Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 12607-Zh STAFF APPRAISALREPORT ZAMIABT Public Disclosure Authorized PETROLEUM SECTOR REHABILITATIONPROJECT NAY 6, 1994 Public Disclosure Authorized Industry and Energy Operations Southern Africa Department Public Disclosure Authorized This document has a resticted distribution and may be used by redpient only in the performance of their officall duties. Its contents may not otrwisebe disclosed without World Bank autho0izaion CurrencyEquivalents (AnnualAverage ExchangeRates) Currencv ZambianKwacha (K) US$1.00 = K 600 K 1.00 - US$ 0.002 1980 US$1.00 = K .79 1983 US$1.00 K 1.26 1984 US$1.00 = K 1.81 1985 US$1.00 = K 3.14 1986 US$1.00 = K 7.79 1987 US$1.00 = K 8.89 1988 USS1.00 = K 8.82 1989 US$1.00 = K 12.90 1990 US$1.00 = K 28.90 1991 US$1.00 = K 61.70 1992 US$1.00 = K171.00 1993 US$1.00 = K460.00 Currency TanzanianShilline (TSh) US$1.00 = TSh.499 (exchangerate) TSh.1.00 = US$ 0.002 Weightsand Measures 1 Metric Ton (MT) = 1,000 kilograms(kg) 1 Barrel (Bbl) = 0.159 cubic meters I Metric Ton of Oil (API 30) = 7.19 barrels 1 Ton of Oil Equivalent = 10 million kilocalories(39.7 million Btu) 1 Kilocalorie = 3.97 BritishThermal Units (BTU) 1 Gallon = 3.785 Liters 1 Hectare(ha) = 0.01 squarekilometer (2.47 acres) 1 Liter = 0.26 Gallon FOR OFFICiL USE ONLY Abbreviations ADB AfricanDevelopment Bank AGIP AgipPetroli API AmecicanPetroleum Insdute BP BP (Zaumbia)Limited bpsd barmlper streamday BZ Bankof Zambia CAPC CentmalAfica Power Corporation BIB EuropeanInvestment Bank BURR EconomicInternal Rate of Return ESMAP Energy Sector ManagementAssi tanc; Progrmme DOE Depautmentof Energy OlD GroupInvestment Dliector GRZ Govenmentof the Republicof Zambia HFO HeavyFuel Oil ICB IntemationalCompetitive Bidding Indeni IndeniPetroleum Company Limited kgIc kdlogramsof oil equivalent MBWD Ministy of Enegy and Wate Development MF Ministryof Fmance NEC NationalEnergy Council OMC Oil MarketingCompanies OMCC Consortiumof Oil MarketingCompanies PIRC Privatizationand IndustrialResrcuing Credit ROW Rightof Way SPM SinglePoint Mooring toe tonsoil equivalent tpa tons per annum Tazama TazamaPipelines Limited ZA-,ICO ZambiaPForetry and PorestIndustries Corporation Limited ZCCM ZambiaConsolidated Copper Mines Limited ZESCO ZambiaElectricity Supply Company Linited ZIMCO ZambiaIndustrial and MiningCorporation Limited Z{MOIL PetroleumProcurement and SupplyDivision of ZIMCO ZOC ZambiaOil Company ZPA ZambiaPrivatization Agency ZR ZambiaRailways Limied icalYr Government- January 1 - De¢ember31 ZOC, TAZAMA- April 1 - March31 This documenthas a restricteddistintion and may be usedby reipients only in the pefmae of dteir offlcislduties. Its contts may not otherwie be disclosedwithout World Bnk authorzaion ZAMBIA PEIROLEUMSECTOR REUABILITATION PROJECT TABLEOF CONTENTS Page CREDITAND PROJECT SUMMARY ................. i-i I. INTRODUCTION.................................... 1-3 H. THE ENERGY SECTOR ................................... 4-15 EectricPower .............................................. 4 Coal ............................ 5 Woo-ifuelsand Charcoal ............................ 6 OtherRenewable Energy ............................ 7 EnergyEfficiency and Substitution. ............................ 7 SectorOrganization ............................ 7 ZambianRegulatory Agencies ............ ................ 8 The PetroleumSubsector ............................ 8 HydrocabonPotential ............................ 9 PetroleumDemand ........................................... 9 Pote"t RegionalMarket ......................... 11 PetroleumRefining ......................................... 11 PetroleumDistribution ......................... 12 PetroleumProduct Pricing ......................... 12 Government'sEnergy Sector Objectives and DevelopmentPlans .13 Role oe the Bank Group in the Energy Sector and Lessonsof Experience................ 14 SystematicClient Consultation .15 m. AGENCIESOPERATING IN THEPETROLEUM SECTOR. 16-20 TheBorrower and the ExecutingAgencies .16 Kmistryof Energyand WaterDevelopment .16 ParastatalEnergy Companies .16 ProposedInstitutional Reforms .17 Staffing: ParastatalEnergy Companies .19 Accounts ......... ....... 20 Thisreport is basedon the findingsof a preappraisalmission which visited Zambia in August1992 and February1993 and an appraisalmission in June 1993. The appraisamission wasled by T.S. Nayar,Pr. ChemicalEngineer ([ENOG), and includedMr. Eric Daffern,Pr. Energy/IndustrialSpecialist (IENOG) Oead adviser), Ms. Yurilo Sakairi,Economist (AF6IE) and Mr. P.K. Subramanian,FinancW Analyst (Consultant). Secretarial support was providedby Mmes.Joyce Chinsenand EthiopiaTaddese (AF6IE). Messrs.David Cook (AF61E) and Stephen Denning(AF6DR) are the managingDivision Chief and DepartnentDirector. IV. THEPROJECT ............................ 21-31 Project Objectives ......... .............. ................... 21 Project Descripii ......................................... 21 Related investmentsto be Financedby the Private Sector ..... ........... 24 Projet Managementand Implementation......... .................... 24 Project Cost Estimates. ........................................ 25 Financing Plan ............. ............................ 26 Project Scheduleand DisbursementProfile ......... I.................. 27 Procurement .......................................... 28 Allocationand Disbursementof IDA Credit ........ ................... 30 Environmentaland Safety Aspects ............. .................... 30 Project DevelopmentImpact . ................................... 31 Project Monitoring ......................................... 31 List of Documentson File ...................................... 31 V. FINANCLALANALYSIS ..................................... 32-41 Introduction............................................ 32 Financial Policies of Zambia's Parastatals ......... ................... 32 ZIMOL .......................................... 32 Zambia Oil Company ......................................... 34 Oil MarketingCompanies Consortium .......... .................... 36 Tazama PipelineLimited ....................................... 38 Indeni Refery ......................................... 40 VI. JUSTDFCATION,BENEFrTS AND RISKS ....... ................. 42-44 Project Justification ......................................... 42 EconomicAnalysis .......................................... 42 PipelineRehabilitation Economics ............. .................... 42 Rail Loading Expansion. ....................................... 43 Indeni Refinery Economics...................................... 43 Project Risk .......................................... 44 VII. AGREEMENTSREACHED AND RECOMMENDATIONS.45-46 LIS OF ANNEXES Annex 1.1 Letter of Sector Policy Annex 2.1 Energy Balance 1992 Annex 3.1 Zimoil OrganizationChart Annex 3.2 Tazama PipelineLimited OrganizationChart Annex 4.1 Project Cost Estimates Annex 4.2 ImplementationSchedule Annex 4.3 IDA SupervisionMission Annex 4.4 DisbursementSchedule for IDA Financing Annex 4.5 EnvironmentalIssues Annex 4.6 Project MonitoringIndicators and PerformanceMonitoring Criteria for Tazama PipelinesLimited Annex 4.7 List of Documentson File Annex 4.8 PetroleumExport Market Assessment- Draft Terms of Reference Annex 4.9 Petroleum Sector Capacty Buildingin the Ministryof Energy and Water Development- Terms of Referencefbr the Technical Cell) Annex 5.1 Notes and Assumptionson Financial Projections Annex5.2 ZIMOIL - Income Statement Annex 5.3 ZIMOIL - BalanceSheet Annex 5.4 Zambia Oil Company- Notes and Assumptionson Financial Projections Annex 5.5 Zamnia Oil Company- Income Statement Annex 5.6 Zambia Oil Company- BalanceSheet Amex 5.7 Tazama Pipeline Ltd. - Income Statement 1988-93 Annex 5.8 Tazama Pipeline Ltd. - Balance Sheet 1988-93 Annex 5.9 Tazama PipelineLtd. - Notes and Assumpdonsfor Financial Projections Annex 5.10 Tazama PipelineLtd. - Income Statement Annex 5.11 Tazama PipelineLtd. - BalanceSheet Annex 5.12 Tazama PipelineLtd. - Funds Flow Statement Annex 6.1 EconomicAnalysis of PetroleumDistribution Components Annex 6.2 EconomicAnalysis of Refinery Operationsand Product PipelineOptions TEXT TABLES Table 2.1 - Electricity Consumptionby Sector ............................. S Table 2.2 - Production and Sales of Coal ................................ 6 Table 2.3 - Fuels used for Cookingby Households.......................... 7 Table 2.4 - Sales and Market Shares of Oil MarketingCompanies .............. 9 Table 2.5 - Final Consumptionof PetroleumProducts by Sector in 1992 ........... 10 Table 2.6 - PetroleumConsumption in Zambia .............. 10 Table 2.7 - Demand Forecast for PetroleumProducts ..... ......... 11 Table 2.8 - PetroleumProducts Price Structure as of May 1993 .............. 12 Table 4.1 - Summaryof Project Cost Estimates.............. 26 Table 4.2 - PetroleumSector RehabilitationProject FinancingPlan .. ........... 27 Table 4.3 - IDA DisbursementSchedule .............. 28 Table 4.4 - ProcurementArrangements .............. 29 Table 4.5 - IDA Credit Allocation .............. 30 Table S.1 - ZIMOIL SummaryFinancial Statements 1990-92 .............. 33 Table 5.2 - Zambia Oil CompanyPricing Structure ...... ......... 35 Table 5.3 - Zambia Oil CompanySummary Projected Financial Statement 1995-2000. ............... 36 Table5.4 - Oil MarketingCompanies Consortium - Pricing Structure ............. 37 Table 5.5 - Tazama SummaryFinancial Statements1990-92 .......... .... 39 Table 5.6 - Tazama SummaryProjected Financial Statements1993-98