Document of The World Bank FOR OFFICIALUSE ONLY Public Disclosure Authorized Report No: 22478 IMPLEMENTATIONCOMPLETION REPORT (IDA-25880;TF-20125) ONA Public Disclosure Authorized CREDIT IN THE AMOUNTOF SDR53,700,000 TO ETHIOPIA FOR A CALUBENERGY DEVELOPMENT PROJECT Public Disclosure Authorized June 28, 2001 EnergyUnitAFC06 AfricaRegion, WorldBank Public Disclosure Authorized This documenthas a restricteddistribution and may be usedby recipientsonly in the performanceof their officialduties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective June 27, 2001) Currency Unit = Ethiopian Birr Birr 1 = US$ 0.12048 US$ 1 = Birr 8.3 FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS AfDB African DevelopmentBank CGSC Calub Gas Share Company EA EnvironmentalAssessment EEA EthiopianEnergy Authority EELPA EthiopianElectric Light and PowerAuthority EIGS EthiopianInstitute of GeologicalSurveys EMRDC EthiopianMineral ResourceDevelopment Corporation EPA EnvironmentalProtection Authority EPC EthiopianPetroleum Corporation ERA EthiopianRoad Authority FCCS FuelwoodCarriers Credit Scheme LPG LiquifiedPetroleum Gas MME Ministryof Minesand Energy NFPTA NationalFire ProtectionAgency OGEDO Oil and Gas Explorationand DevelopmentOrganizafion PITF Project ImplementationTask Force PMC ProjectManagement Consultancy TOR Terms of Reference WEIGHTS AND MEASURES 1 kilometer = 0.621 miles 1 square kilometer (km2) = 0.386 square miles 1 kilovolt (kV) - 1,000 volts 1 megawatt (MW) = 1,000 kilowatts I megavolt ampere (MVA) = 1,000 kilovolt amperes I gigawatt hour (GWh) 1 million kilowatt hours I ton of oil equivalent (toe) = 10,500,000 kilocalories Vice President: Callisto E. Madavo, AFRVP Country Manager/Director: Oey Astra Meesook, AFC06 Sector Manager/Director: M. Ananda Covindassamy, AFTEG Task Team Leader/Task Manager: Alfred B. Gulstone, AFTEG FOR OFFICIALUSE ONLY ETHIOPIA CALUBENERGY DEVELOPMENT PROJECT CONTENTS Page No. 1. ProjectData 1 2. PrincipalPerformance Ratings 1 3. Assessmentof DevelopmentObjective and Design, and of Quality at Entry 2 4. Achievementof Objective and Outputs 4 5. Major FactorsAffecting Implementation and Outcome 9 6. Sustainability 9 7. Bank and BorrowerPerfornance 10 8. LessonsLearned 11 9. Partner Comments 12 10. AdditionalInformation 27 Annex 1. Key PerformanceIndicators/Log Frame Matrix 28 Annex 2. Project Costs and Financing 29 Annex 3. EconomicCosts and Benefits 31 Annex4. Bank Inputs 32 Annex5. Ratingsfor Achievementof Objectives/Outputsof Components 33 Annex 6. Ratingsof Bank and BorrowerPerformance 34 Annex 7. List of SupportingDocuments 35 Map - Ethiopia-Calub Gas Development Project Region 5 (Somali) IBRD 24070R. 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. Project ID: P000758 Project Name: CALUB ENERGY DEV. PROJECT Team Leader: Alfred B. Gulstone TL Unit: AFTEG ICR Type: Core ICR Report Date: June 28, 2001 1. Project Data Name: CALUB ENERGY DEV. PROJECT L/C/TF Number: IDA-25880; TF-20125 CountryIDepartment: ETHIOPIA Region: Africa Regional Office Sector/subsector: GI - Oil & Gas Exploration & Development KEY DATES Original Revised/Actual PCD: 01/16/91 Effective: 09/21/95 09/21/95 Appraisal: 09/08/92 MTR: 09/30/98 Approval: 03/29/94 Closing: 12/31/2000 12/31/2000 Borrower/lImplementing Agency: GOVERNMENT/MME Other Partners: STAFF Current At Appraisal Vice President: Callisto Madavo Country Manager: Oey Astra Meesook Sector Manager: Ananda Covindassamy Stephen Weissman Team Leader at ICR: Alfred Gulstone Luciano Borin ICR Primary Author: Colleen P. de Freitas 2. Principal Performance Ratings (HS=HighlySatisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely,HU=Highly Unsatisfactory, H=High, SU=Substantial,M=Modest, N=Negligible) Outcome: U Sustainability: UN Institutional Development Impact: M Bank Performance: U Borrower Performance: U QAG (if available) ICR Quality at Entry: U Project at Risk at Any Time: 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: 3.1.1 The project'sobjective was to augmentthe availabilityof Ethiopia'sindigenous energy resourcesin an economicallyviable and commerciallyand environmentallysustainable manner by (i) improvingthe present unbalancedstructure of energysupply in Ethiopiaby increasingthe availabilityof modem fuels;(ii) supportingeconomic growth by expandingpetroleum supply from indigenousresources; (iii) contributingto the mitigationof peri-urbandeforestation by inducingthe replacementof woodfuels with LiquifiedPetroleum Gas (LPG)and kerosenein urbanhouseholds; (iv) developingthe country's technicalcapacity to commercializeits fossil fuel resources;and (v) contributingto poverty alleviation throughdirect measures, induced economic activity, and throughthe developmentof Ethiopia'sremote south-eastemregion. 3.2 Revised Objective: 3.2.1 The projectobjectives did not change,but the methodologyof implementationsignificantly changed. Becauseof the responseof the private sectorto the project in its originaldesign, it becameclear that the commercialportion of the project (that of bringingthe gas field and its associatedsurface installationsand facilitiesinto production) shouldbe privatized,rather than developedby a share company with majority Governmentownership. The noncommercialproject components would continueto be carriedout by the Government.The resultis that nearly$60 millionof the originalcredit would be surplus to the originalrequirements. 3.3 Original Components: 3.3.1 The Projectincluded three components:(i) a commercialcomponent; (ii) a regional developmentcomponent for Ethiopia'ssouth-eastern region; and (iii) a supportcomponent. 3.3.2 The commercialcomponent consisted of completionof the gas wells and plant construction at Calub,privatization promotion, and operationof a petroleumextraction and processingplant by an independent,share-capital company. 3.3.3 The regionaldevelopment component for Ethiopia'ssoutheastern region consisted of (i) rehabilitationof the Shilabo-Hararnational highway (571km); and (ii) an environmentalmonitoring systemand a communitydevelopment fund to monitor,through project life, the projectenvironmental impact withinthe projectarea, and provide socialand economicsupport to inhabitantsof the concerned areas. 3.3.4 The support componentsconsisted of (i) technicalassistance to the Ministryof Mines and Energy for supportinga projectimplementation task force,and strengtheningthe capacityof the Ministry of Minesand Energy (MME)to promoteprivate and joint ventureparticipation in petroleumexploration and development;(ii) supportfor LPG marketingand interfuelsubstitution; (iii) povertyalleviation among poor urbanfuelwood carriers through a programto supportincome diversification; and (iv) three studies, namely,a PetroleumPricing and Market StructureStudy to assist the Governmentin formulating petroleumpricing policy and optimizingthe petroleumsub-sector; a RegionalElectrification Study, to supplyselected urban centers with gas-generatedelectricity from Calub;and a study to assessthe feasibilityof a larger-scaleexploitation of Calub'sgas resources. 3.4 Revised Components: N/A -2 - 3.5 Quality at Entry: 3.5.1 The qualityat entry was unsatisfactory.The project designwas complex. The project designrelied on the willingnessof the Governmentto implementprograms that wouldstimulate and facilitateprivate sector participation in the energy sectorand promotethe Ministryof Mines and Energy's abilityto facilitatepetroleum exploration and development.The projecthad a significant"pilot" dimension and was viewedas a startingpoint for a comprehensive,long-term development of the country'sfossil fuel resources. In orderfor the projectto operatein an enablingregulatory environment, the Government,at the time, pledgedto implementand maintaina revisedLiquified Petroleum Gas (LPG)pricing policy based on importparity; study ways to optimizepricing policy for all petroleumproducts; and establishnational LPG standards. 3.5.2 The commercialcomponent of the projectcentered around the CalubCompany and involvedcompletion of the existingwells on the Calubgas field, constructionof a processingplant and ancillaryfacilities, and technicalassistance for privatizationpromotion and supervisionof constructionand initialplant operation.The CalubCompany was expectedto be registeredas a sharecompany, under the provisionsof the CommercialCode of Ethiopia. This wouldprovide the legalbasis for the privatesector to acquireequity participation in the company. The newly registeredCalub Gas shareCompany would offer for sale to privateinvestors, at least35 percentof its declaredequity as a conditionfor presentationof the creditto the Board. The processingplant was expectedto producebottled LPG, which wouldbe taken by road to Addis Ababafor salein the local market,along with kerosene. The unusednatural gas was intendedto be reinjectedto storeit for futureuse and to maintainhigh reservoirpressures. 3.5.3 The regionaldevelopment component involves road rehabilitation,an environmental monitoringsystem, and a communitydevelopment fund. A studycarried out by BACTEC,an Ethiopian consultingfirm fundedunder the project'sPPF, identifiedthe conditionsand the need for rehabilitationof the Shilabo-Hararroad (571kms). Preparationswere underwayto use flyingcrews of maintenance workersto maintainthe