Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized
Report No. 4014-MLI
STAFF APPRAISAL REPORT Public Disclosure Authorized
MALI
BTOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT Public Disclosure Authorized
May 25, 1983 Public Disclosure Authorized
Industry Department
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenis may not otherwise be disclosed without World Bank authorization. CURRENCYEOUIVALENTS
(as of September 14, 19 8 2 )a/
Currency Unit = Malian Franc (MF) MF 1,000 I1S$ 1.54 US$ 1.00 = MF 648
WEIGHTS AND MEASURES
1 Hectare (ha) = 2.47105 Acres 1 Liter = 0.2642 US Gallon 1 Barrel = 159 Liters 1 Metric Ton (t) = 1,000 Kilograms or 2,204.6 pounds 1 Vol. of Gasoline = 0.899 Vol. of Crude oil (thermal equivalence) 1 Vol. of Anhydrous Alcohol = 1 Vol. of Gasoline (as Gasohol Fuel)
NOTE: The words alcohol and ethanol are used interchangeably in this report.
PRINCIPAL ABBREVIATIONS AND ACRONYMS UJSED
APU - Alcohol Production Unit COD - Confederation of Oil Distributors MA - Ministry of Agriculture ME - Ministry of Equipment ON - Office du Niger ONT - Office National des Transports OSRP - Office de Stabilization et de Regularization des Prix RTF - Rehabilitation Task Force lpy - liters per year lpd - liters per day tpd - tons per day tpy - tons per year
FISCAL YEAR
Government: January 1 - December 31
Office du Niger: July 1 - June 30
a! In May 1983, the Exchange Rate was US$1 MF 710. FOR OFFICIAL USE ONLY
MALI
BIOMASS ALCOHOL AND ENERtGY EFFICIENCY PROJECT
STAFF APPRAISAL REPORT
TABLE OF CONTENTS Page No.
I. INTRODUCTION ...... 1
II. ENERGY AND AGRICULTURE ...... 2
A. Background ...... 2 B. Energy Situation and Outlook ...... 3 C. Petroleum Products Consumption ...... 3 D. Petroleum Products Pricing ...... 4 E. Petroleum Products Supply and Marketing ...... 5 F. Agricultural Resources ...... 6 G. The Sugar Subsector ...... 6 1. Sugarcane Production ...... 6 2. Sugar and Molasses Production ...... 8 3. Existing Distillery Operations ...... 8 H. Government Strategy in the Energy Sector ...... 9
III. THE PROJECT SPONSOP ...... 10
A. The Office du Niger ...... 10 B. Operating Performance...... 10 C. Financial Condition ...... 11 D. Recent Developments ...... 12
IV. THE PROJECT .14
A. Project Objectives and Scope .. 14 B. Project Description .. 15 1. Biomass Alcohol Production, Storage and Handling Component .15 2. Energy Efficiency Component .15 3. Gasohol Blending and Distribution Component 19 4. Technical Assistance and Training Component 20 5. Biomass Energy Study Component .20 6. ON Rehabilitation Program .21 C. Project Management .. 21 D. Project Schedule ...... 22 E. Environmental Impact .. 24 F. Raw Materials and Utilities .24 G. Employment and Productivity . .28
This report was prepared by Messrs. S. Capoluongo, P. Geraldes, and N.C. Krishnamurthy of the Industry Department.
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii -
Page No
V. PROJECT CAPITAL COST AND FINANCING...... 289
A. Capital Cost...... 28 B. Financing Plan..Terms ed.....r30... C. Procurement ...... 32 D. Credit Allocation and DisbursemPents.. t32
VI. FINANCIAL ANALYSIS...... 33
A. Production and Revenue Estimates..Gravit 33 B. Production Costsd..34 C.6Financial Projections..Molasses, .and o35.Al D. Financial Rate of Return..for.Biomass.Energy.Std36 E. Financial Covenants.37 F. Auditing and Reporting Requirements ...... 37 G. Risks ...... 38
VII. ECONOMIC ANALYSIS ...... 39
A. Key Assumptionsp...39 B. Economic Benefits...... ma.Income.Statemet 39 C. Economic Costs...... 40 D. Economic Rate of Return ...... 41 E. Other Benefits...... 41 F. Foreign Exchange Benefits ...... 42
VIII. AGREEMENTS ...... 42
ANNEXES
1 Glossary of Terms used in the Report
2-1 Domestic Consumption of Petroleum Products 2-2 Estimated Average Specific Gravity of PetroleuimProducts 2-3 Average Domestic Prices of Selected Petroleum Products 2-4 Regional Consumption of Petroleum Products 2-5 Sugarcane Production 2-6 Production of Sugar, Molasses, and Alcohol
3-1 Office du Niger - Income Statement 3-2 Office du Niger - Balance Sheet
4 Draft Terms of Reference for Biomnass Energy Study
5 Project Costs
6-1 Financial Analysis - Basic Assumptions 6-2 Alcohol Production uJnit- Pro-forma Income Statements Page No
6-3 Alcohol Production Unit - Pro-forma Balance Sheets 6-4 Alcohol Production Unit - Pro-forma Selected Financial Indicators 6-5 Financial Rates of Return
7-1 Economic Analysis - Basic Assumptions 7-2 Investment Cost Allocation 7-3 Economic Costs and Benefits 7-4 Foreign Exchange Benefits
CHARTS
1. From Sugarcane to Gasohol (29324) 16 2. Siribala - Existing Distillery (29320) 17 3. Siribala - IIodified Distillery (29321) 18 4. Implementation Schedule (29325) 23 5. Siribala - Sugarmill Energy UJsage (29323) 26 6. Siribala - Thermal Efficiency of Modified Plant (29322) 27 MAP
IBRD - 16461 - iv -
DOCUMENTS AVAILABLE IN PROJECT FILE
Reference Title, Date and Authors
A. Feasibility Study for Gasohol Production and Usage in Mali, July 1981, Ministry of Industrial Development and Tourism - Atkins Planning.
B. Government of Mali - Ordinance No.81-3/1-RM, April 29, 1981, President of the Republic of Mali
C. The Siribala Sugar Mill - Technical Specifications and Operating Description, January 3, 1976, Office du Niger
D. Feedlot Projects - Potential for Intensive Livestock Production, 1981, Office du Niger
E. Price Structure of Liquid Fuels, August 11, 1981, OSRP
F. Presentation Note, 1981, Office du Niger
G. World Molasses Prices, August 12, 1981, Y. Akoto, Industrial Projects Department
H. Projected Production of Sugarcane and Molasses at Siribala and Dougabougou, August 1982, R. Antoine.
I. Analytical Accounts and Comments, June 30, 1982, Office du Niger.
J. Mali - Livestock Situation and Prospects, April 1980, World Bank Regional Mission in West Africa. MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT
I. INTRODUCTION
1.01 The Government of Mali has requested an IDA credit of US$7.6 million to finance a Biomass Alcohol and Energy Efficiency Project (the P'roject). The Project consists of six components: (i) biomass alcohol production from surplus molasses; (ii) energy efficiency improvements at the two existing sugar mills; (iii) 'gasohol' blending and distribution facilities; (iv) technical assistance and training to improve the operating efficiency of two agroindustrial complexes; (v) a study for future expan- sion of biomass fuel production; and (vi) technical assistance and studies to prepare a rehabilitation program for Office du Niger. The Project would enable Mali to produce about two million liters annually of alcohol to replace about an equal amount of imported high cost gasoline. The alcohol would be produced by upgrading and modifying two existing underutilized distilleries at Dougabougou and Siribala (Map IBRD 16461) and processing surplus molasses by-product which is now wasted causing damage to the envi- ronment. In addition, the proposed energy efficiency investments would allow Mali to use exclusively bagasse, the fiber residues from sugarcane, instead of petroleum products to generate steam and electric power for its two sugar mills and distilleries. The import saving from this project com- ponent is estimated to be about 800,000 liters annually of industrial diesel oil. At 1983 prices, Project annual production and savings are cal- culated at about US$ 1.3 million.
1.02 The alcohol produced would be anhydrous ethanol of about 99.6% purity (Annex 1). On the basis of the regional pattern of consumption and the existing gasoline supply system, the alcohol would be blended with regular grade gasoline at the Bamako oil products depot, at a uniform annual rate. The resultant 'gasohol' blend, containing approximately 3.5% alcohol, would be distributed through the existing gasoline distribution system using the same distributors and retail outlets. Gasohol of up to 210% alcohol blend exhibits equal engine performance compared to the gaso- line it replaces; the alcohol from the Project would therefore retail at the same price as regular gasoline.
1.03 The Office du Niger, a parastatal institution, would continue to own and operate the two distilleries at Dougabougou and Siribala. The Dougabougou distillery would continue to produce industrial grade hydrous alcohol of about 95% purity for the domestic consumer and industrial mar- ket. Surplus hydrous alcohol production at Dougabougou, estimated at about two-thirds of total annual production, would be delivered to Siribala for reprocessing into anhydrous alcohol. The Siribala distillery would be modified and upgraded to produce anhydrous alcohol by fermentation of molasses produced at Siribala and from hydrous alcohol received from Dougabougou. The sugarcane plantations presently serving the two sugar plants are expected to yield sufficient cane to meet requirements. However, the thermal efficiency of the sugar mills and annexed distilleries and the reliability of molasses production need to be improved. Project investments in plant modifications, staff training, and the introduction of improved operations and maintenance systems address this need. - 2 -
1.04 Total financing required for the Project is estimated at US$8.3 million, including US$7.2 million in foreign exchange. The proposed IDA credit of US$7.6 million, equivalent to about 92% of the total financing requirements, would cover full foreign exchange costs and 36% of local financing requirements. Office du Niger and the Government would provide the remaining financing.
1.05 The proposed Credit would be the second Bank Group operation with Office du Niger and the third operation in the energy and industrial sec- tors in Mali. The three prior operations are: (i) an Engineering Credit of US$4.5 million (845-MLI) for Office du Niger, approved by the Board in October 1978, to provide technical assistance for (a) planning an infra- structure rehabilitation program, (b) training of irrigation staff, (c) accounts audit, (d) research, and (e) livestock and socio-economic studies; (ii) a credit of US$8.0 million (986-MLI) to finance the Industrial Sector Development Project, approved in May 1980, consisting of support to the private industrial and traditional sector; and (iii) a credit of US$3.4 million (1134-MLI), approved in April 1981, for a Petroleum Exploration and Energy Planning project.
1.06 The proposed Project was identified by an IDA mission which visited Mali in February 1980. The mission recommended that the Government carry out a feasibility study to: (i) identify the facilities required to pro- duce, at the least economic cost, anhydrous alcohol, and blend and market gasohol; (ii) establish the capital and operating cost requirements; and (iii) assess the economic and financial viability of the required investments. The Government employed consultants with financing under a Project Preparation Facility of US$50,000 approved in December 1980. The feasibility study was completed in July 1981, and reviewed by Government officials with the assistance of IDA staff. An IDA mission consisting of Messrs. S. Capoluongo (Chief), N.C. Krishnamurthy, and P. Geraldes appraised the Project in October 1981. A follow-up mission consisting of Messrs. S. Capoluongo (IDA) and R. Antoine (Consultant) visited Mali in June 1982 to review the proposed implementation arrangements for the Project and to assess the adequacy of sugarcane supply. A second advance of US$900,000 under the Project Preparation Facility was made in May 1983 to provide urgent support for the rehabilitation of Office du Niger, and for engineering work for the Alcohol and Energy Efficiency components.
II. ENERGY AND AGRICULTURE
A. Background
2.01 Mali has a population of nearly seven million and is one of the ten poorest countries in the world. Per capita GNP was about US$190 in 1982. Mali is handicapped by serious obstacles to development. Extreme variability of rainfall causes sharp fluctuations in crop and livestock production, and access to foreign markets is made difficult by its land- locked position and the long distances--more than 1,000 km--to the nearest seaports, Abidjan in Ivory Coast and Dakar in Senegal. Development is also constrained by the substantial internal distances (the country covers an area of 1.24 million km 2), the shortage of skilled manpower, and the narrow domestic market for industrial and consumer products. About 90 percent of the population is rural and depends on crop farmaing, animal husbandry, forestry and fishing for livelihood. Exports consist almost entirely of agricultural commodities and livestock, and meet only about 60% of merchan- dise imports.
B. Energy Situation and Outlook
2.02 Energy demand in 1980, the latest year for which reliable data is available, is estimated at about 760,000 tons of oil equivalent or about 110 kg per capita. It is estimated that firewood meets about 69% of energy demand; petroleum products, 24%; and charcoal, the remaining 7%. Mali has forests covering 40,000 kin2, possibly holding wood reserves of about 150 million tons, but wood is rapidly being depleted around population centers because it is used to meet over three-quarters of houisehold energy demand. Imported petroleum products satisfy virtually all commercial energy demand that is not met by Firewood or charcoal. The contribution of hydroelectric power to energy demand is negligible. Installed hydroelectric capacity, including the Silingue multipurpose scheme, completed in 1982, totals only 55 MW.
2.03 Mali almost entirely relies on fuel wood and imported oil products to meet energy demand because its resources, though diversified, are little developed. The hydroelectric potential of the Niger and Senegal rivers is estimated to be 2,000 MW. Oil shale deposits in the east are a possible source of lhydrocarbons. There are four Sedimentary basins whose hydrocarbon potential remains to be established. The Petroleum Exploration Promotion Project (Cr 1134-MLI) is assisting the Government in evaluating the hydrocarbon potential of the Taoudeni Basin. Potential sources of renewable energy include wind, solar power, and biomass. Agricultural by-products, primarily rice husks, groundnut shells, and sugarcane bagasse and molasses are either wasted or under-utilized; the latter resources form the basis of the proposed Project.
2.04 The cost of petroleum products imports rose from US$23.3 million in 1975 to US$57.2 million in 1979, at an average annual rate of 25%. In 1975, the value of petroleum products imports was equal to 13% of nerchan- dise imports and 32% of merchandise exports. In 1979, these ratios rose to 21% and 49%, respectively. This increase resulted mainly from domestic demand growth and a deterioration in the terms of trade. In 1980, it is estimated that, despite a slight decrease in consumption, the value of imported petroleum products exceeded 60% of merchandise exports, reElecting substantial increases in the international price of oil. High petroleum import costs are a major factor in the serious balance of payment crisis Mali now faces. Therefore, the Government attaches high priority to devel- oping alternative domestic energy resources.
C. Petroleum Products Consumption
2.05 Consumptioni of petroleum products in 1980 is estimated at about 220 million liters (180,000 tons). Consumptionl grew at an average annual rate of 9.5% from 107.7 million liters (88,000 tons) in 1971 to 222.7 million liters (182,500 tons) in 1979, but decreased slightly to an esti- mated 220 million liters (180,000 tons) in 1980 because of domestic price increases. This trend continued in 1981 and consumption decreased to an estimated 191.5 million liters (157,000 tons). In the 1980s, petroleum products consumption is expected to start growing again, though at a rate - 4- lower than in the 1970s, reflecting the trend of the last five years. Gasoline accounts for almost 40% of consumption volume, and its share is increasing. Annex 2-1 shows domestic consumption of petroleum products from 1971 to 1980; Annex 2-2, their specific gravity. The following table summarizes past consumption pattern and growth:
Mali - Domestic Consumption of Petroleum Products (million liters)
Average Annual Growth Rate (%) 1971 1976 1979 1980 1981 1971-79 1976-81
Liquefied PetroleumtGas 0.3 0.3 0.4 0.4 0.4 3.6 5.9 Aviation Gasoline 0.9 0.8 - - - - - Premiuim Gasoline 0.9 1.9 1.5 1.0 0.8 6.6 (15.9) Regular Gasoline 43.1 63.8 85.9 85.0 76.3 9.0 3.6 Illuminating Kerosene 11.6 12.3 16.0 16.0 15.2 4.1 4.3 Jet Fuel 5.4 15.0 21.0 21.0 15.9 18.5 1.2 Automotive Diesel 21.9 40.3 53.5 53.0 48.5 11.8 3.8 Industrial Diesel 9.7 21.3 28.2 28.0 21.9 14.3 0.6 Lubricants 3.1 4.6 6.4 6.0 6.0 9.5 5.5 Fuel Oil 9.4 9.7 8.2 8.0 4.9 (1.7) (12.8) Asphalt 1.4 0.6 1.6 1.6 1.6 1.7 21.7
Total 107.7 170.6 222.7 220.0 191.5 9.5 2.3
D. Petroleum Products Pricing
2.06 The Office de Stabilization et Regularization des Prix (OSRP), a Government agency, regulates petroleum product prices. OSRP, in consulta- tion with the private importers, reviews periodically retail prices, and revises them as appropriate. In addition to the ex-refinery prices abroad, OSRP's calculation of retail prices includes transportation costs, foreign taxes, domestic import duties and taxes, handling losses, and price stabi- lization and freight equalization levies. The two levies achieve the pur- pose of ensuring uniform retail prices in time, from one revision to the next, and in various parts of the country. If the importer's actual costs, which also include a reasonable allowance for profit, are lower than the administered price, the Importer pays the difference to OSRP; if costs are higher, OSRP pays the importer out of the price stabilization fund.
2.07 The system works well and, on average, domestic retail prices of gasoline, kerosene, and diesel have exceeded import costs in 1980 and 1981. In January 1982 prices were substantially increased and the current retail price of gasoline is NP 520 per liter (US$31.04 per gallon). This price is substantially higher than the interniational price. The Government, however, taxes kerosene at lower rates than gasoline, for social reasons, and public utilities benefitting from the investment incen- tives law are exempt from fuel taxes. Still, retail prices of all petro- leum products are above their opportunity value and on average exceed import cost by about 15%. Under the Petroleum Exploration Promotion Credit (1134-MiLI), the Government is carrying out a review of its pricing policies for petroleum products and has agreed to exchange views with IDA on the recommendations of the study. Historical domestic prices of petroleum products are shown in Annex 2-3 and summarized below.
Mali - Average Domestic Prices of Selected
Petroleum Products
1970 1971 1975 1979 1980 1981 1982 1982 ------(MF/li ter)------(US$/ gallon)
Premium Gasoline 110 110 150 208 320 441 560 3.27
Regular Gasoline 100 100 140 198 310 416 520 3.04
Kerosene 70 77 110 158 216 280 345 2.02
Automotive Diesel 65 75 110 146 226 301 365 2.13
Industrial Diesel N.A N.A N.A 103 162 214 259 1.51
Fuel Oil N.A N.A N.A 85 128 171 189 1.10
E. Petroleum Products Supply and Marketing
2.08 Mali does not produce any petroleum nor does it have domestic petroleum refining capacity. Therefore, petroleum product demand is met entirely by imports. Five companies (Esso, Shell, Mobil, British Petroleum, and Total) import petroleum products into Mali and distribute them. They are the affiliates of five major international oil companies and share the market about equally. The five marketing companies are members of the Mali Confederation of Oil Distributors (COD) whi^h works closely with Government in coordinating public and private interests in the petroleum sector. The marketing companies import petroleum products from Dakar by rail, and from Abidjan and Parakou by road (Map IBRD 16461). About 65% of total volume is imported from Abidjan, 33% from Dakar, and 2% from Parakou. These shares are the result of an acceptable compromise among several factors, including cost effectiveness, the limited capacity of the railroad, which is fully utilized, the need to diversify supply sources to minimize the risk of disruptions, and the varying accessibility of different regions of Mali to different sources of supply. In 1980, about 60% of all petroleum products by volume was consumed in the Bamako area; 17%, Segou; 14%, Mopti; 7%, Kayes; and 2% Gao. Annex 2-4 shows regional consumption by type of product. All premium gasoline, and about two-thirds of regular gasoline is sold in the Bamako area. This marketing and distribution system works reasonably well, is cost effective, and is considered satisfactory.
2.09 The only bulk storage depot for gasoline in Mali is located at Bamako. It has a capacity of about 6.5 million liters, equivalent to less than one and a half months' consumption in the Bamako area. The depot is owned and operated by the local Mobil affiliate and serves all five oil - 6 - companies. Each company individually indents its requirements based on its market estimates on a monthly basis. Two small gasoline storage facilities of 300,000 liters each are located at Kayes and Tombouctou. It is esti- mated that an additional 1.8 million liters of storage capacity is avail- able elsewhere in the country at retail outlets and with consumers. The overall petroleum products storage facilities in Mali are limited. The Project provision of additional facilities to store alcohol produced under the Project will contribute to relieving this problem by making available an equivalent volume of gasoline storage (para 4.07).
F. Agricultural Resources
2.10 Compared to other countries in the Sahel region, Mali has above- average land and water resources. The average population density - fewer 2 than 6 inhabitants per km - is relatively low even after excluding the arid and semi-arid areas. Except for few densely populated centers, land availability is not a constraint to agricultural development.
2.11 About 90% of Mali's population lives in rural areas, mostly in regions with a rainfall of 500 mm annually or higher, which are suitable for crop or livestock production. Although over three quarters of the country receives less than 500 mm of rain annually, the per capita endow- ment of land suitable for crop production or pasture is more favorable than for other Sahelian countries. Altogether, some 2 million ha are estimated to be under cultivation, of which 90% is in rainfed agriculture and 10% under irrigation or flooding. Of some half million farms, about 70% are 5 ha or less. Food crops occupy close to 90% of the land under rainfed culti- vation while the remainder is devoted to cotton (120,000 ha) and groundnuts (120,000 ha). In most areas, land resources are still sufficient to enable fields to lie fallow, thus ensuring restitution of soil fertility. Animal traction is more widespread in Mali than in any other Sahelian country. Fertilizer use is increasing, mainly through the efforts of sugarcane, cotton, and groundnut development projects.
2.12 Mali also has considerable irrigation potential. The Interior Delta of the Niger, the Upper Senegal Valley with its tributaries, and the lakes region on the Niger's left bank have sufficient water resources to irrigate over two million ha. FAO has estimated that Mali's irrigation potential represents two-thirds of the total irrigation potential of the six Sahel countries, estimated at 3.1 million ha. Mali's per capita endow- ment with potential irrigable land was estimated at 0.36 ha, or three times the Sahel average of 0.12 ha. The cost of developing irrigation, however, is higher than that required for rainfed agriculture. Only high value crops like sugarcane, vegetables and rice can justify irrigation invest- ments. Cotton, groundnuts, coarse grains, and rice are the four main traditional crops. In the 1970s, sugarcane has emerged as a fifth major crop.
G. The Sugar Subsector
1. Sugarcane Production
2.13 Office du Niger (para 3.01) grows sugarcane with flood irrigation at Dougabougou, approximately 280 km to the northeast of Bamako, and Siribala, some 20 km north of Dougabougou (Map IBRD 16461). There is no shortage of irrigation water. Up to about 1,300 ha can be irrigated at Dougabougou, and 2,100 ha at Siribala using existing facilities. Cane yields have averaged about 50 tons/ha at Dougabougou, and over Q0 tons/ha at Siribala. This difference is due to improved cane varieties, better soil characteristics, and drainage at Siribala. The only major disease occuring in the area, smut, has so far been satisfactorily controlled. Cultural practices are generally satisfactory although improvements could be made in land grading and planing for better yield performance. Technical assistance for this purpose is included under the proposed Project (para 4.10). Tractors, vehicles, and other agricultural equipment are adequate but their timely and efficient availability needs to be improved. The Dougabougou sugar mill was commissioned in 1966. The one at Siribala began operating ten years later in 1976. Both factories are of standard design and have annex distilleries. They were built with Chinese aid. The cane crushing capacity at Dougabougou is 400 tons per day (tpd); at Siribala, 1,000 tpd.
2.14 Sugarcane production statistics are presented in Annex 2-5 and summarized below:
Mali - Sugarcane Production (thousand tons)
a/ 1975/76 1976/77 1977/78 1978/79 1979/80 1980/81 1981/82
101 177 208 215 225 173 SO/ a/ First year of operations at Siribala. b/ Dougabougou factory shut down.
2.15 Total sugarcane production increased gradually from about 177,000 tons in 1976/77 to 225,000 tons in 1979/80. In 1981, however, the 15-year old Dougabougou plant, after experiencing frequent break-downs, was shut down for a full rehabilitation. The Siribala plant also experienced operating difficulties due to lack of spare parts and inadequate mainte- nance. Therefore, only 173,000 tons of cane were harvested in 1980/81, and 88,000 tons in 1981/82. The sugarcane throughput was constrained by the operability of the two factories, one of which, Dougahougou, was shut down for the entire 1981/82 campaign. Now the Dougabougou factory has been com- pletely rebuilt with Chinese assistance, and started operating in October 1982; the Chinese have started to repair the Siribala sugar mill and com- pletion is expected in about one year because this mill will continue to operate while it is being repaired. The Malians achieved satisfactory per- formance for 15 years at Dougabougou without any prior experience in sugar operations. It is therefore reasonable to expect that performance in the 1980's will improve as a result of the experience gained in the 1970's and the rehabilitation of the sugar mills.
2.16 The sugarcane planting programs were altered to respond to factory rehabilitation and repair needs during the last two sugar campaigns. It was reasonable to minimize the expected cane supply because - 8 - sugarcane that cannot be brought to the factory must either be cut and thrown away or, if left standing, it is likely to affect adversely the yield of the following harvest. At Dougabougou no new plantings were made in 1980/81, because of the following season shutdown, but the planting pro- gram for the current season, 1982/83, is well advanced and 229 ha (out of the planned 285 ha) have already been planted. At Siribala factory cane requirements in the last campaign, 1981/82, were met by harvesting only 1,061 ha out of 1,730 ha. No new plantings were made at Siribala during the last season because it is expected that the factory will operate at about 50% capacity in 1982/83 to allow time for repairs and replacement of key spare parts. The planting program, however, has been resumed in September 1982, in time to sustain projected cane requirements of over 200,000 tons in 1984/85 and onwards.
2. Sugar and Molasses Production
2.17 Production of sugar, molasses, and alcohol is given in Annex 2-6 and summarized below:
Mali - Production of Sugar, Molasses, and Hydrous Alcohol
Molasses Sugar Average Yield Alcohol (tons) (tons) (%of cane) (thousand liters) 1966/67 2,642 1,170 4.8 198.5 1970/71 5,103 2,247 3.7 384.2 1975/76a/ 7,627 5,179 5.2 210.5 1976/77 14,252 7,542 4.3 386.1 1977/78 18,952 8,151 4.0 94.8 1978/79 18,053 8,290 3.9 132.9 1979/80 18,134 8,296 3.7 139.1 1980/81 11,641 5,304 3.3 196.2 1981/82b/ 6,100 3,205 3.9 N.A.
Source: Office du Niger
a/ Siribala complex started operations. b/ Siribala only.
2.18 Dougabougou and Siribala together produced over 18,000 tons of sugar, and 8,000 tons of molasses annually from 1977 to 1980, when both facilities were operating normally. In 1981, however, as explained above, the 15-year old Dougabougou plant was shut down for a full rehabilitation, while Siribala also had operating problems. As a result, sugar production dropped to about 11,600 tons in 1980/81, and molasses production to about 5,300 tons. Since the Dougabougou factory has been fully rebuilt, and repairs at Siribala are underway, it is expected that past production levels of sugar and molasses can be resumed beginning with the 1984/85 cam- paign (para 4.18). These past levels of molasses production will be adequate to meet the requirements of the proposed Project.
3. Existing Distillery Operations
2.19 Each sugar mill is equipped with fermentation and distillation facilities capable of producing 95% ethanol from the molasses residues - 9 - remaining after sugar production. Small quantities of this alcohol are produced and sold in Mali for pharmaceutical and industrial uses. However, the market demand is small and less than 10% of the available molasses is used to produce the required alcohol, although the distilleries were designed with sufficient capacity to process all the molasses. The bulk of the molasses has no economical export market outlet because its transporta- tion cost exceeds its current export market value (para 7.07). It is now discarded to the bush, where it creates an environmental problem. This wasted molasses would be the feedstock for fuel alcohol production under this Project.
H. Government Strategy in the Energy Sector
2.20 Since petroleum product imports absorb a high and growing share of foreign exchange earnings (para 2.04), the Government intends to develop all potential domestic energy resources to reduce dependence on imported oil products. Mali is undertaking various energy projects with the assis- tance of the international community. Several wood utilization and forestry projects are being implemented with assistance from IDA (Credit 883-MLI) and bilateral aid. As mentioned, a technical assistance project (Credit 917-MLI) for petroleum exploration and energy planning was approved by the II)A Board in April 1981. A power project (Credit 1282-MLI) was approved by the IDA Board in July 1982. Mali also participates in the UNDP-financed, IDA-executed, global project for testing small-scale solar pumping systems. Finally, USAID is financing a US$4.1 million solar energy project.
2.21 The lead time required to exploit most potential domestic energy resources, such as hydroelectric power and solar energy, is long. In addi- tion, demand for liquid fuels, mainly in the transportation sector, is relatively inelastic due to the very low consumption levels, and presents very limited opportunities for interfuel substitutions due to technical and economic reasons. In this context, an opportunity to produce liquid fuel with a short lead time, and using existing facilities has a high priority.
2.22 The molasses which is now wasted can be used to produce approxi- mately two million liters of anhydrous ethanol (ethyl alcohol of 99.6% purity) annually, through better utilization of the existing distilleries. This alcohol would replace an equal volume of gasoline in a blend of gaso- line and alcohol commonly referred to as 'gasohol'. Experience in other countries has shown that gasohol blends containing up to 20% alcohol have practically the same performance as gasoline and that gasoline-powered vehicles do not require significant engine modifications to run on gasohol (see Alcohol Production from Biomass in the Developing Countries, World Bank, September 1980). Because the potential production of alcohol from the currently available molasses is about two million liters per year (lpy), the annual volume of alcohol available for blending would be less than 5% of the current volume of gasoline consumption. Mali, therefore, has the option to introduce a gasohol blend with a modest alcohol content, while achieving significant savings in gasoline imports. - 10 -
III. TRE PROJECT SPONSOR
A. The Office du Niger
3.01 In 1932, the French colonial administration created the Office du Niger (ON) to develop the irrigation potential of the central delta of the Niger River, and grow rice and cotton. ON's irrigation system, developed in the 1930's and 194 0's, consists of a dam on the Niger River, the Markala barrage, which raises the water level by about 5 meters, a feeder canal upstream of the dam, and two main irrigation canals, the Sahel canal, and the Macina canal. The secondary and tertiary canals can serve up to 53,000 ha of cultivable land of which about 41,000 ha are currently cultivated - 38,200 ha under rice, and 2,800 ha under sugarcane. After independence, in 1961, the Office du Niger was taken over by the Government and became an autonomous parastatal entity enjoying a considerable degree of managerial and financial independence. ON is the largest rural development institution in Mali.
3.02 In addition to the agro-industrial complexes at Siribala and Dougabougou (paras 2.13-2.19), ON operates four rice mills with a total annual capacity of about 70,000 tons of rice, and two experimental feedlots for beef cattle. In 1970, cotton cultivation was abandoned largely because of low yields, poor financial returns, and the resulting farmers' lack of interest. Now ON grows sugarcane on its estate plantations with hired labor, and rice with tenant farmers to whom it provides farm inputs and equipment, credit and marketing services in exchange for a levy covering the use of the irrigated land, and equipment rental and other services.
3.03 ON's total staff in July 1982 was about 9,500, of which 5,400 are seasonal labor. The 4,100 permanent staff include about 400 managers and 800 office workers. The remaining 2,900 are skilled and unskilled laborers. Except for Chinese technical assistance in building and rehabi- litating the sugar mills, ON is managed entirely by Malians who have coped reasonably well with day-to-day operations, considering the dearth of trained staff, but need to strengthen managerial, technical and financial skills.
3.04 ON's statutes allow it a high degree of independence over planning, operations, and finance. The Council of Ministers appoints ON's chief executive, the Director General, who formally reports to the Minister of Agriculture. Seven major departments and three staff divisions report to the Director General. The Government has identified two weaknesses in the existing ON's structure: highly centralized decision-making leading to delays and insufficient supervision, and inadequate coordination among dif- ferent departments. These matters are currently being discussed with several donors with a view to developing a joint program to strengthen OnT and improve its management effectiveness and procedures.
B. Operating Performance
3.05 Throughout most of the 1970's, ON's operating performance was good. The area under rice cultivation increased from less than 30,000 ha in the 1960's to nearly 40,000 ha in the mid-1970's. Paddy yields - 11 - increased from an estimated 1-3/4 tons per ha in 1971 to over 2-1/2 tons per ha in 1978. ON's farming population, which had declined in the 1960's, rose from less than 30,000 in the late 1960's to more than 50,000 in the Jate 1970's. Sugar production increased nearly fourfold, from 5,000 tons in 1970/71 to nearly 19,000 tons in 1977/78, and stabilized at about 18,000 tons in 1978/79 and 1979/80.
3.06 Many factors contributed to these good results which contrast with the sluggish performance in the 1960's. They include better management and the improvement of services provided to farmers which in turn brought about improved farmers' attitudes. Farmers welcomed the termination of cotton cultivation which had become unrewarding (para 3.02). ON improved maintenance of in-field irrigation canals, levelled several irrigated areas, and rented to smallholders most of its estate rice plantations which were reduced from over 10,000 ha to a mere 600 ha. Finally, the drought of the early 1970's combined with the incentives provided by the producer price increases of 1974 brought an important inflow of new settlers to ON.
3.07 ON's primary source of revenue is from the sale of sugar, rice, and related by-products. The Government sets the sales prices which are reviewed from time to time but at least once a year. Several Government agencies participate in the price review. They include OSRP (para 2.06), the Ministries of Agriculture and Finance, and the Office du Niger. ON's input in the review is important, reflecting its role as a major food producer in Mali. Another important source of revenue is the levies tenant farmers pay ON for the use of the irrigated land, equipment, tools, and services. IJnlike most parastatal institutions in Mali, the Office du Niger has operated without direct Government subsidies.
C. Financial Condition
3.08 ON did not issue adequate financial reports on its operations from 1964 to 1978. Problems related to the valuation of assets after the transition of ownership from France to Mali are the main reason for this, but accounting and financial control systems and staff are also inade- quate. With technical assistance financed by IDA (Cr. MLI-845), Office du Niger prepared consolidated financial statements for 1979 and 1980 which have been audited but not certified, pending Government decisions on the definition of its rights as a shareholder and as a creditor of Office du Niger and the verification of key assets, mainly receivables and invento- ries.
3.09 The 1979 and 1980 consolidated financial statements of Office du Niger are presented in Annexes 3-1 and 3-2 and summarized in the following page: - 12 -
Office Du Niger - Financial Highlights (MF Million)
1979 1980 1979 1Q80
Revenue 8,644 13,936 Working Capital 11,673 7,997 Gross Income 6,195 3,150 Net Fixed Assets 10,341 12,3Q3 Net Income (loss) 4,218 (1,447) Long Term Debt 1,089 2,083 Cash-flow 5,026 55 Equity 22,924 21,247
Ratios:
Net Income/Revenue 49% - Current 3.1:1 1.q:1 Return on Equity 18% - Debt/Equity 5/95 9/91
3.10 In 1979, sugar sales were about 51% of total revenues; milled rice, 26%; other agricultural products and by-products, 13%; and farmers' levies 10%. By-product sales included alcohol sales of less than 1% of total revenues. The 61% revenue increase to MF 13.9 billion (USS 21.5 million) from 1979 to 1980 resulted mainly from price increases, as physical sales volume increased only slightly. Price adjustments, however, were not sufficient to offset cost increases resulting from major invest- ment write-offs charged to income, an increase in staff and other over- heads, and an estimated inflation rate of 68%. Relatively low asset turnover resulting from inefficient management of inventory and receivables also explains ON's 1980 loss and subsequent liquidity problems.
3.11 In 1979 ON's working capital was high compared with sales; in 1980, after a decrease of about 30%, it was still adequate for operations as the current ratio stood at 1.9:1. While ON's current assets are high, their quality needs to be confirmed by the auditors because cash of MF 309 million (US$ 0.5 million) at June 30, 1980 was low relative to inventory and receivables of MF 15 billion (US$ 23.1 million). In 1980, long term debt almost doubled to MF 2 billion (USS 3.1 million) but capitalization remained strong. In summary the above financial statements indicate a good capitalization but deteriorating profitability and uncertain liquidity. It is therefore, important that ON restore and improve the productivity of the assets that sustain its earning power. In the sugar sector, alcohol production and energy efficiency investments proposed under this Project would contribute significantly to increasing the productivity of the exist- ing sugarcane processing facilities.
D. Recent Developments
3.12 In 1981 and 1982, ON's rice and sugar production decreased from the 1979 and 1980 levels while costs continued to rise. ON was unable to turn over its inventory and collect receivables quickly enough and was caught in a liquidity squeeze. In fiscal 1982, ON had a cash flow deficit and rolled over about MF 1.1 billion (US$1.7 million) outstanding on bank overdraft facilities of MF 2.6 billion (US$4.0 million). There is concern that this cash shortage may have further adverse effect on production and maintenance of facilities. This liquidity problem was probably caused by heavy expenditures incurred in the construction of a new irrigation canal - 13 - and the reduction in sugar sales (para 2.18). In fact, a drop in sugar production was to be expected while the Dougabougou mill was shut down for extensive rebuilding. Product prices rose more slowly than rising costs. ON's tenant farmers were particularly hit by this squeeze and apparently fell behind in payment of levies and for goods purchased on credit from ON. Liquidity, however, is expected to improve as sugar production returns to previous levels. The alcohol production envisaged under this project would further strengthen ON finances.
3.13 IDA has financed one previous project to ON for US$4.5 million, beginning in 1978 (Credit 854-MLI), consisting of a three-year program of technical assistance and pilot rehabilitation works (Project Performance Audit Report No. 4414, dated March 25, 1983). As IDA's first action in this irrigation scheme, the project was viewed as a vehicle for evaluating both ON's capabilities and the prospects for larger-scale support, with the basic objective to lay the groundwork for a future, large-scale rehabilita- tion project. To this end, the project aimed to strengthen ON administra- tion, to experiment the alternative types of physical rehabilitation, to prepare plans for and estimate costs of future rehabilitation, and to sup- port agricultural research for crop diversification. The project encoun- tered several difficulties, including delays and cost overruns caused by delays in recruiting consultants and their problems in working with the staff of ON. During this project, it became apparent that the major con- straints in ON are institutional, including its organizational structure and socio-economic conditions of its farmers, and that any improvement in physical facilities should be subordinated to action in these areas. ON has recently taken actions to streamline its management (para 3.14) and to improve its relation with farmers. The proposed Project, which combines technical assistance with productive physical investments in a clearly defined area, would represent IDA's first effort to support these positive new developments.
3.14 By early 1982, largely as the result of financial pressures caused by the deteriorating cash-flow of ON, the Malian authorities recog- nized that important actions must be taken both to increase sugar and rice production and to reform the overly centralized administrative structure of ON. The government also accepted a high-level diagnostic mission in late 1982, led by French representatives with Dutch and IDA financed partici- pants, which collaborated with Malian authorities to produce an ambitious rehabilitation plan for ON, covering three phases. The first would be to consolidate current activities by getting the existing infrastructure operating and by intensifying production. The second would be to rehabili- tate and modernize the irrigation system; and the third would be to expand production onto newly developed land. Subsequent to the release of this rehabilitation plan, representatives of IDA, French, Dutch and other bila- teral aid agencies and of the Malian government have agreed on broad prin- ciples for a coordinated, donor financed program to help rehabilitate the ON. The agreement includes measures to enhance the working conditions of rice farmers (along the lines of on-going Dutch-financed experiments), to improve the quality of irrigation services, and--with respect to the sugar sector--to establish a separate Sugar Division with full managerial and financial autonomy within the ON. The purpose of creating a separate sugar division is to protect the productive assets of the sugar sector and to enable it to function efficiently within an organization that is otherwise - 14 -
chronically short of funds and administratively cumbersome. Tt is all the more important since sugar profits provide essential financial support for rice production. The proposed Project would provide a valuable first step in implementing both the first phase of the Government's rehabilitation plan and in carrying out some of the measures agreed upon by the donors and the Malian Government.
IV. THE PROJECT
A. Project Objectives and Scope
4.01 The main objectives of the proposed Project are: (a) to reduce Mali's dependence on imported petroleum products by utilizing a domestic renewable energy source (molasses) which is currently being wasted; and (b) to improve substantially the energy efficiency of the two existing sugar mills to reduce their production cost and eliminate the use of imported petroleum fuels. About two million liters annually of anhydrous (99.6%) alcohol would be produced, blended with gasoline, and used as auto- motive fuel. The Project will also improve the energy efficiency of Mali's two sugar mills so they can use bagasse, instead of imported petroleum fuel, to generate power and steam. In addition, the Project will assist Mali to prepare the overall rehabilitation of the Office du Niger. The Project will include the following components:
(a) biomass alcohol production by fermenting all the molasses at both sugar plants and subsequent distillation to produce 99.6% ethanol at Siribala; and provision of additional alcohol storage, hand- ling, and transportation facilities;
(b) energy efficiency improvements through installation of yeast recycling system at the alcohol distilleries and process control instrumentation and maintenance systems at the sugar mills and distilleries to facilitate alcohol distillation operation to be carried out within the same crushing season as well as modifica- tions to evaporators and piping to utilize steam efficiently and eliminate the need to use external petroleum fuels;
(c) additional storage capacity at the Bamako terminal for storage of alcohol, facilities for blending alcohol with gasoline and for loading system modification;
(d) technical assistance for introducing better systems for plant maintenance and operations management as well as training of operational, maintenance, and supervisory personnel:
(e) a study on future expansion of biomass energy production; and
(f) urgently required farm inputs, technical assistance, and studies to prepare a rehabilitation program covering technical, finan- cial, and administrative operations of ON in its entirety. - 15 -
B. Project Description
1. Biomass Alcohol Production, Storage, and Handling Component
4.02 The Siribala and Dougabougou distilleries are designed to produce industrial grade alcohol, i.e. hydrous ethanol up to 95% purity. As des- cribed in detail in the report: Alcohol Production from Biomass in the Developing Countries, World Bank, September 1980, only anhydrous ethanol of at least 99% purity can be used in a 'gasohol' blend of gasoline and up to 20% ethanol. The principal modification required to produce this grade of anhydrous ethanol from the existing facilities in Mali is to add process equipment for additional water removal from hydrous ethanol. This process commonly involves introduction of an 'entraining' liquid such as benzene or cyclohexane, which enables the distillation to be extended to produce anhy- drous ethanol. Chart 1 on the following page illustrates graphically all process steps involved in this component, from sugarcane to gasohol deli- very.
4.03 The existing distillation train at Sirihala would he rearranged and upgraded to allow it to produce anhydrous ethanol (9.6% purity). The same result could also be achieved hy adding two distillation columns to the existing facility. The rearrangement of the existing distillation columns was selected instead of the addition because it will reduce capital cost and the process energy usage. This type of modification will not, however, permit production of the small quantity of hydrous ethanol (95% purity) required as an intermediate product for industrial and pharma- ceutical uses. Therefore, the Dougabougou distillery would be maintained as the source of hydrous alcohol to meet local market demand, while surplus over this demand will be transported to Sirihala for further processing. Siribala was chosen because it has a higher capacity (10,000 lpd) than Dougahougou (4,000 lpd). Charts 2 and 3 on the following pages show the existing and modified distillation systems at Siribala.
4.04 In order to accommodate the proposed increased alcohol produc- tion, it will also be necessary to introduce additional storage, loading and unloading facilities, and vehicles. These would include: (i) vehicle loading facilities at Dougabougou to deliver surplus hydrous alcohol to Siribala; (ii) vehicle discharge facilities and buffer storage at Siribala to accommodate the hydrous alcohol received from Dougahougou; (iii) vehicl.e loading facilities and storage for anhydrous alcohol at Siribala to he delivered to the Bamako hlending depot; and (iv) trucks to transport hydrous alcohol to be reprocessed from Dougabougou to Sirihala. The existing molasses storage capacity is sufficient to meet anticipated requirements.
2. Energy Efficiency Component
4.05 The Siribala and Dougabougou industrial complexes currently do not operate at the level of thermal efficiency for which they were designed. The causes of inefficiency include inadequate process equipment, instruments, and piping as well as poor maintenance and operation. These causes and the remedies proposed under the Project are discussed in detail in paras 4.23-4.25. Both Siribala and Pougabougou would be modified and improved to ensure adequate and economic supply and use of energy. These -16- Chart 1
MALI BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT From Sugarcaneto Gasohol
SUGARCANE 67,200 t/py 168,000 tipy FIELDS cane cana
SUGAR FACTORIES DOUGABOUGOU SIRIBALA FACTORY YFAC10RY
2,350 t 7 5,880 t Molasses _ Molasses _ ~~~~SUGAR ~~~~~1400t3 2800 m3
,o\esso Existing molasses storage
DISTILLERIES EIN _ EX IST ING DISTILLE RY DOUGA80UGOU| New 95%
570,000 I/pV 95%ethanol Ethanol storage
Existing N\ 95% ethanol . - @ storage 7, DIFIED
A^ 100 m3 370,000lit. 95%ethanol DISTILLERY I 1/py /? ,OOsOCiSXzS/ _ _- 1 1,930,000
xet,,/rQv 2 New99o/ -'-f ><99D'.~~~~99 ethanol
200,000QAv J ethanol| BAMAKO 3 FUELAM storage 250 m DEPOT 1,930,000 lit./99% ethanol New 99% ethanol Existing regular storage ( gasoline storage 3 250 m t . 6288 m '_/ /I New blending r- _ _- flowmeter and I controller L- -- 4 -' GASOHOL" ______TO RETAIL Existing vehicle loading facilities OUTLETS VVorld Bank-29324 MALI BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT Siribala - Existing Distillery FEEDSTOCK MOLASSES PREPARATION DISTILLATION FROM 95% ethanol MAIN 955ehao MAINS |B _ N water/vv R AT PREAr 10%ethanol ethanol_ CASCADING FERMENTER distillation DILUTION A2 B5 3_B- HOLDING F OLDIN:G steamg WATER -Ij~~~~~~~~~~~~~~~~~~~~~~~~~~~~SSE steam/waterwte . I I ~~~~~~~~~~~~steamI stea water |STILLAGE water/yeast IRGTION WtretaorldBn-32 FERMENTATION WATER SYSTEM 1b World Bank-29320 Irt 19 - 18 - Chart 3 MALI BIOMASSALCOHOL AND ENERGY EFFICIENCY PROJECT Siribala - Modified Distillery water/ethanol/entrainer CONDENSER Reflux 84% ethanol 4 v ~DECANTER entrainer/ ethanol~ ~ ehaol == w~~~~~~~~~~~~~~~~~~~vaterl/ ethanol/ entrainer PREHEATED FEEDSTOCK FROM A B C SIR IBALA FERMENTER (10% ethanol) ethanol/water f t { \ --- *STILLAGE 99.6% ETHANOL PRODUCT TO STORE PREHEATED (FUEL ETHANOL) 95% ETHANOL FEEDSTOCK FROM DOUGABOUGOU World Bank-29321 - 19 - provisions will have the combined result of increasing the design thermal efficiency of both industrial complexes and, more importantly, of improving actual performance to approach the expected energy input. The modifica- tions would involve adding to the sugar mills and distilleries new process equipment, instruments, and piping which would result in increased effi- ciency of steam utilization and distribution facilities. At Dougabougou, provision would be made for a cooling tower to aid thermal efficiency, and a yeast recycling system, to increase fermenter throughput and enahle the distillery to process the annual supply of molasses within the cane crushing season. Any surplus yeast, in excess of the needs for recycling into fermentation, can be used by Office du Niger as an animal feed supplement. Removal of the yeast before distillation will also be beneficial to the distillation. It is anticipated that there will he suf- ficient steam available from the sugar factory to meet hydrous alcohol production requirements during this period. 4.06 At Siribala, in addition to a new cooling tower and a yeast recycling system, the modifications would include complete repiping, addi- tional instrumentation, and evaporation vessels. The steam requirements for production of anhydrous alcohol at the modified Siribala distillery at its maximum expected production rate is estimated to he 2.4 tons per hour. This is less than half of the quantity of surplus steam expected to be available from the sugar factory to operate the alcohol distillery. There would, therefore, be no longer any need for supplementary fuel usage to service the combined sugar and ethanol production activities at Siribala. Efficient steam production and distribution will benefit both sugar and alcohol operations. While the investments described above would involve both the sugar mills and alcohol distilleries it is not always possible to allocate all of these investments clearly to either the alcohol or the sugar plants because most of the facilities are shared between the distil- lery and the mill. 3. Gasohol Blending and Distribution Component 4.07 In order to ensure consistent and satisfactory gasohol quality, alcohol blending with gasoline must be properly controlled at a central storage facility. The only suitable location in Mali is the main storage depot at Bamako which is owned and operated by a Mobil affiliate (para 2.09). A 250,000 liters alcohol storage tank with piping and automatic blending pump would therefore be installed at Bamako depot. This new storage and blending facility will be owned by the Government and leased to the depot operator (para 5.07). The depot operator would blend the alcohol with gasoline when the gasohol is loaded into tanker trucks for delivery to retail outlets. The blending pump can be pre-set to draw the desired proportion of gasoline and alcohol into the vehicles being loaded. This procedure is common in countries where gasohol is widely used and will be adopted in Mali. Because the alcohol will displace an equal quantity of gasoline there would be no net increase in the fleet of delivery vehicles serving the depot. The Alcohol Production UTnit of ON will sell the alcohol ex-distillery to the five petroleum distribution companies for its blending into gasohol. The oil companies will arrange alcohol transport from the Siribala distillery to Bamako depot (para 4.14). - 20 - 4.08 Alcohol production would be undertaken on a seasonal hasis to take maximum advantage of the steam and power available from the adjacent sugar factories during the cane crushing season. There could be some cost saving if alcohol were blended with gasoline only during the sugar produc- tion season while using regular gasoline during the rest of the year. However, from an operational viewpoint, it is preferable to market a uniform blend throughout the year. This latter approach is contemplated under the Project. The local petroleum distributing companies support this program. During negotiations, it was agreed that, by January 31, 1984, the Government will enter into an agreement satisfactory to IDA with the Mali Confederation of Oil Distributors specifying arrangements for the marketing and distribution of gasohol. 4. Technical Assistance and Training Component (a) Industry 4.09 Technical assistance would be provided to enhance the skills, knowledge, and experience of staff at various levels relative to the requirements of project implementation and subsequent operation. ITnderthe Project, a detailed review would be carried out of the technical and operational staff training requirements of the two factories by specialized consultants whose qualifications, selection and terms and reference will he satisfactory to IDA. Upon completion of the review, consultants would prepare a detailed training and technical assistance program. This program will also include provision for implementing revised operation and mainte- nance systems, management information and financial controls systems. Agreement has been reached that the detailed program will he submitted to IDA for approval by January 31, 1984. (b) Agriculture 4.10 In order to assist ON to improve per acre yields of sugarcane and the cane quality, the Project would also include training and technical assistance provisions aimed to support the agricultural staff who manage ON's sugarcane plantations. This component will further contribute to ensure that future cane supply is sufficient and reliable. The provisions would include intensive three-month courses in sugarcane agronomy for eight senior staff and specialized follow-up courses for the agronomist and for the irrigation and drainage managers. In addition, a sugarcane expert would be internationally recruited to provide technical support and on-thejob training to the plantations field managers. The sugarcane expert will be employed for about 12 months. Short term consultants would also he recruited to advise ON on irrigation and drainage, cane varieties, and disease prevention. ON will be responsible for implementing this Component. 5. Biomass Energy Study Component 4.11 The Government is committed to developing further renewable energy resources. The proposed Project would satisfy only a small portion of the demand for liquid fuel. The Project would, therefore, also include provision for a study to assess the potential for additional hiomass fuel production. The main objective of the study would be to assess whether - 21 - there is economic justification for the production of crops for biomass fuel in Mali. The study will be carried out by internationally recruited consultants acceptable to IDA and will require seven staff-months to com- plete. Draft terms of reference for the study are given in Annex 4. 6. ON Rehabilitation Program 4.12 Since late 1982, Government has taken initial steps to develop a comprehensive ON rehabilitation plan (para 3.14) and discussions with possible donors on basic aspects of reform and rehabilitation have advanced satisfactorily. Given the difficulties in the past, donors have agreed that future interventions should be part of a collaborative, multi-donor effort, even though donors may finance actions separately. However, there is still no feasible program that is both a coherent set of policy reforms with detailed action plans and an integrated package of projects and investments that could be financed by various donors. To prepare this program, ON would set up a Rehabilitation Task Force (RTF). The RTF would report to the ON Director. During negotiations, assurances were obtained that by December 31, 1983, the RTF would be created with the necessary technical assistance and a work program established on terms and conditions satisfactory to IDA. 4.13 To develop a rehabilitation program, the assistance would consist of three resident specialists, qualified in irrigation engineering and operations, agronomy, management and financial analysis, and agricultural development generally. To help set up a unified sugar sector (para. 3.15), assistance would consist of two consultants qualified in sugar industry management and financial accounting. Approximately 15 work-years of expert and consultant services would be provided. In addition to technical assis- tance and logistics needed to develop a rehabilitation program and restruc- ture the sugar sector, the component may also be used to finance technical assistance, equipment and training needed to start implementing the reforms and to finance urgent requirements of fertilizers, and other chemicals for the sugarcane plantations. C. Project Management 4.14 The Office du Niger would be responsible for implementing the alcohol production, storage, and handling component, the energy efficiency component for the sugar industrial complexes, the industrial and plantation technical assistance and training, and the rehabilitation task force. The Ministry of State for Equipment (ME) would be responsible for implementing the gasohol blending component and the biomass energy study. Distribution and marketing of gasohol would be the responsibility of the marketing companies (para 2.08) which would also take delivery of the alcohol ex-Siribala. 4.15 For implementation of those components related to the sugar sector, assurances were obtained during negotiations that by July 1, 1984 a Sugar Division will be established for all ON sugar operations including sugarcane plantations, alcohol distilleries, sugar mills, and support services such as warehousing, storage, maintenance, and transportation. The Sugar Division would have managerial and financial autonomy, including a separate bank account, and a manager and a financial manager. Opening the separate bank account for sugar, into which ON would deposit all reve- - 22 - nues from the sale of sugar, sugar by-products, and alcohol, is a condition of Credit effectiveness. Control over sugar and alcohol revenues would remain under the manager of the Sugar Division until all expenditures for producing sugar and alcohol were met. In addition, assurances were obtained that, at least three months before the start of each sugar campaign, the head of the Sugar Division would submit to ON's Director for approval an Operational Plan for the cane crushing season. The proDosed project would also create an Alcohol Production TJnit (APTP) as a separate profit center, or self-contained organizational and accounting unit under the Sugar Division. The head of the APTJ would be project manager for all aspects of project implementation related to alcohol production. He would be assisted by a chemical engineer, a financial controller, and two storage operators to be recruited under the project to supplement existing staff at the two distilleries. Establishment of the APTJ with management, staff and terms of reference satisfactory to IDA is a condition of Credit effective- ness. 4.16 An experienced engineering firm acceptable to IDA would be employed to prepare the process engineering package for the alcohol produc- tion, energy efficiency, and gasohol blending components of the Project and bidding documents for the rest of project implementation work. The bidding documents would permit invitation of international competitive bids for a group of contracts covering detailed engineering, supply of equipment, civil works and erection of equipment and start-up of the plants (para 5.08). The engineering firm would also be responsible for supervising the work of the selected principal contractor up to plant start-up and for demonstrating plant performance in accordance with process guarantees under their process engineering contract. This solution would reduce ON's requirement of manpower deployment and management time to a minimum. The engineering firm would also be responsible for carrying out the technical assistance Component except for specialized services such as accounting, and agricultural consultancies, which would be contracted separately suh- ject to IDA approval of the consultants' terms of reference and qualifica- tions. D. Project Schedule 4.17 Chart 4 on the following page shows the Project implementation schedule. Advertising is being arranged and negotiations with the engi- neering firm are expected to be completed in August 19P3. The major part of the engineering design and procurement activities will take place during the 1983/84 cane crushing season. The distillery modifications at Siribala will continue during the 1984/85 cane crushing season, while required pro- duction of hydrated alcohol will be undertaken at the rehabilitated Dougabougou distillery. Work at Siribala will be completed before the end of the 1984/85 cane crushing season, to allow test-runs of the new facili- ty. Installation of new evaporators at Siribala will occur in the second half of 1985 to allow ample time for procurement of the required compo- nents. Introduction of the yeast recycling system and cooling tower at Dougabougou is also planned for late 1985. This implementation schedule was confirmed during negotiations. MALI BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT Implementation Schedule 1983 1984 1985 1986 0 N D J FM A IM J J A SJ0 N D JIFM M A M J I1 A S 0 N D J F IM A M J DESIGNAND PROCUREMENT -~~~~~~~~~~~~~~~~~~~~~ - - - ...... INSTALLATION:~ ~ ~ ~ ...... TRAINING ANDI OPERATI...... ONAL...... SUPPORT . ... r~~~~~~~~~~...... - -...... FUELETHANOL ...... COMMISSIONIN.G.. . FIRST.. .ULYEAR.. PRDUCTIAD NRCRMN ...... ~Wold an 232 CANESEASON ...... - 24 - 4.18 Additional alcohol storage facilities at Siribala have been planned for 1984. This will allow the Dougahougou distillery to produce at full capacity, in excess of market demand that year. The surplus hydrous alcohol would be stored for reprocessing at the Siribala distillery as soon as the required modifications have been completed. The timing of the modi- fications at the Bamako depot is less critical and can be established to the convenience of the depot operator. It is, however, necessary to com- plete it before the end of the 1984/85 season in anticipation of receiving the first supplies of anhydrous alcohol from the Sirihala distillery in April/May 1985. The timing of the proposed training and operational support services will be matched to the construction and commissioning pro- gram. Initial production is scheduled for 1%R, and IQP6 would be the first full year of anhydrous alcohol production. E. Environmental Impact 4.19 There are at present no effluent treatment facilities at the Siribala and Dougabougou plants. All wastes from sugar and alcohol produc- tion, and all surplus molasses are currently discharged into the cane field irrigation water systems and into open fields. The proposed development of alcohol production will eliminate molasses from the waste flows and hence considerably reduce the environmental pollution load. F. Raw Materials and Utilities 4.20 The expected molasses production from 19Q onwards is shown below: ON - Expected Molasses Production From 1986 Dougabougou Sirihala Total Cane crushing capacity (tpd) 400 1,000 1,400 Operating days per year 210 210 210 Capacity utilization (%) 80 IQ s0 Cane crushed (tpy) 67,200 168,000 235,200 Molasses Production (% of cane) 3.5 3,5 3.5 Molasses Production (tpy) 2,352 5,880 8,232 4.21 The above estimates are conservative because the current molasses yield at Siribala is about 3.9% of processed cane or about 11% higher than assumed above, and the operating season could be extended by about 10 days (5%). The annual molasses production at Siribala, for example, could as a result be as high as 6,700 tpy. The low yield and utilization rate were assumed to take into account Dougabougou's sluggish performance in recent years. 4.22 Past operating statistics suggest that molasses yield and sucrose content are relatively insensitive to declines in overall factory perform- ance, although the sugar yields have declined primarily due to loss of sucrose to bagasse and mechanical causes. Annual molasses production depends on annual cane throughput, which in turn can be affected by cane availability and factory down-time. While cane supply has been generally adequate, factory down-time has been increasing as performance deteriorated - 25 - especially at the Dougabougou factory. The main cause of this loss of per- formance is equipment wear and the difficulty of undertaking effective maintenance as a result of the lack of spare parts and materials, and the limited experience of operating and maintenance staff. The Project provi- sion of spare parts, staff training, and the introduction of adequate systems of operation and maintenance would be essential to ensure that the factories are operated efficiently, and future nolasses supply is adequate for planned alcohol production. 4.23 Conventional cane-based sugar mills, with annex distilleries, such as Siribala and Dougabougou, generate all the steam and power they require from bagasse-fired boilers. Energy requirements of these complexes can be met by using about 90% of bagasse extracted from the cane pro- cessed. Chart 5 illustrates the energy production and usage in the exist- ing Siribala sugar mill. The quantities refer to an hourly throughput of 45 tons of cane containing 12.5% sucrose and 137 fiber. Steam, generated at a pressure of 25 bars, is used first for power generation; the exhaust from this, plus additional bypass steam, is reduced to 2 bars pressure for subsequent process heating. Approximately two-thirds of the process steam (11.75 tons per hour) is used in the quadruple effect evaporator section, and a further 25% (4.5 tons per hour) in crystallization. The balance is used in juice heating operations which are each effected in two stages, the second of which takes exhaust vapour from the evaporator section. Steam generation from the bagasse-fired boiler is shown as 26.6 tons per hour, assuming 50% moisture in the bagasse and an average boiler steam generation rate of 2.2 tons per ton of bagasse. Similar pro rata performance is expected at Dougabougou. 4.24 The expected performance described above contrasts with the reported operational experience which has required regular use of supple- mentary petroleum fuel at both Dougabougou and Siribala. Several causes of inefficiency have been identified. They include insufficient steam generation, excess imbihition of water, and inadequate heat transfer in juice heaters, evaporators, and crystallization vessels. Remedial actions would involve stricter control of boiler and cane mill operations, water usage, and improvement of maintenance procedures and general process control. The Project provision of new instrumentation, maintenance and clearing equipment, spare parts and materials, as well as staff training for operations and maintenance aim to correct these causes of thermal inefficiency. As a result of these measures, the Siribala plant should perform at or near the energy efficiency level shown in Chart 5, and so generate sufficient surplus steam for the distillery. Similar pro-rata performance are expected from the Dougabougou plant. 4.25 In order to provide a margin of safety, the distillery stean supply will be further increased by modifying the plant to achieve additional thermal economy. The energy efficiency of sugar production could be further improved by increasing the rate of water removal in the evaporator section and by using the exhaust evaporator vapour to provide the heat required for crystallization. Chart 6 shows the energy usage that would result from the introduction of these modifications at Sirihala. Tf compared with the expected performance from the existing facilities shown in Chart 5, it can be seen that total steam usage for sugar production would be reduced frorm17.6 to 16.0 tons per hour. This saving of 1.6 tons - 26 - Chart 5 MALI BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT Siribala SugarmillEnergy Usage BAGASSE 12.1 tlhr. CONDENSATE 17.6 thr. (50% vvater) . POTENTIAL EXCESS BOILER STEAM FOR 9.0 t/hr. 26.6 t/hr. ETHANOL PRODUCTION maximum maximum STEAM FOR SUGAR 17.6 t/hr. PRODUCTION (25 bar) t 2 2 t/hr. 18.0 t/hr. CAN POCWER CANE MLoad GENERATION 65% efficiency 1500 kw, 100% loa 30% efficiency 17.6 t/hr. PROCESS STEAM (2 bar) STEAM STEAM s . . _ . ~~~~~~~~~~~~~~~~~~~~~~~~~Neglig ble 11.75 t/hr. 0.46 t/hr. 0.37 t/hr. 0.56 t/hr. 4.5 t/hr. I QUADRUPLE JUICE JIEJUICE EVAPORATION HEATING HEATING HEATING CRYSTALL- CENTRIFUG- 1 2 3ISATION ATION 4 7 t/hr 0.62 t/hr.~~~~thr VAPOR 3.3 t/hr. 4.5 t/hr. CONDENSATE CONDEN +SATE CONDENSATE 1 . 6.7 t/hr TO IRRIGATION 6.1 t/hr, | ~~~~(excludingfeed to | | i~~~~~etcondensers) I I ~~~~~~'CONTAMII IF 14.2t/hr, NATED' 11.4 t/hr. 'U,' 17.6 t/hr. |(from 3 + 4) |0CONDENSATE ||CONDENSATE| + !1.2 t/hr. Q _ (from 1 + 2) FOCR EX CESS IMBIBITION CONDENSATE WATER Notes:- a) Steam production of 26.6 t/hr. is based on generation rate of 2.2 t. steam per 1.0 t. bagasse. At generation rate of 1.8 t. steam per 1.0 t. bagasse steam production would be 21.8 t,'hr. b) Assume juice from evaporators at 650 Brix. c) Evaporator vapor used to heat crystallisation. VWorld Bank-29323 - 27 - Chart 6 MALI BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT Siribala Thermal Efficiency of Modified Plant BAGASSE 12.1 t/hr. CONDENSATE 16.0 t/hr. (50% wvater)71 i POTENTIAL EXCESS BOILER STEAM FOR 26,6 t/hr. ETHANOL PRODUCTION .th.Ia maximu 16.0 t/hr. STEAM FOR SUGAR PRODUCTION (25 bar) | 2.2 t/hr. ~~~~~~~~~~~0 t/hr. ~~18. CANE MILLS . POWER 80% load GENERATION 65% efficiency 1500 kw, 100% load PROCESS STEAM 16.0 tlhr. (2 barl STEAM v STEAM 14.6 t/hr. 0.46 t/hr. 0.37 t/hr. 0.56 t/hr. Negligible QUADRUPLE JUICE JIEJUICECRSAL EVAPORATI'ON HEATING HEATING HEATING CRSATAL- CETNFG 4itiJhr. 1 2 i'_ 3 ST AL_ ATION s4.7 t/hr. 4 3.7 t/hr. 0.35 0.62 3.6 t/hr. 3.6 t/hr. tI/hr. s/~hr. - - ~~~~~~~~~~~~~~~~2.7 VAPOR t/hr 3.6 t/hr. VAPOR CONDENSATE CONDEN rSATE CONDENSATE 1 6,0 t1hr. TO IRRIGATION 6/1 t/hr WATER .WT iexcluding feed tc jet condensers) I'CONTAMI 12.7per t/hr. agsNATED't r f1 13.6 tnhr. 'PURE' | 16.0 t/hr. (from 3 + 41 CONENAT CONENAT te p23.3rt/hr. l b If rom 1 + 2) evaoraor ra fs600Brix FOR EXCESS IMBIBiTION CONDENSATE WJATER N otes: - a) Steam production of 26.6 t/hr. is based on generation rate of 2 2 t. steam per 1.0Ot. bagasse. At generation rate of 1.8 t. steam per t .0 t. bagasse steam production would be 21.8 t/hr. b) Assume juice from evaporators at 600 Brix. World Bank-29322 - 28 - per hour would be added to the steam available to produce alcohol. A pro- portional reduction of steam usage would be achieved at Dougabougou by the same means. G. Employment and Productivity 4.26 Since the Project basically involves the modification and improvement of the existing plants, the additional employment created will be limited to about 200, consisting of additional workers to operate and maintain the distilleries, and for additional loading, unloading, shipping, and alcohol blending. After project completion, the labor productivity at Siribala and Dougabougou is expected to increase significantly, partly as a result of project training and technical assistance which are expected to improve the two plants' operating and maintenance standards and their energy efficiency. V. PROJECT CAPITAL COST AND FINANCING A. Capital Cost 5.01 The total financing requirements of the Project, including physi- cal contingencies, price escalation, working capital, and interest during construction are estimated at US$8.3 million equivalent (MF 5.4 billion), including US$7.2 million in foreign exchange. The capital cost estimates are detailed in Annex 5 and summarized in the table on the following page. - 29 - Project Cost Summary Foreign Exchange % of ----- MF Million------US$ Thousand--- % of Base Local Foreign Total Local Foreign Total Total Cost Project Component Alcohol P'roduction 29 695 724 44 1,073 1,117 96 20 Energy Efficiency 26 641 667 40 989 1,029 96 18 Alcohol Blending 3 53 56 4 82 86 95 2 Technica'L Assistance - Industry 49 449 498 75 693 768 90 13 - Agriculture 21 188 209 32 290 322 90 5 Biomass Energy Study 6 57 63 10 88 98 90 2 ON Rehabilitation 100 1,387 1,487 154 2,140 2,294 90 40 Base Cost 234 3,470 3,704 359 5,355 5,714 94 100 Contingencies Physical 23 347 370 36 536 572 94 Price 50 740 790 77 1,142 1,219 94 Installed Cost 307 4,557 4,864 472 7,033 7,505 94 W4orking Capital 198 107 305 306 165 471 35 Total Project Cost 505 4,664 5,169 778 7,198 7,976 90 Interest During Construction 171 10 181 263 16 279 6 Total Financing Required 676 4,674 5,350 1,041 7,214 8,255 87 - 30 - 5.02 Base costs were estimated in June 1983 prices. The estimates were prepared by consulting engineers working closely with ON staff and revised by IDA staff at appraisal. Local taxes and duties were excluded from the estimates because Project expenditures wouldl be exempted. Physical contingencies were calculated at 10% of base cost. Price escalation for foreign and local costs is based on projected increases in international US dollar prices of 8% p.a. in 1983; 7.5%, in 1984; 7%, in 1985; and 6% p.a., in 1986 and onwards. The international rates have been used also for local costs assuming that the difference between domestic and international price inflation will be offset by adjustments in the foreign exchange rate in accordance with Government policy. 5.03 About 40% of the Project cost, excluding working capital and interest during construction, is estimated to be needed for alcohol produc- tion, energy efficiency, and 'gasohol' blending and distribution; and the remaining 60% for the technical assistance, training, and study compo- nents. Project costs include US$ 2.6 million for about 260 staff-months of services by internationally recruited specialists. The average cost of these services is estimated at about US$10,500/staff-month, including travel and subsistence cost. B. Financing Plan 5.04 The proposed financing plan for the Project is as follows: Financing Plan (US$ million) Local Foreign Total IDA 0.4 7.2 7.6 Office du Niger 0.2 - 0.2 Govt. of Mali 0.5 - 0.5 Total Financing 1.1 7.2 8.3 5.05 The proposed US$7.6 million IDA Credit would be extended to the Mali Government on standard IDA terms. The proceeds of the IDA Credit, and the Government and ON equity contributions to Project expenditures would be allocated according to the table on the following page. - 31 - Funds Allocations IDA Credit: US$ Million - Loan to Alcohol Production Unit 4.1 50 - Government Purchase of Blending and Distribution Facilities 0.1 1 - Technical Assistance - ON 0.4 5 - Biomass Energy Study - ME 0.1 1 - ON Rehabilitation Task Force 2.9 35 Total IDA Credit 7.6 92 Equity Contributions: - ON-Rehabilitation Task Force 0.2 2 - ON - Alcohol Production 0.2 2 - Government of Mali 0.3 4 Total Project Expenditures 8.3 100 5.06 The US$4.1 million equivalent loan from the Government to the Alcohol Production Unit will be funded from proceeds of the IDA Credit. ON will use internally generated cash to finance local currency expenditures equivalent to US$0.2 million during the first year of commercial opera- tions. ON's equity contribution to the Alcohol Production Unit will also include the two distilleries and related assets (para 6.09). The Govern- ment equity contribution will finance interest during construction in local currency and wil[L not involve the disbursement of cash. The IDA Credit would also finance the acquisition of blending facilities (US$0.1 million), the Biomass Energy Study (US$0.1 million), and technical assistance for agriculture (US$ 0.4 million), and for ON Rehabilitation (US$2.9 million). The Government will acquire ownership title to the blending facilities at the Bamako depot and will lease them to the owners of the Bamako depot. Funds for the Biomass Energy Study Component would be allocated to the ME budget, while funds for agricultural technical assistance and training would be granted to Office du Niger. 5.07 The Government would onlend to Office du Niger, for the exclusive benefit of the Alcohol Production Unit, US$4.1 million equivalent, for 13 years including 5 years of grace at an interest rate of 9% p.a., and a commitment fee of 0.75% p.a. on the undisbursed portion of the amount. ON will bear the foreign exchange risk. The terms of the subsidiary loan agreement between the Government and ON were agreed to at negotiations, and the execution of a subsidiary loan agreement acceptable to IDA would be a condition of Credit effectiveness. The Government will enter into a financial lease agreement with the owners of the Bamako depot. The lessee will be responsible for operating and maintaining the Project facilities. The lease will expire in 12 years and lease instaLlments would be calcu- lated to yield 13% p.a. These terms were agreed at negotiations. It was further agreed that the lease agreement will be executed by January 31, 1984. - 32 - C. Procurement 5.08 Contracts for goods, civil works and construction, including the necessary engineering for the Project's alcohol production and energy effi- ciency components (paras 4.02-4.06) shall be separated into lots; the bid- ders for such lots will be grouped under the overall responsibility of a principal contractor who will ensure adequate coordination and efficient execution of contracts covering detailed engineering construction, supply of equipment, installation, and start-up of the modified plants (para 4.16). Contracts will be awarded following international competitive bid- ding in accordance with IDA procedures, with a 7.5% and 15% margin of preference for local contractors on civil works and local suppliers of equipment, respectively. The principal contractor will secure the appro- priate equipment performance guarantees from the vendors. This contracting arrangement would mitigate the risk of cost overruns, and minimize the Project demand on ON's scarce management resources. Because the small size of individual contracts would be unlikely to attract international competi- tion, equipment for gasohol blending (para 4.07) will be procured in accor- dance with local procedures, satisfactory to IDA. Vehicles, tools, office equipment, and training materials for the technical assistance components (paras 4.09, 4.10 and 4.13), estimated to cost less than US$50,000 equiva- lent per contract, and in aggregate not to exceed US$300,000 equivalent, may be procured through prudent shopping, after soliciting bids from at least three reliable suppliers, in accordance with procedures satisfactory to II)A. D. Credit Allocation and Disbursements 5.09 Funds from the IDA Credit would be allocated as follows: IDA Credit Allocation US$ Thousand (a) Civil Works 300 (b) Equipment, Materials and Spares 2,500 (c) Engineering Services 400 ('d) Technical Assistance, Training and Studies 2,650 (e) Project Preparation Facility 950 (f) Unallocated 800 Total 7,600 5.10 Disbursements would be against 100% of foreign,and 95% of local expenditures eligible for IDA financing in the above categories. Disburse- ments will be fully documented. The estimated schedule of disbursements for the IDA Credit is given in the table on the following page. - 33 - Estimated Disbursement Schedule for IDA Credit (US$ million) Calendar Year Cumulative Undisbursed and Semester Disbursement Disursement Commitment 1983 1 - - 7.6 II 1.0 1.0 6.6 1984 I 0.7 1.7 5.9 ]:I 1.4 3.1 4.5 19a5 I 1.6 4.7 2.9 [I 2.0 6.7 0.9 1986 I 0.6 7.3 0.3 II 0.3 7.6 The above disbursement schedule is based on the implementation schedule presented in Chart 4, and on the investment cost allocation presented in Annex 7-2. The disbursement profile for the Project differs from the stan- dar(d profile for industrial projects as the proposed Project is a rehabili- tation project, the extent of civil works and erection work involved is limited, and the implementation period for this Project is considerably less than for a greenfield industrial project. The Credit is expected to be fully disbursed by December 31, 1986. VI. FINANCIAL ANALYSIS 6.01 The financial analysis was done in current Malian Francs and the major assumptions, detailed in Annex 6-1, are summarized in the following paragraphs. A. Production and Revenue Estimates 6.02 It is assumed that the Siribala distillery will start commercial production of anhydrous alcohol in December 1985, 27 months after the engi- neering and technical assistance contract for the alcohol production and energy efficiency component is signed in September 1983. In 1986, at 90% capacity utilization, the Siribala distillery is expected to produce 1,930,000 lpy of anhydrous ethanol by upgrading hydrated alcohol distilled at Dougabougou and Siribala. This capacity build-up rate is considered achievable considering the simple nature of the production process and that hydrous alcohcol is already under production. 6.03 For the financial analysis, the ex-factory prices of fuel alcohol were calculated to be equivalent to projected domestic prices of gasoline after deducting the distributors' expenses and margins and the cost of transporting the fuel alcohol from Siribala to Bamako. The future price of gasoline was projected on the basis of expected international price move- ments (para 502) adjusted to reflect inland transportation cost, as it is - 34 - the policy of the Mali Governmentto adjust periodicallydomestic prices of petroleum products to reflect import costs (para 5.02); prices also reflect projected price escalation rates. The following table summarizes alcohol prices ex-Siribalaprojected on the above basis. Mali - Alcohol Prices Price Per Liter Ex-factory 1982 1985 1990 1995 Actual ------Projected…---- Current MF 305 390 590 900 Current US$ 0.47 0.60 0.91 1.39 Constant 1983 US$ 0.49 0.51 0.59 0.69 B. Production Costs 6.04 Incrementalproduction costs of anhydrous alcohol are summarized in the following table: Mali - Alcohol ProductionCost at 90% Capacity Utilization (Cost per 100 liters of alcohol in June 1983 prices) MF US$ % Variable Costs Process Chemicals 3,016 4.65 15 Molasses 2,578 3.98 13 Utilities 1,602 2.47 8 Labor 899 1.39 4 8,095 12.49 40 Fixed Costs Depreciationand Amortization 10,024 15.47 50 General Sales and Administration 1,337 2.07 7 Plant Maintenance 669 1.03 3 12,030 18.57 60 Total Cost of Production 20,125 31.06 100 6.05 Detailed production cost assumptions are given in Annex 6-1. Usage of process chemicalswas estimated by consulting engineers according to recommended rates for the existing distilleriesplus provision for the 'entraining'liquid to dehydrate the alcohol. The average yield of anhy- drous alcohol was conservativelyestimated at 270 liters per ton of molas- ses, valued at a transfer price of MF7,000 (US$10.80) per ton. The transfer price used in this analysis is about 20% lower than the economic opportunitycost of molasses (para. 7.07) to reflect the notion that actual transportation costs exceed the international price of molasses (para - 35 - 2.19), while recognizing that the Project would establish an opportunity value for molasses. Depreciation of plant and equipment was provided by a straight line method over the average expected useful life of 14 years. referred charges, including Project expenditures in training and technical assistance were also amortized over 14 years. C. Financial Projections 6.06 Detailed financial projections are shown in Annexes 6-2 to 6-4 and summarized in the following table: MALI - Alcohol Production Unit Summary of Financial Projections (current MF million) 1986 1987 1988 1989 1990 1995 Sales Volume (thousand liters) 1,930 1,930 1,930 1,930 1,930 1,930 Sales 811 882 960 1,044 1,136 1,732 Production Cost 365 395 407 420 433 513 Gross Profit 446 487 553 624 703 1,219 Depreciation 177 196 196 196 196 196 Interest 225 237 237 215 192 40 Net Profit Before Tax 191 218 282 373 473 1,128 Cash From Operations 368 414 478 569 669 1,324 Working Capital Required 305 324 342 366 376 536 Long-Term Debt 2,631 2,393 2,133 1,850 1,542 - Equity 2,888 2,733 2,816 2,930 3,069 4,252 Ratios: Net Profit Margin 24% 25% 15% 18% 21% 33% Return on Equity 7% 8% 10% 13% 16% 28% Current Ratio 32.3:1 2.2:1 2.1:1 2.1:1 2.1:1 28.4:1 Debt Service Coverage 2.6:1 2.8:1 1.5:1 1.7:1 1.8:1 2.8:1 Debt to Equity 48/52 49/51 46/54 42/58 38/62 - 6.07 Incremental annual sales of alcohol are estimated at MF 811 million (US$1.3 million) in 1986 at 90% capacity utilization. As a result of real and nominal price increases, annual sales are projected to increase to MF 1,136 million (US$1.8 million) in 1990, and to MF 1,732 million (US$2.7 million) in 1995. Because of large interest payments at commercial terms, return on equity would be moderate, though satisfactory, in the initial years of operation, and will increase gradually as the debt is amortized and interest payments decrease. It is estimated that, over its life, the Project would generate in excess of MF 14 billion (US$21.6 million) cash from operations, which would be available to amortize total borrowings of about MF 2.6 billion (US$4.1 million). In addition to income taxes, the excise tax on alcohol will be equivalent to the amount of taxes and duties foregone on imported gasoline replaced by the alcohol. - 36 - 6.08 Provision was made in the financial projections for working capital adequate to sustain the seasonal inventory build-up of the Alcohol Production Unit. In addition, in order to ensure its solvency in the event of operational disruptions, liquidity has been provided in excess of long term debt amortization requirements. A grace period of five years on long term debt amortization, and the availability of commercial bank financing of receivables and inventory, further reinforce confidence that the liquid- ity of the Alcohol Production Unit will be adequate to meet financial as well as operational requirements. 6.09 The Office du Niger will be the owner of the Alcohol Production Unit. ON's paid-in capital will consist primarily of internally generated cash for working capital, land, buildings, depreciated equipment and good- will. The market value of those assets has been estimated in the financial projections at MF 2.5 billion (US$3.9 million) and the paid in capital of the Alcohol Production Unit has been credited with an equal amount. Based on these assumptions and the projected drawdown of long term debt, the financial leverage of the Alcohol Production Unit would increase to its highest level in 1987 and then gradually decrease as the long term debt is amortized and earnings from operations are retained. Long term debt would be an acceptable 49% of total capitalization in 1987. D. Financial Rate of Return 6.10 The cost and benefit streams for the Project financial rate of return are shown in Annex 6-5. The financial rate of return, in real 1983 terms, was calculated at 20% before and 16% after taxes. In current terms, it would be 27%, and 23% respectively. These returns are satisfactory and can be explained largely because the Project involves production of high value output--liquid fuel, by processing a low cost input--molasses--in two plants which are now underutilized. 6.11 Results of the sensitivity analysis are summarized below: Financial Rate of Return: Sensitivity Analysis (%) Before Taxes After Taxes Base Case 20 16 Sales Revenue down 10% 17 14 Capital Cost up 10% 18 15 Operating Costs up 10% 19 15 One-year production delay 17 14 Suspend transfer payments for Molasses and Utilities 23 19 6.12 The above sensitivity analysis shows that, even under adverse circumstances, the Alcohol Production Unit would show a satisfactory finan- cial rate of return. If the Alcohol Production Unit did not pay for molasses and process water to Office du Niger, the financial rate of return before taxes would be significantly higher at 23% before taxes. These pay- ments do not represent incremental cash costs to Office du Niger, therefore - 37 - they could be excluded in the calculation of 'real' financial returns. Similarly, the projected income tax rate of 50% is substantially higher than ON's effective income tax rate which is less than 10%. The high income tax rate, therefore, contains an element of return to equity much like the transfer payments for molasses and utilities. E. Financial Covenants 6.13 Pending the legal resolution of Government's position as a credi- tor and shareholder of ON, and considering the interdependence of sugar and alcohol production, it would not be feasible to organize the Alcohol Production Unit as a legally distinct subsidiary of ON. However, in order to define clearly management responsibility for this Project, and to ensure that the entire sugar sector will have access to sufficient funds to enable efficient operations, financial management of the Alcohol Production Unit and of the Sugar Division would be completely independent within Office du Niger. At negotiations, it was agreed that the Alcohol Production Unit and the Sugar Division would have a separate bank account from ON, so that any funds generated by the sale of alcohol and sugar will be used first for the operation of the Sugar Division including the Alcohol Production Unit. 6.14 The Government and Office du Niger agreed that the Alcohol Production Unit will maintain (a) at all times (i) a debt/equity ratio of no more than 55/45; (ii) a level of funded debt not exceeding US$4.5 million equivalent; and (b) starting on a date three months after commencement of commercial production of alcohol under the Project; (i) a ratio of current assets to current liabilities of at least 1.5:1; and (ii) working capital of at least US$500,000 equivalent. Beginning no sooner than 1988, ON is expected to pay for the Alcohol Production Unit income taxes at the rate of 50% of net income. Government financing of cost overruns would be in the form of equity injections, if loan financing were to cause a violation of any of the above financial covenants. The proposed financial covenants are intentionally restrictive in order to assist ON in its institution-building efforts. The covenants relating to cash management (para 6.13 and above) and other institutional arrangements will be reviewed with the Borrower one year after Project completion and may be amended if appropriate to reflect ON's financial and management performance during Project implementation. F. Auditing and Reporting Requirements 6.15 ON will be required to submit to IDA annual audited consolidated financial statements and annual financial statements of the Sugar Division, including the Alcohol Production Unit, certified by independent auditors acceptable to IDA within six months of the end of the fiscal year. In addition, the Sugar Division's financial controller (para 4.15) will submit quarterly financial statements within four months of the end of each quarter, and quarterly project progress and procurement reports. Assistance to carry out the above tasks would be provided by financial consultants. Finally, within six months after the closing date for the Project, the Government will prepare and su'bmit to IDA a completion report for the Project. - 38 - G. Risks 6.16 Risks associated with project technology, start-up, and operations are not significant because the technology is simple and commercially proven. Blending, distribution, and marketing of 'gasohol' are also unlikely to involve any significant risks because the alcohol content of the blend would be very small and the consumers will find no perceptible difference from gasoline. Except for blending, which will involve the introduction of additional storage and pumping equipment common in the oil industry, there will be no change in physical facilities and operating arrangements for marketing and distribution of gasohol. The oil companies will handle gasohol in the Bamako area the same way they have been handling regular gasoline. There is no foreseeable risk for this Project in connec- tion with the future level of gasoline demand. Future increases in gaso- line demand would cause the alcohol tenor of the blend to be lower; this would have no adverse impact on the Project. Conversely, a drop in gaso- line demand would cause the alcohol content of gasohol to increase. Since gasohol containing up to 20% alcohol has been commercially proven to be a viable gasoline substitute, there would be a market outlet for the entire project production, even in the unlikely event that gasoline demand dropped 85% from the current level to about 10 million liters p.a.. Below this level there would be some surplus alcohol production capacity. However, the probability that gasoline demand would drop by more than 80%, is negli- gible. 6.17 Difficulties in attaining and maintaining the projected rate of capacity utilization may arise. The employment of an experienced and established engineering firm and the proposed contracting arrangements (para 5.08) are designed to minimize these risks. The firm would be res- ponsible for engineering, supervision, and commissioning of the Project and would provide technical assistance and training support throughout the first year of commercial operations. The main risk facing this Project is the possibility of delays in implementation and inadequate cost controls due to management inexperience which could affect adversely the utilization of factory capacity. This risk, however, will be reduced with the strengthening of the operational and maintenance staff of the APU, the improved management process for the sugar sector, the involvement of the engineering firm, the contracting strategy adopted, and the understanding reached that qualifications and experience of key project staff will meet the positions' requirements. Moreover, the Project implementation schedule takes into account, to the extent they can be foreseen, possible delays and problems. However, management and institutional matters will require continuous monitoring by IDA to help avoid problems. Regarding the RTF, the risk is worth taking given the great improvement in the dialogue with ON and the strong interest of other donors in supporting a program of assistance to ON. - 39 - VII. ECONOMIC ANIALYSIS A. Key Assumptions 7.01 The major assumptions used in the Project analysis are given in Annex 7-1. All economic benefits and costs for tradeable items have been valued at international prices. These prices were adjusted to reflect economic transportation costs, as appropriate, and to reflect expected movements of the world market prices of petroleum products, during the life of the Project. Non-tradeable items are valued at their financial costs excluding taxes and duties and other transfer payments. B. Economic Benefits 7.02 The principal economic benefit resulting from project investments in incremental alcohol production and 'gasohol' blending and distribution would be the substitution of about two million liters annual gasoline imports with an equal volume of locally-distilled anhydrous alcohol. The economic value of alcohol is assumed to be equal to that of the gasoline it would replace on a volume basis. 'Gasohol' containing up to 20% alcohol can be used to fuel existing gasoline engines without any modifications. Cars obtain about the same mileage performance using 'gasohol' or gaso- line. Different factors including octane rating, thermal efficiency, engine design and conditions individually affect mileage performance of gasoline and 'gasohol' but, in practice, they offset each other. Therefore, the economic value of alcohol in a 'gasohol' blend can be assumed to be equivalent to that of the gasoline it replaces. The economic value of regular gasoline is estimated at US$0.49 per liter, in 1983 terms. This estimate reflects the cost of gasoline delivered to Bamako ex-Abidjan, which is the most economically available source of gasoline supply to Mali. Gasoline imports from Dakar would be cheaper than from Abidjan, mainly because rail freight is less costly than road transportation. The railroad from Dakar to Bamako, however, is used to capacity for other petroleum products and virtually all gasoline imports into Bamako originate from Abidjan. In 1983 terms, the value of regular gasoline is assumed to decrease slightly to US$0.46 per liter in 1984, then to increase to US$0.49 per liter in 1985, and thereafter to increase at an annual rate of about 3% p.a. This projection is consistent with current estimates of international petroleum prices. During 1983-85, petroleum prices are expected to fluctuate around US'29 per barrel in 1983 terms, the price prevailing in April 1983. Prices are expected to remain weak in the next few months for technical reasons if oil companies continue to draw down their relatively high inventories. Long-term petroleum prices, however, are bound to rise in real terms as a result of the underlying market forces, mainly demand growth, limited opportunity for oil substitu- tion, and limited scope for additional crude oil supplies. After 1985, prices are expected to increase again at a rate of more than 3% p.a. and to reach about US$41 to 43 per barrel in 1995, in 1983 terms. 7.03 The main economic benefits of the Project energy efficiency investments are the savings of industrial diesel oil that would otherwise be needed to generate steam. It is estimated that, without project invest- ments in the energy efficiency component, about 800,000 liters of this - 40 - imported fuel would be required each year to supplement bagasse for steam and power generation at Siribala and Dougabougou. The present inefficiency is caused by insufficient steam generation and recovery due to equipment and operational problems. Project investments would correct these problems and eliminate the need for supplementary fuel at Siribala and Dougabougou during the cane crushing season. The economic value of the energy effi- ciency improvements resulting from this Project was calculated to be equi- valent to the economic cost of industrial diesel fuel at factory gate. This cost is US$0.39 per liter at Siribala in 1983. Similarly to gasoline, the value was projected according to estimated international price move- ments. C. Economic Costs 7.04 All project costs net of taxes and duties were included in the economic analysis except the cost of technical assistance and training for agricultural field staff (para 4.10), the cost of the Biomass Energy study (para 4.11), and the cost of the ON Rehabilitation Task Force (para 4.13). About 57% of investment costs were allocated to alcohol production and 43% to energy efficiency improvements. The Project economic life was assumed to be 14 years. 7.05 One of the most critical assumptions of this economic analysis is the opportunity cost of molasses, the bas-Lc feedstock of the Project dis- tillation process. In Mali, molasses, the syrup remaining after sugar is crystallized out of cane juice, is used to make small quantities of indus- trial alcohol for the local market, but the bulk of it is disposed into the fields. In the developed countries, the principal use of molasses is to feed farm animals. The addition of urea and other non-protein nitrogen to molasses enables the micro-organisms in the rumens of cattle and other ruminants to synthesize their own protein from it; the animals digest the bacteria and the protozoa. 7.06 The use of molasses as supplementary cattle feed, however, can only be economically justified in a highly developed intensive livestock production system. The market conditions and the extensive livestock pro- duction practices prevailing in Mali would not currently justify economi- cally the use of a high cost supplementary feed such as molasses on a large scale. The Office du Niger has been ope!rating pilot feedlot schemes at Molodo and Dougabougou and has experimented with various animal feed supplements including molasses. The preliminary conclusion of these expe- riments is that livestock producers may be able to justify paying only local transportation cost for molasses received at no cost from the sugar mill. To operate at full capacity, these feedlots require only about 200 tons of molasses annually out of total production of about 8,200 tons. About twice this amount, or 400 tons, would be available annually after the Project needs have been met. A cost benefit analysis for feed lots is available in the Project File, Reference J. 7.07 Because of limited and uncertain domestic market outlets for molasses, its opportunity value must be determined in terms of export potential. Mali has not realized this potential for a number of technical and market reasons, but the calculation of the economic opportunity cost of molasses provides an objective, though- conservative, measure of the - 41 - economic justification of this project. The opportunity cost of molasses was calculated to be MF 8,300 (US$12.80) per ton ex-sugar mill. This value, which is slightly higher than that used in the financial analysis, reflects marginal cost calculations and was obtained by projecting the long term international molasses price and deducting all relevant ocean freight, port handling, trans-shipment, and inland transportation costs. The inter- national price of molasses was projected at US$105 per ton FOB Rotterdam in 1983 dollars, compared to the current price of about US$50/ton. Details are given in Annex 7-1 and the Project File, Reference G. D. Economic Rate of Return 7.08 The Project's overall economic rate of return was calculated at 21%. The economic rate of return for t:he alcohol production component alone was calculated at 20%; and for the energy efficiency component, at 22%. These returns are satisfactory and lead to the conclusion that pro- ject alcohol production using entirely renewable energy would be economi- cally more attractive than using supplementary petroleum fuel. Detailed economic cost and benefit calculations are shown in Annex 7-2 and 7-3. 7.09 The following table shows the results of the sensitivity analysis of the Project economic rate of return: Rate of Return Sensitivity AniaTysis 1. Base Case 21 2. Capital Costs up 10% 19 3. Operating Costs up 10% 20 4. Alcohol Price down 10% 18 5. One year production delay 18 6. Capacity Utilization down 10% 19 7. Molasses at 0 cost 24 8. Combination of (2) and (5) 17 9. Combination of (4) and (6) 16 7.10 The economic rate of return appears most sensitive to changes in alcohol prices and delays in construction. The probability of lower than projected alcohol prices would be associated with lower gasoline prices and is considered low. Construction d(elays are always possible, but the implementation schedule allows extra time for the most critical Project activities to reflect expected difficulties of transportation and communi- cation. E. Other Benefits 7.11 The Project will also generate other benefits which have not been quantified. Because of the process interdependencies among alcohol, molasses, bagasse and their upstream feedstock - sugarcane - it is expected that sugar extraction efficiency will improve. Higher sugar yields can be achieved through improved plant maintenance and operations which are expected to result from project training and technical assistance. The surplus steam could be used for power generation. - 42 - 7.12 The Project would also contribute to strengthen the Office du Niger, its technical and managerial capacity. This institution building effort would complement Government programs to reorganize and strengthen Office du Niger with Bank Group's assistance in the agricultural sector. The Project provision of additional alcohol storage facilities at Bamako and Siribala will increase the country's scarce strategic liquid fuel storage capacity by about 17%. Finally the Biomass Energy Study component would allow Mali to plan further development of alternative domestic energy sources to lessen its dependence on imported petroleum products. F. Foreign Exchange Benefits 7.13 The foreign exchange benefits of this project will be substantial because it will directly reduce Mali's import requirements of gasoline and industrial diesel oil. The present value of net foreign exchange savings after deducting principal and interest payments on the external financing and the foreign exchange portion of capital and operating costs is estimated, at 10% opportunity cost of capital, to be about US$5.7 million in 1983 terms, as shown in Annex 7-4. VIII. AGREEMENTS 8.01 Main matters discussed and agreed upon at negotiations are as follows: (a) With the Government that it will: (i) enter into an agreement satisfactory to IDA with COD regarding marketing and distribution of gasohol by January 31, 1984 (para 4.08); (ii) employ consultants whose terms of reference, qualifications, and selection would be acceptable to IDA (para 4.11); and (iii) enter into a subsidiary lease agreement satisfactory to IDA with the owners of the Bamako depot by January 31, 1984. (b) With Office du Niger that it will: (i) by July 1, 1984, establish a Sugar Division with management and financial autonomy, including a separate bank account (paras 3.14 and 4.15); (ii) submit to IDA for approval a detailed staff training program by January 31, 1984 (para 4.09); (iii) employ consultants whose terms of reference, qualifica- tions, and selection would be acceptable to IDA (paras 4.09, 4.10 and 4.13); - 43 - (iv) create a Rehabilitation Task Force with a work program satisfactory to IDA by December 31, 1983 (para 4.12); (v) cause the manager of the Sugar Division to submit to ON Director for approval annual Operational Plans covering Sugar operations (para 4.15); (vi) comply with agreed financial covenants (para 6.14); and (vii) submit Project progress reports and annual audited financial reports in the form and timing acceptable to IDA (para 6.15). 8.02 The following would be conditions of Credit effectiveness: (i) the establishment of an Alcohol Production Unit at Office du Niger (para 4.15); (ii) opening of a separate bank account into which ON would deposit all revenues from the sale of sugar, sugar by-products, and alcohol (paras 4.15 and 6.13); and (iii) execution of a subsidiary loan agreement satisfactory to IDA between the Government and ON (para 5.07). 8.03 Subject to the above conditions, the Project is considered suitable for a Credit to Mali of US$7.6 million equivalent on standard IDA terms. Industry Department May 23, 1983 - 44 - Annex 1 Page 1 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT GLOSSARY OF TERMS USED IN THE REPORT Ethanol: Ethyl alcohol, or alcohol in common language. Produced by fermentationof simple sugars (glucose and sucrose); it can also be produced by conversionof carbohydrates(starch) or cellulosematerials into simpler sugars followed by fermentation. Fermentationin this context is the process in which a particular strain of yeast is introducedinto the sugar base to convert it into ethanol. Ethanol can also be produced syntheticallyfrom certain chemical feedstocks. Anhydrous: Dry, without any containedwater in physical or chemical combination. However, anhydrous ethanol (also called absolute alcohol)usually contains up to 1% water in physical combination. Hydrous: Contains water in physical or chemical combination. Hydrous ethanol (also called rectified spirit) contains usually about 5% water. EntrainingLiquid: Agent such as benzene or cyclohexanewhich enables the distillationto be extended to produce anhydrousethanol. Gasohol: A blend of gasoline containingup to 20% anhydrous ethanol. It can be used as automotive fuel in conventionalfour stroke internal combustionengines. Denaturant: Additive to prevent or discourageuse of product other than intended. Methanol or fusel oil, for example, are used to denature ethanol to make it unfit for human consumptionby impartinga disagreeableodor to the ethanol. Fusel Oil: Heavy, acrid, oilyrresidue left after final separation of ethanol from water. Stillage: Residue left after initial concentrationof alcohol from fermentedmash. Containswater, fibrous and mineral matter. - 45 - Annex 1 Page 2 Combustion Efficiency: Measure of the extent of thermal energy (containedin the fuel) converted into useful heat or work. In internal combustion engines, efficiency depends on the extent of conversion of fuel to work as affected by the temperature, pressure,and amount of oxygen present in the engine cylinder. Industry Department May 1982 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJFCT DOMESTIC CONSUMPTION OF PETROLEUM PRODUCTS (thousand cubic meters) 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 a/ Liquified Petroleum Gas 0.3 0.4 0.4 0.3 0.3 0.3 0.4 0.4 0.4 0.4 Aviation Gasoline 0.9 1.0 1.5 1.0 0.7 0.8 0.8 0.7 - - Premium Gasoline 0.9 1.5 0.9 1.0. 0.7 1.9 1.5 2.1 1.5 1.0 Regular Gasoline 43.1 45.2 49.3 50.3 58.0 63.8 70.2 76.9 85.9 85.0 Illuminating Kerosene 11.6 12.3 11.4 10.2 11.5 12.3 12.3 14.6 16.0 16.0 Jet Fuel 5.4 7.6 18.7 17.0 12.0 15.0 18.0 18.5 21.0 21.0 Automotive Diesel 21.9 25.4 29.8 32.0 37.7 40.3 43.6 47.2 53.5 53.0 Industrial Diesel 9.7 13.5 15.4 18.2 16.0 21.3 22.0 28.4 28.2 28.0 Lubricants 3.1 3.4 3.8 3.9 4.1 4.6 5.2 5.8 6.4 6.0 Fuel Oil 9.4 5.5 11.3 11.9 10.4 9.7 9.1 8.5 8.2 8.0 Asphalt 1.4 3.3 1.1 0.8 0.6 0.6 1.8 4.8 1.6 1.6 Total 107.7 119.1 143.6 146.6 152.0 170.6 184.9 207.9 222.7 220.0 Source: Oil Industry. a/ Preliminary Estimate. Industry Department March 1983 Prm X l'. - 47 - Annex 2-2 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT SPECIFIC GRAVITY OF PETROLEUM PRODUCTS Product Specific Gravity Liquified Petroleum Gas 0.60 Aviation Gasoline 0.70 Premium Gasoline 0.73 Regular Gasoline 0.75 Kerosene 0.80 Jet Fuel 0.82 Automotive Diesel 0.86 Industrial Diesel 0.90 Lubricants 0.90 Fuel Oil 0.95 Asphalt 1.05 Industry Department March 1983 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT AVERAGE DOMESTIC PRICES OF SELECTED PETROLEITMPRODUCTS (MF/Liter) 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1q80 1981 a/ Premium Gasoline 110 110 110 121 148 150 167 186 190 208 320 441 Regular Gasoline 100 100 100 101 138 140 157 176 180 198 310 416 Kerosene , 70 77 80 80 108 110 133 149 150 158 216 280 Automotive Diesel 65 75 80 80 108 110 110 125 130 146 226 301 Industrial Diesel N.A. N.A. N.A. N.A. N.A. N.A. 93 93 93 103 162 214 Fuel Oil N.A. N.A. N.A. N.A N.A. N.A. 80 80 80 85 128 171 a/ Decree No. 1206 of the Ministry of Finance, issued on 4/6/81 increased 4 prices as follows: Premium Gasoline MF 480 per liter; Regular, 450; 0 Kerosene, 300; Automotive Diesel, 325; Industrial Diesel, 230; Fuel Oil, 175. Industry Department March 1983 Ix MALI - BIOMASS ALCOHOI. AND ENERGY EFFICIENCY PROJECT REGIONAL CONSUMPTION OF PETROLEUM PRODUCTS (1979) Bamako Segou Sikasso/Mopti Kayes Gao Total C. a c.m.. c.m. x c.m. c.m. Premium Gasoline 1,522 100.0 ------1,522 100.0 Regular Gasoline 54,907 63.9 13,103 15.2 13,493 15.7 3,196 3.7 1,272 1.5 85,971 100.0 Automotive Diesel 24,018 44.9 12,838 24.0 11,875 22.2 2,835 5.3 1,927 3.6 53,493 100.0 Illuminating Kerosene 6,488 40.9 3,495 22.0 4,738 29.9 1,144 7.2 5 15,870 100.0 Jet Fuel 21,002 100.0 ------21,002 100.0 Industrial Diesel 19,731 69.9 4,488 15.9 339 1.2 3,669 13.0 - _ 28,227 100.0 Fuel Oil 1,089 13.2 2,739 33.2 - - 4,423 53.6 - - 8,251 100.0 Total 128,757 60.1 36.663 17.1 30,445 14.2 15,267 7.1 3,204 1.5 2 1 4 ,3 3 6 a/ 100.0 Source: Confederation of Oil Distributors, Mali. a/ Accounts for 96% of total 1980 consumption in Mali; it does not include Liquified Petroleum Gas, Lubricants and Asphalt for which data concerning regional consumption pattern is not available. Industrial Projects Department August 1982 Annex 2-5 MALI - BIOMASSALCOHOL AND ENERGYEFFICIENCY PROJECT Sugar Cane Production at Dougabougou and Siribala (1966/1982) Area Under Cane Area Harvested Cane Production Average Cane Yield Sucrose Content (ha) (ha) (tons) (tons/ha) (% of cane) Dougabougou Siribala Dougabougou Siribala Dougabougou Siribala Dougabougou Siribala Dougabougou Siribala 1966/67 581 - 408 - 24,878 - 61.0 - 13.7 - 1967/68 712 - 581 - 32,420 - 55.8 - 13.5 - 1968/69 1,150 - 768 - 49,679 - 64.7 - 13.1 - 1969/70 1,300 - 949 - 59,169 - 62.3 - 11.6 - 1970/71 1,300 - 1,117 - 60,510 - 54.2 - 12.0 - 1971/72 1,044 - 905 - 52,323 - 57.8 - 12.0 - 1972/73 1,231 - 1,025 - 47,219 - 46.1 - 12.3 - 1973/74 1,248 - 939 - 61,533 - 65.5 - 13.1 - 1974/75 1,235 - 1,130 - 52,314 - 46.3 - 12.9 - 1975/76 1,190 633 1,005 253 61,958 39,105 61.6 154.6 12.3 13.5 1976/77 1,077 1,663 972 1,118 46,726 130,317 48.1 116.6 11.5 11.8 1977/78 1,102 1,673 1,089 1,673 52,616 155,088 48.3 92.7 13.3 12.9 1978/79 1,127 1,673 1,102 1,633 56,708 158,274 51.5 96.9 13.2 12.0 1979/80 1,113 2,013 1,089 1,886 59,447 165,910 54.6 88.0 13.7 11.3 1980/81 655 1,850 644 1,466 46,587 126,402 72,34 86.2 N.A. N.A. 1981/82 655 1,850 432a/ 1,049 - 88,053 - 83.9 N.A. N.A. Source: Office du Niger a/ Cut and thrown away. Industry Department March 1983 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT Annex 2-6 Total Production of Sugar, Molasses and Hydrated Alcohol at Office du Niger (1966/1980) Cane Processed Sugar Production Molasses Production Molasses Fermented Alchol Production Total %a/ Total Average Yield Total Average Yield Total Z Total (tons) (of total production) (tons) (Z of cane) (tons) (% of cane) (tons) (of total production) (thousand liters) 1966/67 24,471 98.4 2,642 10.8 1,170 4.8 728 62.2 198.5 1967/68 31,769 98.0 3,331 10.5 1,218 3.8 638 52.4 149.6 1968/69 49,605 99.9 4,827 9.7 1,745 3.5 1,337 76.6 321.3 1969/70 54,850 92.7 4,635 8.5 1,872 3.4 1,537 82.1 320.1 1970/71 60,222 99.5 5,103 8.5 2,247 3.7 1,802 80.2 384.2 1971/72 51,388 98.2 4,224 8.2 1,607 3.1 1,327 82.6 352.9 1972/73 46,316 98.1 3,723 8.0f 1,550 3.3 1,325 85.5 207.2 1973/74 59,358 96.5 5,170 8.7 1,955 3.3 1,256 64.2 190.5 1974/75 51,471 98.4 4,070 7.9 1,739 3.4 644 37.0 91.7 1975/76 b/ 98,939 97.9 7,627 7.7 5,179 5.2 1,099 21.2 210.5 1976/77 175,434 99.1 14,252 8.1 7,542 4.3 1,582 21.0 386.1 1977/78 205,151 98.8 18,952 9.2 8,151 4.0 339 4.2 94.8 1978/79 213,194 99.2 18,053 8.5 8,290 3.9 565 6.8 132.9 1979/80 223,532 99.2 18,134 8.1 8,296 3.7 638 7.7 139.1 Source: Office du Niger a/ From Annex 2-5. b/ Siribala complex started operations. Industry Department March 1983 - 52 - Annex 3-1 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT OFFICE DU NIGER INCOME STATEMENTFOR THE YEAR ENDED JUNF,30 (MF Million) 1980 1979 Sales 11,822 7,739 Tenants' Fees 2,114 905 Revenue 13,936 8,644 Cost of Goods Soldl/ 10,786 2,449 Gross Income 3,150 6,195 Staff Salaries 3,498 1,764 Contractors 768 312 SG & A 192 100 Operating Income (Loss) (1,308) 4,019 Other Income 279 521 Interest 244 25 Taxes 174 297 Net Income (Loss) (1,447) 4,218 1/ Includes depreciation and other non-cash provisions totalling MF 808 million in 1979, and MF 1,502 million in 1980. Industry Department March 1983 - 53 - Annex 3-2 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIFNCY PROJECT OFFICE DU NIGER BALANCE SHEET AT JUNE 30, 1979 (MF Million) Current Assets 1980 1979 Current Liabilities 1980 1079 Cash and Banks 305 275 Accounts Payable 3,296 1,627 Accounts Receivable: Notes Payable 1,259 169 - Customers 4,528 5,194 - Government 3,948 3,662 Taxes Payable - 3,494 - Canal Costes 969 438 9,750 9,294 Accrued Expense 414 187 Less: Allowances for Discounts (232) (42) Government of Mali 3,277 - Other 368 - Net Receivables 9,518 9,252 Total Current Liabilities 8,614 5,477 Inventory: Long Term Debt - Finished Goods 933 472 - Raw materials 496 1,593 - Supplies 4,721 4,259 IDA 1,166 685 - Packaging Materials 248 481 Saudi Development Fund 299 291 - Livestock 47 13 6,445 6,818 Suppliers 618 113 Less: Allowances (925) (685) 2,0R3 1,0P9 5,520 6,133 Prepaid Expense 1,573 1,490 Total Current Assets 16,611 17,150 Total Liabilities 10,697 6,566 Fixed Assets Capital Buildings 7,089 6,702 Retained Earnings 992 2,669 Equipment 12,783 9,704 Construction in Progress 38 11 Reserves 5,977 5,977 19,910 16,417 Less: Accumulated Depreciation (7,517) (6,076) Paid in Capital 14,278 14,278 Net Fixed Assets 12,393 10,341 21,247 22,924 Other Assets Due From Farmers 1,963 1,740 Deposits and Advances 430 59 Deferred Charges 547 200 2,940 1,999 Total Assets 31,944 29,490 Total Liabilities and Capital 31,944 29,49n Industry Department March 1983 - 54 - Annex 4 Page 1 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT DRAFT TERMS OF REFERENCE FOR A STUDY TO ASSESS ADDITIONAL POTENTIAL FOR PRODUCTION OF BIOMASS FUEL A. Introduction 1. The Government of Mali has requested the World Bank Group to finance the first Biomass Alcohol and Energy Efficiency project in Mali. This will involve utilization of surplus molasses, available at the Siribala and Dougabougou sugar factories to produce anhydrous ethanol, for blending with gasoline to produce gasohol fuel. 2. The new Canal Costes, now nearing completion in the region adjacent to these factories will make available additional irrigated land. 3. The Ministry of Industry and Tourism is inviting proposals from qualified consultants for a prefeasibility study to assess the technical, financial, and economic viability of additional biomass fuel production. This study would be part of the Biomass Alcohol and Energy Efficiency Project mentioned above. 4. This document presents preliminary proposals, outlining the suggested scope of work. B. Potential Crops aftd Products i. Crops and products for fully irrigated land 5. Previous assessment by Office du Niger has indicated that irrigated land made available by Canal Costes would be suitable for annual production of approximately 300,000 tons of sugar cane; this is more than twice the current production utilized by the Siribala sugar factory. 6. The existing local expertise in cane and sugar alcohol production and the proposed introduction of gasohol fuel in Mali based upon ethanol derived from cane molasses, make cane the obvious first choice fuel crop. 7. If the total 300,000 tons of cane were used solely for fuel ethanol the annual yield would be approximately 19 million litres. This is approximately 10 times the proposed production from the surplus cane molasses available at Siribala and Dougabougou, and would increase the total fuel ethanol production to over 20 percent of the total current level of gasoline consumption in Mali. Having regard to the existing gasoline supply and distribution system, this would require significant investment in blending facilities and possible introduction of modified vehicle engines because of the high proportion of alcohol in the fuel blend. Consideration would therefore need to be given to distribution of 'pure' alcohol fuel to service the needs of a new population of alcohol fuel engined vehicles, or to use if alcohol as a partial replacement for diesel fuel. - 55 - Annex 4 Page 2 8. However Mali is a net importer of sugar and, despite the high cost of imported transport fuel, it is possible that it will be more attractive to use the cane for sugar production and use only the residual molasses for ethanol production (as proposed for the existing sugar factories). Used in this way the crop would yield approximately 30,000 tons of sugar and a little over 3 million litres of alcohol per year. This quantity of alcohol could be more readily accommodated as an extension of the presently proposed gasohol production and blending operations, the total percentage of alcohol in the 'blended fuel being such as to not require modification of vehicle engines. 9. In either case, use of cane solely for production of alcohol or for production of sugar and alcohol, it would be expected that the majority of the by-product bagasse would be required for generation of steam and power in the production processes. Any surplus bagasse would be considered as a source of supplementary electricity generation as well as an alternative source of liquid fuel. ii. Crops and products from partially irrigated land 10. The marginal land, receiving only partial irrigation, is unlikely to be suitable for efficient cane production. Having regard to local conditions and requirements it is suggested that the study should give consideration to two alternative fuel crops in this land, cassava (manioc) or wood. 11. Cassava is an indigenous crop. Extensive international research in recent years has led to identification of more productive varieties and appropriate cultivation and harvesting methods. It is known to be tolerant of low water levels and would be expected to be suitable for production in the areas in question. Its fermentable content is produced in the form of starch which must be converted to fermentable sugar prior to alcohol production. Commercial production in Mali would need to be preceded by an appropriate crop trials program and there may be need for some process development work. However, the crop is widely perceived as an attractive ethanol feedstock. The harvesting season normally extends over 9 to 10 months permitting a 275 to 300 day factory operating season. It is possible that the processing operations could be combined with ethanol production from cane or molasses by processing the fermentable liquor obtained from cassava outside the cane crushing season. 12. One disadvantageous feature of cassava is that the woody stalks are unlikely to be produced in sufficient quantity to meet the total fuel requirements of the production processes. On the other hand the cassava roots are widely used as animal feed. This could therefore provide an alternative market for the crop which there is a strong local demand. 13. Fuel wood production may be considered as a crop for charcoal production, for which there is understood to be a large unsatisfied demand. This is clearly a much lower value product than the et:hanol transport fuel considered for the other crops, but may have have enhanced value because of local needs. It may also have value for steam and power - 56 - Annex 4 Page 3 generation to substitute for oil fired electricity generation and in this location, could provide a valuable supplementary fuel sunply for local sugar and alcohol production activities. 14. Consideration would be given to suitable fast growing tree varieties and large scale commercial production would need to he preceded by appropriate trials work. C. Scope of Work 15. The scope of the study should be confined to consideration of the following basic alternatives: i. Cane production on fully irrigated land to be used directly for alcohol production or for sugar production with alcohol as a by-product of the residual molasses. ii. Cassava or wood production on partially irrigated land, the former to be used for production of alcohol or as an animal feed, the latter for charcoal production and to provide a supplementary fuel for power generation or for sugar/alcohol production. 16. In view of the basic requirement for expansion of food production in Mali, preliminary consideration should also be given to use of the land for this purpose, so that a more complete assessment can he made of the economic value of the fuel crops. Sugar itself is of course a food crop. However, preliminary information should also be presented concerning use of the land for a staple grain crop. 17. The study would be a prefeasibility study with the objective of identifying whether there is a prima facie economic case which would justify more detailed evaluation. In particular, the scope of work would be as follows: i. Agricultural aspects. The analysis will include: a. Assessment of land preparation costs and the cost of completion of the irrigation system. b. Assessment of the land areas and the extent of irrigation water supply in the fully and partially irrigated zones. c. Assessment of the expected yield of the nominated fuel crops and the cost of cultivation and harvesting. Information concerning cane production activities within the region. External information would bhe supplied concerning the anticipated costs and yields for cassava related to local conditions and the performance obtained from existing crops. This approach would also be applied for fuel wood production, consideration haing given to species for which there was local experience and others thought to be suitable for local conditions. - 57 - Annex 4 Page 4 d. Assessmentof the production cost and yield of basic food crops would be restricted to one or two staple grain crops such as rice or millet. ii. Fuel production 18. Capital and operatingcosts for sugar and alcohol production facilitieswould be prepared from availablebasic data and adjusted to reflect conditionsin Mali. Primary considerationwould be given to basic processing systems consideredsuitable for operation in Mali, assessment being made of economies of scale associatedwith different sizes of production unit within the limits of the expected scale of crop production..Similar informationwould be presented for charcoal production.. 19. Operating costs would include provision for permanentand seasonal manpower, process materials and services,maintenance and working capital, etc. appropriateto an autonomous productionunit. Allowance would also he made for transport, storage and distributioncosts. Particular considerationwould be given to process fuel requirementsand to the gainful disposal of principalby-products. 20. Distinctionwill be drawn between local and foreign currency expenditure. iii. Product value 21. With the possible exceptionof charcoal, fuel wood and animal feed by-products,the main products (transportfuel, sugar and other food crops) are import substitutionproducts and it is proposed that they should be evaluated in these terms. 22. In relation to ethanol for use as gasoline dilutant, allowance will be made for the additional cost of blending and distributionrelative to displaced gasoline,having regard also to the existing pattern of gasoline usage and distribution. 23. In the event of large scale ethanol production in excess of the quantititeswhich can convenientlybe used as a gasohol fuel, additional informationwill be provided concerning the approximatecost and other implicationsof using high percentage alcohol fuel blends (requiring modificat:Lonto vehicle engines) and the potential use of ethanol in diesel (compressionignition) engines. 24. Other products will be valued in relation to existing market values having regard to local demand and associateddistribution costs. iv. Economic evaluation 25. The work is expected to lead to identificationof a number of alternative feasible developmentoptions or projects. Total capital and operating cost and revenue statementswill be.preparedfor the key options - 58 - Annex 4 Page 5 and assessment made of the expected economic rate of return. Distinction will be drawn between local and foreign currency elements. 26. Additional information will be presented describing the resource requirements and implications of the alternative development options and assessment made of sensitivity of the analysis to variation in the basic assumption which have been used. Recommendations will be made concerning future action. Industry Department March 1983 MALI - 8IHmASS ALCOHOLAND ENERGYEFFICIENCY PROJECT INVSThENT 1DSTS DETAILED COST ESTIMATEfTiUXMIHXN-PURPOSE OF EXPENDITTIE (MY Mi1Lio) BMending Technical dA.i.tan.. Phyafi-l Prce Total UJS$ Alcohol Prodetln E-agy Efficiency end Di.tribnti.. and Training Stody BASE COST Cootia- Contio- 8Orklg Capita1 Proj-ct Thonean4 Local F-rign Tota lo- For-ign Total Local Fot-lg Total L-a F-rign Total Local Fo-lgo T-ta Lo-1 F-calg Tot1 ... I.. g.ocia Local Forign Ttal Coat Eqoicaleot Cli13W-rk. ..drE-ctl.. 29 45 74 26 40 66 3 5 8 -. - - - - - 58 90 148 15 29 --- 192 295 Eqoipeat, Material. and Spa.- - 441 441 - 411 411 - 39 39 ------891 891 89 174 --- 1,154 1,781 Prelgbt, I ... -.- and Forign T..e.- 84 86 84 84 - 9 9 ------177 177 18 34 --- 229 353 Eogloe-ingSerclce. 72 72 - 62 62 ------134 134 13 26 --- 173 267 SoP-rvlelO of Iotlltooad Co1a.lonlng - ~~~ ~~~5353 - 44 44 - - - - 97 97 10 19 - -- 126 194 T-rh.1c.1lAodtt - - - - 7 71 78 - - - 13 128 141 14 27 --- 182 281 Technical A..i.tao- and TraIning ------63 566 629 6 57 63 63 566 629 63 123 --- 813 1.258 0N Rehbhlitati.. - - -- - 0 1,387 1.487 - - - 100 1.387 1.487 148 358 -1,993 3.066 I.-re.e1a Workig Capital-.1- - 305 -- 198 107 305 305 471 TOTAL 29 695 726 26 641 667 3 53 56 170 2,024 2.194 6 57 63 284 3.470 3.704 370 790 198 107 305 5,169 7.976 I.doatry Dpart-et May 1983 - 60 - Annex 6-1 Page 1 ot 3 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT FINANCIAL ANALYSIS BASIC ASSIUMPTIONS A. Production and Sales 1. Alcohol production will start with the 1985/86 cane crushing season. In 1985, annual incremental production of anhydrous alcohol will be 162,000 liters; from 1986 onwards, it will be 1,930,000 liters, corresponding to 90% utilization of the modified facilities. 2. The following table shows projected alcohol prices: Projected Alcohol Prices 1982 1985 1986 1987 1988 1989 1990 1995 Actual --- Projected------Alcohola/ Retail (Current MF/liter) 520 670 730 790 850 910 970 1,430 Distributor's Marginb/ (current MF/liter) 55 65 70 75 80 85 90 120 Excise Taxc/ (currentMF/ liter) 160 215 240 255 270 280 290 410 Alcohol ex-distillery: - currentMF/liter 305 390 420 460 500 545 590 900 - current US$/liter 0.47 0.60 0.65 0.71 0.77 0.84 0.91 1.39 - constant US$/liter 0.47 0.48 0.49 0.51 0.52 0.54 0.55 0.64 a/ Retail price would be the same for gasoline, alcohol, and gasohol. b/ Includes transportcost Siribala-Bamako. c/ Calculatedto be equivalent to taxes, duties, and levies on equivalent volume of gasoline. 3. The projected alcohol price is equal to the projected price of gasoline on a volume basis. Distributors'margins, and taxes were also calculated to be equivalent to those for gasoline on a volume basis. The imported price of gasoline will decrease slightly from 1982 to 1984 in real terms, increase again to the 1982 level in 1985, and grow at 2.9% p.a. in real terms thereafter. This projection reflects current projections of the international price of crude oil, adjusted for transportationand refining costs and margins. Price inflationwas assumed at 8% p.a. in 1983; 7.5%, in 1984; 7%, in 1985; and 6% p.a., thereafter. B. Variable Production Costs 4. In 1982 terms, variable productioncosts are assumed as follows: - 61 - Annex 6-1 Page 2 of 3 1982 NE/liter Alcohol Process Chemicals 28 Molasses 24 Supplementary Fuel 12 Direct Labor 8 Process Water 1 Transport Dougabougou-Siribala 1 Total 74 5. Price escalation rates were assumed similarly to those described para. 3 above. The technical parameters used in estimating variable production costs were as follows: 6. Process Chemicals. Usage was estimated according to recommended rates for existing distilleries plus provision for the 'entraining' liquid to dehydrate the alcohol. About 20 Kg of sulfuric acid would be required 1o distill 1,000 liters of alcohol; ammonium sulphate, 20 Kg; calcium superphosphate, 10 Kg; antifoam agent, 1 liter; and cycloexane, 1 liter. 7. Molasses. The average yield of anhydrous alcohol will be 270 liters per ton of molasses. The Alcohol Production Unit will pay the sugar mills a transfer price of MF 6,500 (US$10) per ton molasses. 8. Supplementary Fuel. Although it is anticipated that the sugar mills will supply the distilleries with the required steam and power, provision was made for approximately 15 day supply of industrial diesel oil to fuel the distilleries in the event of temporary operational breakdowns. The daily requirement would be about 4 tons of fuel at MF 432,000 per ton. 9. Direct Labor. Provision was made for three shifts of 15 workers each for each distillery at a unit cost of MF 1,000 (US$1.54) per worker/day including benefits. 10. Process Water. A transfer price of NF 195 (US$0.30) per m3 was assumed. 11. Transport. The cost of transporting 400,000 liters annually of hydrous alcohol from Dougabougou to Siribala was assumed at MF 6 (UTS$0.01) per liter, according to prevailing market rates. C. Fixed Costs 12. Maintenance costs are estimated at MF12 million (US$18,000) p.a. in 1982 terms, and will increase in line with projected price escalation rates. In 1985 this expense will be about 4% of the book value of net fixed assets. 13. Insurance was provided at MF 3-6 million (US$5,600) per year in 1982 terms, plus annual inflation. -62- Annex 6-1 Page 3 ot 3 14. Salaries for the General Manager, the Financial Controller, the Chemist and two storage operators were provided at MF 7 million (US$10,800) per year in 1982 terms. 15. Depreciation and Amortization. Depreciation of Project plant and equipment was provided by a straight line method over an average expected useful life of 14 years. Deferred charges, including project expenditures in training and technical assistance, and interest during construction were amortized over 12 years. The residual value of project capital investments would be 10% of the original cost. 16. Debt Service. The Alcohol Production Unit will require a loan of MF 2,631 million (US$4.1 million) to finance project capital expenditures. The loan will be drawn down in three years, and will be repaid in 16 equal semi-annual installments, beginning two years after the last drawdown. The interest rate will be 9% p.a. and the commitment fee 3/4 of 1% p.a. on the undisbursed portion of the commitment. Interest during construction of MF 181 million (US$279,000) will be capitalized. 17. Taxes and Levies. Beginning in 1986, the Alcohol Production Unit will pay income tax at the rate of 50%. Alcohol sales were projected net of excise taxes which are assumed to be equivalent to taxes and duties on imported gasoline. D. Working Capital 18. While monthly sales will be constant throughout the year, working capital requirements will experience seasonal variations because the distilleries will operate only during the cane crushing season to maximize use of available steam and power. Therefore it was assumed that the Alcohol Production Unit would carry one month sales as receivables throughout the year, but inventory would vary from two-month production at the beginning of the cane crushing season to about eight-month at the end of the season. The account 'cash required for operations' reflects the need for seasonal inventory buildup. Transfer payments for molasses and utilities would be on an open account and settled every 30 days. Industry Department May 1983 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT ALCOHOL PRODUCTION UNIT PRO FORMAINCOME STATEMENTSFOR THE YEARS ENDED DECEMBER31 (Current MF million) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Fuel Alcohol Sales - - 75 811 882 960 1,044 1,136 1,236 1,345 1,463 1,592 1,732 1,884 2,050 2,230 2,426 Cost of Goods Sold - - 29 365 395 407 420 433 447 462 478 495 513 532 552 573 596 Gross Profit - - 46 446 487 553 624 703 789 883 985 1,097 1,219 1,352 1,498 1,657 1,830 Selling General and Administrative Expense 5 10 15 30 32 34 36 38 40 42 45 48 51 54 57 60 64 Operating Profit (Loss) -5 -10 31 416 455 519 588 665 749 841 940 1,049 1,168 1,298 1,441 1,597 1,766 Interest Expense 4 41 136 225 237 237 215 192 167 139 109 76 40 0 0 0 0 Net Profit (Loss) Before Tax -5 -10 31 191 218 282 373 473 582 702 831 973 1,128 1,298 1,441 1,597 1,766 Income Tax - - - - - 141 187 237 291 351 416 487 564 649 721 799 883 Net Profit (Loss) After Tax -5 -10 31 191 218 141 186 236 291 351 415 486 564 649 720 798 883 Funds from Operations: a Net Profit (Loss) Before Tax -5 -10 31 191 218 282 373 473 582 702 831 973 1,128 1,298 1,441 1,597 1,766 Depreciation and Amortization - - 12 177 196 196 196 196 196 196 196 196 196 196 196 196 196 Cash Flow -5 -10 43 368 414 478 569 669 778 898 1,027 1,169 1,324 1,494 1,637 1,793 1,962 Cumulative Cash Flow -5 -15 28 396 810 1,288 1,857 2,526 3,304 4,202 5,229 6,398 7,722 9,216 10,853 12,646 14,608 Industry Department May 1983 -64- MALI - BIOMASS ALCOFOL AND ENERGY EFFICIENCY PROJECT Annex 6-3 ALCOHOL PRODUCTION UNIT PRO-FORMA BAIANCE SHEETS AT DECEMBER 31 (Current MF million) 1983 1984 1985 1986 1987 1988 1989 1990 1995 1999 Current Assets Cash Surplus a/ 18 195 212 230 251 273 416 582 Cash Required for Operations b/ 168 189 200 210 224 238 319 399 Accounts Receivable 64 68 73 80 87 95 144 202 Inventory 48 54 57 60 64 68 91 114 Prepaid Expense 2 3 5 10 11 11 12 13 17 21 Total Current Assets 2 3 303 516 553 591 638 687 987 1,318 Fixed Assets Existing Plants 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 Project Facilities 73 603 1,626 1,827 1,827 1,827 1,827 1,827 1,827 1,827 Gross Fixed Assets 5,073 5,603 6,626 6,827 6,827 6,827 6,827 6,827 6,827 6,827 Less: Accumulated Depreciation (2,500) (2,500) (2,512)(2,64) (T ) (2,905) (T3,) (T317) (3,822) (4,346) Net Fixed Assets 2,573 3,103 4,114 4,184 4,053 3,922 3,791 3,660 3,005 2,481 Deferred Charges 26 216 582 654 607 560 513 466 231 43 Interest During Construction 4 45 181 181 168 155 142 129 64 12 Total Assets 2,605 3,367 5,180 5,535 5,381 5,228 5,084 4,942 4,287 3,854 Current Liabilities Current Portion of Long-Term Debt - - - - 238 260 283 308 - - Accounts Payable - - 1 12 13 14 16 17 26 36 Accrued Expenses - - 0 4 4 5 5 6 9 12 Total Current Liabilities 0 0 1 16 255 279 304 331 35 48 Long Term Debt 99 819 2,358 2,631 2,393 2,133 1,850 1,542 - - Total Liabilities 99 819 2,359 2,647 2,648 2,507 2,347 2,166 841 48 Equity Capital Paid in Capital: - Government 4 45 181 181 168 155 142 129 64 12 - ON 2,507 2,518 2,624 2,653 2,653 2,653 2,653 2,653 2,653 2,653 Retained Earnings -5 -15 16 207 425 566 752 988 3,095 6,145 Less: ON Sugar Division 0 0 0 -153 -513 -558 -617 -701 -1,560 -5,004 Total Capital 2,506 2,548 2,821 2,888 2,733 2,816 2,930 3,069 4,252 3,806 Total Liabilities and Capital 2,605 3,367 5,180 5,535 5,381 5,228 5,084 4,942 4,287 3,854 a/ This cash surplus arises because the long-term debt amortization schedule was designed to ensure debt service coverage of at least 1.5:1 at all times. In practice this cash could be used to prepay long-term debt outstanding. b/ Includes a 10% physical contingency on working capital. Industry Department May 1983 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT ALCOHOL PRODUCTION UNIT SCHEDULE OF PROJECTED FINANCIAL INDICATORS Profitability 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (a) Operating Profit Margin - - - 24 25 29 36 42 47 52 57 61 65 69 70 72 73 (b) Net Profit Margin (%) - - - 24 25 15 18 21 24 26 28 31 33 34 35 36 36 (c) Return on Equity (Z) - - - 7 8 10 13 16 18 21 23 26 28 31 35 40 46 Liquidity (d) Working Capital Required (MF million) 2 3 302 500 298 312 334 356 376 398 425 441 952 1,022 1,100 1,183 1,270 (e) Working Capital (MF Million) minimum 2 3 284 305 324 342 366 391 415 441 473 500 536 570 608 648 688 (f) Current Ratio - - - 32.3:1 2.2:1 2.1:1 2.1:1 2.1:1 2.0:1 2.0:1 2.0:1 1.9:1 28.1:1 28.6:1 27.8:1 27.9:1 27.5:1 (g) Minimum Current Ratio - - - 20.1:1 1.3:1 1.3:1 1.3:1 1.3:1 1.2:1 1.2:1 1.2:1 1.1:1 16.3:1 16.4:1 15.8:1 15.7:1 15.3:1 Leverage (h) Debt to Equity 4/96 24/76 46/54 48/52 49/51 46/54 42/58 38/62 32/68 26/74 19/81 10/90 0 0 0 0 0 (i) Debt Service Coverage - - - 2.6:1 2.8:1 1.5:1 1.7:1 1.8:1 2.0:1 2.2:1 2.4:1 2.6:1 2.8:1 - - - - (a) Operating Profit / Sales (b) Net Profit After Tax / Sales (c) Net Profit before Tax / Average Shareholder Equity (d) Cash Required + Inventory + Receivables - Accounts Payable - Accrued Liabilities (e) Current Assets - Current Liabilities (f) Current Assets / Current Liabilities(g) (Cash Required + Inventory + Receivables)/(Accounts Payable + Account Liabilities + Notes Payable) (h) Long-term Debt / (Long Tern Debt + Total Capital) (i) (Operating Profit + Depreciation) / (Interest + Principal) Industry Department May 1983 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT ALCOHOL PRODUCTION UNIT FINANCIAL RATES OF RETURN Capital Operating Depreciation Cash-flow Cash-flowa/ Cash-flow Cash-flowa/ Expenditure Profit and Amortisation Before taxes After taxes Before Taxes After Taxes ------Current MF Milllion------…------1983 MF Million----- 1983 106 -5 - -111 -111 -111 -111 1984 731 -10 - -741 -741 -688 -688 1985 1,646 31 12 -1,603 -1,603 1,386 1,386 1986 301 416 177 292 292 238 -238 1987 - 455 196 651 651 501 501 1988 - 519 196 715 626 519 455 1989 - 588 196 784 651 537 446 1990 - 665 196 861 679 557 439 1991 - 749 196 945 710 576 433 1992 - 841 196 1,037 742 597 427 1993 - 940 196 1,136 777 617 422 1994 - 1,049 196 1,245 814 638 417 1995 - 1,168 196 1,364 854 659 413 1996 - 1,298 196 1,494 897 681 409 1999 -538 1,766 196 2,500 1,617 957 619 Financial Rate of Return: 27% 23% 20% 16% a/ The tax rate has been adjusted slightly from that shown in Annex 6-2 to reflect the effect of commercial x interest rate of 13% p.a. rather than the preferential interest rate of 9% p.a. for Government C Development Agencies used in Annex 6-2. l Industry Department May 1983 - 67 - Annex 7-1 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT ECONOMIC ANALYSIS BASIC ASSUMPTIONS 1. Except as noted in this Annex the assumptions are those set out in Annex 6-1. 2. All prices are expressed in constant 1983 Mali Francs. 3. Savings of industrial diesel oil are 134,400 liters in 1984 and 806,400 liters in 1985 and each year thereafter. The economic cost of industrial diesel is calculated at MF 250 (US$0.39) per liter in 1984, and MF 245 (US$0.41) per liter in 1985. It will then increase at 2.9% p.a. in real terms. 4. Capital costs exclude the study component, and interest during construction. They were allocated to the Alcohol Production and Energy Efficiency components as set out in Annex 7-2. 5. The long term molasses price FOB Rotterdam was projected by using a forecast model recently developed by Bank staff. The model is documented in the Project File Reference G and forecasts molasses prices as a function of corn and sugar prices. Using current projections of corn and sugar prices the model predicts a long term equilibrium price of molasses of US$105/ton FOB Rotterdam. The following table s'hows the corresponding net back price ex-distillery: Financial Economic …-- US$/ton ------Price FOB Rotterdam 105.35 105.35 Less: Transport Distillery - Segou 11.93 14.19 Transport Segou - Zegoua 21.82 3.89 Transport Zegcua - Abidjan 42.24 42.24 Trans-shipment - Abidjan 10.75 10.75 Freight Abidjan - Rotterdam 21.50 21.50 108.24 92.57 Price ex-distillery (2.89) 12.78 The economic price is higher than the financial price because a marginal cost analysis has been applied to domestic transportation costs. Industry Department March 1983 tIOY.ASS ALCOHOL AND ENERG.Y EFFICIENCY PROJECT INVESTMENT COST ALLOCATION (1983 MF Million, Including 101 Physical Contingencies) ALCOHOL PRODUCTION ENERGY EFFICIENCY IMPROVEMENT CONSOLIDATED 1983 19_4 1985 1986 Total 1 1983_ 1984 1985 1986 Total % 1983 1984 1985 1986 Total 1. Eq.1ppent, Materials, and Spares - 215 323 - 538 25 - 97 346 - 443 21 - 312 669 - 981 46 2. Freight, Insurance, Port Charges and Foreign Taxes - 40 68 - 108 5 - 22 64 - 86 4 - 62 132 - 194 9 3. Civil Works and Erection - 25 60 - 85 4 - 27 50 - 77 4 - 52 110 - 162 8 4. Engineering Services - 80 - - 80 4 - 70 - - 70 3 - 150 - - 150 7 5. Supervision of Instal- lation and Comnaission- ing - - - 58 58 3 - - - 50 50 2 - - - 108 108 5 6. Training - 32 161 100 293 13 - 22 108 32 162 8 - 54 269 132 455 21 7. Technical Audit 61 - - - 61 3 31 - - - 31 1 92 - - - 92 4 Total 61 392 612 158 1,223 57 31 238 568 82 919 43 92 630 1,180 240 2,142 100 Annual % 3 18 29 7 57 - 1 11 27 4 43 - 4 29 56 11 100 Cumulative 2 3 21 50 57 - - 1 12 39 43 - - 4 33 89 100 x Industry Departmnent March 1983 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT ECONOMIC COSTS AND BENEFITS (1983 MF Million) ALCOHOL PRODUCTION ENERGY EFFICIENCY IMPROVEMENT CONSOLIDATED Capital Operating Total Capital Operating Total Capital Operating Total Costs Costs Costs Benefits Costs Costs Costs Benefits Costs Costs Costs Benefits 1983 61.3 - 61.3 - 31.2 - 31.2 - 92.5 - 92.5 - 635.8 - 1984 391.0 7.1 398.4 - 235.4 1.9 237.4 - 626.7 9.0 1985 611.7 73.7 685.4 51.8 567.6 8.4 576.0 34.3 1,179.3 47.8 1,227.1 51.8 1986 158.0 392.9 550.9 643.7 81.7 8.4 90.1 207.0 239.7 188.9 428.6 643.7 659.8 1987 - 399.0 399.0 659.8 - 8.4 8.4 218.5 - 188.9 188.9 678.8 1988 - 405.3 405.3 678.8 - 9.4 8.4 224.9 - 188.9 188.9 1989 - 411.6 411.6 698.1 - 8.4 8.4 231.1 - 188.9 188.9 698.1 718.1 1990 - 418.4 418.4 718.1 - 8.4 8.4 237.9 - 188.9 188.9 738.6 1991 - 425.1 425.1 738.6 - 8.4 8.4 244.6 - 188.9 188.9 759.8 1992 - 432.2 432.2 759.8 - 8.4 8.4 251.7 - 188.9 188.9 1993 - 439.2 439.2 781.5 - 8.4 8.4 258.8 - 188.9 188.9 781.5 803.8 1994 - 446.8 446.8 803.8 - 8.4 8.4 266.3 - 188.9 188.9 826.9 1995 - 454.3 454.3 826.9 - 8.4 8.4 273.9 - 188.9 188.9 1996 - 462.3 462.3 850.5 - 8.4 8.4 281.8 - 188.9 188.9 850.5 875.2 1997 - 470.4 470.4 875.2 - 8.4 8.4 289.9 - 188.9 188.9 900.3 x 1998 - 478.2 478.2 900.3 - 8.4 8.4 298.2 - 188.9 188.9 1999 (86.8) 486.0 399.2 926.1 (57.8) 8.4 (49.4) 306.8 (144.6) 188.9 (44.3) 926.1 Economic Rate of Return: 20% 22% 21% Industry Department March 1983 MALI - BIOMASS ALCOHOL AND ENERGY EFFICIENCY PROJECT FOREIGN EXCHANGE BENEFITS (1983 US$ thousand) 1983 1984 1985 1986 1987 1988 1989 1990 1995 1999 Foreign Exchange Savings Gasoline Imports - - 72 891 917 944 971 999 1,154 1,292 Diesel Imports - - 47 296 304 313 322 331 382 429 - 119 1,187 1,221 1,257 1,293 1,330 1,536 1,721 Financing 235 1,312 2,237 378 ------2,356 T1,22 T 56 T1 T71 I5T=1,29 T, 721 Foreign Exchange Outflows Capital Costs 143 967 1,820 370 ------223 Operating Costs - - 60 425 431 438 445 452 490 522 Debt Service 1 7 20 30 31 31 31 31 31 31 _ _ 4r TZ 825 F 7 TO6 48 r 34 330 Net Foreign Exchange Savings 91 338 456 740 759 788 817 847 1,015 1,391 Present Value at 10%: US$5,658,000 Industry Department March 1983 IBRD 16461 jI16° 12° ' ~ " bT4 r N. JUNE 1982 SUPPLYPOINTS * SOURCES DAPPROVISIONNfMENT MALI |-. MAURITANIA '- PTOEMPRODUCTSDEPOTS DEPOTSPOULP PROLDLITS BIOMASS ALCOHOLAND ENERGYEFFICIENCY PROJECT M A L i _ SUPPLYOF PETROLEUMPRODUCTS PROIf r DE CARBUROL Fr D'ECONOM/EDENERG/E . oG- J APAROVISIONNAEMNTDE PROV/SPFTROIERS N.'a-IGER BIOMASS ALCOHOL SUPPLY NIGER APPROV/SIONNEMEANT D ALCOOL |o7,., BV L I -~~~~~~~~~~~~~.- II, -R -1 ,- ROADS / IL G - N - " 5/EA. RAILWVAY,l >>MAURITANIA%'/;kl 6 INTERNATIYNAL BOUNDARIES U T S/ A 01MM FRONTERL'ESNATIONALL'SJ _ RIVERS / - . 4 El6LESF/T R I V/APES SD a I M A L I N I G E R L R KALA*V ,- NI E 4 INPRIFLER , THE M /Zl.~~~~~~~~~~~~~ I ',--, _ ,' U r P P E R V O LTA N Ak~~~~~~~~~~~~ 12'-~~~~~~~~~- BISSAU,j IL sioelels F / || 3 G U N E A - PARAKOU 0S,,,Eao A T lA N TI CC ,. -A Z rI DouJoHq8gouSUGARAAND :. ETHANOL FACTORIES I E R u SMpIo/' OCEAN LEGNA r-~~~~~~~~~~~~~~~~~~~~~~~~~~~c- 0 A / G H A N A T B_ K A SB/RE FuR 'K~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Li ) h~~~~~~~~~~~,k,Va/to +; S / 89ry RAFF/NFR/ESkRD/SE/IIFR/kS -A1 < \ a 'ANO a f < Bro Rb1'r UIt\ S/G Dk l'OF/C DUNGR, /j \ \AIJN ) D-,a 'M .. SUGAR AND ETHANOL PACTORIES ~ FAFI ,RESFTDETLRIES, 15~' ii /.1- OFFICE DU NIGER HEADQUARTERS l S/FOE DE 10FF/CE DU/ NIGER/ %'n//,/gSUGAR ESTATES RIGHT OF BEN/N a-, NILEELIOMLAM XJ/ r7R< _____ CANALS/ CANAUR U0 100 200 300 IL'O:G, . MM1~17.7f. ------MAIN DRAINS/DRA/INSPR/NC/PAULS IOz'u;o:. .. KILOMETERS 'R""'fC"I ogo = -7-=I RIVERS /FE]UVET 5 S'AAomoMio 12' 8 4' 0° 4'