Public Disclosure Authorized t1 1 |S.. S t g - g s 3 8 g g i sII Public Disclosure Authorized jiI II. Public Disclosure Authorized Public Disclosure Authorized Currency B9tuivalents The official monetary unit is the Syli (GS) Syli 1 = US$0.04 USS1 Syll 23 Abbreviations and Acronyms BD barrels per day Glh gigawtt hours NV megaatts toe tons of oil equivalent Hydrorente Agency in charge of retail gasoline sales HQI Hydro Quibec International Importex Agency in charge of oil imports MI=3K Ministry of Energy aud Konkovurf NW; JNnistry of Nimes and Geology ONIE Office National des Hydrocarbures PCIAC Petro Canada International Assistance Corporation SGH Socigt6 Guineenne des Hydrocarbures SRE Societ-e ationale d'Electricite SOGUIP Societe Guineene des Petroles FOR OMCUIL USE ONLY THE REVOLUTIONARYPEOPLE'S REPUBLIC OF GUINEA PETROLEUMEXPLORATION PROMOTION PROJECT Credit and Project Summary Borrower: Revolutionary People's Republic of Guinea Amount: SDR 7.7 million (US$8.0 million equivalent) * Terms: Standard Project The project would assist the Ministry of Mines and Description: Geology in promoting available acreage in the country to international oil companies for exploration. It would include (i) seismic surveys on two zones offshore 'ii) geological field surveys on the onshore Bove basin,(iii) technical assistance by exploration con- sultants to develop and implement a promotion strategy and accounting assistance in respect of exploration activities; (iv) technical, economic and legal training; and (v) meterials and equipment needed in execution of the project. It would assist the Ministry of Energy and Konkoure in improving the reliability of Conakry's electrical service by an extension of an ongoing technical assistance contract for the electric power utility, SHE. Benefits & Risks: The potential benefits to the country are high if oil companies undertake exploration as a result of this project. Another benefit would be in developing the Government's capability to participate in and administer oil exploration activities in the country. The principal risk in this project is that the promotion effort ultimately does not yield any further industry interest. IThis document ha a resicted distibution and may be used by recipients only in the performance of | their ofricial dutis.. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Estimated Project Cost: Local Foreign Total (Net of taxes and duties) -- (US$ thousand)------- Seismic Surveys and Processing - 6,300.0 6,300.0 Geochemical Analysis of Field Samples - 30.0 30.0 Technical Assistance Oil Exploration Promotion 90.0 1,200.0 1,260.0 Electric Power 30.0 900.0 930.0 Training 30.0 150.0 180.0 Materials and Equipment 150.0 200.0 350.0 Total Base Cost 300.0 8,780.0 9,080.0 Contingencies Physical 30.0 880.0 910.0 Price 70.0 940.0 1,010.0 Subtotal 100.0 1,820.0 1,920.0 Refinancing of PPF Advance - 1,000.0 1,000.0 Total Project Cost 400.0 11,600.0 12,000.0 Financing Plan: Local Foreign Total -u---- sUMmillion)…------ Government 0.4 - 0.4 IDA - 8.0 8.0 Petro Canada International Assistance Corporation - 3.6 3.6 Total Financing 0.4 11.6 12.0 Estimated Disbursements: FY84 FY85 FY86 FY87 ----------(USn million)----------- Annual 1.5 3.5 2.5 0.5 Cumulative 1.5 5.0 7.5 8.0 Staff Appraisal Report: Not prepared. Map: IBRD 17305 iNTERNATIONALDEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATIONOF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSEDDEVELOPMENT CREDIT TO THE REVOLUTIONARYPEOPLE'S REP'JBLIC OF GUINEA FOR A PETROLEUMEXPLORATION PROMOTION PROJECT 1. I submit the following report and recommendationon a proposed DevelopmentCredit to the RevolutionaryPeople's Republic of Guinea for SDR 7.7 million (USS8.0million equivalent)on standard IDA terms to help finance a petroleum explorationpromotion project. Additionalfinancing for the project would be provided by the Petro Canada InternationalAssistance Corporation(PCIAC) in an amount equivaleatto US$3.6 million. PART I - THE ECONOMY 2. An Ecoanomic Memorandum was distributed to the Board in August 1981. A new Memorandum gas discussed with the Government in November, and will be distributed to the Board shortly. This section summmarizes its contents, focusing on changes in Guinea's economic situation and policies in recent years. 3. Despite its mineral and agricultural potential, Guinea saw declining economic performance from Independence in 1958 until about 1973-74. Economic activity, with a stimulus from mining, grew rapidly between 1973-76, but again at a slower pace since then. At present, most of Guinea's 5.5 million inhabi- tants live at the margin of poverty. With a per capita income of about US$300 in 1982, G-ainea belongs among the least developed countries as classified by the United Nations. Life expectancy is only 44 years, infant mortality is about 17 percent, 90 percent of the population has no access to safe water, and 80 percent of the adult population is illiterate. 4. Since 1976, and particularly since 1979, Guinea has been re-examining its development policies, institutions, and relations with the outside world. It has recently announced significant policy reforms. Important first steps have been taken towards improved economic management and decentralization of the economy: excessive money supply was gradually reduced; more explicit performance criteria and greater autonomy of public enterprises are being introduced;sectoral public holding companies have been dismantled,and a reform of the banking sector has been initiated. There is greater acceptance of technical assistance for planning, investment programming, and project preparation, and increased recognition of the need for economic pricing of resources (e.g., interest rates have been doubled and electricity tariffs increased). Private trade has been legalized, state retail trade has been discontinued, and many price controls have been permitted to lapse, thus liberalizing and encouraging the agricultural sector. Private investment, small and medium-scale enterprises, foreign direct investment, and the return of expatriate Guinean capital are being encouraged,and some private enter- prises have been allowed to import and export most goods and to borrow and hold foreign erchange. Enrolments in higher education have been reduced and more students are being directed to vocational training; manpower planning is being introduced,and the guarantee of state employment to school graduates is being reappraised,with a view to curtailingthe increase in public employ- ment. These measures reflect a significantand broadly based attempt to address Guinea's deep-seatedproblems and poor economic performance,and represent fundamentalchanges from past policies. Recent Performance 5. Despite these positive steps taken in recent years, Guinea's economic developmentremains hamDered by structural problems. The economy is stag- nating and the balance of payments faces chronic deficits. Foreign exchange supply cannot satisfy domestic consumption,service external debt, and finance capital and recurrentcosts of existing and new projects. Limited absorptive capacity hampers investment and the inflow of foreign capital. The overvalua- tion of domestic currency perpetuatesdistorted prices and wages and creates an unattractiveenvironment for producersand investors (both domestic and foreign), affecting output and export performance. The main productive sector - agriculture- produces well below potential because of inadequate producer incentives, inputs, eztension services,infrastructure and marketing facili- ties. Guinea's current pace of economic developmentpermits neither an increase in the standard of living of the population nor the generation of domestic savings for self-sustainedgrowth and development. 6. Increased domestic output especiallyfor exports, a stricter control of aggregate demand, as well as quantitativeimport restrictions,allowed Guinea to record a balance of merchandise trade surplus of about US$66 million per year on the average between 1979-81. This resulted in a reduction in the current account deficit to 3.4 percent of GDP from 6-7 percent of GDP in pre- vious years. However, the capital account remains in difficulty because of Guinea's inability t^ attract higher capital inflows while facing important amortizationobligat:ons. Overall balance of payments deficits have thus represented5.5 percent of GDP between 1979-81 (about US$90 million per year), and they have been financed in equal proportion through an accumulationof debt arrears and by a decrease in gross foreign exchange reserves. In mid- 1982 foreign reserves covered only about two weeks of merchandiseimports. 7. Governmert'scurrent revenues (about 33 percent of GDP, largely dependent on mining exrorts). increasedat a rate of 9.6 percent per annum in 1977-81, while at the same time current expendituresadvanced at an annual rate of 12.9 percent, mainly on account of expanding government bills for wages and salaries and of growing interest obligations. At the same time, the state enterprise sector has absorbed heavy subsidies not only on current account but also in the form of capital transfersand indirectly through the intermediationof the state banking system. In total, the parastatal sector received about GS 20 biDIlion(US$1 billion equivalent)of financial support, or 13 percent of GDP anrually over the 1977-81 period. The overall deficit of the Government reached USS3.6 billion ecuivalent (10 percent of GDP) in 1981. In an attempt to curb the growth of current expenditureon