2.0 2.0 (2.0) (2.0) SCADA 4.4 g/ 4.4 WeLls 2.9 2.9 (2.9) (2.9) Gas Processing Plant 3.2 3.2 (3.2) (3.2) Capacity Building: GTCLTwinning 2.5 2.5 (2.5) (2.5) Environmental and Safety TA 2.5 2.5 (2.5) (2.5) Reservoir Management 2.4 2.4 (2.4) (2.4) MSIP 2.6 / 2.6 Training 2.4 2.4
-at2 4) _2& Total 101.9 1.8 27.7 30.2 161.6 (92.6) (1.3) (26.9) (120.6)
Note: Figures in parenthesis are aounts to be finncd by IDA. UP - Not Bank Financed. 1/ Consisting of items procured through LIB CUSS5.5 m) end direct purchase CUSS1.3 m) kl Services procured through LIg. LI Cofinancing by ODA. - 28 -
4.29 Goods. Works and Technical Services. Procurement of materials, equipment, services and works to be financed under the proposed credit would be carried out in accordance with IDA's procurement guidelines, using IDA's standard bid documents for procurement under ICB and local bid documents acceptable to IDA. Detailed procurement arrangements are given in Annex 4.5. International competitive bidding (ICB) procedures would be followed for most of the project's procurement, and about 75% of the proposed credit amount would be disbursed against ICB procurement. There would be six ICB packages with an estimated total value of about US$ 100 million, comprising: (a) two turnkey construction contracts for the A-B pipeline (US$ 63.3 million) and gas processing plant (US$ 23.9 million), respectively; (b) three supply packages for tubulars (US$ 5.2 million), fluid chemicals (US$ 1.3 million), and oilwell cement (US$ 1.2 million); and (c) charter hire of one drilling rig to drill three wells at the Rashidpur field (US$ 5.0 million).
4.30 Highly specialized materials, equipment and services, available from only a small number of suppliers and contractors would be procured under limited international bidding (LIB) procedures. There would be ten LIB packages, with an estimated aggregate value of US$ 8.5 million, covering: (a) supply of drilling and coring bits (US$ 1.4 million), wellheads (US$ 1.3 million), downhole completion equipment (US$ 1.8 million), casing accessories (US$ 0.3 million), drilling fluid additives (US$ 0.3 million), oilwell cement additives (US$ 0.2 million), wellhead fittings (US$ 0.2 million); (b) three service contracts for electric well-logging (US$ 1.5 million), well cementing and production testing (US$ 1.0 million), and drilling mud (US$ 0.5 million); and (c) emergency response equipment (US$ 2.5 million). Under LIB procedures, bids would be invited from a list of potential suppliers broad enough to ensure competitive prices, without open advertisement.
4.31 Proprietary spare parts and items for some of the existing field servicing units and laboratories up to an aggregate amount of US$ 1.3 million wouuld be procured from sole source through direct negotiations. Construction and maintenance of the three well drilling location pads along with their access roads, estimated to cost US$ 1.8 million, would be packaged in one contract and procured under local competitive bidding procedures acceptable to IDA. The contract involves labor-intensive work, and is unlikely to attract the attention of foreign bidders. However, foreign bidders would be allowed to bid if they so desire.
4.32 Local bidders participating in ICB for supply of goods would receive a preference in bid evaluation of 15% of the CIF price or the prevailing customs duty applicable to nonexempt importers, whichever is less. For contracts for works to be awarded on the basis of ICB, a margin of preference of 7.5% would be granted to eligible domestic contractors. No domestic preference would be applicable to procurement under LIB procedures.
4.33 Consultancv Services and Training. Consultancy services financed by IDA would be procured in accordance with the Bank's Guidelines for Use of Consultants by World Bank Borrowers and by the World Bank as Executing Agency (August 1981), including use of the Bank's Standard Form of Contract for Consultants' Services. Selection of consultants for all assignments, including the GTCL twinning arrangement, would be from a shortlist agreed by IDA and under terms of reference satisfactory to IDA. Specialized - 29 -
institutions will be engaged to implement the agreed training program, following procedures acceptable to IDA.
4.34 All goods and technical services contracts valued US$ 200,000 or more, works contracts US$ 300,000 or more, consulting firm contracts US$ 100,000 or more, and individual consultant contracts US$ 50,000 or more will be subject to prior review by IDA. This would cover about 90' of procurement financed under the proposed credit.
4.35 Procurement of goods and services financed by ODA would follow the cofinancier's procurement guidelines.
Disbursement
4.36 Disbursement from the proposed credit would be made against:
(a) 100% of foreign expenditures and 100% of local expenditures (ex- factory cost) for goods procured through ICB, LIB and direct purchase, and 70% of local expenditures for items procured locally;
(b) 100% of foreign expenditures and 75% of local expenditures for turnkey construction of the A-B pipeline and gas processing plant;
(c) 100% of total expenditure for well drilling and completion services;
(d) 70% of total expenditures for civil works procured locally; and
(e) 100% of total expenditure for consultancy services and training.
4.37 To facilitate disbursement, a Special Account in US dollars would be established for the proposed credit with an authorized allocation of US$ 5 million, estimated on the basis of four months' average expenditures. All disbursements would be made following standard IDA documentation requirements, except for contracts valued at US$ 100,000 equivalent or less per contract for goods, well drilling services, civil works, and consulting services (firms only) and individual consultant contracts valued at US$ 50,000 equivalent or less per contract for which Statement of Expenditures (SOE) procedures would be used. Project beneficiaries would retain detailed documentation supporting SOEs for inspection by IDA's supervision missions.
4.38 The disbursement profile shown in Annex 4.6 is based on completion of the proposed project by June 30, 1999. The credit closing date will be June 30, 2000. The total disbursement period for the project is expected to be about 5.5 years after credit approval.
I. Prolect Implementation
4.39 Project implementation responsibilities rest with GTCL for the A-B pipeline, SCADA/telecommunication and twinning, with SGFL for the Rashidpur field development, and with Petrobangla for the environmental and safety technical assistance, reservoir management, MSIP and training program. The project implementation schedule is shown in Annex 4.7. - 30 -
4.40 Physical Works. Implementation arrangements for the project's physical works builds on the lessons learned from previous projects and project entities' current limitations. Four project managers have been appointed, one each for the A-B pipeline, SCADA, drilling and gas processing components. The A-B pipeline, SCADA/telecommunication system, and gas processing plant would be constructed on a turnkey contract basis. Consultants from reputable international engineering firms will be engaged to assist the project implementation units of GTCL/SGFL in carrying out bid evaluation and construction supervision. To minimize risk of delay in the project's physical start-up, the signing of the A-B pipeline construction contract and appointment of supervisory consultants for the Rashidpur field development drilling and associated gas processing plant are conditions of credit effectiveness.
4.41 Petrobangla Group's Capacitv Buildina. For the environmental and safety TA, Petrobangla's Environment and Safety Division will serve as the key counterpart to the team of international and local consultants and will be responsible for coordinating among all operating companies the implementation of a group-wide environmental and safety management system; the Reservoir Engineering Department at Petrobangla will be responsible for implementing the reservoir management TA; the office of the Director of Finance, Petrobangla, will oversee the implementation of the MSIP; and Petrobangla's Training Department will administer the delivery of the agreed training program. Implementation of the above technical assistance is scheduled to commence by October 1995.
J. Proiect Monitoring and Sunervision
4.42 The frequency and format of project reporting requirements (Annex 4.8) were discussed and agreed with project beneficiaries during negotiations. During project implementation, GTCL/SGFL/Petrobangla will report progress on the various physical and institutional components of the project through quarterly progress reports and on the financial performance through annual financial statements. GOB will furnish to IDA not later than six months after the end of each fiscal year the auditor's report on withdrawals made on the basis of statements of expenditures and from the Special Account. Within four months of the project closing date, GTCL/SGFL/Petrobangla will prepare and furnish to IDA a Project Implementation Completion Report of such scope and in such detail as IDA shall reasonably request, on the execution and initial operation of the project, its costs and the benefits derived from it, the accomplishment of the objectives of the credit, the plan for the project's future operation and the lessons learned.
4.43 The consultants employed for implementing various technical assistance assignments provided under the project will submit monthly reports comparing actual progress against agreed performance indicators to respective project implementing entities with an executive summary. A copy of the executive summary will also be sent to IDA. On completion of their assignments, the consultants will submit a detailed report with a copy to IDA on their achievements of assignment objectives. These reporting requirements are included in the terms of reference for consultancy services.
4.44 It is expected that two supervision missions per year will be required over the life of the project, with an estimated total staff input of 64 staff-weeks. A tentative supervision plan is given in Annex 4.9. During - 31 -
negotiations agreement was reached on (a) an annual review involving IDA, ODA and GOB to evaluate the project implementation progress, GTCL's/SGFL's financial performance, implementation of the sector's PIP, and GOB's progress in carrying out further reforms in the gas sector, (b) a comprehensive mid- term review to be carried out not later than March 31, 1997; and (c) performance indicators against which the reviews will be carried out. The agreed performance indicators are given in Annex 4.10.
K. Prolect Risks
4.45 The proposed project would not have any significant technical risks. The wells are to be drilled in the known field with currently estimated recoverable reserve sufficient to sustain the production of seven wells for at least twenty years. Also, given that the country has sufficient recoverable reserves to meet domestic requirements for another fifty years or so, the risk of insufficient gas reserves to justify the pipeline investment is minimal. The potential risks for the project fall into two categories: (a) delays in project procurement, and (b) the Petrobangla group's limited capability to implement the project and complementary investments in a timely manner. These risks have been recognized and actions initiated to minimize their impact. Adequate technical assistance is provided under the project to assist in the implementation and construction supervision of project works. Advance procurement actions have been initiated, and appointment of supervisory consultants and contract award for the A-B pipeline are conditions of credit effectiveness. To ensure balanced and timely implementation of the sector's overall priority investment program, donor coordination will be vigorously pursued through joint supervision missions and semi-annual coordination meetings.
V. FINANCE
A. Introduction
5.1 While the gas sector has mobilized significant amounts of revenues for the Treasury, the Petrobangla group's past financial performance has been marginal. GOB's excessive levy of excise on gas sales have left grossly inadequate funds for the OCs to carry out their operations in accordance with common industry standards and practices, and the group's ability to contribute internal resources toward capital investments remains limited. Financing for the group's investment program has been entirely arranged by GOB, and funds secured were passed on to the OCs largely as loans. The pace of the sector's future development depends on the extent of GOB's success in attracting foreign private investment and in improving the existing sector entities' self-financing capabilities.
B. Past Financial Performance
GrouD Performance
5.2 The consolidated operating performance of the five OCs responsible for gas production, transmission and distribution for the period FY86-93 is summarized in Table 5.1. Historical financial statements are provided in Annex 5.1. - 32 -
Table5.1: PetrobanataGrouW's Operatina Performance FY86-93 (in Tk million)
FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93
Gas Sales(bcf) 101.0 118.8 140.9 146.3 148.4 164.1 178.6 194.5 AverageTariff (Tk/mcf) 23.5 28.8 32.0 35.6 41.5 44.8 47.0 49.6 AverageGOB Excise(Tk/mcf) 18.4 23.0 25.3 28.8 31.3 28.2 28.9 32.1 AverageMargin (Tk/mcf) 5.1 5.8 6.8 6.8 10.2 16.6 18.1 17.5
Net Income (28) (155) 115 (208) (224) 355 578 702
Operating Ratio 0.52 0.71 0.62 0.68 0.55 0.41 0.41 0.42 Returnon HistoricaLAssets(X) 7.6 4.3 5.1 4.6 7.9 11.6 11.9 12.0 CurrentRatio 1.0 1.0 1.0 1.0 0.9 1.0 1.1 1.1 Debt ServiceCoverage 0.7 1.1 1.7 1.4 0.9 1.6 1.6 1.3
Contributionto Treasury 2030 2838 3716 4329 4905 5306 6043 7360 Internal Cash Generation 469 658 852 907 1372 2262 2651 2790
Net FixedAssets 3721 7318 7765 6968 10705 13666 13997 15344
5.3 The most salient feature of the group's combined operations in the period is their impressive growth. While gas sales doubled, net fixed assets in operation at historical value quadrupled, reflecting the large up-front cost for development of the gas fields and transmission/distribution infrastructure. Even more impressive is the growth in the group's contribution to the Treasury, which increased from Tk 2.0 billion in FY86 to Tk 7.4 billion in FY93, reflecting the combined results of an average annual growth of 10% and 11t, respectively, achieved in the gas sales and average gas tariff. However, GOB's excessive levy of excise on gas sales has seriously affected the group's financial position. The group's operations during the period were characterized by (a) low earning capacity, (b) dependence on external sources to finance investment, and (c) inadequate collections.
5.4 Low Earning CaDacitv. Since its inception, the Petrobangla group has been operated like a direct extension of the Government. This management philosophy is reflected in GOB's policy on excise duty levied on gas sales. During FY86-90, excise duty was at a level exceeding 75% of gas sales revenue, a situation unprecedented elsewhere. As a result, the OCs' combined rate of return on historically valued net fixed assets in operation was around or below 8% during the period. Although the reduction in GOB's take to about 62% in FY91 helped to increase the OCs' combined rate of return to around 12% in FY91-93, internally generated funds were insufficient to provide a significant level of self-financing after meeting debt service and other mandatory outlays. The shortage of funds resulted in absence of proper maintenance of the group's facilities. This is an area where corrective action is critically required to prevent potentially serious safety hazards and damage to assets.
5.5 Financing of Investment. During the period, internal cash generation of the five OCs totalled Tk 12.0 billion, 68% of which was earmarked for debt service. As shown in Table 5.2, the OCs financed about 70% of their investment requirements by borrowing. GOB provided a total of - 33 -
Tk 21.0 billion or about 92% of total investment requirements, about three quarters of it passed as loans and the balance as equity contribution.
Table 5.2: Financing of Investment. FY86-93 (in Tk billion)
Capital Investments 22.8 100
Internal Cash Generation 12.0 Less:Debt Service 8.1 Increase in Working Capital 0.8 Dividends 0.7 Contribution to Bapex 0.5 Internal Funds Available for Investment 1.8 8
Amount Financed from External Sources 21.0 92 of which: Loans onlent by GOB 16.0 70 GOB Equity Contribution I/ 5.0 22
1/ including debt to equity conversion totalling Tk 2284 million.
5.6 Collections. Under the SGDP, Petrobangla was required to ensure that OCs' accounts receivable would not exceed three months of gas sales. As of March 31, 1994, total accounts receivable was equivalent to 3.2 months' billings. The three categories of consumers with arrears exceeding three months as of March 31, 1994 were: private consumers (34% of total accounts receivable and 4.0 months' billings; public sector consumers, excluding power and fertilizer (17% of total and 21.8 months' billings); and Bangladesh Petroleum Corporation (9% of total and 4.6 months' billings). While aggregate accounts receivable from BPDB and BCIC are now maintained at a level equal to two months of billings, the backlog of arrears from sales of gas to the fertilizer plant at Fenchuganj and the Shahaji Bazar power station has negatively impacted on JGTDSL's, and hence SGFL's, accounts receivable position. During negotiations, it was agreed that GOB will cause to be carried out a program satisfactory to IDA to clear public sector consumers' arrears for gas and condensates supplied by the gas operating companies.
Svlhet Gas Fields Limited (SGFL)
5.7 SGFL is the oldest gas production company in Bangladesh. Presently, gas is produced from three gas fields, i.e., Kailashtilla, Sylhet and Rashidpur, with average daily production of about 110 MMCFD of gas and 255 BBL/day of associated condensates. The company is also producing oil from a single well in Sylhet at the rate of 240 BBL per day. Although gas sales remained stagnant during the period FY86-93, SGFL had maintained a profitable position, primarily due to the proceeds of its sales of oil and condensates which have a much lower excise duty than natural gas. As shown in Table 5.3, at the end of FY93, SGFL had a satisfactory financial position. Its long term debt was 45% of its capital structure, and its current ratio of 2.6 was in striking contrast with the position of other OCs. The return on average net historical fixed assets was around or above 50% during FY89-93, reflecting the fact that the company had benefitted from having a small, old asset base. - 34 -
TabLe 5.3: SGFL's Operatina Performance FY86-93 (in Tk miLLion)
FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93
Gas SaLes (bcf) 7.8 9.4 10.2 10.3 9.9 10.0 9.1 9.6 Condensate(miLlion litre) 10.1 12.6 12.2 13.1 13.7 13.8 14.5 14.5
Net Income 32.6 16.0 29.0 31.0 33.9 72.7 84.0 78.7 Return on HistoricatAsset (%) 43 23 38 53 49 68 68 67 CurrentRatio 1.9 1.9 1.7 1.9 3.3 2.3 2.2 2.6 Debt/Debt + Equity(X) 37 53 53 52 52 49 49 45
Contributionto Treasury 198.6 265.1 320.8 362.9 381.6 405.8 397.6 416.3 InternaLCash Generation 55.2 34.5 40.4 71.7 81.7 135.8 141.7 127.6
Net FixedAssets 90.6 82.3 87.7 113.0 115.8 163.4 156.0 147.3
C. Financial Outlook
5.8 Financial Obiectives. To promote efficient and self-sustaining development of the gas sector, and to mobilize private capital, it is essential that the gas sector entities be operated on a commercial basis with clearly defined financial objectives in that revenues generated and retained by the OCs cover operating expenses, debt service requirements, an adequate provision of working capital, and a reasonable portion of their investment requirements. To improve the gas production, transmission and distribution OCs' finances and to pave the way for private entry, it was confirmed during negotiations that GOB will take all necessary actions, including authorization of adjustments to gas tariffs and GOB's excise duty, to enable: (a) BGFCL, SGFL, TGTDC, BGSL and JGTDSL to self-finance a minimum of 20-30% of their respective investment programs after meeting debt service and provision of working capital; and (b) GTCL to achieve at least break-even during the life of the project.
5.9 Investment Proqram. According to the gas sector's priority investment program (para. 2.11), GTCL's and SGFL's investments during FY95- 2000 are estimated at US$ 177 million and US$ 167 million in 1994 prices, respectively, representing about 29% and 27% of the overall PIP. If the two production sharing contracts referred to in para. 2.17 are successfully implemented, investments taken up by the private sector would partially replace or postpone the need for capacity addition at the Kailashtilla field, thus reducing SGFL's overall investment requirement during the forecast period. Besides the A-B pipeline and the SCADA/telecommunication system, GTCL's investment program includes the 20,000 BHP capacity Ashuganj compressor station (US$ 25 million) and the Habiganj-Ashuganj loopline (US$ 44 million), which will be required to increase the capacity of the North-South pipeline for FY99 and beyond.
5.10 Financial Proiections. Based on the sales growth, investment levels and self-financing targets discussed above and other assumptions set out in Annex 5.3, pro forma financial statements for SGFL and GTCL for FY95- - 35 -
2000 have been prepared and are given in Annex 5.2. The key financial indicators are summarized in tables 5.4 and 5.5, respectively.
Table 5.4: SGFL - Summary of Proiected Financial Performance FY95-2000 (in current Tk million)
FY95 FY96 FY97 FY98 FY99 FY2000
Gas Sales (BCF) 50 68 77 103 11 126 Gas Liquids (million litre) 39 130 172 229 262 278
Gas Margin (Tk/MCF) 6.6 7.3 8.0 9.1 10.0 11.4 Net Income 211 270 455 750 808 829 Net Fixed Assets 4328 4096 4208 6130 11252 10777
Return on Assets (e) 16 13 17 20 15 14 Current Ratio 2.4 2.4 1.8 1.7 2.5 2.9 Debt/Debt + Equity (U) 61 63 66 69 65 60 LTD Service Coverage 3.3 1.5 1.8 2.3 2.2 2.1
Table 5.5: GTCL - Summary of Proiected Financial Performance FY95-2000 (in current Tk million)
FY95 FY96 FY97 FY98 FY99 FY2000
Throughput (BCF) 69 81 100 135 156 169 Wheeling Charge (Tk/MCF) 6.6 7.3 8.0 9.1 10.0 11.4
Net Income (49) 57 157 231 330 472 Net Fixed Assets 5370 5207 7680 8603 10332 9929
Return on Assets (t) 4 6 7 8 8 10 Current Ratio 0.6 0.6 0.6 0.7 1.0 1.2 Debt/Debt + Equity (e) 60 60 59 60 59 56
LTD Service Coverage 1.6 0.9 1.1 1.4 1.5 1.7
5.11 SGFL. During the projection period, SGFL is expected to grow significantly. The commissioning of the investments constructed under SGDP, together with planned addition of supply capacity at Rashidpur and Kailashtilla (7 X 30 MMCFD), would bring its annual sales from the level of 23 BCFin FY94 to 103 BCF by FY98, a five-fold increase. Given the assumed margin increases, the financial projections indicate that SGFL would produce acceptable financial results. Despite the large increase in the size of asset base, the rate of return on net fixed assets in use would be around 15% on average. Cash flows from gas sales would develop to enable SGFL to achieve an - 36 -
average self-financing ratio of about 25% 2/ and debt service would be covered a minimum of 1.5 times throughout the period. However, SGFL's future performance is sensitive to the timely implementation of tariff adjustments. To ensure adequate internal resource generation and SGFL's financial viability, agreement was reached with GOB/SGFL during negotiations that all necessary actions will be taken to enable SGFL to: (a) achieve a minimum of 15% annual rate of return on its average net fixed assets in operation; (b) maintain its accounts receivable from the sales of gas and condensates at a level not exceeding the equivalent of three months' billings; and (c) maintain a debt/equity ratio of not greater than 70/30.
5.12 Given the debt service burden associated with the large investment costs of the North-South pipeline (Tk 5.6 billion or US$ 140 million equivalent) and the timeframe required for the utilization of the new capacity to build up, it is realized that during FY95-98 GTCL will be unable to provide any meaningful self-financing for the A-B pipeline and SCADA components after meeting debt service. To ensure GTCL's meeting the minimum financial performance target during the life of the project in that revenues generated at least equal cash operating expenses and debt service, agreement was reached with GOB/GTCL that all necessary actions will be taken to enable GTCL to: (a) achieve a minimum annual rate of return of 4% in FY95, 6% in FY96-97, 7% in FY98, 8% in FY99, and 10% for FY2000 and thereafter; (b) maintain accounts receivable at a level not exceeding the equivalent of three months' billings; and (c) maintain a debt/equity ratio of not greater than 60/40.
VI. PROJECT JUSTIFICATION
A. Justification
6.1 The proposed project's physical investments are the most urgent components of the gas sector's priority investment program (PIP). The PIP, estimated to cost about US$ 600 million in 1994 prices, is a minimal set of least cost investments required to achieve supply and demand balance around FY98. The PIP was discussed with Petrobangla during project appraisal and the justification for all its components was confirmed. About 54% of the required investment would be for development of new wells and construction of associated gas treatment facilities, 30% for integration and expansion of the high pressure transmission grid. The PIP would be updated and reviewed with IDA and other donors on an annual basis to take account of changes in the gas demand and investments taken up by the private sector (para. 2.11).
6.2 As discussed in para.2.10, current gas demand during the peak hours is already outstripping the supply capacity. Projected demand and supply of natural gas indicate that supply shortages would continue in the Titas and Bakhrabad franchises through 1998 when additional supply capacity to be constructed under the proposed project and ADB's Third Natural Gas Development Project is expected to come on stream. To increase the supply of gas as early as possible, thereby minimizing the cost to the economy, development of new capacity at the Rashidpur, Habiganj and Titas gas fields and integration of
?J excluding the investments constructed underSGDP to be transferredto SGFCLwith a debt/equity ratio of 70/30. - 37 -
the two transmission subsystems via the A-B pipeline represent the optimal solution.
B. Proiect Benefits
6.3 Benefits would include increased availability and improved reliability of gas supply, and resource savings from substitution of gas for imported alternative fuels, particularly for power generation. The institutional support would bring about sustained improvement in Petrobangla group's operational safety and asset maintenance. The project would also contribute towards mitigating the impact of energy use on the quality of the environment.
C. Economic Rate of Return
6.4 While the proposed project constitutes an important part of the PIP, its benefits to consumers are not readily separable from those of other least cost investments in the PIP, as the A-B pipeline, the project's principal component, is geared to provide a transportation link for the new production capacity included in the PIP. In these circumstances, it is appropriate to carry out the cost-benefit analysis of the sector's entire investment program to ensure that it is justified. For this purpose, the capital costs of the investment program for the period FY95-2000, together with the incremental operating and maintenance costs associated with the investment program, are compared with the economic benefit of the investment program. All costs are expressed in terms of their equivalent border values. A minimum measure of the economic benefit associated with the investment program is represented by incremental sales revenue. On this basis, the rate of return is estimated to be 23%. Sensitivity analysis based on the first slice of the PIP, for which financing has been secured, yields a rate of return of around 19%. Details of the analysis are given in Annex 6.1.
6.5 The foregoing revenue-based measure of rate of return is, by its nature, more a measure of the adequacy of prevailing tariffs than of the true economic merit of the investment program which includes the proposed project. A better measure of the rate of return can be obtained using the international price of fuel oil as a proxy for economic benefit. The ERR thus calculated is about 33% for the entire PIP, and 30% for the first slice. A 20% increase in capital costs would reduce the rate of return to about 29%. A lower gas sales growth of 7% p.a. would result in a rate of return of 31%. The proposed project is fully justified.
VII. AGREEMENTS REACHED AND RECOMMENDATION
7.1 During negotiations, GOB agreed to:
(a) prior to the beginning of each fiscal year, jointly review with IDA the gas sector's priority investment program, its implementation in the current fiscal year and implementation plan for the three succeeding fiscal years (para. 2.11);
(b) by December 31, 1995, carry out a joint review with IDA of its action plan for strengthening the institutional and regulatory frameworks for the petroleum/gas sector (para. 2.18); - 38 -
(c) before the start of each fiscal year, review with IDA the margins allowed to the gas operating companies in respect of such year (para. 2.19);
(d) cause to be carried out a program satisfactory to IDA to clear public sector consumers' arrears for gas and condensates supplied by the gas operating companies (para. 5.6);
(e) take all necessary actions to enable: (i) the gas operating companies to meet their financial objectives (para. 5.8); and (ii) SGFL and GTCL to achieve specified rates of return on net fixed assets in operation (paras. 5.11 and 5.12); and
(f) provide to IDA not later than six months after the end of each fiscal year the auditor's report on withdrawals made on the basis of statements of expenditures and from the Special Account (para. 4.42).
7.2 During negotiations, agreement was reached on the following:
(a) GTCL/SGFL/Petrobangla will submit audited annual accounts together with the auditor's report within six months of the end of the fiscal year under consideration (para. 3.9);
(b) Petrobangla will commence, by October 1, 1995, the implementation of the environmental and safety technical assistance, MSIP, and the training program (para. 4.41);
(c) GOB/GTCL/SGFL/Petrobangla will carry out an annual project review as well as a comprehensive mid-term review by March 31, 1997 (para. 4.44); and
(d) GTCL/SGFL will earn specified levels of rate of return on net fixed assets in operation and maintain accounts receivable and debt/equity ratio (paras. 5.11 and 5.12).
7.3 Prior to credit effectiveness, the following actions will be completed:
(a) GTCL to sign the contract for the turnkey construction of the A-B pipeline (para. 4.40);
(b) SGFL to appoint consultants for the Rashidpur drilling and associated gas processing facilities components (para. 4.40);
(c) GOB, Petrobangla, GTCL, SGFL to sign subsidiary loan agreements under terms and conditions acceptable to IDA (para. 4.27); and
(d) GOB/ODA to sign the ODA grant agreement (para. 4.27).
7.4 With the above agreements and assurances, the proposed project constitutes a suitable basis for an IDA credit of SDR 83.4 million (US$ 120.8 million equivalent) on standard IDA terms with 40 years maturity to the People's Republic of Bangladesh. - 39 - ANNEX 1.1
NATURAL GAS TARIFFS (FY86-94) (TktMCF)
FY86 FY87 FY88 FY89 FY90 FY91 FY92 1 FY94 2/
End User Prices Power 15.66 19.09 24.82 28.54 33.00 37.95 43.04 47.57 Fertilizer 15.66 19.09 24.82 28.54 28.54 32.82 37.38 41.34 Industrial 43.20 52.14 52.14 59.96 70.00 80.50 93.73 103.07 Commercial 54.24 65.39 85.00 97.77 110.00 126.50 134.23 147.53 Residential 40.80 44.88 56.10 56.10 65.00 74.75 82.12 82.12 Tea Estates 40.05 40.05 40.05 83.15 83.15 95.62 110.15 113.27
Excise Duty Power 12.80 15.72 20.30 23.28 25.96 25.96 27.18 26.16 Fertilizer 12.80 15.72 20.30 23.28 23.28 23.28 24.35 22.74 Industrial 28.13 35.73 35.73 41.99 48.01 48.01 52.67 56.69 Commercial 37.54 47.02 62.70 72.90 80.24 80.24 88.07 81.15 Residential 27.77 31.24 40.21 40.21 45.55 45.55 45.59 45.17 Tea Estates 37.15 37.15 37.15 45.83 45.83 45.83 50.41 62.30
Production Margin Power 1.00 1.13 1.47 1.69 2.23 3.67 4.84 6.64 Fertilizer 1.00 1.13 1.47 1.69 1.69 2.95 3.83 6.64 Industrial 1.00 1.33 1.33 1.80 3.00 6.10 8.73 6.64 Commercial 1.90 2.32 3.50 4.26 5.73 10.58 10.76 6.64 Residential 1.00 1.15 1.82 1.82 2.89 5.75 7.83 6.64 Tea Estates 2.90 2.90 2.90 3.55 3.55 7.22 9.99 6.64
Transmission/Distribution Margin Power 1.86 2.24 3.05 3.57 4.81 7.56 10.16 12.87 Fertilizer 1.86 2.24 3.05 3.57 3.57 5.93 8.45 10.31 Industrial 14.07 15.08 15.08 16.17 18.99 24.78 30.46 35.62 Commercial 14.80 16.05 18.80 20.61 24.03 33.15 32.72 53.84 Residential 12.03 12.49 14.07 14.07 16.56 21.96 27.06 27.03 Tea Estates 0.00 0.00 0.00 33.77 33.77 40.66 47.55 39.80
Contribution to BAPEX Power - - - - - 0.76 0.86 1.90 Fertilizer - - - - - 0.66 0.75 1.65 Industrial - - - - - 1.61 1.87 4.12 Commercial - - - - - 2.53 2.68 5.90 Residential - - - - - 1.50 1.64 3.28 Tea Estates - - - - - 1.91 2.20 4.53
Note: 1/ Effective May 1992. 2/ End-User tariffs effective March 1, 1994. As of March 1, 1994. margins allowed to the gas production, transmission and distribution companies Include respective shares of hydrocarbon development fund. Source: Petrobangla - 40 - ANNEX1.2
RETAILPRICES OF PETROLEUMPRODUCTS (FY87-94) 1/ (in Tk per litrs)
1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1992/93 1993194
Premiumgasoline 13.86 13.86 13.86 8.58 14.95 14.95 14.65 14.28
Regulargasoline 13.20 13.20 13.20 8.20 14.00 14.00 13.70 13.34
Kerosene 7.40 7.40 7.40 7.30 14.00 14.00 13.70 12.41
Dieseloil 6.90 6.90 6.90 7.30 14.00 14.00 13.70 12.41
Fuel oil 4.70 4.70 4.70 5.10 7.41 7.41 7.11 4.51
Jet oil 8.67 8.67 8.67 9.07 16.92 16.92 16.62 16.12
(in U.S.dollars per gallon)
Premiumgasoline 1.71 1.68 1.63 0.99 1.59 1.59 1.64 1.62
Regulargasoline 1.63 1.60 1.55 0.94 1.49 1.49 1.54 1.52
Kerosene 0.92 0.89 0.87 0.84 1.49 1.49 1.54 1.41
Dieseloil 0.85 0.83 0.81 0.84 1.49 1.49 1.54 1.41
Fueloil 0.58 0.57 0.55 0.59 0.79 0.79 0.80 0.51
Jet oil 1.07 1.05 1.02 1.04 1.80 1.80 1.87 1.83
Note: 1/ End yeardata.
Source:Bangladesh Petroleum Corporation - 41 - ANNEX2.1
GASRESERVE ESTIMATES (in BCF)
Proven Cumulative Remaining Production Gas Fields Probable Recoverable Production Recoverable in FY94 (6194)
Main Fields Bahkrabad 1432 867 375 492 47 Titas 4138 2100 1107 993 98 Habiganj 3669 1895 426 1469 50 Rashidpur 2242 1309 12 1297 12 Beani Bazar 243 114 - 114 - Kallashtilla 3657 2529 73 2456 10
Subtotal 15381 8814 1993 6821 217
OtherFields Belabo 194 126 - 126 - Begumganj 25 15 - 15 - Chattak 1900 1140 27 1113 - Fenchuganj 350 210 - 210 - Feni 132 80 17 63 6 Jalalabad 1500 900 - 900 - Kamta 325 195 21 174 - Kutubdia 780 468 - 468 - Meghna 159 104 - 104 - Semutang 164 98 - 98 - Sylhet 444 266 153 113 1
Subtotal 5973 3602 218 3384 7
Total 21354 12416 2211 10205 224 - 42 - ANNEX2.2
GAS CONSUMPTION -- FY80. 85-94 (in BCF)
Sector FY80 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY85-94 AverageAnnual Growth(%)
POWe 15.9 38.3 39.8 51.8 62.1 65.5 74.5 81.5 88.5 93.3 97.3 10.9
Fertilize 18.8 27.2 33.7 34.9 51.0 53.4 55.9 54.1 61.4 68.9 74.5 11.8
Industrial 7.1 12.6 16.4 18.7 16.7 15.0 14.7 15.5 14.1 14.5 18.5 4.4
Domestic 2.6 6.3 6.8 6.8 7.6 9.3 10.3 10.1 11.4 13.1 15.4 10.4
Commercial 1.1 2.2 2.7 3.4 3.6 3.2 3.8 3.2 3.4 2.9 2.9 3.1 Other 0.2 0.2 0.6 1.3 1.3 0.6 0.7 0.8 1.3 1.4 1.7
TOTAL 45.7 86.8 100.0 116.9 142.3 147.0 159.9 165.2 180.1 194.1 210.3 10.3
Source:Petrobangla - Production& MarketingDivision ANNEX2.3 Page 1 of 2
GAS DEMAND FORECAST -- FY95-2000 (in BCF)
FY94 FY95 FY96 FY97 FY98 FY99 FY00
Titas FranchiseArea Power 75.0 89.9 96.5 102.7 108.9 108.9 108.9 Fertilizer 51.3 50.3 50.3 50.3 50.3 50.3 50.3 Industrial 11.6 11.8 13.4 15.1 17.0 18.0 19.2 Commercial 2.1 3.0 3.4 3.9 4.3 4.6 4.9 Domestic 11.6 13.8 15.7 17.7 19.9 21.2 22.5 Other 0.9 0.7 0.8 0.8 0.9 1.0 1.0 Rflot& Tftw ' R0..109* t80" 100.4 ......
BakhrabadFranchise Area Power 16.8 18.1 18.5 18.5 23.4 50.0 69.4 Fertilizer 17.4 33.5 36.5 36.5 36.5 36.5 36.5 Industrial 5.3 5.6 6.0 6.6 7.3 8.0 8.8 Commercial 0.6 0.6 0.6 0.7 0.7 0.8 0.9 Domestic 2.5 2.5 2.7 2.9 3.1 3.4 3.7 Other 0.1 0.2 0.3 0.3 0.3 0.3 0.3
JalalabadFranchise Area Power 5.5 7.0 11.0 13.2 13.2 13.2 13.2 Fertilizer 5.9 5.8 5.8 9.0 11.0 11.0 11.0 Industrial 1.6 1.4 1.6 1.7 1.9 2.0 2.1 Commercial 0.2 0.3 0.3 0.3 0.3 0.4 0.4 Domestic 1.3 1.2 1.3 1.4 1.5 1.6 1.8 Other 0.7 0.9 1.0 1.1 1.2 1.3 1.4 ,:R~~~~~~~~~~~.. :: RBB.. B8'...... - B
GRANDTOTALS Power 97.3 115.0 126.0 134.4 145.5 172.1 191.5 Fertilizer 74.5 89.6 92.6 95.8 97.8 97.8 97.8 Industrial 18.5 18.8 21.0 23.4 26.1 28.0 30.2 Commercial 2.9 3.9 4.4 4.9 5.4 5.8 6.2 Domestic 15.4 17.5 19.7 22.0 24.6 26.2 27.9 Other 1.7 1.9 2.0 2.2 2.4 2.5 2.7
..- ...' ~~~~~~~~~~~~~~~~~...... SouRce:IDA Estimates. ' '. ' B . g GRBRRBR BRB.' RRB ...... R..... '.R. Source: IDA Estimates - 41, - ANNEX 2.3 Page 2 of 2
The gas demand forecast for FY95-2000 is prepared based on the following parameters:
1. Gas-fired Electricity Generation Capacitv Addition
Capacity Commissioning Unit (MM) Date
Ghorasal St #5 210 Sept 94 Fenchuganj CC 90 Sept 95 Haripur GT 33 Dec 96 Haripur ST 2 X 36 Dec 96 Raojan #2 ST 210 Jan 97 Ghorasal #6 ST 210 Jan 97 Mymensingh GT 100 Dec 97 Meghnaghat CC 300 Dec 98 Mechnaghat CC 300 Dec 99
2. Forecast Electricity Generation Requirements
Total Generation Gas-based Hydro Other Year (GWh) (GWh) (GWh) (GWh)
1995 12164 10866 Boo 498 1996 13824 11841 850 1133 1997 15207 12795 850 1562 1998 16319 13677 850 1792 1999 18462 16981 850 631 2000 20304 18690 850 764
3. Fertilizer Sector
Gas consumption by fertilizer production during the forecast period is based on-the commissioning of the Karnaphuli fertilizer plant in FY95 (20.5 BCF p.a.) and the new Fenchuganj fertilizer plant in Jalalabad in FY97 (il.0 BCF p.a.).
4. Industrial. Commercial and Domestic Sectors
Given the unreliability of sectoral consumption statistics resulting from misclassified consumption, gas consumption by the three sectors are projected to grow at an average annual rate of 12% in Titas franchise, 9% in Bakhrabad franchise, and 10% in Jalalabad franchise, resulting in an aggregate annual growth rate of about 10% for the three franchises taken together. This is close to the combined, loss-adjusted growth rate 1/ of these sectors during FY88-93.
1/ If constantpercentage Losses are assumedover the 1988-93period and the resultingadditional sales attributedto the industrial,commercial and domesticsectors, the increasein sales for these sectorstaken together wouLd have been nearly8X 45 - ANNEX 2.4 PAGE 1 OF 2
Perabanala'sPtiority Inv waent Proaram lln 104 US$ millons)
Fiscal Year 1993 1994 1995 199 1997 1998 19w 2000 Total
RIWLNG Kailahtdila (4 wells) 7.00 14.00 7.00 28.00 CDIVAT Rashidpur(3 wells) 14.00 7.00 21.00 CDNAT Habiganj (4wells) 14.00 14.00 28.00 CDNAT Titas(3wells) 7.00 14.00 21.00 CDNAT Feni (1 well) 6.00 1.40 6.40 CDNAT Consultances 0.60 1.80 1.80 1.80 6.00
Subttal oxcluding CDNAT 0.00 0.00 5.60 38.20 43.80 22.80 0.00 0.00 110.40 CDNAT 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
DRKOVERS Tltas & Bahkrabad 1.70 1.70 1.70 5.10 CDNAT Fenchuganj 2.00 2.00 CDNAT
Subtotal excluding CDNAT 0.00 0.00 1.70 1.70 1.70 2.00 0.00 0.00 7.10 CDNAT 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
RFACEFACILITIES & TIE-INS Kalla;ahtillarie-ins 3.00 3.00 6.00 CDNAT KailauhtJlla120 MMCFD Turbo-expander 14.00 24.00 10.00 48.00 CDNAT Rashidpur Tie-ins 0.90 0.90 1.80 CDNAT Rashidpur 90 MMCFD Silica Gel 3.00 12.00 7.65 22.65 CDNAT Beani Bazar Tie-ins 1.50 1.50 3.00 CDNAT Beanl Bazar 60 MMCFD Turbo-expander a.00 12.00 6.00 24.00 CDNAT Fenchuganj 30 MMCFD Silica Gel 4.00 4.00 *.00 CDNAT Habigan)2x75 Glycol+2x60Titas LTS 6.00 9.00 3.00 1U.00 CDNAT Feni 40 MMCFD Silica Gel 8.00 8.00 CDNAT Consultancies 1.60 1.60 1.80 1.60 1.60 8.00
Aahuganj NGL Plant(1S0MMCFD) 16.00 30.00 16.00 60.00 CDNAT 3.60 7.20 3.60 14.40
Subtotal excluding CDNAT 16.50 32.60 70.65 67.10 20.61 0.00 207.36 CDNAT 0.00 3.60 7.20 3.e0 0.00 0.00 14.40 - 46 ANNEX2.4 PAGE2OF2
P.trbanala'e Prority Inwutmetit Praram (In 19W4US$ millions)
Fiecal Year 1993 1994 1906 1996 1997 1998 1999 2000 Total TRANSMISSIONSYSTEM A-B Pipeline 17.00 29.00 12.00 58.00 CDNAT 5.00 5.00 Fenchuganj Connection 4.00 4.00 CDNAT 0.45 0.45 Meghnaghat Connection 12.00 12.00 CDNAT 1.35 1.35 Ashugani Compression 3.40 13.60 5.70 22.70 CDNAT 0.40 1.38 0.60 2.38 Habigani-Ashuganj Loopline 8.00 16.00 16.00 40.00 CDNAT 4.00 400 SCADASystems 7.00 12.00 5.00 24.00 CDNAT 3.00 3.00
Subtotal excluding CDNAT 17.00 26.00 27.40 42.60 21.70 16.00 160.70 CDNAT 0.00 5.00 3.40 3.18 4.60 0.00 1e.18
DISTRIBUTIONSYSTEM JGTDSL 3.00 6.00 6.00 1.00 1.00 17.00 CDNAT 0.45 0.90 0.90 0.15 0.15 2.55 TGTDC 12.00 12.00 12.00 12.00 12.00 60.03 CDNAT 1.80 1.80 1.80 1.80 1.80 9.00 BGSL 1.50 1.50 1.50 1.50 1.50 7.50 CDNAT 0.23 0.23 0.23 0.23 0.23 1.13
Subtotalexcluding CDNAT 0.00 16.50 19.50 19.50 14.50 14.50 84.50 CDNAT 0.00 2.48 2.93 2.93 2.18 2.18 12.68
Summary Well Drilling 5.60 38.20 43.80 22.80 0.00 0.00 110.40 Workovers 1.70 1.70 1.70 2.00 0.00 0.00 7.10 Surface Facilities 10.50 32.50 70.65 67.10 20.60 0.00 207.35 Transmission System 17.00 36.00 27.40 42.60 21.70 16.00 160.70 Distribution System 0.00 16.50 19.50 19.50 14.50 14.50 84.50
Grand Total excluding CDNAT 40.80 124.90 163.05 154.00 56.80 30.50 570.05 CDNAT 0.00 11.08 13.53 9.71 6.78 2.18 43.26 Grand Total including CDNAT 40.80 135.9W 176.58 163.71 63.58 32.68 613.31 - 47 - ANNEX3.1
STAFFCOMPOSITION OF PETROBANGLAGROUP
As of December31, 1993
Officers Staff Total Semi- Skilled skilled Technical Other Technical Technical Other
PHC 66 145 84 11 338 644 BGFCL 106 116 189 80 359 850 SGFCL 36 61 84 5 123 309 TGTDC 335 270 557 232 911 2305 BGSL 177 254 141 331 553 1456 JGTDC 87 69 119 - 162 437 BAPEX 287 121 634 - 363 1405 RPGCL 14 15 9 12 49 99
Total 1108 1051 1817 671 2858 7505
Source:Petrobangla BANGLADESH GASINFRASTRUCTURE DEVELOPMENT PROJECT GasTransmission Company Limited (GTCL). Proposed Otgantzation Chart
0GM 0GM (Purc ase oeak) (lnin) (osulOl (Admisrai*80n (FIanro) £stores) BANGLADESH GAS INFRASTRUCTUREDEVELOPMENT PROJECT Sylhet Gas Fields Company Limited (SGFCL)Organization Chart
rOoad ofDireckws
Ma|O Direlo l
I ConVanySeuselauy
Z3
Gene|alas Ihe Chtte Rashi[pur I AdriviiisjiaLon sonto AccOUIS Futancan Fa Field Field Fietd /w5572b
madsJwSS792b -0 ANNEX 4.1 Page 1 of 4
PROJECT DESCRIPTION
Background
1. The proposed project would be IDA's third lending operation to assist GOB in expanding the country's gas supply and delivery capacity, following the Bakhrabad Gas Development Project (BGDP, Cr. 1091-BD, approved in December 19R0) and the Second Gas Development Project (SGDP, Cr. 1586-BD, approved in April 1985). With its main objective of making gas available to consumers in the Chittagong area, the BGDP provided financing for the development of the Bakhrabad gas field (5 wells with associated gas treatment facilities), construction of the 177-km long, 320 MMCFD capacity Bakhrabad- Chittagong gas transport trunkline, and the establishment of a 88-km distribution network in and around Chittagong. The SGDP was designed to assist in developing the large northern gas fields to cover gas supply shortages in the Titas franchise; it consisted of appraisal and development drilling (9 wells), installation of gas and condensate treatment facilities at Kailashtilla and Rashidpur fields, and construction of the 170-km long, 320 MMCFD capacity Kailashtilla-Ashuganj (North-South) pipeline. Cr. 1091-BD was closed on December 31, 1985, and Cr. 1586-BD on December 31, 1993. Throughput of the Bakhrabad-Chittagong pipeline was around 40 BCF in FY94 (compared with designed throughput of 100 BCF p.a.). Throughput of the North-South pipeline is to reach 70 BCF in FY95.
2. The primary objective of the proposed project would be to assist in alleviating impending gas supply shortages in the Bakhrabad franchise area through financing development drilling at Rashidpur field and construction of the Ashuganj-Bakhrabad (A-B) pipeline.
Prolect Comoonents
3. To achieve the project's primary objective, the project would have the following physical components:
(a) Drilling of three production wells with a total production of about 90 MMCFD of gas and 250 barrels per day (BBLD) of condensate at Rashidpur gas field;
(b) Construction of a gas processing plant to process about 90 MMCFD of gas to pipeline quality and recover about 250 BBLD of condensate at Rashidpur gas field;
(c) Construction of a gas pipeline, 58-km long, 30-inch diameter, from Ashuganj to Bakhrabad (A-B pipeline), to connect the northern and southern gas transmission subsystems; and
(d) Installation of a supervisory control and data acquisition (SCADA) and pipeline telecommunication system on the entire gas transport trunkline from Kailashtilla to Chittagong to enhance the operating efficiency of the gas network. - 51 - ANNEX 4.1 Page 2 of 4
Rashidpur Field Production Drilling
4. To meet impending gas supply shortfall, Petrobangla would have to increase its production capacity by at least 300 MMCFD by FY98-99. To determine from which field the required additional production would come, a gas fields review in terms of reserves availability and infrastructure requirements suggests that, although Kailashtilla field is a good candidate for its richness in natural gas liquids (NGLs), Rashidpur field offers the least cost option for the purpose of this project. Three production wells would be drilled under the proposed project at Rashidpur gas field. The wells would be completed in the Lower Sand with premium thread 4-1/2 inch size tubing 1/. Based on commissioning of the gas processing plant by 1998, the 3 wells would yield a total production of about 622 BCF of gas and 1.8 MMBBLS of condensate for 1998-2017 period. The wells are also expected to substantially increase the field's resource base in terms of firming up additional gas reserves.
5. Discovered in 1960, some 80 km northeast of Ashuganj, near the recently completed North-South pipeline, Rashidpur field has not, until now, been put into production. No activity was undertaken in Rashidpur field until 1989, when two appraisal wells were drilled under the SGDP. The results indicated that the drilled area contains more than 2 TCF of proven gas. Rashidpur with Titas, Kailashtilla and Habiganj fields, contain altogether about 70 percent (10.5 TCF) of the country's recoverable reserves and constitute Bangladesh's four largest gas accumulations. Rashidpur's gas reserves are in two separate zones, one of which contains a reasonable quantity of condensate worth recovering. Rashidpur's gas flow rate can reach as much as 40 MMCFD per well, but for a long-term optimum delivery, the wells would be operated at 30 MMCFD each. The contour maps of the two gas bearing zones are shown in Exhibit A.
ftashidpur Gas Processing Plant
6. Rashidpur field was known to have recoverable condensate only since 1990 when the SGDP's well results revealed that the lower of the field's two gas bearing zones contains a moderate amount of condensate. Depending on the performance of the process design, it is possible that between 2.3 and 3.0 BBL/MMCFD of condensate could be recovered. With each zone containing more than 1.0 TCF of proven reserves and a good potential for additional quantities, Rashidpur production, unlike the other fields, has been initiated under the SGDP using two separate gas processing schemes, one for each gas zone. The upper zone would be produced with dehydration (water removal) only (using a simple liquid desiccant glycol process) and the lower zone with dehydration and condensate recovery (using a more complex process with a dry desiccant silica gel), the latter process is proposed for the project. The plant would have 90 MMCFD capacity, with separate flowlines from each well. The plant would be operated at high inlet pressure (i.e., 1000 psi) to eliminate the need for compression for sales gas pipeline. The plant design would take into account the experience so far gained on similar facilities at
I/ The 3 1/2 inch size tubing used in the four wetiscompleted uider the SCDPcauses excessive pressure drop in the tubing. - 52 - ANNEX 4.1 Page 3 of 4
the Bakhrabad field. The proposed gas processing facility flowsheet is given in Exhibit B.
Ashuqani-Bakhrabad Gas Pipeline
7. To transfer gas from the northern fields to the gas-deficient southeastern region and integrate the gas transmission systems, the recently completed 170-km long, 24-inch diameter, 320 MMCFD capacity North-South gas pipeline needs to be connected to the 176-km long, 24-inch diameter, 320 MMCFD capacity Bakhrabad-Chittagong gas subsystem by means of an Ashuganj-Bakhrabad gas pipeline. Taking into account the anticipated market growth rate, the A-B pipeline would be a single high pressure, 58-km long, 30-inch diameter interconnecting line with a 200 MMCFD initial flow rate capacity. The large diameter would avoid or minimize gas transmission pressure drop and, more importantly, allow to considerably increase (up to 1000 MMCFD) the line's capacity through compression, which is expected to be required at a much later date. The pipeline route has been surveyed and selected taking into account the need for minimizing environmental degradation of the terrain and land acquisition requirements, and possible future offtake points. The route runs through a poorly drained lowland, which is typical of much of Bangladesh, and is generally flooded more than 5 months per year. The route also crosses the Meghna river basin area where floodings and frequent changes in river course patterns have been observed over the recent years. To account for this, the pipeline would be coated with concrete for its entire length to avoid the risk of floating during the monsoon season. The pipeline construction would involve 3 major river crossings and burial of the line at about one meter below surface.
8. The pipeline construction design would consist of: (a) 58 km-long, 30 inch-diameter pipeline from the Ashuganj multipurpose natural gas site to Bakhrabad, with 1135 psi and 1090 psi design and working pressures respectively, and 200 MMCFD flow capacity; (b) pigging facilities at both ends with provision for pigging while the line is in operation; (c) 2 mainline valves, one at about 10 km and the other about 36 km from Ashuganj; (d) 3 offtakes -- one located at Titas field to serve the Brahmanbaria area as well as an inlet. for Titas gas, one about half way for future customers, and one near Bakhrabad for the future Meghnaghat power plant; and (e) a complete cathodic protection. A provision would also be made for future connection to the Eakhrabad-Demra pipeline for serving the greater Dhaka area. The pipeline sizing was determined on the basis of a minimum pressure discharge of 450 psi to meet the local distribution system pressure requirement. The design parameters are consistent with existing North-South and Bakhrabad-Chittagong pipelines and with most recent international standards. Corrosion coating would be either fusion bonded epoxy, which is preferable, or coal tar enamel. Concrete coating would be used in addition to corrosion coating.
SCADA and Telecommunication System
9. The SGDP had a provision for installing a complete supervisory control and data acquisition (SCADA) system along with a load dispatch center and a telecommunication system on the North-South pipeline. Due to delays in the pipeline construction and subsequent SGDP Credit closing, the SCADA could not be procured. Except for the recently completed ADB-financed Brahmaputra basin distribution pipeline, which has a SCADA system (without dispatch - 53 - ANNEX 4.1 Page 4 of 4
center), Bangladesh's gas transmission and distribution networks are not equipped with SCADA. These networks have been operated independently with microwave radio links supplemented by telephone facilities. After completion of the A-B gas pipeline, efficient operation of the Kailashtilla-Chittagong gas trunkline would necessitate a complete SCADA system with dispatch center and telecommunication link. The SCADA would allow accurate remote monitoring and control of necessary transmission parameters such as gas flows at supply and offtake points, current line pressures throughout the network, movement of gas and volumes, and quality of gas being supplied to the system by the producing companies. Furthermore, the SCADA would provide pipeline integrity monitoring, leak detection and alarm, metering values of gas and condensate at each of the inlet and outlet points, open-closed status of all line and station valves, direct digital data transmission and voice communication. To allow data transmission, the microwave analog radio system of the Bakhrabad- Chittagong pipeline would be upgraded (digitized) to match the new system.
10. Final configuration of the SCADA system would be based on an engineering design, which would be undertaken at a later date. The system concept, however, includes: (a) a master dispatch center for centralized control and monitoring, to be located where it will make the most use of it (i.e., GTCL headquarters), equipped with (i) two identical computer based master units, one on-line and the other as a back up, (ii) a large graphic panel showing schematically the entire transmission network, and (iii) color video display consoles; (b) remote terminal units to be installed at each terminal station; and (c) various control and command systems, alarm and event monitoring devices, printers, loggers and various operating software. The SCADA would be supported by a microwave backbone telecommunication system supplemented by a VHF mobile radio network and cabled phone links. The telecommunication system would include a digital multiplex radio, with data interface, supervisory system, power supply, antenna supporting towers and other subsystems. 54 - EXHIBIT "A"
BANGLADESH GASINFRASTRUCTURE OEVELOPMENT PROJECT
RASHIDPLJR G AS FIELD
LOWEP. ZONE CONTOUR IMAP UPPER ZONE CONTOUR I-AP
_ _ _ I . ' -
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______I.L______% _-.____' .,_ _"e___- ,;,
__ __ ,mAZ_ i. _ ._ __ __-
_~ ~ ~ ~ ~- ~ ~ _ 4 . _ .* ~ -5 EXHIBIT"B"
BANGLADESH GAS INFRASTRUCTURE DEVELOPMENTPROJECT RASHIOPUR GAS DEHYDRATION FACILITY FLOWSHEET
A 4 ~~~~HIGHPRESSR | az
I SAFEWELLHEATE j M EXCCHOKE
0 . DISPOSAL. * z W* -*3IMEA
CHOKE C SALESGAS
S __~JEPARSTORAG
SAFH ET .
CHOKE COALRESSOR
SAHTCONOEEAATE tJjW EULHEAD EO Do VALVE ER 4Y
LIUNE WELLHEAD~~~~~~~~~~~~~IPOA ' SAFETY HEATER
UG WTATERNENTO VALVE ~~~~~~~~~~STORAG HEAVY SALES
CONDENSATIE
Prfot 3"I Pvducgon f tW (t - 2017 PA
Y-1 IMIIims 202001|2002120012004120X12eO6|20e71200| I201012010t1201212013|2t14j201512012017j b"1 G 3 13313 1331 3 3. 3 1M 3 1M 3 1331 131 1 3 130 1286126 123 1 201_62
C I9296959595 I959 96 I95 9I 9ASI _I95 95 95 G I60 75 66157 1 789 0 - GasIn BCF C * Condcnsawin tousnd IwmiuL - 56 - ANNEX 4.2 Page 1 of 10
Terms of Reference for Institution BuildinQ Technical Assistance
A. GTCL TwinninQ
Background
1. Gas transmission and distribution in Bangladesh has been carried out through three separate regional subsystems operated independently by three subsidiary companies of Petrobangla. With the recent completion of the Kailashtilla-Ashuganj (North-South) pipeline, the commissioning of the Brahmaputra Basin pipeline in 1992, and the construction of the Ashuganj- Bakhrabad (A-B) gas pipeline, Bangladesh will have a major gas trunkline interconnecting the three subsystems and stretching from Kailashtilla to Chittagong. To achieve effective dispatch of gas supply, thereby enabling better gas fields management and increased supply reliability, the Government has recently created a national gas transmission company -- the Gas Transmission Company Limited (GTCL) -- to operate the above trunkline. To develop its capabilities, GTCL intends to enter into a long term twinning (collaborative) arrangement with an experienced gas transmission company, hereinafter called the twinning "Partner".
Twinning Obiectives
2. The proposed twinning arrangement will be characterized by a closer involvement between the two parties than is generally obtained in a standard client-consultant relationship. It is aimed at the direct transfer of managerial and technical skills and systems that involve of the numerous functional aspects of GTCL.
3. The key objectives of the twinning would be:
(a) to provide sustained technical and managerial support aimed at building up GTCL's capability to the point where it can independently operate all aspects of a gas transmission network;
(b) to assist in the development and implementation of organizational structure, systems, procedures and practices required by a commercial gas utility; and
(c) to provide back-up support in carrying out day-to-day operations.
Scone of Services
4. On assignment the partner would promptly plan and render all necessary advice and assistance to GTCL to achieve the objectives set forth in para. 3 above within the timeframe to be specified in the contract. Such assistance would include, but would not be limited to, the following:
(a) preparation of a quick diagnostic, jointly with GTCL, to identify priority areas on which significant and rapid improvements can be made to allow efficient start-up for GTCL; - 57 - ANNEX 4.2 Page 2 of 10
(b) undertaking a complete physical inventory with conditions and performance evaluation of the assets transferred from the regional companies;
(c) development and implementation of organizational structure, systems and procedures referred to in para. 3 (b) which would cover:
(i) network planning and engineering
(ii) operations and maintenance, including safety audit
(iii) inventory management
(iv) accounting and financial management
(v) management information system, including SCADA link to generate daily, weekly, and monthly operational reports; and
(vi) personnel management and human resource development
Such assistance would be provided through secondment of experienced professional personnel from the partner's own organization (not recruited for the purpose of the twinning contract) into parallel positions in GTCL. It is expected that at least five such personnel led by a team leader would be posted at GTCL, who will serve in operational capacities and will, together with GTCL's top management, have joint responsibility for overseeing day-to-day operations and implementation of systems, procedures and practices.;
(d) provision of back-up services from the headquarters for strengthening the corporate structure and systems referred to in (a) above;
(e) provision of technical specialist personnel and services to undertake discrete tasks, as required; and
(f) design and implementation of a comprehensive training program which would include on-the-job training, selective assignment of GTCL's personnel to the partner's organization for first-hand exposure to efficient operations, and formal course training.
Selection Criteria of the Partner
5. GTCL would visit several prominent gas transmission companies that are regarded as potential candidates for a twinning arrangement and would select a partner. The selection criteria would be as follows:
(a) the partner should have proven record in successfully managing an organization having similar scope of functions;
(b) the partner should have fairly extensive international experiences and is willing to transfer its operational knowledge; - 58 - ANNEX 4.2 Page 3 of 10
(c) the partner should identify fully with GTCL's operational and capacity building needs; and
(d) the personnel to be seconded to GTCL should have direct operational experience and be capable of tackling problems.
Duration of TwinninQ Arrangement
6. The twinning arrangement would be initially for three years. Depending on GTCL's needs, and satisfaction with the services, the contract can be extended for another period to be determined by both parties.
B. Environmental and Safety Management Technical Assistance
Backcrround
7. To meet the country's gas demand estimated to grow at about 10 per year, Bangladesh is to double the current supply and delivery capacity of about 660 MMCFD by the year 2000. In the past, the sector's development has had a relatively low impact on the environment and the sector operating companies have maintained good safety records. Further expansion, however, in one of the most populated land areas (about 1300 people/km2) in the world, requires careful integration of environmental and safety considerations. The overall policy framework, legislation and institutional capabilities for dealing with emerging environmental and natural resource management issues have not yet been sufficiently developed. An environmental protection law and a national environmental management plan covering a broad range of environmental aspects of the national economy have been drafted over the last five years by the Ministry of Environment and Forests and are now in the process of being approved by the Government. Specific gas sector environmental regulations have not yet been developed. With regard to safety, the Ministry of Energy and Mineral Resources issued in 1986 the Gas Safety Rules, which cover transmission, distribution and storage of natural gas, but not the upstream activities.
8. Notwithstanding its good operational safety records and its commitment to adhering to the laws issued by the Government for the protection of the national environment and the health and safety of its employees, consumers and the general public, as manifested in the December 15, 1992 Environmental and Safety Policy statement, Petrobangla currently has no well- defined safety engineering standards and environmental regulation, nor does it have an adequate institutional framework and capability to properly administer the safety and environmental aspects of its operations. Recognizing the critical need to address this deficiency, Petrobangla has recently created an Environment and Safety Division in the Holding Company which would serve as the focal point for coordinating among all operating companies (i) development and dissemination of a comprehensive set of safety standards and environmental protection rules and (ii) implementation of an environmental and safety management system. 59 - ANNEX 4.2 Page 4 of 10
Obiectives
9. The objectives of the envisaged technicalassistance are to:
(a) assist in the developmentof comprehensivesets of safety standards and environmentalprotection regulationscovering exploration, production,processing, transmission,distribution, marketing and end-use;
(b) assist in the developmentand implementationof an adequate environmentaland safety management system for each operating company which shall include procedures for conducting routine technical and safety audits and programs for environmental mitigation and monitoring;
(c) assess the human resources requirementsfor administeringthe environmentaland safety aspects and assist in developing managerial and professionalstaff resources through a program of in-country and overseas training and new recruitment;and
(d) assist in putting into place a mechanism/processfor ensuring adequate public consultationand for stimulatingpublic awareness and support for enhancingenvironment protection and safety.
Scone of Work
10. To achieve the technical assistanceobjectives, the tasks of the consultant would include, but not be limited to:
(a) review: i) existing government environmentaland safety policies and regulations;and (ii) Petrobangla'scurrent environmentaland safety procedures and practices, and associated emergency response plans;
(b) assess the environmentalimpact and safety hazards of existing field production facilities and gas transmissionand distribution systems, including the performance and safety of gas flaring equipment configurationat all gas treatmentplants;
(c) review the gas sector land use patterns in terms of environmental and social costs, including human resettlements,if any, and forest degradation;
(d) develop a framework for integrationof environmentalconsiderations in the gas sector's developmentplanning with a view to ensuring environmentallysound and sustainablesector development;
(e) develop guidelines and operating procedures for:
(i) groundwater protection in well drilling and workover operations;
(ii) soil protection and reclamation;and - 60 - ANNEX 4.2 Page 5 of 10
(iii) field solid and liquid waste treatment and disposal;
(f) develop a comprehensiveset of safety codes and standards and operation manuals taking into account recognized international standards as well as country-specificsafety needs;
(g) assist each operating company in establishinga computerizeddata base for the recording of operationalrecords and statistical analysis of safety and fault data;
(h) develop, and assist in implementationof, appropriate environmental and safety management systems for all operating companies, which shall include procedures for conductingenvironmental and safety audits, and work programs for environmentalmitigation and monitoring;
(i) develop staffing requirementsand detailed time-bound training programs and oversee the implementationof the agreed training programs;
(j) provide assistance to the Government in upgrading the office of the Chief Inspector to enable it to carry out the following functions:
(i) prepare standards and enforce compliance;
(ii) investigategas-sector related occupationalaccidents;
(iii) issue safety-relatedpermits; and
(iv) clear new projects with regard to safety aspects.
Qualification of the Consultant
11. The consultant should be an environmentaland safety audit firm, specialized in oil and gas upstream and downstream activities. Consultant staff to be assigned to Petrobangla should have a minimum experience of five years.
Duration of Technical Assistance
12. The consulting contract would be for three years. Depending on Petrobangla's needs, and satisfactionwith the services, the contract can be extended for another period to be determined by both parties.
C. Manacement Systems Improvement Proqram
Backairound
13. Natural gas is Bangladesh'smost important source of commercial energy. To meet the country's gas demand estimated to grow at about 10 per year, Bangladesh is to double the current supply and delivery capacity of about 660 MMCFD by the year 2000. - 61 - ANNEX 4.2 Page 6 of 10
14. There are presently 17 known gas fields with a total (proven and probable) reserves of 21 TCF. Five fields -- Kailashtilla, Rashidpur, Habiganj, Titas and Bakhrabad -- account for two thirds of the known gas reserves.
15. The gas sector in Bangladesh is dominated by the Petrobangla group consisting of eight state-owned companies responsible for the exploration, production and delivery of natural gas, as well as the exploration for and development of oil and solid minerals, including coal. Until mid-1993, the Petrobangla Group consisted of the holding corporation (Petrobangla), one exploration and drilling company, two production companies, three transmission and distribution companies and a natural gas liquids company. In May 1993, the Cabinet approved the establishment of the Gas Transmission Company Limited (GTCL) to operate the recently completed Kailashtilla-Ashuganj (North-South) pipeline and the new Ashuganj-Bakhrabad pipeline. The six operating companies responsible for the production and delivery of natural gas are:
Production
- Bangladesh Gas Fields Company Limited (BGFCL), presently operating the fields at Habiganj, Titas, Bakhrabad and Feni; and
- Sylhet Gas Fields Limited (SGFL) responsible for producing the northern fields at Kailashtilla, Rashidpur and Sylhet.
Transmission
- Gas Transmission Company Limited (GTCL).
Transmission & Distribution
- Titas Gas Transmission and Distribution Company (TGTDC), operating the transmission and distribution network in the Titas franchise area covering the Greater Dhaka area and the Brahmaputra Basin northwest of Dhaka, having maximum daily peak demand of around 560 MMCFD;
- Bakhrabad Gas Systems Limited (BGSL), delivering gas to the southeastern part of the country including Chittagong area, having maximum daily peak demand of around 110 MMCFD; and
- Jalalabad Gas Transmission and Distribution Company (JGTDSL), dealing with gas transmission and distribution in the Sylhet area, having maximum daily peak demand of about 40 MMCFD.
16. The FY93 accounts of the five operating companies -- BGFCL, SGFL, TGTDC, BGSL and JGTDSL -- are given in Annex 1. Annex 2 contains profiles of each company with regard to the accounting systems in use and related matters. (This information needs to be reproduced from Eric Gills report] These companies operate mainly manual accounting systems based on conventional double entry principles. The drawbacks of manual systems together with understaffing result in, to various degree, backlog of work, and inaccuracies and delays in financial reporting. Further, the lack of standardization of data input across the group also causes inordinate delays in preparation of - 62 - ANNEX 4.2 Page 7 of 10
consolidated group accounts. In the past, the operations of the gas sector operating companies suffered from the absence of clearly defined financial objectives. Consequently, the top management paid inadequate attention to financial management, resulting in understaffing and shortage of qualified and trained staff in the accounting and finance function. Presently, there are deficiencies in the systems in use for monitoring/controlling all aspects of financial operations; and financial data have not been used effectively by management as a tool for operational control and corporate planning. In the context of ongoing gas sector reforms aimed at mobilizing private capital for accelerated gas sector development and improving the operational efficiencies of sector entities, Petrobangla group management has recognized the urgent and critical need to improve accounting and financial management and has therefore decided to engage consultants to assist in the implementation of a group-wide financial management improvement program (hereinafter referred to as the Program).
Obiectives
17. The objectives of the Program are to (a) improve Petrobangla group's accounting and financial reporting in terms of accuracy, adequacy and timeliness; (b) build up the capability of the group to discharge effectively and efficiently the functions of modern gas utilities in areas of financial management and planning.
18. To achieve the above objectives, the Program would comprise (i) a diagnostic assessment of the current accounting and financial systems within the group companies, (ii) a program for clearing the backlog of book-keeping, (iii) a program for upgrading the group companies' management information systems and strengthening financial and accounting controls (including internal audit), (iv) a program of extensive management and staff training to develop managerial and staff resources to operate, maintain the improved and/or new systems, and (v) a program of establishing computerized accounting and management information systems in each operating company and at the Petrobangla holding corporation.
ScoDe of Work
19. The consultant, who may be a consortium, will provide a multi- discipline team experienced in international oil and gas accounting, management systems and computerization to assist with the implementation of the Program. The consultant shall provide services in two phases. The first phase should focus on the evaluation of the group's existing systems and formulation of programs for upgrading to acceptable industry standards; implementation of programs as would be agreed by the Petrobangla group would be the second phase.
20. The tasks of the consultant under Phase I should include but should not be limited to the following activities:
(a) to establish effective project management arrangements within Petrobangla and the operating companies in order that the development of the end products and recommendations arising from the Phase I consultancy are owned and understood by management of Petrobangla and Operating Companies; - 63 - ANNEX 4.2 Page 8 of 10
(b) to strengthen the institution'scapacity in order that key users can actively participate in the study. This may be accomplished through workshops, seminars, training sessions during Phase I;
(c) am assessment of management informationneeds of the senior management of Petrobanglaand each operating company in light of the operatingprocedures in the group and internationalindustry practices;
(d) an assessmentof the system of internal financial controls operating in the group companies as compared to international industry practices;
(e) an assessmentof the accounting and financial systems in the group companies and their adequacy to provide financial informationfor internal financialmanagement and statutory financial reporting, including the need for computerization;
(f) an assessment of the organizationalrestructuring that may be required of the existing finance operations and its impact on human resources;
(g) an assessment of the existing group-wide InformationSystems and Technology (IS & T) infrastructure;
(h) an assessment of the appropriatenessof the Wide Area Networking being introduced as part of SCADA to the longer term developmental plans for effective financialmanagement systems;
(i) an assessment of the adequacy, in terms of the number as well as the skill mix, of the existing staff resources in the group to operate an adequate system of accounting and financial control, including training requirementsfor managerial,supervisory, accounting,bookkeeping, data processing and clerical staff; and
(j) based on the above assessments,the consultant should recommend programs for upgrading the group's financial management and accounting systems and financialmanagement informationsystems in light of internationalindustry standards and practices. The recommendationsshould be specific, practical and cost-effective and should include implementationphasing of various recommended activities,with the objective of enabling the group companies' reaching acceptable industry standards within a time frame of two years. At the end of Phase I, the consultant should present its findings and recommendedupgrading programs to the Petrobangla group management and ODA for review.
21. Upon acceptance of recommendedupgrading programs, the consultant would proceed with implementation. Tasks to be performed by the consultant during Phase II would include:
(a) prepare tender document for single responsibilitycontract for the supply, installation,commissioning, and staff training of computer - 64 - ANNEX 4.2 Page 9 of 10
systems and application software packages that will fulfil the functional specifications laid down by the consultant for computerizedaccounting and financial management information systems for Petrobangla and six operating companies -- BGFCL, SGFCL, GTCL, TGTDC, BGSL and JGTDSL;
(b) assist in bid evaluation and contract award negotiations;
(c) on behalf of the Petrobanglagroup and in collaborationwith the counterpart staff to be assigned for the implementationof the Program, superviseall aspects pertaining to the implementationof the above single responsibilitycontract with the exception of the following for which Petrobangla/ODA retain responsibility:
(i) variations to contract price, scope of work, terms of reference or conditions of contract; and
(ii) termination,suspension, and arbitration;
(d) prepare detailed training program for management and staff, identify candidates to be trained and areas of training, source and procure training services form reputableand experiencedproviders for overseas and in-country training,monitor the implementationof training program;
(e) develop a program for clearing the backlog of accounting work and procure services of local accounting firms to clear the backlog;
(f) define standard accountingpolicies and develop a model Corporate Accounting Manual (CAM) incorporatingdocumentation of policies, corporate procedures and levels of authority;
(g) develop a standard Chart of Accounts and uniform subsystems for the group;
(h) define key financialperformance indicators (KFPIs)of each company and the group and develop a financial management reporting system, including a reporting format for incorporationof revised KFPIs for each company and the group;
(i) advise on the design of a model costing system in line with internationalpractice for production, transmission,distribution and exploration companies;
(j) prepare a corporate internal audit manual (CIAM) including procedures for auditing computerizedaccounting systems of subsidiary companies and production sharing contracts (PSC);
(k) develop guidelines for an improved budgeting system related to production sharing contracts and donor funded development projects; and
(1) develop guidelines for the model accounting system for development projects. - 65 - ANNEX 4.2 Page 10 of 10
Involvement of Local ConsultinQ/Accountina Firms
22. While an expatriate consultant or a consortium is expected to assume overall responsibility for the assignment, it is encouraged to promote participation of local consulting/accounting firms in carrying out the assignment with a view to acquiring local language capability and enhancing cost-effectiveness of the Program's implementation.
ReDortinc Requirements
23. The consultant should submit the following reports to the Petrobangla group management with copies to ODA:
(a) an interim report at the end of Phase I, presenting the consultant's findings and recommendations for upgrading, including implementation schedule of various activities;
(b) monthly progress report, providing sufficient information on actual implementation progress of each activity, including explanations for implementation slippages, if any, and measures taken or planned to be taken to correct them, and their possible effects on the implementation schedule of the Program;
(c) draft final report to be provided two months before the end of the assignment, detailing the implementation results of the Program and achievement of the Program's objectives;
(d) a final report to be provided weeks after receiving Petrobangla's and ODA's comments on the draft final report. - 66 - ANNEX 4.3 Page 1 of 5
TRAINING PROGRAM
I. Background
1. Mainly due to the cumbersome internal approval procedures pertaining to the selection of candidates for training, staff training has not received adequate attention during the past decade. Despite provisions made by each of the co-financiers under the Second Gas Development Project (SGDP), training undertaken was limited to a few in-country drilling courses conducted by the drilling contractor and attended by some 40 staff. Altogether, only 9% of Petrobangla Holding Company staff received training; the ratio for the operating companies is less than 1. Recognizing the urgent need to develop and upgrade the skills of its staff to implement capacity additions and operate a gas supply and delivery system of growing size and complexity, Petrobangla management has decided to initiate a training program to develop in-house capabilities in all aspects of gas sector operations.
II. Manor Areas of Training
2. Overseas TraininQ. The proposed training program would cover key operational areas including geophysics, geology, well drilling, well production, gas transmission and distribution, SCADA, safety and environmental protection, and accounting and financial management.
Geovhysics
3. Past experience indicates that geophysical surveys are a very effective tool in appraising and developing Bangladesh's gas fields. With most of the fields not yet fully developed, geophysics is expected to play an important role in the sector's future development. Given the limited seismic activity carried out in Bangladesh over the recent years and the tremendous technological advance worldwide in geophysics, Petrobangla would train selected geophysists in seismic surveys, including data acquisition, processing and interpretation,. with a special focus on both outstep and inf ill drilling, and the use of 3-D seismic in reserve evaluation and determination of reservoir boundaries. *The proposed training would also involve topics such as: (a) how to minimize the risk of offset well locations, which would be particularly useful given the limited drilling resources available in Bangladesh; (b) resolving structural complexities of some of the fields where only one or two wells have so far been drilled; and (c) database creation and integration of existing seismic data with other geological and drilling data for conversion to computer format, which would facilitate future field work and enhance the exploration promotion data packages. About 5 geophysists would benefit from this training for about 4 weeks each.
Geoloa"y and Gas Reservoir
4. The geology of Bangladesh's gas fields can be complex, particularly for those with several gas bearing reservoirs. The lithology of several major fields exhibits a great deal of variation with complex changes that affect reservoir characteristics. Field structural interpretations are often incomplete due to insufficient seismic coverage. To address the geological unknowns and optimize the development of its gas resources, Petrobangla has formulated a - 67 - ANNEX 4.3 Page 2 of 5
training program for its geologists and reservoir engineers. The training would involve interpretation of depositional environment of large deltaic sequences which characterize much of Bangladesh' s geology, definition of hydrocarbon source rock, timing of hydrocarbon migration and accumulation, structural traps, and prospect definition. The training would also include reservoir analysis such as rock and fluid properties, reservoir mechanisms, reservoir modeling, ultimate gas recovery and abandonment pressure, water drive and volumetric depletion mechanisms, and well completion techniques. The proposed training would also allow Petrobangla to establish computer-generated isopach, structure, paleostructure, porosity and pore volume maps using available seismic and drilling data. About 6 geologists and reservoir engineers would benefit from this training for about 4 weeks each.
Well Drillinq
5. Petrobangla owns a drilling rig fleet which is old, worn out and most of the time inactive. of this fleet, only two medium and two small size rigs have a salvageable value of less than one million US$. Presently, Petrobangla has neither the necessary equipment nor the resources to drill gas wells efficiently. Training on well drilling would allow its staff to access latest technologies. These include multiwell pad (cluster) drilling and horizontal well techniques, both of which would considerably enhance the overall drilling performance in terms of total well cost, productivity and, of equall importance, land use for well locations. The training would also focus on non-toxic drilling fluid chemicals, one of the concerns of Petrobangla's drilling activity. Such training would help its staff to restructure its well drilling activity and respond to any level of interest by the private sector in forming a joinc venture. In addition, the training would enable Petrobangla to compare between refurbishing its rig fleet or contracting the drilling activity to specialized contractors, which proved to be the least cost approach under the SGDP. About 20 staff would benefit from this training for about 4 weeks each.
Well Completion
6. Poor well completion has seriously affected the productivity and performance of Petrobangla's gas wells, particularly those drilled under the SGDP. Although the main cause was- the poor performance of the technical assistance associated with the drilling activity at that time, the lack of awareness on the part of Petrobangla. technical staff could perpetuate the problem. For this reason, selected staff would receive training in well productivity analyses and completion design, prediction of bottomhole and surface pressures, productivity optimization techniques and wellhead configuration. Appropriate well completion design would allow Petrobangla to implement adequate overall reservoir management and optimize its gas production. About 10 staff would benefit from this training for about 4 weeks each.
Gas Treatment Processes
7. With more and more natural gas liquids extraction facilities to be put on stream during the next few years, Petrobangla requires extensive training in gas treatment technologies. The proposed training would involve basic equipment and design concepts used in gas processing plants, various process technologies, basic plant instrumentation and operating procedures. Specific courses would include gas and liquids analyses; dew point calculations; flash calculations; - 68 - ANNEX 4.3 Page 3 of 5
design concept of distillation columns, heat exchangers, dehydrators, and refrigeration systems; gas and-liquids measurements; and, corrosion control. Training would also be offered in construction contract management; quality control procedures, both at manufacturersand during actual construction;and, plant testing and commissioning. The proposed training program would enable Petrobangla to operate its gas processing plants with minimum technical assistance. About 14 staff would benefit from this training for about 5 weeks each.
Gas Transmission
8. To properly operate and manage the expanded gas network system, the newly formed gas transmissioncompany, GTCL, would require extensivetraining in all aspects of gas transmission. Much of this training is expected to be carried out under GTCL's twinningarrangement through a combinationof classroom courses and hands-on workshops. High priority would be placed on transmissionoperations management, demand management, system integrity assessment, preventive maintenance,measurement engineering,grid control and dispatch, and long term planning. The training would also include computer simulation of gas flow hydraulics, gas energy managementmodelling, welding technology,metallurgical testing,pipeline integrity,on-line inspection,and maintenanceand repair. In addition to the training to be provided under the twinning arrangement,about 20 staff would benefit from a speciallydesigned training program for about 4 weeks per staff.
9. To ensure satisfactory operation and maintenance of the SCADA and telecommunicationsystem, specific training courses would be conducted in Dhaka by the contractor and the installation supervision consultant. A detailed training program would be finalized in conjunction with the supply and consultancy contracts. The training would cover the following:
(a) for system operators -- keyboard skills, Scada functions,electronic mail, and telecommunication;
(b) for field technicians -- routine test procedures, preventive maintenance and emergency repair procedures; and
(c) for engineers -- management and overall development and utilization of the system.
Some of the training would take place during the manufacturingof the system at the vendor's premises to familiarizeand train the personnel in the use of the hardware and software. Prior to the SCADA training, the selected candidates would be trained in computer language. Overseas study tours to visit similar installationswould also be organized. Furthermore,about 10 staff would benefit from a specially designed training program for about 4 weeks per staff.
Safety
10. As Bangladesh'sgas system expands, potential hazards are expected to increase. Safety, therefore, will be given high priority by all operating - 69 - ANNEX 4.3 Page 4 of 5
companies and Petrobangla management. To minimize the risks, as part of the overall environmental and safety management, each company will conduct hazard assessment and develop safety codes and emergency procedures. The training, which would be provided by specialized firms in and outside Bangladesh, would allow Petrobangla's personnel to fully understand the environment in which gas operations are undertaken, and would address safety topics associated with gas production, processing and transmission. Safety awareness will be initiated at all levels of field operations through workshops and seminars. The objectives would be to have all gas facilities, from the wellheads to processing plants and transmission and distribution systems, operated in a framework where safety is part of each step. Safety would also be promoted through standardization of surface facilities. In this regard, when a transmission company like GTCL is created, personnel should be able to travel from one location to another and be familiar with the design and layout of the facilities. Standard designs should be used for most of the installations, e.g. metering stations, valve stations and scraper stations. Standardization would facilitate emergency response. About 20 staff would benefit from this training for about 4 weeks each.
Environment
11. The proposed training program in environmental protection would cover all facets of gas development. It would include:
(a) emission control, which should begin at the stage of equipment and facility design and continue during the operational phase;
(b) groundwater protection against contamination during well drilling operations;
(c) drilling and other process plant waste (spent molecular sieve material) treatment and disposal;
(d) gas well blowout prevention while drilling and during production;
(e) methane leak control throughout the gas transmission and distribution network;
(f) contingency plan and emergency response specifically designed to contain and control any surface facility-related accident;
(g) treatment and discharge of formation water; and
(h) procedures for identifying, managing and minimizing hazardous waste on site.
About 20 staff would benefit from this training for about 4 weeks each.
12. In-country Training. In-country training would also be developed under the project where more than 200 staff are expected to benefit from this training, which will cover all aspects of gas sector development. However, Petrobangla has no adequate training facilities, except for the Titas Gas Transmission and Distribution Company's (TGTDC) center at Demra. This center could be used for part of the training programs intended for field operations. The center would need expansion which may require a lengthy construction work. 70 - Page 5 of 5
While the center's expansion is worth considering, the use of the Bangladesh Petroleum Institute (BPI) at Dhaka is another possibility. BPI was set up in 1981 with the assistance of UNDP and NORAD of Norway to provide advanced technological support for the gas sector in Bangladesh. BPI reportedly performed well during its early years and then its activity declined due to the lack of resources. Petrobangla would reach an agreement with BPI to ensure its availability for most of the in-country training activity. The TGTDC's center can still be sued for training field technicians. - 71 - ANNEX 4.4 Page 1 of 8
Summary of Environmental and Safety Assessment
I. BackQround
1. Petrobangla, a group of eight state-owned companies, is responsible for the exploration, production and delivery of natural gas. To balance supply with demand for gas, Petrobangla is to undertake further investments to expand the country's gas supply capacity and delivery infrastructure. The proposed project is a part of the gas sector's priority investment program for FY95-2000. As per GOB's environment policy, Petrobangla, assisted by international consultant, carried out an Environmental and Safety Assessment (ESA) for the proposed project under terms of reference prepared jointly by Petrobangla and IDA.
II. The Prolect
2. The proposed project consists of the following physical components:
(a) drilling of three production wells at Rashidpur gas field;
(b) construction of a gas dehydration plant to purify gas from the new wells;
(c) a 5S-km, 30-inch diameter gas pipeline from Ashuganj to Bakhrabad; and
(d) a Supervisory Control and Data Acquisition (SCADA) and pipeline telecommunication system for the entire transmission trunkline from Kailashtilla to Chittagong.
The target date for the completion of the drilling and pipeline components is December 1996, while that of the SCADA system and gas dehydration plant are June 1997 and December 1997 respectively.
III. Baseline Conditions
3. The project area including the well sites and the pipeline right- of-way totals about 17.5 km2, of which about 60% is under cultivation throughout the year.
Ponulation and Land Use
4. Population densities in the project area vary from a high of 1313 persons/km2 along the A-B pipeline route to a low of 591 persons/km2 in the Rashidpur gas field. Land use is predominantly cereal and vegetable crop agriculture with limited agro-forestry and tea plantations.
5. Flat floodplains predominate in the project area. The A-B pipeline route traverses the Middle Meghna River Flood Plain, the Old Meghna Estuarine Floodplain, the Titas Floodplain and the Old Brahmaputra Floodplain in a mainly north-south direction in the districts of Brahmanbaria and Comilla. - 72 - ANNEX 4.4 Page 2 of 8
The route area is open flat low-lying agricultural land; the main crops are rice and jute. The Rashidpur area is predominantly tea plantations and agro- forestry.
Climate
6. The project area has a tropical climate with a wet monsoon period from April/May to September/October with frequent heavy storms and rain showers. Annual rainfall varies between 1500 to 2500 mm in the Ashuganj areas to 3500 to 5000 mm in the Rashidpur area. Maximum daily temperatures vary between 250C during winter and 350C during April and September. Lows of SIC are recorded in December and January. Highs of 39 0C are recorded in May and June.
Hvdroloqv and Water Oualitv
7. In the project area, there is a fairly extensive aquifer at a shallow depth of 6-12 m below ground level; at a depth of 60-120 m , there is a deeper aquifer. Both aquifers are accessed and utilized extensively by handwells and deep tube wells for potable water and irrigation. The density of tubewells ranges from 5 to 11 per km2. Groundwater samples taken at Brahmanbaria show elevated iron levels indicating impaired groundwater quality.
Air Qualitx
8. Air quality in the project area is generally good. Fuelwood, kerosene and animal dung are used as fuels. Local air quality could be impaired in the event of a well blowout. This concern will be addressed through the development of a well site contingency plan. soils
9. Baseline studies have been carried out to establish the profile and soil properties for major soil types along the A-B Pipeline route. Eleven different soil associations and four physiographic sub-regions are contained within a 500 m boundary along either side of the A-B Pipeline. Almost all of the soil associations are chromieutric gleysols, with some chromi-umbric- gleysols and molli-eutric-gleysol or fluvisol, and possibly some chromi-fluvic gleysols. The Rashidpur gas field is comprised of 6 soil associations contained within three physiographic sub-regions. All soils require fertilizers to allow high yield varieties and/or multiple cropping patterns.
Fisher
10. Small fish ponds along the pipeline route represent an important source of protein for rural population. A combination of over-fishing, pollution, deforestation and hydraulic structures have led to a continual decline in fishery resources. Any proposed development which will alter sediment load, flow regime or composition of the stream will require careful planning to avoid consequential impacts. - 73 - ANNEX 4.4 Page 3 of 8
Resettlement, Land Acauisition and Compensation
11. Given the high density of settlements, any incremental loss of land which affects food production, available living space, forest resources and wildlife habitat is significant to Bangladesh. Traditionally, land acquisition has been associated with delayed compensation payments. The lack of a public participation process has contributed to resentment of earlier pipeline projects. The pipeline route has been selected taking into account the need to minimize involuntary resettlement. Location of well sites would be chosen to minimize well site land requirements and land degradation. A public consultation and information program is being implemented as part of A- B Pipeline land acquisition.
12. In order for environmental and social impacts to be fully understood, properly planned for and mitigated, a baseline data acquisition program was carried out during July 1993-July 1994. Table A provides a summary of the data acquired for the project.
IV. Potential Sicinificant Environmental Imnacts and Mitigation Measures
13. Potential significant environmental and social impacts of the project pertain to the following:
(a) surface water and groundwater contamination due to improper handling of solid and liquid wastes;
(b) soil degradation and loss of fertility due to compaction and erosion that could arise during the pipeline construction; and
(c) dissatisfaction of the people affected by the project.
The impacts, mitigation measures, work program and monitoring required to ensure compliance are summarized in Table B.
V. Safety Aspects
14. The entire project design will be in accordance with applicable international safety codes and standards. Construction of the project works will be undertaken by experienced international contractors who use high standards of safety and environmental protection.
15. The safety aspect of gas transmission, distribution and storage is regulated by Bangladesh's existing law, namely, the 1991 Natural Gas Safety Rules. However, the lack of adequate formal, uniform standards and technical procedures within the Petrobangla group tends to inhibit the effectiveness of the above legislation. As part of the environment and safety assessment, a team of experts from British Gas was engaged in August 1993 to carry out a safety audit of the group's entire operations. The audit concludes that all operating companies are generally operating an adequate system. Nevertheless, several important recommendations have emerged from the audit. These relate to the need for the Petrobangla group to: - 74 - ANNEX 4.4, Page 4 of 8
(a) adopt a common set of safety standards and codes that are comprehensive,up to date and are disseminatedto managers and supervisors;
(b) carry out technical audits of existing facilities and systems to ensure their compliance with the requirementsof the 1991 Gas Safety Rules;
(c) adopt common emergency response procedures;
(d) provide formal and certificatedtraining for managers, supervisors and operativesparticularly with regard to the following:
(i) regulator design, operation and maintenance;
(ii) pipeline maintenance;
(iii) leak detection and pipeline surveillance;and
(iv) corrosion prevention.
Theme recommendationswill be incorporatedin the terms of reference for the environmentaland safety management technicalassistance to be implemented under the project.
IV. Environmentaland Safety ManaciementTgchnical Assistance
,6. To assist the Petrobanglagroup in implementingthe recommendations of the ESA and in developing in-house capability to properly administer the environmentaland safety aspects, the project includes a 3-year technical assistance. Draft terms of reference is given in Annex 4.2.
l TABLEA
GIDP BASELINEDATA ACQUISITION
DATA REQUIRED ACTIONPLAN STATUS
1. Requirementsfor all GIDPProject Areas * Interview small parcel owners who have been affected Done Population/SettlementSurvey * Populationsurvey of routesin all pipelinearess Done * D of parcels * Preparealignment sheetsshowing acquiredand Done * Location of dweliings requisitionedland throughthe row
2. Vegetation/ForestSurveY * Plot all vegetation Informationon alignmentsheets Done * Location, size, specel compositionof forests, areasof * Survey end map all forests and areasof native vegetation Done native vegetation * Assess current use of forests/wetlandsend protection Done * Expectedloss of forests, native vegetation and status homesteadtree stands
3. Fish ProductionArea Survey * Survey fishing areasincluding streams,rivers, bils, fish Done * Turbidity and flow roquirementsfor fish production forms * Expectedsiltation increases * Determinespawning/production schedule through field Done * Effect of effluent on fish production surveys, local knowledgeand administration * Locationof aNfish production arges * Note fisheries Informetionon alignment sheets Done 4. Location, Condition and Type of all Tubewells * Sampleif potential for contaminationoccurs Done Un * Potentialfor disruption * In conjunctionwith settlement survey, locate tubewells, Done * Potentialfor contaminationfrom incrementalloss and determinestatus spills * If essentialto disturb tubeweils, replaceand upgrade Not Applicable
5. Location of Areas of ReligiousImportance * Meet with all affected mouzaadministration Done * Locationof sites, markersand celebrationlocations * Avoid interferencewith Identifiedsites, ceremonies Done
B. Slope Stability, ErosionPotential at River Crossings * Slope and stability survey; erosionhazard assessment Done and Hill Areas * During soil survey, measureslopes of routes Done * Erosionhazard based on soil type, flow, bank stability * Calculateerosion potential Done Erosionhazard based on terrain, soil type, aspect. * Alter route if necessaryor take stepsto protect soil Done vegetation cover.
7. Soil Evalustion * Soil survey, samplingand analysis Done * soil type, depth of eachhorizon and characteristics, * Establishphysical, chemical and biologicalcriteria for Done effects from desiccation evaluating soils for development and revegetation
8. FaunalDistribution * Wildlife surveys Done * Distbution of native wildlife and location of criticl * Wildlife habitat identification end maintenance Done habitat * Endangeredspecies sightings Done * Movemen and migration pattems and schedules * Meet with interestedNGOs Ongoing TABLE A
GIDP - BASELINE DATA ACQUISITION
DATA REQUIRED ACTION PLAN STATUS 9. Wetland Distribution * Survey route for wetlands Done * Flow rate required to sustain wetlands In conjunction * Identify size, tyPe, location and flow pattem of wetlands Done with fisheries * Satellite image analysis Done * Drainage pattem of wetland system
10. Location of Archaeological Resources. Historical and * Archaeological/Historical resource survey Done Sacred Monuments * Identify those sites which require protection and others Done * Verify any sites and potential areas of archaeological which require excavation concern * Establish excavation plan if required Not Applicable 11. Waste Guidelines * Develop waste handling, transportation and disposal Ongoing - to be completed by * Determine exact nature of waste produced end locate guidelines for pipeline construction, facility operation and September 1994 possible disposal skes or determine disposal options well sites * Determinehandl"g requirements
12. Exact Routing of Tie-in Lines * Survey gas field areas and select route based on Done * Route alignfrents needed from Petrobangla for environmental end engineering considerations Reshidpur field tie-ins
13. Water Quality at Affected Sites * Surface water sampling and analysis downstream of Done * Background upstream and downstream of facility and Rashidpur major river crossings * Monitoring program Done * Test for general parameters, inorganics, and hydrocarbons Done Review all affected streams Done
14. Groundwater Use and Locations * Conduct a study of groundwater users end well date Done * Locations, use and quality of groundwater along routes snd at facilities
15. Safety and Hazardous Operations * review all safety programs used by Petrobangla and Done * background on safety programs in drilling, pipelines and contractors facility operations * review and assess any emergency response plans available Done * data on emergency response plans including practice drills * risk levels for all operations * review risk to populations, environment and equipment Will be carried out under the project's Environment and Safety Techcnical Assistance
* determine priority areas for hazardous plans and Emergency Same as above Response Plan development
0q _\ W O X SUMMARY OF IMPACT, MITIGATION AND MONITORING
POTENTIAL IMPACT MITIGATION PROGRAM WORK REQUIRED MONITORING REQUIRED
1. Local Involvement and Compensation * Develop public participation * Establish public consultation * Maintain a public * Compensation Payments process model process Involving Thanasreations/contact program * Diasnfrenchised landowners * Base compensation on actual administration throughout project * No opportunity for public participation land values and properties * Adopt a system of fair lifetime * Employment of local manpower * Inform landowners of safety compensation payment * Ensure compensation * Damage to property limits payments are prompt and fair
2. Discharge of Waste Water to River * Review InstaHation of treatment * Review workover fluid and * Complete monthly * Rsshidpur Facility mechanisms to bring water material requirements samples of waste water * Pipeline Hydrostatic Testing Fluids quality up to Quality Standards * Test waste water stream to stream during facility * Drilling and Workover Fluids * Determine what fluids could be determine discharge levels after operations * Pipeline Pigging substituted for drilling and commissioning of facility * Continue downstream workover, hydrostatic testing, * Review spin handling at facilities sampling programs and facites chemicals and level of discharge to area * Assure adequate * Conduct a surface and surface waters from incidental treatment is available to groundwater sampling program spins treat incremental and * Determine spill response large hydrocarbon spills equipment needs * Test waters during * Determine concentration and type discharge of hydrostatic of hydrostatic test fluid used and testing _l methods for treating its * Asses toxicity of 4 discharged fluids workover fluids Sample surface waters
3. Disturbance to Groundwater * Locate all wells within 1.0 km of * Inventory all wells In affcted * Monitor wells In close * Impairment of water quality faclities, wallsites, and pipelines areas proximity to facilities * Change to water well production (according to topography) * Determine flow rates and quality * Review current cased * Develop a groundwate In specifc wels logs and casing date protction plan to avoid short or * Determine effects from a pill of * Monitor wells In close long-tem impact driung, workover fluids. proximity to drilling condensate or waste water sumps * Detenmine drillng and workovwr procedures for groundwater protection
4. SoIl Erosion and Fertility * Route design should mi cuts * Finalze ares route alinents for * Assess soi survey * H area are highly rodibie into steep slopes Rashidpur program * Soil with acid subsoil are toxic if * Develop soils data of all project * Soi surveys tor projet areas and * Review N-S and uncovered and desiccated res along pipelines &ahmaputre Basin s * Soil contaminated with wastes Mre toxic * Develop aN drawings necessrY * iude soil handling spec, Ond Pipeline ROW for fertility t and sources for groundwater for incluion In construction bid drawings In the engineering specs problems O contamination documn * Develop a son rclamation and * Assess effectiveness of < * Develop handing techniques for planting program for each area reamation and erosion sONspecific to each project a * Implement erosion mitigation control slng N-S 0 * Develop plantg and techniques on areas afready Pipeline ROW '-'_ reibntatement procedue. to conpleted during SGDP maxdmizesH protecton TABLEB SUMMARYOF IMPACT,MITIGATION AND MONITORING
POTENTIALINRACT MITIGATION PROGRAMWORK REQUIRED MONITORINGREQUIRED
5. Forest. Native Vegetation and Wetland Loss * Minimizedisturbance through * Locatean forests, areasof native * Monitor use of forests * Loss of biodiversity, resourcesand forests vegetation,and wetlands and through new access areasof wkildifeand fisheries * If disturbanceis unavoidable, assesspredicted Impact points production, replaceIn other are * Survey for speciescomposition, * Monitor reforestation and * Increasediogging through new access * Use native speciesto revegetate size, accesspoints, and rere piantingprograms routes right-of-ways where possible Species effectiveness
S. Loss of Wildlife * Avoid areasof critical habitat * Wildlife surveysto determine * Ensurehunting pressure * Loss of wildlihfehabitat * Scheduleto avoid critical distribution, abundance,status does not rise * ncresm hunting presure periods(e.g. waterowl nesting) and requirementsof wildlife * Monitor effects of * Determinemigration and habitat loss rrmovement schedules
7. Contaminationby Wastes * Implementwaste management * Documental typ and volumes * Trackall wastes * Contaminationof soil, surfacewater programincluding: of wastes produced produced,disposed and and groundwater - DlilNg waste guldeines * Developwaste management stored * Expensiveto remedbte - Hazardouswaste gukdeines program * Developan on-going * impir human health - Wasteminimization * Asse aumpsand containment trainingprogram for * Toxic to plants, widlife - Traneportationguideiines areasto enure wates ore safely workers - Handingguideines contsined - Disposaland storage * Devop a land treatment facit y_ guideinrs andoperations guidelines c - Contaminantminimization program Test hydrosutic test fluid, treat or remove to containmentarea
S. Safet and HazardousOpeations * Assess hazardousopeations * Audit all feilities andoperations * Train andtest personnel * Loss of Life sitesfor planningneeds * Developa safetymanagement for comprehension * Damageto Environment * Developsafety manuas, system * Assure aNmanuals are in * Demageto Equipmentand Facilties proceduresand practices * Developa* necessaryplans and placeat field * Loss of Gas Supply DevelopEmergency Reponse procedures * Conduct compliance Plans assessments * Developsafety systems throughout corporationand fied units
9. EquipmentDamge & Loss Check equipmentregularly Developequipment maintenance/ Assure equipmentis Proces water quaity Clean,maintain and replace replcement program replacedand serviced as Soil acidity equipmentas necessary required 1iologlalAttack AdjacentfaciitisP
I`ICD - 79 - ANNEX 4.5
Detailed ProcurementArranements
ICB LIB LCB Other Procurement Packages Contract IDA Contract IDA Contract IDA Contract IDA Non IDA Toal Value Financing Value Financing Value Financing Value Financing Fiunacing
1. TurnkeyContrct Constuction of A-B Pipeline 63.3 55.9 63.3 Constructionof Ges Plat 23.9 22.5 23.9 hatallationof SCADA System 23.2 23.2 Subtotal 87.2 78.4 23.2 110.4
n. Civil Worka Cosuction of Well Locations 1.3 1.3 l.S
nn.Euldrment and Materials Esmerercy Remn-e Equipment 2.0 1.9 2.0 Casings & Tubings 5.2 4.8 5.2 Casing Acceusories 0.3 0.2 0.3 Drilling Fluid C-emicala 1.3 1.3 1.3 Drillg Fluid Additive. 0.3 0.2 0.3 Drilling & Coring Bits 1.4 1.3 1.4 OihweilCement 1.2 1.2 1.2 Oihwell Cement Additves 0.2 0.2 0.2 Welbeads 1.3 1.2 1.3 Wellbead Panels & Fittings 0.2 0.2 0.2 DownholeCompletion Equipment 1. 1.7 1.8 Field EquipmentPart 1.3 1.0 1.3 Subtotal 9.7 9.2 5.5 5.0 1.3 1.0 16.5
IV.Technical Services Cbarter Hire of one Drilling Rig 5.0 5.0 5.0 Eectric Logging 1.5 1.5 1.5 WeU Cementing& ProductionTesing 1.0 1.0 1.0 Drilling Mud 0.5 0.5 0.5 Subtotal 5.0 5.0 3.0 3.0 8.0
V.Techlical Assistance& Traininr Project fInplementationSupport A-B Pipeline 2.0 2.0 2.0 DrillI 2.9 2.9 2.9 Gas ProcenuingPlant 3.2 3.2 3.2 SCADA 4.4 4.4 Subtotal 8.1 8.1 4.4 12.5
Capacity Building OTCL Twinnng 2.5 2.5 2.5 Environment& Safety 2.5 2.5 2.5 ReservoirMnagement 2.4 2.4 2.4 MSIP 2.6 2.6 Subtotal 7.4 7.4 2.6 10.0
Training 2.4 2.4 2.4
Total 101.9 92.6 8.5 8.0 1.8 1.3 19.2 18.9 30.2 161.6 ANNEX4.6
DISBURSEMENTPROFILE
IDA FinancialYear Disbursements USSMillion and Semester In Semester Cumulative Cumulative(%)
1995
June 30. 1995 9.6 9.6 7.9
196
December31, 1995 15.1 24.7 20.4 June 30, 1996 15.1 39.8 32.9
1997
December31,1996 15.1 54.9 45.4 June 30, 1997 15.1 70.0 57.9
December31, 1997 15.1 85.1 70.4 June 30, 1998 15.1 100.2 829
1w99
December31, 1998 7.2 107.4 88.9 June30, 1999 7.3 114.7 95.0
2000
December31, 1999 3.0 117.1 97.4 June 30, 2000 3.1 120.8 100.0 - 81 - ANNEKX4 . 7 Page 1 of 2
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gu i ASi ~ ~ sep ______....._._._...... Z ...... 9f ...... pww - 83 - ANNEX 4.8 Page 1 of 3
PROJECT REPORTING REOUIREMENTS
1. During project implementation, GTCL/SGFL/Petrobangla shall report project implementation status through quarterly progress reports and on the operations and financial position through annual reports. Upon request, copies of ad hoc reports prepared on matters of importance to project implementation and operations should also be promptly furnished to IDA.
2. Quarterly reports should be sent to IDA not later than one month after the end of each quarter and should cover (a) procurement activities; (b) physical progress; (c) progress of institution building technical assistance; (d) cost estimates, expenditures and disbursements; and (e) management and operations of project beneficiaries. The scope and contents of quarterly reports are indicated in paras. 5 - 12 below.
3. During project implementation, GTCL/SGFL/Petrobangla shall submit:
(a) audited annual financial statements (consisting of income statement, funds flow statement and balance sheet) together with auditors' reports within six months from the end of the fiscal year under consideration, which should be accompanied by (i) reports on the sources and applications of funds for each project component both for the most recent reporting period and on a cumulative basis; and (ii) reports summarizing their respective key performance indicators for the fiscal year under consideration against the targets as agreed with IDA; and
(b) a separate auditor's report on withdrawals made on the basis of statements of expenditures and from the project Special Account within six months from the end of each fiscal year.
4. Within four months of the credit closing date, GTCL/SGFL/ Petrobangla will prepare and furnish to IDA a Project Implementation Completion Report (PICR) on the execution and initial operation of the project, its costs and the benefits derived from it, the accomplishment of the objectives of the credit, the plan for the project's future operation and the lessons learned. Near the end of the project implementation period, IDA shall inform GOB and GTCL/SGFL/Petrobangla of project completion reporting steps and PICR data requirements.
Ouarterly Proiect ImDlementation Progress Report
5. Quarterly implementation progress report shall summarize the overall implementation status with a brief description of important phases underway and planned, and highlight any existing or anticipated issues, which may become critical to timely execution of the project. It shall provide sufficient information on actual implementation progress for each project component covering at least the following aspects:
(a) physical work accomplished during the reporting period; - 84- ANNEX 4.8 Page 2 of 3
(b) a comparison (in percentage terms) of actual progress at the end of the reportingperiod with the original forecast of progress (SAR schedule) at this date;
{c) changes, events or conditionswhich would materially delay the constructionof the project or increase its cost; and
(d) the expected dates of completionof the project components.
Text of the Report
6. The text of the report should describe the work performed on each component during the reporting period. Where appropriate,the text should include explanationsof and comments on:
(a) actual or expected material deviations from the original (or amended) design or schedule;
(b) actual or expected difficultiesor delays, any measures taken or planned to correct them, and the probable effects on the constructionschedule;
(c) expected changes in the completion date of any major part of the project or the project as a whole;
(d) actual or expected delays in delivery of major items of equipment. Reasons for such delays should be given, and their possible effect on the constructionschedule should be estimated;
(e) changes in key personnel in the staff of project implementing agencies or their consultants;
(f) any actual or expected event or condition which may affect the cost of the project; and
(g) any unusual occurrences affecting the progress of the project.
Tables and Bar Charts
7. In addition to the text, tables following formats similar to those attached shall be provided as part of the reports. Where appropriate,bar charts should be included to show separately scheduled and actual progress on each of the main components of the project.
Procurement Activity
8. Because of its impact on overall project implementationprogress, procurement shall be given special attention. In this regard, procurement table should provide as many relevant details as possible, with complete lists of goods and services broken down by tenders for all goods and services to be acquired for the project. The table should indicate all key actions, such as: (i) IDA's concurrence to bidding documents as agreed under the Credit; (ii) prequalificationof bidders as applicable to the type of procurement involved; - 5 ANNEX 4.8 Page 3 of 3
(iii) receipt of bids; (iv) bid evaluation and IDA's concurrence; (v) award of contract; and (vi) progress of delivery (see Exhibit A).
Cost Estimates. Expenditures and Disbursements
9. Table updating cost estimates, expenditures incurred and disbursements claimed and forecasted shall be part of the quarterly project implementation progress report (see Exhibit B).
10. The figures of "Original Estimated Costs" should be those used in the corresponding table in IDA's Appraisal Report. The table should show any substantial changes in the cost estimates that have become necessary since the previous report. The reasons for such changes should be explained in the text of the report. Estimates should be reviewed and if necessary revised from time to time. Such revisions may be necessary after important contracts have been awarded, for instance, or when a substantial change has taken place in exchange rates. In any case, the estimates should be reviewed not less frequently than once a year.
11. As the exhibit indicates, the report should show the amount of expenditures up to the end of the reporting period, and the balance of expenditures still to be made to complete the project on the basis of the latest estimated costs. Cost estimates and expenditures in foreign currency should be shown separately from those in local currency, for each of the main items comprising the project.
Ouarterly Report on ManaQement and Operations
12. This should be a narrative report, supplemented by graphs or schedules if necessary. The subjects which should be included are:
(a) actual or prospective changes in key personnel in GTCL/SGFL/Petrobangla;
(b) actual or prospective changes in the organizations of GTCL/SGPL/ Petrobangla;
(c) the development of revenue collections;
(d) gas sales growth and gas supply and delivery system development;
(e) arrangements for financing and constructing major system additions; and
(f) any significant problems or development in GTCL/SGFL/Petrobangla's general operations. - 86 - Exhibit A
b~ 1 0
rA~~~ z~~~~
F-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I
F- - OUARTERLYREPORT ON PROJECTCOST ESTIMATE. EXPENDITURESAND COMMITMENTS
ReportingPeriod
Cost Estimte DIsburwments Previous Balanceof Renmining Original Revised Revisions This Total Outstanding Cods to Istimate Etima This Quarter Previous Quarter Disbursemanit Commitments Total CompleteProject Projet (Col 4 + 5) (Col 6 + 7) (Col 3 -S) Components (1) (2) (3) (4) (5) (6) (7) (8) (9) FrW= CoQtWUS$tiIe
TotalForein Cot
LVW Coat = I
Total Local Codst I______- 88 - ANNEX 4.9
IndicativeSupervision Plan
Approximte SkilLs Staff Input Dates Activity Required (staffwewks)
1. 02V95 Project Launfchworkshop TN, PE, PRO, ENV, SAF 9 2. 07/95 Project Supervisionwith special focus on (i) A-B pipeline construction nd Reshidpurdrilling progrom preparation,and (ti) implementationof GTCL twirming, Envirormentsland Safety TA nd trainingprogram TM, PE 5 3. 12/95 Project Supervision TM, PE 5 4. 06/96 Project Supervision with special focus on progress of A-B pipeline construction nd Rsshidpur dehydration pLant procurement TM, PE 5 5. 12/96 Mid-term review of all project components TN, PE, ENV, SAF, TRG 10 6. 06/97 Project supervision TM, PE 5 7. 12/97 Project supervision TN, PE 5 6 06/98 Project supervision TN, PE 5 9. 12/96 Project supervision TN, PE 5 10. 06/99 ICR mission TN, PE, ENV, SAF, TRG 10
TM a Task Maneger/FinancialAnalyst PE = PetroleumEngineer PRO u Procurement Specialist ENV a EnvironmentaLSpecialist TRC * Training Specialist SAF a Safety Specialist - 89 - ANNEX 4.10 PAGE 2 OF 2
Performance Indicators
FY95 FY96 FY97
Private Sector Participation
1) Divestment of GOB's shareholding in OCs: - amount (US$ million) - % of total GOB Equity
2) IOCs' Involvement: - no. of PSCs in execution - seismic work completed (km) - no. of wells drilled - reserves proved up (BCF) - no. of production wells completed - gas production (BCF) - capital spending (US$ million)
3) other Investment taken-up by the private sector (US$ million)
Gas Pricing
- end-user gas tariffs (Tk/MCF) % of international price of fuel oil - share of GOB Taxation Revenue (I)
-I. Performance of Sector Entities
1) Production - gas production (MMCFD) - No. of producing wells - daily well production rates (MMCFD) - reserves to production ratio (years) - price received (Tk/MCF) - operating expenses (Tk/MCF) - pre-tax margin (Tk/MCF)
2) Transmission Pipelines - capacity (MMCFD) - throughput (MMCFD) - % utilization - revenue base (Tk/MCF) - cash operating expenses (Tk/MCF)
3) Distribution - sales volume (bcf) - distribution loss (%) - accounts receivable (months) - revenue base (Tk/MCF) - marketing & distribution expenses (Tk/MCF) - 90 - ANNEX 4.10 PAGE 2 OF 2
FY95 FY96 FY97
4) Corvorate Performance
a) Financial Performance - rate of return (%) - current ratio - debt/equity ratio (%)
b) Carital spending (USS million) of which: priority investment program (US$ million) - % of self-financing - % of private sector financing
c) Institutional Development - environmental and safety management - management systems improvements - training budget - no. of staff-trained - 91 -
ANNEX5.1
BANGLADESH Sylhet Gas Fields CompanyLimited (SGFCL) IncomeStatement (In Tk million)
18se 1987 1988 1989 1990 1901 1992 1993
SalesRevenue Gross Sales Revenue 263.8 336.9 373.4 454.4 487.7 564.5 560.4 556.1 Lees:Excise Duties 151.0 240.5 278.5 324.7 345.3 316.8 306.0 328.4
Net Sales Revenue 112.8 96.4 94.9 129.7 142.4 247.7 254.4 227.7
Operating Expenses Salaries & Wages 8.2 8.7 10.6 14.8 17.4 19.1 23.8 25.2 Repairs & Maintenance 2.5 2.2 3.7 3.4 4.0 8.0 3.6 6.0 Administration & ProductionCosts 14.9 25.4 41.6 27.0 20.2 9.5 10.2 10.0 Depreciation & Depletion 15.8 14.2 8.4 17.5 24.8 40.0 31.2 24.1 Others 19.2 29.7 (10.0) 2.1 7.7 18.1 9.1
Total Operating Expenses 60.6 80.2 54.3 64.8 56.4 84.3 86.9 74.4
Operating Income 52.2 16.2 40.6 64.9 76.0 163.4 167.5 153.3
Interest Charges 6.8 4.3 3.0 22.2 21.9 21.9 25.1 23.3 FOREXLosses 0.0 0.0 0.0 1.0 1.1 1.2 1.4 1.5
Net IncomeBefore Tax 45.4 11.9 37.6 41.7 53.0 140.3 141.0 128.5
Other Income 23.2 20.4 22.9 25.9 20.7 12.9 19.7 22.2
Provision of Workers' Profit ParticipationFund 3.4 1.6 3.0 3.4 3.5 7.8 8.0 7.5
IncomeTax 32.6 14.6 28.4 33.2 36.3 72.7 68.7 64.5
NetIncome After Tax 32.6 16.0 29.0 31.0 33.9 72.7 84.0 78.7 ...... 5 77 ....0...... 7 ...... 3% .3%
Returnon Not FixedAssets 43.5%e 23.546 37.7qF 53.0%b 48.74b e7.8% es.34b e7.34% - 92 -
ANNEX5.1
BANGLADESH Sylhet Gas Fields CompanyLimited (SGFCL) Balance Sheet (In Tk million)
1986 1987 1988 1989 1990 1991 1992 1993
Fixed Assets Gross Fixed Assets 162.0 164.5 176.1 209.2 220.0 293.4 306.6 313.2 Accumulated Depreciation 71.4 82.2 88.4 96.2 104.2 130.0 150.6 165.9
Net Fixed Asets 90.6 82.3 87.7 113.0 115.8 163.4 156.0 147.3
Capital Work-in-Progress 0.7 0.5 5.4 4.9 1.0 1.0 12.6 3.0 Prospecting Expenditures 73.0 70.1 68.4 288.6 281.3 271.6 260.6 252.6 Project Dev - Wells 7 & 8, Chattak OilField 35.1 221.7 244.9 37.1 83.5 95.4 112.6 132.7 DeferredCharges - FOREX 0.0 0.0 0.0 19.8 20.1 23.5 41.7 44.3 IntracompanyAccount 107.9 120.6 120.8 146.9 172.0 112.4 194.4 201.2
Current Assets Cash and Bank Balances 184.4 220.8 258.9 280.3 91.2 163.5 248.1 270.6 Accounts Receivable 104.9 112.8 191.5 203.1 159.0 155.1 182.0 192.6 Stores and Spares 57.3 90.2 85.4 120.6 123.6 123.6 73.8 79.4 Advances,Deposits & Prepayments 7.7 18.1 24.6 7.7 8.8 133.4 190.5 194.8
Total Current Assets 354.3 441.9 560.4 611.7 382.6 575.6 694.4 737.4
TOTAL ASSETS 661.6 937.1 1087.6 1222.0 1056.3 1242.9 1472.3 1518.5
Equity Capital 104.3 104.3 104.3 104.3 160.5 150.6 150.5 180.6 Reserves& Retained Earnings 159.7 197.9 213.0 286.3 272.3 329.6 391.7 484.5
Total Equity 264.0 302.2 317.3 390.6 422.8 480.1 542.2 645.0
FOREX Reserve 20.8 22.2 26.9 45.5 56.3 Long Term Debt 157.3 338.7 360.0 40e.3 442.1 431.6 477.5 460.9
Current Liabilities Accounts Payable 173.4 272.9 357.4 367.1 7.3 0.3 1.4 1.3 Excise Duty Payable 96.7 77.2 109.8 88.5 Interest Payable 19.7 19.5 19.8 19.1 Worker's Profit Participation Fund 10.8 5.5 4.3 5.3 7.5 7.6 8.2 7.5 Income Tax 35.1 -2.5 28.4 11.7 37.9 195.3 263.9 248.9 Others 1.3 0.9 0.4 1.1 19.9 23.9 23.8 10.1
Total Current Liabilities 240.3 296.3 410.3 404.3 166.3 304.3 407.1 356.3
TOTAL EQUITY AND LIABILITIES 661.6 937.1 1087.6 1222.0 1056.4 1242.9 1472.3 1518.5 U...... am ...... a......
Current Ratio (times) 1.5 1.5 1.4 1.5 2.3 1.9 1.7 2.1 Accounts Receivable (months) 4.8 4.0 6.2 5.4 3.9 3.3 3.9 4.2 Debt as % of Debt and Equity 37.3% 52.9% 53.2% 52.2% 52.3% 48.9% 49.1% 44.5%6 - 93 -
ANNEX5 1
BANGLADESH ylhetGas Filids CompanyUmited (SGFCL) Funds Flow Statement (In Tk mllilon)
1986 1987 1988 1989 10w 1901 1902 1903
Sources Operating Income 52.2 16.2 40.6 64.0 76.0 163.4 167.5 183.3 Charges Not Requiring Funds: DeprecIation 15.3 14.2 8.4 17.5 24.8 40.0 31.2 24.1
IntemalCash Generation 68.0 30.4 49.0 32.4 100.8 203.4 108.7 177.4
Other Income 23.2 20.4 22.9 25.9 20.7 12.9 19.7 22.2 Equity Contribution 104.S 0.0 0.0 0.0 46.2 0.0 0.0 0.0 New Long-Term Borrowings 26.3 185.4 11.5 52.5 36.6 0.3 60.2 0.0 Interest CapItlzed 0.0 8.0 16.0 0.0 7.6 -4.8 0.0 0.0 FOREXAdjustment 0.0 0.0 0.0 20.8 1.4 4.7 18.0 10.8 RetainedEamings Adjustment 0.0 32.1 0.0 47.3 -47.9 1.0 1.0 47.6
Total Sources 221.3 276.3 90.4 228.9 165.4 217.5 29U.2 257.9 is ......
Uer Capital Works 162.7 2.3 16.5 33.1 6.9 73.4 24.4 -2.2 Development- Gas and Oil Wells 35.6 116.6 23.2 21.6 55.9 16.4 17.2 20.1 DeferredCharges - FOREX 0.0 0.0 0.0 19.3 0.3 3.4 13.2 2.6
Debt Service Amortizationof principal 51.7 12.0 6.2 6.2 8.4 6.0 14.3 16.6 Interest 6.5 4.3 3.0 22.2 21.9 21.9 25.1 23.3
Total Debt Service 58.5 16.3 9.2 23.4 30.3 27.9 39.4 39.9
FOREX Losses 0.0 0.0 0.0 1.0 1.1 1.2 1.4 1.5 Provision for Workers' PPF 3.4 1.6 3.0 3.4 3.6 7.8 8.0 7.5 IncomeTax 32.6 14.6 28.4 33.2 36.3 72.7 68.7 64.5 Contribution to Exchequer 15.0 10.0 13.9 5.0 0.0 16.4 22.9 23.4 Intracompanyaccount 107.9 12.7 0.2 26.1 25.1 -56.6 82.0 6.8 Inc (Dec) in Working Capital -193.9 32.2 4.9 57.3 5.9 58.0 1o.0 93.8
Total Use 221.8 276.3 99.4 223.9 106.3 217.6 296.2 257.9 ..... ann a.... am=. a.an .... a aama .....
Debt Service Coverage 1.0 2.2 4.7 2.6 2.8 5.1 3.3 3.3 - 94 -
ANNEX5.1
BANGLADESH BangladeshGas FieldsCompany Limited (BGFCL) IncomeStatement (In Tk million)
1986 1987 1988 1989 1990 1991 1992 1993
Sales Revenue Gross Sales Revenue 1556.4 2041.3 2560.6 3164.9 4806.2 5149.2 5917.2 7468.3 Less: Excise Duties 1386.1 1839.5 2299.1 2846.7 4358.5 4343.0 4097.7 6045.1
Net Sales Revenue 170.3 201.8 261.6 308.2 447.7 806.2 910.5 1423.2
Operating Expenses Salaries& Wages 10.5 9.7 10.9 15.9 21.6 27.6 49.8 55.9 Repairs& Maintenance 2.3 2.4 1.9 1.6 9.2 30.0 20.7 33.7 Administration 21.9 32.7 36.0 19.3 28.8 19.5 18.2 33.1 Productionand Field Expenses 28.8 49.1 64.6 70.9 78.0 75.5 29.9 35.0 Depreciation (incl depletion of gas wells) 16.4 76.0 69.9 136.8 198.8 200.0 240.0 276.1 Amortizationof explo/drilling costs/forex 6.5 11.3 11.3 11.3 11.3 6.8 2.0 2.1
Total Operating Expenses 86.5 181.2 194.5 255.8 347.7 359.4 360.6 435.9
Operating Income 83.8 20.6 67.0 52.4 100.0 446.8 558.9 987.3
Interest Charges 34.6 92.7 81.6 129.5 286.4 315.7 183.7 181.4 FOREXLosses 0.0 0.0 0.0 7.6 55.0 68.5 90.9 101.1
Net Income Before Tax 49.2 (72.1) (14.6) (84.7) (241.4) 62.6 284.3 704.8
Other Income 35.2 33.6 26.4 74.2 121.8 54.4 74.9 118.1 Provision of Workers' Profit ParticipationFund 4.2 - 0.6 -. - 5.9 17.9 41.1 IncomeTax 40.1 - 5.6 - - 55.5 153.6 351.8
Net Income After Tax 40.1 (38.5) 5.6 (10.5) (119.6) 55.6 187.7 430.0 ...... ------* * - - --
Return on Net Fixed Assets 33.9% 8.7% 7.4% 6.0% 5.5% 11.2% 11.1% 17.5% - 95 -
ANNEX 5.1
BANGLADESH BangladeshGas FieldsCompany Limited (BGFCL) Balance Sheet (In Tk million)
1986 1987 1988 1989 1990 1991 1992 1993
Fixed Assets Gross Fixed Assets 348.4 1240.1 1606.1 3095.7 4075.5 4129.3 4596.8 4977.2 Accumulated Depreciation 128.0 214.2 283.4 435.2 685.5 877.5 1151.0 1427.9
Net Fixed Assets 220.4 1025.9 1322.7 2060.5 3390.0 3251.8 3445.8 3549.3
Capital Work-in-Progress 391.0 159.0 390.7 366.1 273.3 475.3 92.0 572.2
DeferredCharges - Exploration 36.5 72.4 61.2 49.9 38.7 31.9 6.2 4.1
Deferred Charges- FOREX 0.0 0.0 0.0 972.4 1138.8 1442.4 1803.5 2040.0
Current Assets Cash andBank Balances 243.9 271.2 216.5 350.4 455.8 416.4 840.3 1345.2 Accounts Receivable 718.5 1496.4 1817.1 2871.8 2538.8 2170.9 1977.6 2445.7 Storesand Spares 18.7 25.9 27.5 89.5 68.6 68.6 66.5 74.5 Advances,Deposits & Prepayments 63.5 92.6 89.3 109.4 140.7 92.2 60.3 OtherB 17.5 22.9 13.9 41.9 13.3 283.4 103.3 158.1
Total Current Assets 1062.1 1909.0 2164.3 3483.0 3217.2 2939.3 3079.9 4083.8
TOTAL ASSETS 1710.1 3166.4 3939.0 7511.9 8058.0 8140.7 8427.4 10258.4 ...... mfln ..=.... a ... am
Equity Capital 230.5 230.5 230.5 270.8 244.0 244.3 1773.0 2041.4 Reserves& Retained Earnings 323.3 289.3 294.6 -15e.1 125.8 178.1 339.5 779.3
Total Equity 553.8 519.8 525.1 114.7 369.8 422.4 2112.5 2820.7
Long Term Debt 397.1 935.6 1339.7 3818.6 4214.7 4757.4 3484.7 3924.6
Current Liabilities Excise Duty Payable 670.6 1445.1. 1719.4 2181.4 2427.4 1783.0 1563.2 1939.6 Interest Payable 51.0 120.3 194.6 944.8 897.9 975.9 1064.9 1141.9 Worker's Profit Participation 4.2 - 0.6 - 5.9 18.0 41.1 Provision for Employees'Gratuity 3.9 4.4 6.0 6.6 15.5 17.3 22.4 25.9 Income Tax - 0.0 5.6 0.0 0.0 55.6 153.6 351.8 Others 29.4 141.2 148.0 445.8 132.8 123.2 8.1 12.8
Total Current Liabilities 759.1 1711.0 2074.2 3578.6 3473.6 2960.9 2830.2 3513.1
TOTALEQUITYANDLIABILITIES 1710.0 3166.4 3938.9 7511.9 8058.1 8140.7 8427.4 10258.4 *---- *----*---- s--=-*--....-s- ......
Current Ratio (times) 1.4 1.1 1.0 1.0 0.9 1.0 1.1 1.2 Accounts Receivable (months) 5.5 8.8 8.5 10.9 6.3 5.1 4.0 3.9 Debt as % of Debt and Equity 41.8% 64.3% 71.8% 97.1 % 91.9% 91.8%O 62.3% 58.2% - 96 - ANNEX5.1
BANGLADESH BangladeshGas Fields CompanyLimited (BGFCL) Funds Flow Statement (In Tk million)
1986 1987 1988 1989 1990 1991 1992 1993
Sources Operating Income 83.8 20.6 67.0 62.4 100.0 446.8 558.9 987.3 Charges Not Requiring Funds: Depreciation 16.4 76.0 69.9 136.8 198.8 200.0 240.0 276.1 Amortization 6.5 11.3 11.3 11.3 11.3 6.8 2.0 2.1
Internal Cash Generation 106.8 107.8 148.1 200.5 310.1 653.6 800.9 1265.5
Other Income 35.2 33.6 26.4 74.2 121.8 64.4 74.9 118.1 Equity Contribution/Conversion 0.0 0.0 0.0 40.3 -26.8 0.3 1528.7 268.4 New Long-Term Borrowings 156.4 649.2 478.2 372.2 130.8 360.5 79.4 591.1 FOREXAdjustment 980.0 175.6 240.9 407.3 346.6 Long Term Debt from BGSL 1140.2 160.3 Depreciation from BKB - - - 80.9 -80.9 0.0 0.0 0.0 Retained Earnings Adjustment 1.1 -39.9 -3.3 -2.2 169.4
Total Sources 298.3 600.7 652.7 2889.4 751.0 1312.4 2889.0 2760.1
...... 0
Uses Capital Works 196.2 659.7 597.8 310.0 676.8 263.8 50.7 850.8 Assetsfrom BKB - - - 1140.0 158.7 0.0 - - Delerred Charges- Exploration 0.0 47.2 0.0 0.0 0.0 0.0 -23.7 0.0 DeferredCharges- FOREX 0.0 0.0 0.0 072.4 186.4 303.6 361.1 245.5
Debt Service Amortization - principal 4.0 10.8 74.1 13.5 70.6 64.7 230.7 277.7 Amortization - forex 220.1 Interest 34.6 92.7 81.6 129.5 286.4 315.7 183.7 181.4
Total Debt Service 38.6 103.5 155.7 143.0 357.0 380.4 414.4 679.2
Debt Converted to Equity 0.0 1528.7 0.0 FOREX Losses 0.0 0.0 0.0 7.6 55.0 68.5 90.9 101.1 Provision for Workers' PPF 4.2 0.0 0.6 0.0 0.0 5.9 17.9 41.1 Income Tax 40.1 0.0 5.e 0.0 0.0 55.5 153.6 351.8 Loss on Bakhrabad I Dividends 522.2 -522.2 0.0 24.1 159.6 Inc (Dec)in Working Capital 19.2 -119.6 -107.0 -205.8 -140.7 234.7 271.3 321.0
Total Uses 298.3 690.7 652.7 2889.4 751.0 1312.4 2889.0 2759.1
Debt Service Coverage 2.4 1.4 1.1 1.9 1.1 1.5 1.4 1.2 - 97 - ANNEX6.1
BANGLADESH Titas GasTransmission and DistributionCompany (TGTDC) Income Statement (In Tk million)
1986 1987 1988 1g89 19w 1991 1992 1993
Groes Sales Revenue 1702.0 2371.8 3152.9 3606.7 4362.7 5321.0 6172.1 7343.7 Less: Excise Duty 1374.0 1932.0 2623.0 2945.4 3309.8 3514.8 3826.1 6762.6 Producers'Take 99.6 161.6 215.3 261.0 331.7 416.9 723.9 Contribution to BAPEX 105.2 115.7 146.6 Transmission Charge 251.6
Net SalesRevenue 228.4 278.2 414.6 400.3 721.2 1284.1 1506.4 1182.9
Operating Expenses Salarles & Wages 93.6 96.3 127.6 137.6 163.3 177.7 217.6 248.8 Repairs& Maintenance 17.2 20.8 20.0 20.8 24.9 28.7 32.4 37.6 Administration 19.8 27.8 36.1 67.2 40.4 47.7 44.8 53.5 Provision for Doubtful Debts 4.6 4.6 5.6 5.6 6.7 65.6 167.4 38.2 Depreciation 62.9 89.2 107.0 129.4 151.7 208.7 255.8 273.1 Miscellaneous 1.0 1.7 7.5
Total Operating Expenses 199.0 239.4 303.8 360.5 377.0 528.4 708.0 649.1
NetOperating Income 29.4 38.8 110.8 39.8 344.2 755.7 798.4 533.8
Interest Charges 56.1 108.9 108.4 111.2 130.1 120.7 296.4 285.0 Provision of Workers' Profit ParticipationFund 2.5 0.5 4.8 1.0 14.8 34.7 30.7 19.3 Other Operating Income 22.0 7.1 12.2 13.3 14.6 31.7 96.4 104.4 Interest Income 86.1 75.5 86.6 78.3 82 1 61.4 46.7 61.5
NetIncome Before Tax 49.9 12.0 96.4 19.2 296.0 693.5 614.4 386.4
Provision for Tax 29.9 6.0 48.2 10.0 163.2 368.9 307.2 192.7
NetIncome After Tax 20.1 6.0 48.2 9.3 142.8 334.6 307.2 192.7
Return on Net Fixed Assets 12.5% 14.2% 13.0% 8.3% 17.4% 18.7% 18.6% 12.0% - 98 -
ANNEX5.1
BANGLADESH Titas Gas Transmissionand Distribution Company(TGTDC) Balance Sheet (In Tk million)
1986 1987 1988 1989 1990 1991 1992 1993
Fixed Assets Gross Fixed Assets 1007.1 1507.0 2000.1 2230.4 2514.8 4302.9 4597.4 6294.9 Accumulated Depreciation 404.0 492.8 599.0 726.0 874.9 1080.0 1336.0 1608.1
Net Fixed Assets 603.1 1014.2 1401.1 1504.4 1639.9 3222.9 3261.4 4686.8
Capital Work-in-Progress 443.3 288.4 137.6 122.5 726.2 250.8 928.8 498.4 Other Long Term Assets 355.1 519.e 556.0 874.7 748.7 IntracompanyAccount -8.7 24.4 -47.3 -91.4 -100.4 0.0 0.0 0.0
Current Assets Cash & Bank Balances 208.1 251.9 150.9 243.9 274.4 220.9 268.3 409.1 Accounts Receivable- net 660.7 1229.8 1400.2 1551.7 1792.7 2728.7 2609.4 2528.0 Stores& Spares 280.2 266.6 332.4 354.3 333.5 338.0 304.7 259.2 Advance& Prepayments 113.0 241.5 328.0 194.4 208.8 387.9 235.9 390.9 Others 223.5 223.5 234.5 22.5 50.9 50.9 0.0 0.0
Total Current Assets 1491.5 2213.3 244e.0 2366.8 2660.3 3724.4 3418.3 3593.2
TOTAL ASSETS 2529.2 3538.3 3937.4 4257.4 5445.6 7754.1 8283.2 9527.1 .. fl...... ,l...... a. . f . .
Equity Capital 220.5 220.5 262.5 280.6 297.1 803.1 743.1 831.3 Retained Earnings 82.4 120.1 174.5 166.2 358.4 863.4 902.4 1004.2
Total Equity 302.9 340.6 437.0 446.8 655.5 1266.5 1645.5 1835.5
Long Term Debt 10U4.7 1143.1 1141.2 1203.9 1840.9 2828.9 3475.3 4341.2 Other Long Term Liabilities 139.5 226.1 259.0 173.7 196.5
Current Liabilities Payable for Gas Purchase 665.6 1501.1 1679.0 1867.8 1912.2 1739.0 1482.7 1840.2 Payable for Goods & Services 30.9 58.5 149.7 45.7 74.2 544.5 301.0 215.5 Interest Payable 184.4 218.8 228.0 294.2 336.7 476.9 469.2 511.7 Tax Payable 83.9 29.4 32.9 16.9 112.1 272.4 319.8 61.3 WorkerseProfit-Sharing Fund 6.2 4.4 4.7 0.6 16.0 42.6 40.5 20.5 Security Deposits 190.6 242.6 264.9 242.0 271.9 324.3 376.5 504.7
Total Current Uanilities 1161.6 2054.7 2359.2 2467.2 2723.1 3399.7 2988.7 3153.9
Total Equity & Liabilities 2529.2 3538.3 3937.4 4257.4 5445.6 7754.1 8283.2 9527.1
UflU f.a ..... a...M.= ...... a......
Current Ratio (times) 1.3 1.1 1.0 1.0 1.0 1.1 1.1 1.1 Accounts Receivable (months) 4.7 6.2 5.3 5.2 4.9 6.2 5.1 4.1 Debt as % of Debt and Equity 77.9% 77.0% 72.3% 75.0% 75.9% 70.9% 68.9% 71.2% - 99 -
ANNEX 5.1
BANGLADESH Titas Gas Transmission and Distribution Company (TGTDC) Funds Flow Statement (In Tk million)
1986 1987 1988 1989 1990 1991 1992 1993
SOUrces Operating Income 29.4 38.8 110.8 39.8 344.2 755.7 798.4 533.8 Charges Not Requiring Funds: Depreciation 82.9 89.2 107.0 129.4 151.7 208.7 255.8 273.1 Provision for Doubtful Debts 4.6 4.6 8.6 5.6 6.7 65.6 157.4 38.2
Internal Cash Generation 96.9 132.6 223.4 174.8 502.6 1030.0 1211.6 845.1
Interest and Other Income 78.1 82.6 98.8 91.6 96.7 93.1 143.1 165.9 Equity Contribution 0.0 0.0 42.0 18.1 16.5 306.0 -180.0 88.2 Debt Converted to Equity 0.0 0.0 0.0 0.0 0.0 0.0 320.0 0.0 New Long-Term Borrowings 231.5 138.4 75.9 99.7 693.0 1063.4 1034.8 921.7 Other Long Term Liabilities 139.5 86.6 32.9 -85.3 22.8 Retained Eainings Adjustment -1.0 46.6 19.5 -14.4 49.4 -29.6 22.7 10.6
Total Sources 405.5 400.2 459.6 509.3 1444.8 2495.8 2486.9 2044.3
...... * ......
Uses Capital Expenditure 373.0 343.4 345.1 217.6 890.9 1316.3 972.3 1268.1
Debt Service Amortization of principal 26.1 60.0 77.8 37.0 56.0 75.4 68.4 55.8 Interest 65.1 108.9 108.4 111.2 130.1 120.7 296.4 285.0
Total Debt Service 81.2 168.9 186.2 148.2 186.1 196.1 364.8 340.8
Debt Converted to Equity 0.0 0.0 0.0 0.0 0.0 0.0 320.0 0.0 Provision for Workers PPF 2.5 0.5 4.8 1.0 14.8 34.7 30.7 19.3 Income Tax 29.9 6.0 48.2 10.0 153.2 358.9 307.2 192.7 Payment to Exchequer 15.0 15.0 13.3 3.2 0.0 0.0 90.9 101.5 Other Long Term Assets 355.1 164.5 36.4 118.7 74.0 Intracompany Account -8.7 33.1 -71.7 -44.1 -9.0 100.4 0.0 0.0 Inc (Dec) in Working Capital -87.3 -166.7 -66.2 -181.6 44.3 453.1 262.3 47.9
Total Uses 405.5 400.2 459.7 509.3 1444.8 2495.8 2486.9 2044.3
...... ,,,.,,, ,,, ______
Debt Service Coverage 1.2 0.8 1.2 1.2 2.7 5.3 3.3 2.5
1 0-Apr-95 Hidt_FS Page 9 -- 100 -
ANNEX S.1
BANGLADESH BakhrabadGas Systems Limited (BGSL) IncomeStatement (In Tk million)
1986 1987 1988 1989 1990 1991 1992 1993
GrossSales Revenue 478.0 904.1 1323.3 1510.6 1816.6 2190.3 2603.4 M7.4 Loes: ExciseDuties and DevSurcharge 340.0 675.1 1014.8 1078.0 0.0 0.0 0.0 0.0 Contributionto BAPEX 43.1 49.7 30.6
Net SalesRevenue 136.1 229.0 308.5 432.6 1816.6 2147.2 2553.7 1648.8
OperatingExpeness Gas Purchases 120.4 1439.7 1619.7 1045.2 1118.1 Salaries and Wages 14.2 20.5 27.4 33.4 42.7 61.9 63.5 76.5 Repairs and Maintenance 2.4 6.1 6.5 10.5 13.4 9.9 14.6 19.6 Administration 20.8 43.0 62.2 69.9 47.2 35.1 29.0 32.0 Depreciation & Depletion 17.5 144.5 163.6 152.5 172.0 225.0 228.0 233.9 Amortization - Pre-op expenses 0.0 0.0 0.2 0.2 0.2 0.2 0.2 0.0 Others 5.1 2.3 8.0 8.7 11.2 21.9 34.6 44.0
Total Operating Expenses 60.0 216.4 266.9 385.6 1726.4 1963.7 2315.1 1524.6
Operating Income 76.0 12.6 41.6 47.0 90.2 183.5 238.6 24.2
Interest Charges 184.2 155.6 52.1 247.9 445.4 405.9 351.8 348.8 FOREX Losses 40.7 57.1 69.8 69.3 16.7 53.1 93.6 71.4
Net Income Before Tax (148.9) (200.1) (60.3) (270.2) (371.9) (275.5) (206.8) (396.0)
Interest Income on Deposits 9.6 12.4 46.1 49.4 56.2 51.3 42.0 59.3 OtherInc (Exp)incl LineRent trom TGTDC 15.9 41.8 25.0 17.7 37.5 36.7 46.9 301.9 Provision for Workers' PPF ------Income Tax
Net IncomeAfter Tax (123.4) (145.9) (9.2) (203.1) (278.2) (187.5) (117.9) (34.8) ...... a
Returnon Net Fixed Assets 2.2% 0.2% 0.7% 0.8% 3.2% 3.6% 3.5% 4.6%
10-Apr-96 Hist_FS Page10 ANNEX 5.1
BANGLADESH Bakhrabad Gas Systems Limited (BGSL) Balance Sheet (In Tk million)
198e 1987 1988 1989 19o9 1991 1992 1993
Fixed Assets Gross Fixed Assets 2863.8 6234.1 6524.9 5668.1 6059.9 7739.5 8231.3 8463.6 Accumulated Depreciation 98.4 300.0 533.4 602.3 759.5 1065.4 1387.4 1700.3
Net Fixed Assets 2765.4 5934.1 5991.5 5065.8 5300.4 6674.1 6843.9 6763.3
Work-in-Progress 4442.4 1860.8 2182.4 1439.0 1562.1 63.3 31.9 255.2 Deferred Charges 1.2 1.2 1.0 0.7 0.5 0.2 0.0 0.0 lntracompany Account 429.8 38.3 (1.3) -19.9 -8.2 0.0 0.0 0.0
Current Assets Cash and Bank Balances 168.5 321.5 533.7 732.5 449.2 34e.6 614.2 830.8 Accounts Receivable 148.4 306.3 394.5 413.6 469.8 613.8 6e5.2 301.8 Stores and Spares 545.1 596.5 813.7 516.5 440.6 527.2 500.4 471.4 Advancess Deposits & Prepayments 76.7 52.6 54.8 107.0 140.5 158.0 150.4 106.4 Others 7.5 3.8 84.4 32.0 12.7 5.2 2.4 136.2
Total Current Assets 946.3 1370.6 1681.1 1801.6 1512.8 1165.7 1841.6 1846.6
TOTAL ASSETS 8585.1 9205.0 9854.7 8287.2 8367.6 8388.3 8717.4 865.I1
......
Equity Capital 857.6 857.6 1244.0 2971.4 2981.9 2981.9 3451.3 3539.8 Reserves& Retained Eamings (179.4) (327.8) (336.9) (973.9) (1,244.8) (1.367.3) (1,480.5) (1,588.3)
Total Equity 678.3 529.8 907.1 1997.5 1737.1 1614.6 1970.8 1951.5
Long Term Debt 6062.1 6607.5 6801.8 4463.7 4236.2 4235.4 3928.7 4006.5
Current Liabilities Accounts Payable - Goods & Services 74.9 99.1 43.9 61.2 58.9 50.7 719.1 387.8 Excise Duties. Payable 171.2 357.8 588.9 589.9 141.4 3.3 3.3 3.3 Interest Payable 1502.3 1445.8 1445.8 1067.8 1522.0 164.8 1854.6 2135.8 IncomeTax Payable 0.0 Provision fo Gratuity 2.2 4.3 6.7 8.2 17.0 22.2 49.8 Others 94.1 70.6 60.5 98.9 672.0 812.6 21S.7 240.4
Total Current Uabililies 1844.7 1977.6 2145.8 1826.0 2394.3 2538.4 2817.9 2817.1
TOTAL EQUITY AND LIABILITIES 8585.1 9205.0 9854.7 8287.2 8367.e 8388.3 8717.4 U6s5.1 . a...... l ......
Current Ratio (times) 0.5 0.7 0.8 1.0 0.6 0.7 0.7 0.7 Accounts Receivable (months) 3.7 5.3 3.6 3.3 3.1 3.4 2.6 2.3 Debt as% of Debt andEquity 89.9% 92.7% 88.2% 69.1 % 70.9% 72.4% 66.6% 67.7%
10-Apr-OS Hit_FS Page1 1 ANNEX 5.1
BANGLADESH Bakhrabad Gas Systems Limited (BGSL, Funds Flow Statement (In Tk million)
1986 1987 1988 1989 1990 1991 1992 1993
Sources Operating Incorme 76.0 12.6 41.6 47.0 90.2 183.5 238.6 24 2 Charges Not Requiring Funds: Depreciation 17.5 144.5 163.6 152.5 172.0 225.0 228.0 233.9 Amortization - Preoperating Exp 0.0 0.0 0.2 0.2 0.2 0.2 0.2 0.0
Internal Cash Generation 93.5 157.1 205.5 199.7 262.4 408.7 466.8 258.1
Interest Income 9.6 12 4 46.1 49 4 56.2 51.3 42 59.3 Other Income 15.9 41.8 25.0 17.7 37.5 36.7 46.9 301.9 Equity Contribution 144.9 0.0 44.3 1083.4 10.5 0.0 34.3 86.5 DebttoEquityConversion 0.0 0.0 342.1 e44.0 0.0 0.0 435.1 0.0 Borrowings 434.3 500.9 330.1 259.2 96.3 129.7 69.7 196.5 FOREXAdjustment 730.5 276.2 236.6 121.0 319.3 110.6 328.7 180.9 Asaetstrandered to BGFCL 0.0 0.0 0.0 2448.9 -29.8 63.1 1.4 13.9 Retained Earnings Adjustment 1.6 0.0 0.0 -433.9 7.4 65.0 4.8 -73.0
Total Sources 1430.4 968.4 1229.7 4389.4 759.8 865.1 1449.7 1026.1 ~~~...., ...... - ...... -.
Uses Capital Works 1321.0 569.6 445.6 874.1 214.0 122.0 131.5 352.4 FOREX capitalized 689.8 219.1 11688 51.7 302.6 04.1 329.9 109.5
Debt Service Amortization - principal 196.4 84.6 60.5 24.4 442.3 165.2 196.4 175.6 Amortization - arex 91.1 Interest 184.2 155.6 52.1 247.9 446.4 405.9 351.8 348.8
Total Debt Service 379.6 240.2 102.6 272.3 887.7 571.1 64.2 616.4
FOREX Lossea 40.7 57.1 69.8 69.3 16.7 53.1 03.6 71.4 Provision 70rWorkers PPF 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Income Tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Contribution to Exchequer 2.5 2.5 0.0 0.0 0.0 0.0 0.0 0.0 Debt to Equity Conversion 0.0 0.0 342.1 644.0 0.0 0.0 436.1 0.0 Debt Transferred to BGFCL 0.0 0.0 0.0 2485.8 184.1 22.8 0.0 -128.4 IntracomprnyAccount 429.8 -391.5 -s9.6 -18.6 11.7 8.2 0.0 0.0 Inc (Dec) inWorking Capital -1433.1 291.4 142.4 10.8 -857.0 .4.2 -4.6 5.8
Tota Uses 1430.3 968.4 1229.7 4380.4 769.8 865.1 1440.7 1026.1 m ...... n an .. .M. ..-- nn
Debt Service Coverage 0.2 0.6 2.0 0.7 0.4 0.8 0.8 0.9
10-Apr46 HMitFS Page12 ANNEX5.1
BANGLADESH JalalabadGas Transmission & DistributionSystem Ltd. (JGTDSL) IncomeStatement (In Tk million)
1988 1987 1988 1969 1990 1991 1992 1993
SalesRevenue GrossSales Revenue 238.2 309.7 512.3 647.2 507.3 671.4 610.9 700.8 Less: CostotGas 175.3 227.3 398.9 421.8 400.1 408.9 396.8 511.9 Contributionto BAPEX 11.2 12.0 13.8
Net SalesRevenue 62.9 82.4 113.4 125.4 107.2 151.3 200.1 175.1
OperatingExpenses Salaries&Wages 7.4 9.4 10.9 14.6 18.3 18.7 24.9 33.1 Repairs& Maintenance 0.8 0.2 0.7 0.8 1.6 2.0 1.6 2.6 Administratlon 6.2 16.5 15.0 20.8 27.2 16.7 9.9 12.1 Depreciation 27.5 27.9 35.7 39.6 40.0 41.4 43.6 43.6 Provisionfor Bad Debts 0.3 0.3 0.5 2.1 2.2 Miscellaneous 0.1 0.3 0.3 0.3 0.1 0.1 0.2 0.0
Total OperatingExpenses 41.0 54.4 02.6 76.4 87.5 79.4 82.1 93.6
NetOperating Income 21.9 28.1 50.8 49.0 19.7 71.9 118.0 81.6
OtherIncome 12.7 17.4 24.1 31.6 39.1 33.5 39.0 38.3 InterestCharges 28.4 31.8 25.3 38.8 38.7 37.7 35.0 31.8 Provisionof Workers'Profit Participation Fund 0.3 0.7 2.5 2.1 1.0 3.2 5.8 4.2
Net IncomeBefore Tax 5.9 13.0 47.1 39.7 19.1 64.5 116.2 83.9
IncomeTax 2.7 5.8 21.2 25.1 12.1 27.5 64.8 48.6
Net IncomeAfter Tax 3.2 7.2 26.9 14.6 7.0 37.0 51.4 35.3 -W=...... -...... a...
Returnon Net FixedAssets 12.1% 14.2% 17.9% 16.8% 16.8% 29.9% 33.0% 32.4%
10-Apr-OS HIltFS Page13 ANNEX 5.1
BANGLADESH Jalalabad Gas Transmission& Distribution System Ltd. (JGTDSL) Balance Sheet (In Tk million)
lse 1987 1988 1989 10 191 1992 1w93
Fixed Assets Gross Fixed Assets 312.0 364.8 398.5 437.6 451.6 475.8 492.8 521.3 Accumulated Depreciation 49.9 77.8 113.5 153.1 193.1 235.0 278.5 322.0
Net Fixed Assets 262.1 287.1 285.1 284.5 258.5 240.8 214.3 199.3
Capital Work-in-Progress 14.4 6.0 6.1 3.6 4.8 7.8 13.7 8.7
Current Assets Cashand Bank Balances 131.2 165.3 288.3 336.2 30O.1 299.1 321.4 316.8 AccountsReceivable - net 98.7 135.1 180.7 180.1 165.4 298.8 427.2 457.3 Stores*nd Spares 97.4 91.4 69.4 56.2 54.8 48.4 41.1 47.8 Others 6.5 8.8 26.4 35.1 37.9 49.7 76.7 167.3
Total Current Assets 333.8 400.6 564.8 607.6 564.2 69e.0 e86.4 989.2
TOTAL ASSETS 610.30 693.73 856.90 895.7 827.5 944.6 1094.3 1197.1
Equity Capital 0.5 98.8 98.8 98.8 98.8 98.8 98.8 Reserves & Retained Earnings 1.9 7.1 34.0 23.6 78.9 108.8 154.1 1995
Total Equity 1.9 7.6 132.7 122.3 177.7 207.6 252.9 298.3
Long Term Debt 392.4 434.1 334.8 334.8 332.8 314.6 288.6 345.5
Current Labillities Accounts Payable 223.8 123.0 - 177.9 213.5 201.8 Income Tax Payable 55.2 23.3 60.8 115.6 108.5 Interest Payable 115.2 102.7 124.5 133.3 107.9 Others 44.3 67.9 s9.3 90.4 135.1
Total Current Liabilities 215.9 252.1 388.3 438.5 316.9 422.5 552.8 653.3
Total Liabilities 608.3 6e8.2 723.2 773.3 649.7 737.0 841.4 898.8
TOTAL EQUITY AND LIABILITIES 610.3 693.7 855.9 895.6 827.5 944. 1094.3 1197.1
Current Ratio (times) 1.5 1.6 1.5 1.4 1.8 1.6 1.6 1.8 Accounts Receivable (months) 5.0 5.2 4.2 3.9 3.9 6.3 8.4 7.8 Debt as % of Debt and Equity 99.5% 98.3% 71.6% 73.2% 65.2% 60.2% 53.3% 63.7%
10-Apr-95 Hist_FS Page 14 - 1fl5 - ANNEX 5.1
BANGLADESH Jalalabad Gas Transmission & DiBtribution System Ltd. (JGTDSL) Funds Flow Statement (In Tk million)
1986 1987 1988 1989 19o0 1991 1992 1993
Sources Operating Income 31.6 39.0 51.2 63.4 45.7 74.7 86.4 67.1 Add: Non-Cash Charges Depreciation 27.5 27.9 35.7 39.6 40.0 41.4 43.6 43.5 Provision for Bad Debts 0.0 0.0 0.0 0.3 0.3 0.5 2.1 2.2
Internal Cash Generation 59.1 66.9 86.9 93.3 86.0 116.6 132.0 112.8
Equity Contribution 0.0 0.5 -0.0 0.0 0.0 0.0 0.0 0.0 New Long-Term Borrowings 191.5 43.0 0.0 1.0 0.0 0.0 2.8 88.8 Debt Converted to Equity 98.3 Retained Earnings Adjustment 0.5 0.2 0.0 -26.7 45.0 -0.5 -4.9 -1.3 Additional Reserves 8.1 4.4 3.7 3.5 3.4 0.0 6.9 26.9
Total Sources 259.2 115.0 188.9 71.1 134.4 116.1 135.8 227.2
...... = ...... ,,...... *-.....-
Uses Capital Works 164.1 44.5 33.7 38.6 15.2 26.7 22.9 23.5
Debt Service Amortization of principal 1.7 1.3 1.0 1.0 2.0 18.3 28.7 31.9 Interest 28.4 31.8 25.3 38.8 38.7 37.7 35.0 31.8
Total Debt Service 30.0 33.1 26.3 39.8 40.7 56.0 63.7 63.7
Debt Converted to Equity 98.3 Contribution to Exchequer 5.0 6.6 2.8 1.8 0.0 6.7 7.1 15.5 Inc (Dec) in Working Capital 60.0 30.7 27.9 -7.1 78.5 26.7 42.1 124.5
Total Uses 259.1 114.9 188.9 71.2 134.4 116.1 135.8 227.2
..... t ===-w ...- ...... --- ..... *---...... _...... _
Debt Service Coverage 2.0 2.0 3.4 2.4 2.1 2.1 2.2 1.8
10-Apr-95 Hist_FS Page 15 - 106 - ANNEX5.2 Page I of 6
Baneladehl Os WnrstructureDenlooment Proect SylhetOGas Fields Limited-Forecast IncomeStatement (inTk million) FY9S FY96 FY97 FY98 FY99 FY2000
Vdaumoof Sle: Oas(bci 49.6 67.9 76.7 102.9 118.3 125.9 Cad-ate(tilhioelkre) 39.0 11.1 10.4 14.6 17.1 18.3 On Liquida(milcn^lkte) 118.4 161.9 214.1 244.6 259.9
SalenRev:am. as 1753.0 2541.1 3039.1 4357.2 5303.0 6031.1 Ccadumaaeiquids SO4.3 699.7 933.0 197.2 1549.7 1718. TotalGru Reveame 2257.3 3240.8 3972.1 5654.4 6852.7 7750.0
Excie: Gas 1443.7 2076.2 2463.0 3468.9 4185.1 4672.3 OtwerProducts 54.6 15.6 14.6 20 S 23.9 2 Total Excie Duty 1498.3 2091.8 2477.6 3489.4 4209.0 4697.9 Net Rveou 759.0 1149.1 1494.6 2165.1 2643.7 3052.0 Other Income 20.0 20.0 20.0 20.0 20.0 20.0
Oprating Expea: Salaries& wages 33.3 36.7 40.3 44.4 48.8 53.7 Mailtenance 27.0 46.3 46.3 49.9 72.1 127.3 A4winistrmtin, 40.0 44.0 48.4 53.2 58.6 64.4 Deprecistion 163.7 271.7 280.5 344.9 438.9 550.0 Other 12.8 14.0 15.4 17.0 18.7 20.6 To-s Oprwang Expenses 276.7 412.7 431.0 509.4 637.1 816.0 Opertng Income 502.3 756.4 1083.6 1675.7 2026.6 2256.0 Interet Charges 148.1 258.0 256.5 306.9 517.4 677.5 Loesa from Foreign Excange 3.4 566 56.4 85.0 141.0 188.4 IncomabeformTax 350.8 441.8 770.7 1283.8 1368.3 1390.1 Provision of Additional Expenses 17.5 22.1 38.5 64.2 68.4 69.5 Income Tax 141.6 178.4 311.2 518.4 552.4 561.2
Nct Income 191.6 241.3 421.0 701.3 747.4 759.3
Contributionto Development Fund 19.1 28.2 34.2 49.5 61.0 69.5 Retum on Net Fixed As(%) 16.1 12.5 17.1 20.5 15.3 13.7 - 107 - ANNEX 5.2 Page 2 of 6
Bansladesh GasInfrastructure Development Project Svlhet Ga Fields Limited-Forecast Balance Sheet (in Tk million)
FY95 FY96 FY97 FY98 FY99 FY2000 Asset
Fixed Asset Gross Fixed Asst in Usw 4633.3 4633.3 4985.7 7212.1 12733.0 12767.8 Les Accu. Depreciati 30.2 36.9 777.4 1082.3 1481.2 1991.2 Not Fixed Assets 4328.1 4096.4 4208.4 6129.8 11251.8 10776.6 Capital Work-in-Progres 211.8 1404.7 3470.9 4605.6 37.8 3.0 Deferred Charges 349.6 309.6 269.6 229.6 189.6 149.6 Current Assets Cash & Bank Balance 693.0 659.7 474.3 312.5 899.3 2018.5 Accounts Receivable(trade) 189.8 287.3 373.6 541.3 660.9 763.0 Accounts Recelvable(intra group) Inventories 139.0 139.0 149.6 216.4 382.0 383.0 Advances& Prepayment 20.3 113.7 225.6 306.7 76.5 0.0 Total Current Asscts 1042.0 1199.7 1223.1 1376.8 2018.7 3164.6
Total Assets 5931.5 7010.3 9172.0 12341.8 13498.0 14093.8
Equity GOB Equity 1446.5 1446.5 1446.5 1446.5 1446.5 1446.5 Retained Earnings 689.0 930.3 1351.3 2052.6 2800.0 3559.3 Contribution to Development Fund 19.1 47.3 81.5 131.1 192.0 261.6 Total Equity 2154.6 2424.1 2879.4 3630.2 4438.6 5267.4 Long Term Debt 3349.5 4076.4 5628.0 7885.2 8258.8 7730.8 Current Liabilities Bank Overdraft Accounts Payable 12.7 47.9 146.5 211.0 85.3 0.0 Excisc Payable lntcrest Payable 37.0 64.5 64.1 76.7 129.3 169.4 Income Tax Payablc 35.4 44.6 77.8 129.6 138.1 140.3 Staff Profit Sharing 17.5 22.1 38.5 64.2 68.4 69.5 Other Current Portion of LTD 324.7 330.7 337.7 344.9 379.5 716.4 Total Current Liabilities 427.4 509.8 664.6 826.4 800.6 1095.6
Total Equity & Liabilities 5931.5 7010.3 9172.0 12341.8 13498.0 14093.8
Current Ratio(timcs) 2.4 2.4 1.8 1.7 2.5 2.9 Debt as % of Debt and Equity 60.9 62.7 66.2 68.5 65.0 59.5 - 1o2 - ANNEX 5.2
Page 3 of 6
Bangladesh Gas Wrastructure Develooment Proiect Sylhet Gas Fields Limited-Forecast Funds Flow Statement (in Tk milion)
FY95 EFY96 FY97 FY98 FY99 FY2000
Sources
Opeating Income 502.3 756.4 1083.6 1675.7 2026.6 2256.0 Depreciation 163.7 271.7 280.5 344.9 438.9 550.0 Contribution to Development Fund 19.1 28.2 34.2 49.5 61.0 69.5 Intgrnal Cash Generation 685.0 1056.2 1398.3 2070.2 2526.5 2875.6
GOB Equity 1296.0 0.0 0.0 0.0 0.0 0.0 Borrowings 3182.0 998.3 1816.8 2474.3 574.0 0.0 TotalSources 5163.1 2054.5 3215.1 4544.4 3100.6 2875.6
ADificationh
Capital Expenditure 4522.6 1137.3 2256.0 3067.1 765.4 0.0 IDC 6.3 52.8 146.7 251.1 149.8 0.0 Debt Service Principal 12.8 324.7 330.7 337.7 344.9 379.5 Intet 148.1 258.0 256.5 306.9 517.4 677.5
Income Tax 141.6 178.4 311.2 518.4 552.4 561.2 Staff Profit Sharing 17.5 22.1 38.5 64.2 68.4 69.5 Dividend 0.0 0.0 0.0 0.0 0.0 0.0 Increae in Working Capital: Cash Les Bank Overdraft 157.9 -33.3 -185.4 -161.8 586.8 1119.3 Non-cash 156.2 114.5 61.0 161.0 115.4 68.5
Total Applications 5163.1 2054.5 3215.1 4544.4 3100.6 2875.6
Long Term Debt Service Coverage 3.3 I.5 1.8 2.3 2.2 2.1
V -- (i39 ANNEX5.2 Page4 of 6
BanoJadesh Gas InfrastructureDevelooment Proiect Gas TransmissionComuanv Limited-Forecast IncomeStatement (in Tk million)
FY9S FY96 FY97 FY98 FY99 FY2000
AnnualVolumre(bc) 69.2 80.8 100.4 134.7 156.4 169.2 WheelingCharge(Tk/icf) 6.2 6.8 7.5 8.6 9.4 10.8 Revenue 431.4 553.1 7S4.0 1163.0 1478.2 1825.1
Operating Exp: Salaries& wags 8.0 8.8 9.7 11.6 12.1 14.1 Mainteane 28.0 28.0 41.5 47.6 58.0 Admintration 15.0 16.5 18.2 21.8 24.0 26.4 Depreciatioa 163.6 163.6 217.5 295.7 361.9 403.7 Other 2.0 2.2 2.4 2.7 2.9 3.2
TotWlOperating Expause 188.6 219.2 275.7 373.2 449.1 505.3
OperatingIncome 242.8 333.9 478.3 789.8 1029.1 1320.5
Inter" Charges 271.0 261.1 300.0 388.9 457.2 499.2 Loses from ForclgnExchange 48.8 49.6 57.1 100.0 120.0 134.0
Incomebefore Tax -77.1 23.2 121.2 300.9 451.9 687.2 Provisionof Additioa Expases 1.2 6.1 15.0 22.6 34.4 Los Carried Forward -51.6 -128.6 -105.5 IncomeTax 4.1 121.5 182.4 277.5
Net Income -77.1 22.0 111.0 164.3 246.8 375.4
Contributionto DavelopmentFund 28.0 35.0 46.5 66.8 83.0 96.1
Returnon No FixndAsa*(%) 4.1 6.0 7.1 7.6 8.3 9.6 ANNEX 5.2 Page S of 6
Bandladesh Gas Infrastructure Dcvelopment Proiect Gas Transmission Company Limited-Forecast Balance Sheet (in Tk million)
FY95 FY96 FY97 FY98 FY99 FY2000 Assets
Fixed Asset Clros Fixed A-ea in Ume 5605.8 5605.8 8296.3 9515.5 11606.5 11606.5 Less Accu. Depreciation 235.5 399.1 616.6 912.2 ,1274.1 1677. Net Fied Asst 5370.3 5206.7 7679.7 8603.3 10332.4 9928.7
Capital Work-In-Progress 374.7 2261.9 1080.1 2100.9 1386.7 2306.2
Current Assets Cash & Bank Balance 77.5 179.6 174.5 239.7 290.0 445.9 Accounts Receivable(trade) 107.9 138.3 188.5 290.7 369.6 456.4 Other Accounts receivable Inventories 81.8 81.8 135.6 160.0 201.8 201.8 Advances& Prepayment 1.5 10.7 15.1 29.6 24.4 20.8
Total Current Asst 268.7 410.4 513.7 720.1 885.8 1125.0 TotalAsts 6013.8 7878.9 9273.5 11424.3 12604.9 13359.9
Equity
GOB Equity 2351.7 2895.0 3312.9 3848.0 4162.5 4362.4 Retained Earnings -128.6 -106.6 4.4 168.7 415.6 790.9 Contribution to Development Fund 28.0 63.0 109.6 176 4 259.4 355.5 TotalEquity 2251.0 2851.4 3426.9 4193.1 4837.5 5508.9
LongTerm Debt 3321.2 4292.0 4981.6 6224.6 6872.9 6938.3
Current Liabilities BankOverdraft 25.0 300.0 400.0 450.0 300.0 Accounts Payable 2.6 17.9 25.1 49.4 40.7 34.7 Interet¢ Payable 67.8 65.3 75.0 97.2 114.3 124.8 Income Tax Payable 0.0 0.0 1.0 30.4 45.6 69.4 Staff Profit Sharing Fund 0.0 1.2 6.1 15.0 22.6 34.4 Current Portion of LTD 346.2 351.2 357.8 364.5 371.4 649.5
Total Current Liabilities 441.5 735.6 865.0 1006.5 894.6 912.6 TotalEquity & Liabilities 6013.8 7 92 11424.3 12604.9 13359.9
Current Ratio(times) 0.6 0.6 0.6 0.7 1.0 1.2 Debt a % of Debt and Equity 59.6 60.1 59.2 59.8 58.7 55.7 ANNEX 5.2 Page 6 of 6
Bangladesh Gas Infrastructure Development Proiect Gas Transmission Company Limited-Forecast Funds Flow Statement (in Tk million)
FY95 FY96 FY97 FY98 FY99 FY2000 Sources
Operating Income 242.8 333.9 478.3 789.8 1029.1 1320.5 Depreciation 163.6 163.6 217.5 295.7 361.9 403.7 Contributionto DevelopmentFund 28.0 35.0 46.5 66.8 83.0 96.1 Interzal Csh 3ainumtin 434.4 532.6 742.3 1152.3 1474.0 1820.2
GOB Equiy 109.4 543.4 417.9 535.0 314.5 200.0 Borrowings 255.2 1267.8 975.1 1498.1 880.7 559.9
Total Sources 798.9 2343.8 2135.3 3185.3 2669.2 2580.1
Avlications
Capital Expenditure 364.5 1811.2 1393.0 2140.1 1258.1 799.8 IDC 10.2 71.5 100.4 90.5 99.8 98.6 Debt Service Principal 0.0 346.2 351.2 357.8 364.5 371.4 Intereat 271.0 261.1 300.0 388.9 457.2 499.2
Incomc Tax 0.0 0.0 4.1 121.5 182.4 277.5 Staff Profit Sharing 0.0 1.2 6.1 15.0 22.6 34.4 Dividend 0.0 0.0 0.0 0.0 0.0 0.0 Increae in Working Capital: Cash Les Bank Overdraft -4.4 102.0 -5.0 65.2 50.3 155.9 Non-cash 157.6 -249.4 -14.5 6.4 234.2 343.3
Total Applications 798.9 2343.8 2135.3 3185.3 2669.2 2580.1
LongTermDebtServiceCoverage 1.6 0.9 1.1 1.4 1.5 1.7 - l1l" - ANNEX 5.3 Page 1 of 2
ASSUMPTIONS USED IN THE FINANCIAL PROJECTIONS
Income Statement
1. SGFL's Gas Sales & GTCL's based on the gas demand and supply Throughput: projections prepared in accord with the sector's priority investment program for FY95-2000.
2. SGFL's Margin & GTCL's average end-user tariff has been assumed Wheeling Charge: to increase at about 7% p.a. during FY96- 2000; assumed margin allocations among gas production, transmission and distribution companies are given in Table 1.
3. Maintenance Cost: forecast at 1% of gross fixed assets in use for SGFL, and 0.5% for GTCL.
4. Wages, Salaries & assumed to increase by 10% p.a. to account Administration: for changes in the staffing level and annual merit increase.
s. Depreciation: equal to 5% of average gross fixed assets in use for SGFL, and 4% for GTCL.
6. Interest: calculated at 8% p.a., interest during construction is capitalized.
7. Income Tax: at 42.5% of taxable income.
Balance Sheet
8. Fixed Assets: at historical costs (no asset revaluation).
9. Inventories: projected at a level equal to 3% of gross fixed assets in use for SGFL, and 2% for GTCL.
10. Accounts Receivable: equal to three months of billings.
11. Current Liabilities: including current maturities of long term debt.
Funds Flow Statement
12. Investment: as per the sector's FY95-2000 priority investment program; capital expenditures expressed in Tk have been escalated based on the projected annual inflation rate of 4% for FY96-97 and 4.5% for FY98-2000, assuming purchasing power parity. - 113 - Page 2 of 2
13. Loan Terms: for debt service associated with IDA's Second Gas Development Project, repayment will be over a 10-year period, starting in FY96. For loans yet to be secured, maturity of 15 years, including 5 years of grace, at an interest rate of 8 p.a. have been assumed. SGFL and GTCL will bear the foreign exchange risk.
Table1: ProjectedGas TariffsFY95-2000 (in Tk/MCF) FY95 FY96 FY97 FY98 FY99 FY2000 AnnualTariff Increase (X) 7 7 7 7 7 WeightedAverage End-User Tariff (Tk/mcf) 54.0 57.8 61.8 66.1 70.8 75.7 Excise Duty (X) 55 54 53 52 51 50 Excise Duty (Tk/mcf) 29.7 31.2 32.8 34.4 36.1 37.9 Producers'Margin (Tk/mcf) 6.6 7.3 8.0 9.1 10.0 11.4 TransmissionMargin (Tk/mcf) 6.6 7.3 8.0 9.1 10.0 11.4 DistributionMargin (Tk/mcf) 8.9 9.7 10.6 12.2 13.3 15.1 - 114 - ANNEX 6.1 Page 1 of 3
ECONOMIC ANALYSIS
Method
1. As described in Chapter VI, the proposed project forms an integral part of the gas sector's least cost priority investment program (PIP) for FY95-2000 and, therefore, cost-benefit analysis needs to be carried out of the entire PIP rather than of the project in isolation. Incremental capital costs, operating and maintenance costs, and benefit streams (all in terms of 1994 prices) are shown in Table 1. Assumptions underlying these figures are detailed below.
CaDital Costs
2. Anticipated capital expenditures at financial prices based on the sector's investment program for FY95-2000 are converted to economic prices by: (i) expressing the import content at CIF prices; and (ii) applying the standard conversion factor of 0.90 to local costs.
OperatinQ and Maintenance Costs
3. Because of development lead time, commissioning of physical investments would start from FY98 onwards. Incremental operating and maintenance costs associated with the PIP are calculated at a level equal to 3% of cumulative investment costs for FY98-2001 and assumed to be constant thereafter to FY2015.
Economic Benefits
4. Only the FY98-2002 cumulative incremental sales of gas and liquids have been considered as benefits of the FY95-2000 PIP; for FY2002-2015, the benefits are assumed to be constant and at the FY2002 level. Economic benefits of incremental gas supply are calculated using (i) average gas tariff; and (ii) the cost of substitute fuel, i.e., the CIF Chittagong price for high sulphur, heavy fuel oil, as proxies of benefits. Average tariff is assumed to reach Tk 54/MCF in FY95 and remain constant in real terms thereafter. The price of fuel oil used in the analysis is based on CIF Chittagong price of about US$ 90 per metric ton.
Results of Analysis
5. The results of the economic cost/benefit analysis together with those of the sensitivity test against (i) a 20% increase in capital costs, (ii) lower sales growth of 7% p.a., and (iii) combination of higher capital costs and slower sales growth are summarized in Table 2.
6. Sensitivity analysis based on the first slice of the PIP, for which financing has been secured and of which the proposed project forms a part, has also been carried out. The results are summarized in Table 3. Table 1: EconomicRate of Return (in 1994Tk mlilon)
Tariff-based Fuel Oil Parity NOL Practionation(lS0 MMCFD Gas Production) Gas Increment Average Fuel Oil Producta(metzic tons IY) Unit Value(USS/t) Total Fiscal Capital O&M Sales Sales Tariff Parity Net Net Motor Motor Value Year Cost Cost (BCF) (BCP) (Tm/nf) (1\/m6f) Benefit Beneflt Benefit Benefit LPG Propane Spirit HSD LPO Propae Spirit HSD (I m)
1995 1601 246.6 54.0 S6.9 -1601 -1601 1996 4902 265.7 54.0 86.9 -4902 -4902 1997 6399 212.6 54.0 16.9 -6399 -6399 1991 6044 387 301.7 19.1 54.0 86.9 1031 -5399 1659 -4771 1999 2229 568 332.5 49.9 54.0 16.9 3778 981 5418 2621 37101 1883 72367 13315 260 260 170 200 1084 2000 1197 635 356.3 73.7 54.0 16.9 5063 3231 7416 5654 37108 3813 72367 13315 260 260 170 200 1014 2001 671 331.4 105.8 54.0 16.9 6795 6124 10272 9601 37108 8833 72367 13315 260 260 170 2W 1084 2002 671 423.3 140.7 54.0 86.9 1633 8011 13308 12637 37103 1813 72367 13315 260 260 170 200 10S4 2W3 671 423.3 140.7 54.0 16.9 8613 3011 13303 12637 37101 1133 72367 13315 260 260 170 200 1014 204 'l 423.3 140.7 54.0 16.9 S633 1011 13308 12637 37108 1113 72367 13315 260 260 170 200 1014 2005 423.3 140.7 54.0 86.9 8633 3011 13303 12637 37101 1883 72367 13315 260 260 170 200 1014 2006 671 423.3 140.7 54.0 16.9 8613 3011 13308 12637 37108 8383 72367 13315 260 260 170 200 1084 2007 671 423.3 140.7 54.0 16.9 1683 3011 13301 12637 37108 8183 72367 13315 260 260 170 2W 1084 1_ 2W0 671 423.3 140.7 54.0 16.9 8613 3011 13308 12637 37108 8883 72367 13315 260 260 170 200 1084 2009 671 423.3 140.7 54.0 86.9 S633 3011 13308 12637 37101 1883 72367 13315 260 260 170 200 1014 2010 671 423.3 140.7 54.0 86.9 8683 S011 13303 12637 37108 3333 72367 13315 260 260 170 2W 1084 2011 671 423.3 140.7 54.0 16.9 1683 3011 13308 12637 37108 3133 72367 13315 260 260 170 200 1084 2012 671 423.3 140.7 54.0 16.9 8633 3011 13301 12637 37103 1833 72367 13315 260 260 170 200 1014 2013 671 423.3 140.7 54.0 16.9 8633 3011 13303 12637 37108 31SU 72367 13315 260 260 170 200 1014 2014 671 423.3 140.7 54.0 16.9 86U3 3011 13308 12637 37103 8883 72367 13315 260 260 170 200 1014 2015 671 423.3 140.7 54.0 86.9 3683 3011 13308 12637 37108 8113 72367 13315 260 260 170 200 1034
Rate of Retun 23.17% 32.61%
Exchajge Rate: Tk4O.25/USS
0Q
t0 - 116 - ANNEX 6.1 Page 3 of 3
Table 2: Results of Economic Analysis and Sensitivity Tests (Entire PIP)
Using Average Tariff as Benefit Proxy ERR (e)
Base Case 23.2 Capital Cost up 20% 19.9 Sales Growth 7% p.a. 21.8 Combined Effect 18.7
Using Fuel Oil Price as Benefit Proxy
Base Case 32.6 Capital Cost up 20% 28.6 Sales Growth 7% p.a. 30.5 Combined Effect 26.8
Table 3: Results of Economic Analysis and Sensitivity Tests (First Slice)
Using Average Tariff as Benefit Proxy ERR (%)
Base Case 19.0 Capital Cost up 20% 15.9 Sales Growth 7% p.a. 18.4 Combined Effect 15.4
Using Fuel Oil Price as Benefit Proxy
Base Case 29.8 Capital Cost up 20% 25.7 Sales Growth 7% p.a. 28.8 Combined Effect 24.9 - 117 - ANNEX 7.1
Selected Documents and Data Available in the Prolect File
1. Reservior Study Reports of Kailashtilla, Beani Bazar, Rashidpur, Habiganj, Titas and Bakhrabad, Intercomp-Kanata Management Ltd, 1989- 1991.
2. Gas Network Analysis of Bangladesh Gas Transmission System, P.C. Larsen & N. Mortensen, November 1992.
3. A-B Pipeline Route Survey, Pencol Engineering, November 1991.
4. A-B Pipeline Design Basis Memorandum, Pencol Engineering, November 1991.
5. GIDP-Environment and Safety Assessment Report and Summary, Komex, February/May 1994.
6. Safety Audit Report of the Petrobangla Group, British Gas, April 1994.
7. GIDP-Environmental Data Acquisition Report (Draft), Komex, September 1994.
8. GIDP-Mitigation and Monitoring Plan Report (Draft), Komex, September 1994.
9. GIDP-Land Acquisition, Compensation and Public Consultation, Mohammad Zaman, July 1993.
10. Bangladesh Petroleum Policy, July 1993.
11. Report on Bangladesh Petroleum Investment Roundtable, Petro consultants S.A., September 1993.
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