A'v -S3 7c-'> .
Document or
The World Bank
FOR OFFICIAL USE ONLY
MICROFICIIE COPY
Repo  No.8767-BR
Report No.  8T7f7-13R
VIETTI, J./ X39338 / 17165/ LAIIE
STAFF APPRAISAL REPORT
BRAZIL
HYDROCARBON TRANSPORT AND PROCESSING PROJECT
JUNE 6, 1991
Energy and- Industry Operations Division
Country Department I
Latin America and the Caribbean
!,ht doment has a resiced          mad may be uwd by      oesly In the pedonmnce of
&k odAutie  Its c_mft way out edwise be diblosed       Wdd Bak    toIo.



CURRENCY EOgIVmE=
currency Unit a Cruseiro (Cr$)
US$1           a Crz$234 (March 1991)
PETRODUS' FISCAL YEAR
January 1 - December 31
WEIGHTS AND MEASURES
1 Metric Ton (m ton)              -  1,000 Kilogras (kg)
1 Metric Ton (m ton)              -  2,204 Pounds (lb)
1 Meter (m)                       -  3.28 Feet (ft)
1 Kilometer (km)                  -  0.62 Miles (mi)
1 Cubic meter (3)                 -  35.3 Cubic Feet (cu ft)
1 Barrel (Bbl)                    -  Q.159 Cubic Moter
1 Barrel (Bbl)                    =  42 US Gallons
1 Metric Ton of Oil (API 300)     -  7.19 Barrels
1 Kilocalorie (kcal)              =  3.97 British Thermal Units (BTU)
1 Ton of Oil Equiv. (t.o.e.)      -  10 Million kcal (39.7 million BTU)
b/d                               -  Barrels per day
m/d                                -  cubic meter per day
I Cubic Foot of Natural Gas       -  950 BTU
1 Kilowatt-hour                    a 3,411 BTU



FOR OMCIAL USE ONLY
ACO               Automation component
sCM               Billion Cubic w-oer
BNDES             National Bank for Social and Econ0mic Dovelopent
BPD               larels per day
BR                PETROSRS Distribuidora, S.A.-BR
CfP               National Petroleum Council
CO1GMA            Gas Company of Sao Paulo
cvM               Comissao do Valores Mobiliares
DNC               Drtmnt of Combustible Fuels
ELETROERAS        Centrals Bletricas Brasilelras S.A.
E815              Energy Strategy and Issues Study
HDT               Hydrotreatment Plant
ICa               Internatlonal Competitive Bidding
IDC               Interest Dining Construction
LCB               Local Competitive Biddlng
LPG               Liquid Petroleum Gas
LRMC              Long-Run Marginal Cost
IDWT              Millions dead weight tons
mmTU              Million STU
MIC               Ministry of Industry and Commerce
Kos3              Ministry of Economy
1(01              Minlstry of Infrastructure
PASEP             Publlc Employee. Fiancial Reserve Fund
P1SP              Petroleum sector *action Plan
PCU               Project Coordinating Unit
PETROD8A8         Petrolso Braslledro 5.A.
PLANGAS           National Plan on Natural Gas
REDUC             Duque de Caxias Refinery
REPAR             Parana Reflnery
REPLAN            Planalto Refinery
RELAX             Landulpho Alves Mataripe Refinery
REVAP             Vale do Paraiba Refinery
RIMA              Environmental Impact Study
RPBC              PresLdente Bernardes Refinery at Cubatao
SCADA             Supervisory Control and Data Acqulsition
SEST              Secretariat of State Enterprises
SNE               National Secretariat of Snergy
TEMADRE           Termiual Madre de Deus
TOE               Tons of t11 Equivalent
This document has a restricted distribution and may be used by recipients only in th pforfanne
of ther official duties. Its contents may not otherwbe be dbclosed without World Dank authorization.



(I)   TME 8am=     sE
3. UnergyResources      ..     ..   ....     .......                 1
C. Energ  Deand and Supply   . . . . . . . .  . . . . . . . .        1
D. * nerg  sector Investments  . . . . . . . . . *                   2
a . Energ Pricing ...   ... . . . . . . . . . . .        . . . .    2
r. snerg  Conservation.  ..... . . . . . . . . . . .         . .    4
0. Envirnna and Social Aspects   . . . . . . . . . . . . .    5
H. Institutioawl Structure  ........0  0*    *0     a........
I * The Refinery Subsector   . . . . . . . . . . . . * * * . . . 
J. Hdocarbon Transport System   . . . . . . . . . . . . . . .    6
R. The NaturalGa"subsector   0e0*00 ..........  .......             7
L. Goveresnt Policy in the Energy Sector   . . . . . . . . . .    S
M. The Bank's Role, and Strategy   *                                         
(II)  TUB RROUING AGCY - PETRoDUAS
A. Co ratectivit . ... ................... ..                        1
S. Onership,K      g ---ntand 0rganLsation  ............ .          12
C.Costing,AccountLng andAudt .  .  .  .. ....................    13
V* Financal Performance  .  . .. *. * . * .. o. .    * o* * * 9 9   14
z. Developmet Scenarios Performance Projections   . . . . . .   17
This report i. based upon the findings of project preparation and appraisal
missions that visited urail in September and December 1989 and August 199.
The  issioons comprise  Messrs./go. Dates (PrinciPal Economist), Darata (Sr.
Industrial Pollution Specialist), Dick (Sr. Transport Economist),
Irsnmuty(Sr. Industrial Specialist), M.IhLI (Unit Chio),  RistorcelLi,
Xuniga (Consultants), Sheehan (FILnancial Analyst) and Markus (Sr. Financial
Analyst) - Task manager (until December 1990)t aSobotka (Research Assistant).
softly and Peres (Omns8ltants), assistod in the project prspa.ation. Messrs.
Vitti (Str. FiLancLial Analyst), Task Manager (since AprLi 1991), and Waldrop
(Financial Analyst) also partLclpated ln the report.



a*              . .iS8 . . . . ........                                   . . .  19
S. TraCsport Codponent  . . . . . . . . . . . . . . . . . . . .   19
(3) Implementation   . . . . . . . . . . . . . . . . . . . .   21
(4) Procurement  . . . . . . . . . . . . . . . . . . . . . .   21
(5) Technical and Financial Justification  . . . . . . . . .   22
C. Procseing CoMPonent  .* 0 0 * * ..........................    23
(1) Description  . . . . . . . . . . . . . . . . . . . . . .   23
(2) cost and linancing   . ........................   25
(3) implementation   . . . . . . . . . . . . . . . . . . . .   25
(4) Procure_mt  . . . . . . . . . . . . .. ... ..     .. .. ...  26
(5) Technical and Financial Justification  . . . . . . . . .   26
D. safety and Ecology   * . . .*. .* . ... . e* . . . . . . . .     27
S. Disbursements  . . . . . . . . . . . . .  . . . . . . . . . .   28
F. Monitoring, Coordination, and Reporting Requirements   . . .   29
G. gconmic Evaluation  .............* ....v                         29
B. Project Risks .. . . . . . . . . . . . . . . . . . . . . . .   30
I. Project Files  . . . . . . . . . . . . . . .  . . . . . . . .    31
(IV) LaGFN  REAMED AND RQMME ION . . . . . . .   . . . . .   32
1.01     Gross Domestic Production and Consumption
of Primary Energy  . . . . . . . . . . . . . . . . . . . . .   34
1.02     Hydrocarbon Taxation ..........          ..... .   ...  .  .  .  .  .  .  .  .   .    36
1.03      nerrgy Conservation  ..       . ... .......                    37
1.04     Petroleum Transport            . ..........         ....        39
2.01     PBTRO8 OOrggnixatLon Chart                 .......  .. . .   42
2.02     Costing System - Timtable for Upgrading . . . . . . . . . .   44
2.03     PTRBRAs Financial Statments, Historic and Projected . . .   45
2.04     Notes and Assumptions for PETROBMS Financial Projections  .   48
2.05     Petroleum Sector Action Plan (PASP)  ........... .   52
3.01     Detailed Project Description   ...;    ....  .....               53
3.02     Transport Planning - Draft Term  of Rferene.                     60
3.03     Detaled Project Cost tctCst.u. ates....                          62
3.04     Procurment Arr nts . . . . . . . .*....G.s. . . .  .    68
3.05     Project Implementation organigram  . . . . . . . . . . .         71
3.06     lmplementation Timetable   ............  *..                     72
3.07     Industrial safety Draft Toms of Reference   . . . . . .          74
- Risk Asseesment     S      ..............a .                74
- Risk Aessment Training   ...............                    76
-Risk Assessment Cubatao    ***...**    .**.**.               78
- NIobilo  nvironental Monitoring  . ..........  .            81
-odor Evaluation  . . . . . . . . . . . . . . . . . . . .   83
-ZnvironmntalanagentTcaining  ... . . .              .....    86



- iii. -
3.08    Loan Dibur mntSchedulu e.......... .......                     90
3.09    Disburseamnt CatogoiJes  . . . . . . . . . . . . . . . . . .   91
3.10    RApOrting sqlrueMsntg   . . . . . . . . . .,                   92
3.11    Project ZconomioEvaluation  . . . . . .                   .    96
3.12    Documnts and Data Available in the Project Files  . . . . .  110
muE
lIBD no. 21867



- iv -
MXRBQ LOAM ZOhID   AND~3C  nWiG n
AM  AUM            REPORT
Borrowers               Petrolso DrAsileiro S.A. (PITROMS)
SUWrsa=                 Federative Republic of Brazil
smgms                 US$260.0 million  quivalent
Tornos            Fifteen years, including a five year grace period, at
the Bank's stanoard variable interest rate.
AMU cAMr                PETROMRA
Irosect Obiect$t*
and D-scrltlo,ns      The main objectives are to: (A) enhance natural gas
utilization as a substitute for other sources of
energy with higher economic and environmental costa;
(ii) reduce the distribution costs of petroleum
products by substituting pipelines for road and water
transport; (iii) reduce petroleum product losses
through processing optimization; and (iv) reduce
environmental costs and safety risks in petroleum
product transport and refining.
In supporting these aias, the project would include a
Transport Ctgonent consisting oft (i) a pipelLne and
related facilities to deliver natural gas to Sao
Paulo; (ii) three pipelines (with tank and pump
stations) to deliver liquid products more economically
to distribution centersl (iii) engineering design;
environmental impact studLes; and training in pipelLne
operations and transportation planning.
UtgMuJngu Commonnt consistlng of: (i) a
Hydrotreatment Plant at the Cubatao refinery to
increase productivity, upgrade the quality of
petroleum products, and reduce product losses; (ii)
automation studies focusing on optimization of proces
and centralLsed control for loading, storage and
offsite facilities and, on the basis of these studies,
an action program in three refineris; (LiiL) an
industrial safety and envlronmental program includings
(a) development of norms for risk assessmnt,
hazardous waste handlLng and relevant training; (b)
co-prehensive rlsk evaluation at the Cubatao reftnery;



(a) acquLiftion of aLr qualLty monLtorLng moble
laboratorieas and (d) traLLng to help
LnstitutLonalLg safoty and envlronmental awrnness.
Prelect Benefits:       The quantfiable benefts are oxpected to genorate an
econcmic rate of "turn (3RR) of about 21% for tho
trawport component, and 23% for tho hydrotrteatment
plant. The project will also produce conider able
safety and environmental benefits such as lower levels
of air and water contaminatlon, and improved oafety
standardo and publlc health.
Proiect RLskes          Ther" aro no serious technical or gas reservo rLsks
assocLated wlth the project. The prLmary rLsk
regarding the hydrotreatment plant ia related to
Laternational petroleum prLeeg however, sensLtivity
an4lyses conflrm the robustness of the component.



- vL -
HYDROcARB   TRANSPOJI? AIM PROCSS IO PJELMO
ZROJEC COSTS MN  FINANING PA
(US$ million 1)
Local        EQreLUE         =Al
A. :stfimated COsts
(1) ZranDga  G2ompnt
Materials                                28.2          31.5           59.7
Works                                    26.7         101.6          128.3
Equipment                                19.4           5.0           24.4
Engineering Design                       14.1           -             14.1
TrainLng and Planning                     -             1.0            1.0
Land and Easements                        1.2           -              1.2
Total Base Cost                   89.6          139.1         228.7
Working Capital                           5.0           5.0           10.0
Physical Contingencies                   16.1          12.0          28.1
Price Contingencies                      22.6 L18.2                   40.
Sub Total                         133.3         174.3         307.6
Interest During Construction              -            27.1           27.1
Taxes and Duties                         27.4           -             27.4
Financing Requirement                   160.7         2Q1.4         5§.
(2) PMc9ssJOgq Cmpnent
(a) Hvdrotreatment Plant
iLcense and Engineering                   6.5           1.6            8.1
Equipment, Materials,                    12.0          65.4           77.4
Spares, Catalyst & Chemicals
Works                                    48.2           -             48.2
Dlgital Control                           0.4           1.0            1.4
Project Management                       14.9           -             14.9
Start-up                                  2.9           -             2.9
Industrial/Safety Program                 0.2           2.8           3.0
TrainLng                                  0.6           -             0.6
Total Base Cost                   85.7           70.8         156.5
Physical Contingencies                  14.0           a.2          23.2
Price contingencies                     21.5 .14.2                  35.7
Sub Total                        121.2           94.2         21S.4
Interest During Construction             -            14.0          14.0
Taxes and Duties                        .2            -  18.2
Financing Requirement                  139.4         10.2         242L6



-vii -
(b) AUUM.RD zam
Diagnostic study                         0.5           0.9            1.4
Basic Zkginearing & Design               0.6           1.S            2.3
Instrumentation                          0.6           2.3            2.9
Training                                 0.4           0.1            0.5
installation, Commissioning              0.6           1.0            1.6
Total Base Cost                     2.9           S.8           8.7
Physical Contingencies                   0.2           0.4            0.6
Price Contingencies                      0A4           0 5            0A
Sub Total                           3.5           6.7          10.2
Interest During Construction             -             1.0            1.0
Taxes and Duties                        LZ             - -.a
Financing Requiremsnts
B.   Total Proiect
Base Cost                              178.2         215.7         393.9
Physical Contingencies                  30.3          21.6           51.9
Price Contingencies                     44.5          32.9           77.4
Working Capital                         ,5.Q          -.O            1.
Sub Total                        258.0          275.2         533.2
Interest During Construction             -            42.1          42.1
Taxes and Duties                        47.8           -            42.
Total Financing Requirments            AQLEI         "3L..J
Financina Plan
PETROBRAS                              227.0         136.1         363.1
IBRD                                    78.8         111.2         260.0
TOTAL                            3QL0            "l8          623.1
1J.   Prices as of March 1991.
stimated Disburementt                          Bank Fiscal Year
1992      1993       1924       1 99S
Annual                                99.4     127.9       29.7         3.0
Cumulative                            99.4     227.3      257.0      260.0



- vUJ. -
Rate -of at&=
?raniport componet         about 21%
Hydroatetnt Plant          bout 23%



sYDSC<NUIMlFK    AND* TEB33  SEnOfOR
A. lItrodction
1.01        The Bank strategy in the energy sector in Brazil is to support the
Governmnt in moving towards economically off icient energy pricing, Lnvestment
and operational pollcy, taking into account envlronmental, fiscal, financial, and
incou-distribution cons ideratlons. Specific oloment in this general strategy
ares  (a) bringing eergy priceo closer to economic costs  (b) basing the energy
investment progrm on a realistic demand foreast and the least-cost method of
supplying the deand; (c) strengthening energy sector instiutione and improving
coordination among them toward the of fect've execution of an inte"rated national
energy policy; (4) wider use of market-based iraentives; and (e) increasing
participation of the private sector. To implemont this strategy, key policy
issues hould be addressed at the level of the energy sector as a whole within
a long-term perspective.
1.02        The Hydrocarbon Transport and Processing Project would extend the
direct relationship of the Bank in the energy sector to Petrolec BrasileiYo S.A.
(PUTROERAS) and address a number of high priority issues such as efficient inter-
fuel substitution, supply based on programs of lowest investment and operating
costs, the environment, and energy pricing. These and other sectoral issues are
also being dealt with by the Bank through other ongoing and future lending
operations and through energy sector work, notably, the Energy Strategy and
lssues Study (3815, discussed with the Brazilian authorities in March 1991 and
scheduled to be issued in September 1991). Also, the Brazilian authorities
established by presidential decree in September 1990 a Comaission to Reexamine
the Energy Matrix to identify the implications of alternative policies on the
long term supply of and demand for different final energy sources. Work on the
Energy Matrix is now being completed, taking into account the result of the ES8S.
The Energy Matrix, in conjunction with 3818, will provide the basis for the
continuing dialogue of the Bank with the Brazilian authorities on the full rarge
of energy issues.
3. NW*= Rosourc-s
1.03        Brazil is relatively well endowed with energy resources, both
renewable and non-renewable.   According to the National Energy Balance, as
prepared by the National Secretariat of Energy - SNE, now part of the Ministry
of Infrastructure - MOI), the proven energy resources in 1989 included, in
million tons of oil equivalent (too): petroleum - 379; natural gas - 106; coal -
3,8821 and hydroelectric power - 271 per year.  There are also substantial
deposits of shale oil and gas, uranium and peat, but their economic potential is
far lses. Moreover, sugar cane is used to produce alcohol for mixing with or
substituting for gasoline, and bagasse produced by the sugar industry could
supply electricity. The Bank is supporting the study of this latter option
through its electric power lending.
C. lam            Ma  suoniw
1.04        Prlmary energy consumption increased by 4.5% p.a. from 1971 to 1990.
Currently, petroleum accounts for 33% of total energy consumption,



-2-
hyDreleotriotty foe 33%, firewood 15%, alcohol fro  sugar can 10%, coal 5% and
ga 2t. Prgimay ewrgy productioLn  _xpandd mor rapidly, at S% p.-., lndicatLig
a slight decline in Dranil a relative dependene on imported  norgy.  The
perentage of total enr" demad that Bruail ha to import inreased fro 24%
ia 1971 to 37% in 1979, declined to 16% ia 1985, an the rose to 18% in 1990.
Data on primary enegy production and consumption in BraiL for 1971-1990 are i
AusAx 1.01.
1.05       Te incease in pry energy production durLng the period was
provided mainly by hydr        and, to a lesew extent, coal and sugar can.
Between 1980 and 1990, the contribution of petroleu  and ugar cane increased
signfLiantly, although hydropower continud to _met a substantial part of the
growth in ergy demand.
1.06       Petroleum Impot re ted  68% of petroleum consumption in 1971.
After r eahlng a peak of 85% Ln 1979, the degre of dependence on imported
petroleum had fallen to 46% by 1990. Zn abwolute term., petroleum imports wer
360,000 barrels pr day (bpd) ln 1971, reached a peak of nearly 1 mllion bpd in
1979 and fell to 571,000 bpd ln 1990. Dependence on the Mlddle Nsat for
petroleum imports fell sllghtly from over 90% in 1979 to 87% in 1990.
3.  8sersector inetmasts
1.07       Durlng most of the 1986s, 15-20% of the country's total fixed
investments were made by the energy sector, mainly by PUTIODNAS and the group of
powr utilities assocated with Centrais Bletricas Brasileiras S.A. (   )N3TODRAg).
o          LaS ia   nmn ned holdLig company whLoh coordLnates a number of
seator functlons, including planning for generatlon and transmission expansiLon.
At the pek, in 1981-83, following the second oil prLoe shock of 1979, the sector
was absorbLag  20% of all investment in Brazil and over 4% of GDP.  Unergy
investments declined thereafter, as demand growth and resourc availability fell.
Witln the enegy  sector, electricity ha  traditLonally absorbed doublo the
inemet of petroleum. Amnual investmets bs PUMU0RAS have been US$1.9-2.3
billion dring the past three years, well below the levels of the early 1980.
(US$3-4 bllion). The bulk of thli investment went to crude oll and natural gas
exploration and production. In addition to financing all of th            nts
from its own resources or from borrowLng on its own account, PUTRODNA made
annual not transfers to the Government (para. 2.16). Total annual investmnt ln
the electric power subeetor averaged about US$4-6 billion for most of 1977-1959.
After 1960 the financial situation in electrlcity det-riorated rapidly, and by
1967 the Government had become the major ource of financing.  The amounts
contributed by the public sector (Pederal, State and local governments) increased
from u8$400 million on avrage in 1977-1982, to US$2 billLon in 1983-1985, UsSs
bllion in 1986 and VS$6 bllion ln 1987, before declLning as total investment
fell to below $4 bllion in 1989-90. Still, the energy sector is lkely to
contlnu  to account for a signlflcant part of Brazils public investmant,
probably *ome US$-10 billion annually, as the economy end energy demand grow.
s. 
1.3s       As a general prLncLple, enry prLces should reflect their scarcity
values or opportualty costs. For non-tradeabe sources of energy, thLs value is
the long-run arginal cost (LiMO) of supply, including geographical differences.



- 3 -
This prineiple may be teipoed to omt the basic needs of low-income households.
In theory, it may also ned to be adjusted to meet sector financial and cout-
recovery objectLvesg however, in practice, LRMC pricing in Brazil would also
serve these objectives very well. gfficient pricing would encourage efficient
inter-fuel substltutlon (which would reduce the cost of energy consumed), optimal
location of energy intensive activities, and energy conservation, strengthen
public sector management, and reduce public investment, external debt, the public
sector deficit, and, in the medium and long term, inflation.
1.09        In the electric power subsector, with Bank support (e.g., Loan No.
1300-BR, Northeast Power DLitribution) Brazil has made considerable progress in
formulating an LRMC-based tariff structure, while providing a minimum level of
consumption at a tariff which is affordable to lower-income consumers. However,
since 1980 the average electricity tariff level has generally been too low, which
has discouraged energy conservation, over-stimulated demand and investment, and
damaged the financial position of sector enterprises, which in turn eliminated
the potential for self-financing.  Also, except for small difforences due to
state and local taxes in the retail prices, the tariff has been nationally
uniform which has caused excessive consumption in high-cost areas and deprived
regions of the incentive to use local energy-supply options.
1.10        In the hydrocarbons subector, Brazil has adjusted the level of
prices for petroleum products, even during periods of high inflatlon, and
generally kept the average domestic price of a composite barrel of oil products
above the economic cost or border parity equivalent (adjusting for transport
costs to the final consumer). However, this price level was achieved mainly by
a high gasoline price, which cross-subsidized naphtha, kerosene and liquid
petroleum gas (LPG), relative to their economic costs. While diesel was priced
close to its economic cost, it was under-priced relative to gasoline, which has
caused sae undesirable inter-fuel substitution. LPG was subsidized primarily
to assist low-income families; however, the low price may also have encouraged
its (clandestine) substitution for gasoline as a vehicle fuel. Finally, the
price of alcohol as an automotive fuel, is maintained artificially below that of
gasoline, although its economic cost is higher.
1.11        Like electricity tariffs, petroleum product prices were subject to
a system of uniform, national retail prices. While ex-refinery prices are still
nationally uniform, steps are now being formulated towards partial deregulation
of retail prices, with price competition emerging in the distribution and
transport of petroleum products. Also, as with electricity, the states and
municipalities are now establishing different rates of tax (Annex 1.02). The
adverse impact of uniform ex-refinery prices on PETR0BRAS finances is mirimal;
however, from an economic view point, the subsidies are more troublesome, because
they, as in electricity, distort patterns of development away from activities
which would exploit regional comparative advantage, and discourage energy
conservation where costs are high.  Finally, the tax element in petroleum
products prices is low by world standards, around 20% of the average retail
price.
1.12        Two sets of Federal legislation regulate the determination of
domestic retail prices of petroleum products, and thus have had an impact on the
financial performance of *ZTRODMS. The first (Resolutions 002 and 004 of the
NatLonal Petroleum Council - CUP) establishes general guidellnes for pricing,



- 4 -
includlng the principle that prices should reflect the cost of imports, and that
regular adjustments for inflation should be made, consistent with the
Government's exchange rate policy.  The second set (Federal Decree 61 and Law
7453) assures that prices would provide minium rates of return on investment
from each of PETROBRAS' major activities. The legislatLon was applied with
reasonable consistency by CNP in the past, and thus was partially responsible for
PETROBRAS' strong historic financial performance. There were major lags ln 1987-
1988 but the situation has improved slgnificantly sLnce then, due to regular
retail price adjustments which have mitigated the effect of inflation on
revenues. The Department of Combustible Fuels (DNC) established in 1990 within
the 8NE took over the regulatory mandate of CWP and, in line with the new
Government policy, began to liberalize retail prices (para. 1.11).
1.13        In the past, natural gas pricing was geared mainly to encourage lts
use ln petrochemlcals and fertllizer production. Natural gas prices were not to
exceed those of naphtha, which was subsidized (para. 1.10). This situation is
changing and progress is being made in the reform of natural gas retail pricing
policy, under the Bank-assisted Sao Paulo Natural Gas Distribution Project (Loan
No. 3043-BR), by developing and gradually introducing ln Sao Paulo, a gas tariff
structure reflecting economic costs. The 1988 Constitution established that the
states will be responsible for the retail gas prices charged by local
distribution companies.   The Federal Government fixes wholesale or transfer
prices from PETROBRAS to the distributing companies at the city gates, and it has
confLrmed its intention to pursue economlc principles, by using the cost of
substitutes as a reference. Since the Government also fixes the prices of the
major competing fuels for natural gas (notably fuel oil and LPG), lt has an
indirect influence on natural gas prices at the consumer level.
P.  Enlrav CoPservation
1.14        As energy costs and consumption increase, and envlronmental concerns
become more acute, energy conservation, especially in industry and transport, has
become a priorlty (Annex 1.03). Various indices of energy intensity show an
upward trend relative to the unit value of output, and speciflc electrieLty
consumption has risen in a wide cross-section of Brazillan industries slnce 1980.
The potential for conserving electricity in industries, and diesel, gasoline and
alcohol in transport, is bigh. In addition, the use of natural gas might be
feasible in urban areas, as a substitute for diesel and gasoline in buses and
taxis.
1. 15       Experience from a variety of countries shows that the level and
structure of energy prices is the critical element in any effective demand
management and conservation strategy. Brazil has pursued a variety of other
approaches including technical methods, legislation, education and promotion.
in 1981, the Ministry of Industry & Commerce (MIC) launched an ambitious program
(cONszRVE) promoting the rationalization of energy use in industry, although lt
wae principally a program to substitute petroleum products with electricity
rather than a broad program of energy conservation.   More recently, the
Government launched a National Program of Electric Energy Conservation (PROCEL),
elements of which the Bank is supporting through its electric power lending
program. Other conservation programs weres the Program for Economizing Fuels
(P500); the Voluntary Program to Economize Diesel and Lubrlcants (PRODEL)  and
the Program to Rationalize Energy (PROEN).  Given the importance of energy



- s -
conservation and the plethora of programs, an umbrella National Program for the
Rationalization of Snergy (PRONRE) has been established under the coordination
of the Secretary of Science and Technology in the Presidency to bring about some
degree of consistency and integration between existing programs and to establish
priorities in energy conservation. A concern is that all of these non-price
approaches carry a clear risk that they may not be cost-effective and may
introduce additional market distortions beyond the ones they are designed to
address. As a prerequisite for any effective energy conservation policy, the
Federal Government should create a policy framework in which energy prices can
secure a more efficient allocation of resources.
0. Enviromasntal and Social Asectas
1.16        The  electric  power  sector  faces  important  environmental and
resettlement issues in the construction of hydroelectric generation schemes.
Major improvements have been achieved under the Power Sector Loan (2720-BR) in
the capability of the sector to address such issues, and proposals for Amazonian
hydro development  have been postponed,  scaled down or dropped.    Other
environmental and social issues facing the energy sector are: (a) the depletion
of forests, due to land clearing and increasing charcoal production for the iron
and steel industry in the state of Minas Gerais; (b) air and water pollution
caused by the consumption of high-sulphur industrial fuels; (c) air pollution
related to the operation of coal-fired power plants; and (d) environmental and
safety aspects of nuclear power plants. The environmental issues relating to the
power sector are being monitored by the Bank through the implementation of the
Environmental Master  Plan  agreed  under Loan  2720-BR.   Other  non-power
environmental and social issues are being addressed by the 'overnment with Bank
assistance through the National Environmental Loan (3173-BR) and other
operations. PETROBRAS has a strong environmental orientation and capacity (para.
2.09).
R. 1nEaitI&ti2nA Ltr3gk3e
1.17        Energy planning, decision-making and policy implementation in Brazil
have been characterized by a lack of coordination and clearly-defined goals.
ELETROBRAS and PETRROAMS, which are powerful public enterprises under the
jurisdiction of MOI, are major players in the energy sector. At the same time,
there are numerous privately-owned companies or individual entrepreneurs in
subsectors such as fuelwood, coal and alcohol, which are subject to different or
no central control. Three parts of the Government -- the Ministry of Economy
(MOE), Mol and the Secretariat for Regional Development -- for example, have
responsibilities for alcohol. Although the Federal Government, through the MOE,
in principle continues to approve the investment programs of ELETROBRAS and
PETROBRAS, and ensures their consistency with the overall level of public sector
spending, its efforts have at times been handicapped by a shortage of staff with
detailed sectoral knowledge. In addition, the Government has at times been
swayed by short-term annual budgetary and inflationary considerations, rather
than long-term objectives, and by its decisions impact on the finances of
PETROBRAS and ELECTROBRAS.
1.18        The situation with regard to energy pricing is illustrative.  In the
case of ELETROBRAS, PETROBRAS and the alcohol producers, different policies (and
practices) are pursued in establishing output prices.  The retail prices of



natural gas are established in yet a different way, according to differoit
criteria, by the lndividual states.  Further distortions are introduced by
additional controls on retail energy prices as part of the Government's anti-
inflationary policies, whlch are typically in conflict with pricing principles
based upon economic cost.
I   M es Refiner,  ubsector
1.19        Brazilian output of refined petroleum products has grown steadily
over recent years by about 2.1% p.a. output was close to 69 million m3 of
products in 1990; 98% produced by PETROBRAS and 2% by privately-owned refineries.
Diesel oil accounted for 33% of output; gasoline, 16%; and fuel oil, 17%. The
share of domestic crude as a feedstock increased from 17% of consumption in 1980
to 54% in 1990.
1.20        PESTOBRAS bases declsions regarding the mix of domestic crude
production and imports, the growth of refinery capacity and the mix of petroleum
products on a production model in which relative prices are a major determinant.
The model predicts: (i) a need to increase refinery capacity by 1.7% p.a. to
1997; (ii) the product balance to shift, with diesel increasing to 38% by 1997,
fuel oil recovering to 23% and gasoline declining to 13%; and (iii) increased
self-sufficieney in crude oil, rising to over 70% (paras. 2.21-2.23). However,
the predictions and conclusions of the model are highly sensitive to future
Government energy policy, primarily with respect to the alcohol program and
pricing and investment in the hydrocarbon sector.
J. NR4x rboa Mrh        & oortystem
1.21        The transport system of Frazil is extensive, with about 1.5 million
km of roads (of which about 10% are paved), 29,000 km of railways, 35 important
deep-water ports with numerous specialized oulk-facility terminals, 40,000 km of
navigable rivers and many airports and airstrips. The transport sector accounts
for about one-quarter of the total energy and almost one-half of the oil products
consumed in Brazil, so that the potential for conservation of petroleum and
alcohol producto is important (Annex 1.04).
1.22       Within the transport system, the movement of fuels is substantial and
expanding. PETROBRAS operates its own pipeline system which is growing in
importance. The onshore and offshore product pipeline system has increased from
503 km in 1970 to over 4500 km in 1990. Additionally, natural gas pipelines in
1990 extended nearly 4000 kms, all installed since 1980.1 The movement of
petroleum products and alcohol from the rofineries to the retail outlets is
estimated to cost over US$l billion. In terms of ton/km, about 54% is carried
by coastal shipping, 3% by river transport, 20% by railways, 16% by road and 7%
by pipelines. PETROBRAS meets most of its own coastal shipping and part of its
international shipping requirements, the rest being provided, as market
conditions dictate, 4y various fow X of charter service. The floet, 72 tankers,
has grown from 1.3 millions dead weight tons (mdwt) to 5.3 mdwt between 1973 and
I     live systems scattered along the Atlantic coast: three in the Northeast
and one each ln the states of Rio de Janeiro and Sao Paulo.



- 7 -
1990. Thli fleet provided 68% of the company's domstic coastal transport and
about 4S% of lts international haulage in ton/km. Ths preoent strategy is to
continu  to Lacreoa  Brazilian carriage of international movements but reduce
road nd short-haul coastal shippLng in favor of more economLc pipeline
movements. Nine marine transportation terminals provide on- and off-loadLng
faclIltles and total storage capacity of about 60 million barrels. Platforms,
terminals, refineries and other facilities are lLnked through a network of on-
and off-shore plpelines. POTROBRAS does not operate trucklng or rail services.
PSTIOIRAO carrLes oat tra_port planning which focuses on optmum cost solutions
from the company point of view. Transport planning needs greater sophistication,
in particular to evaluate and compare the relative merits of the use of different
transport modes in the light of future conomie activitLes. The proposed project
would address this issue (para. 3.02 (f)) with consultancy assistance.
K. 2he Natural axs uubsector
1623        Proved Brazilian natural gas reserves Lacreased from 52 4 8CM ln 1980
to 115 BCH in 1990.2 Half of the reserves are located offshore and about 60%
are associated with oil production. The development of associated gas reserves
has followed that of crude oil.   The development of the higher-cost non-
associated gas reserves has lagged behind. In 1986, the reserve-to-production
ratio for non-associated gas was 44 years compared to 12 years for associated
gas. out of a total natural gas supply of 6.3 DCX in 1990, only about 1.2 DCI
(19%) was contributed by non-associated gon.
1624        Private sector participation in the hydrocarbon sector has focused
on olI exploration (para. 2.04). However, recently a major non-associated gas
field was dLscovered by Shell-Pecten in the Santos basin. Reserves are estlmated
at 12  CX. Accordlng to lts contract wlth POTROBIAS, Shell will spend in excees
of US$200 million on field development offshore and on transport facilitles, and
will begln commercial delivery of gas and liquid condensates ln September 1992.
1.25       Gross prLmary production of natural gas amounted to 17.2 mil$lon
u3/day in 1990. Much of this production was either flared (19%), reinjected in
oil fields to maintain pressure (17%) or used by PETRODBRAS dlrectly in lts field
operatlons (20%), resulting in a net supply to users of about 7 6 million mo/day.
The natural gas availablilty from domestlc sources by the year 2000 is estimated
to more than double, but thli is small compared to potential demand of up to 100
million mi/day, the level depending primarily on the pricing policy adopted for
natural gas and its competltors.
1.26        The current consumptlon of natural gas by non-PETROBRAS consumers is
limited primarily by the lack of adequate transmission and distribution
infrastructure. Natural gae consumption in 1990 was equlvalent to only about
2.3% of final energy consumption. Natural gas was used primarily: (a) to replace
fuel oll in industrial and commercial uses (63%)l (b) Ln steel making (5%); (c)
as a feedstock for the petrochemlcal (9%) and fertliLzer (16%) lndustrLes; and
(d) in residential uses, after converslon from town gas (7%). About 61% of the
usage was in northeastern Brasll, 31% in Rio de JaneLro and 8% ln Sao Paulo.
2     gxcluding reserves in deep offshore water beyond a depth of 400 meters or
ln the Amazon jungle.



- 8 -
Until recently, there was no consumption of natural gas in Sao Paulo, which is
the largest potential market in Brazil. Only manufactured gas was distributed,
derived from naphtha and refinery gases. However, the Gas Company of Sao Paulo,
COOGAS (assisted by Loan No. 3043-BR) received from PETROBRAS 0.6 million m3/day
of natural gas in 1990, which will rise to 3 million 3/day in 1992. Long-term
plans are to completely replace manufactured gas in Sao Paulo.   In Rio de
Janeiro, the second largest potential market, about 1.1 million m3/day of natural
gas is distributed by the State Gas Company (CEG).
L. Government Policy In te- 3nerlZ Sectog
1.27        The sharp increases in international oil prices in the 19705 had a
serious impact on the economy, especially on its balance of payments position,
and profoundly affected Government energy policy.   Brazilian dependence on
imported petroleum had increased since 1970, reaching a peak of 85% of total
petroleum needs in 1979 and making Brazil the largest net petroleum importer
among the developing countries.   Therefore, a national energy strategy was
articulated, with three basic aims: (i) to improve energy conservation and to
reduce the use of petroleum products through inter-fuel substitution; (Li) to
increase the production and the proven reserves of domestic crude oil and natural
gas; and (iii) to maximize the development of other domestic energy resources.
In terms of supply, greater emphasis was placed on investments in petroleum
exploration, production and refining; hydroelectric and nuclear power plants; and
alcohol production. Some studies were conducted on alternative energy sources,
e.g., vegetable oil to replace diesel, but with no practical results * ore
recently, natural gas production and use have been expanded. On the demand side,
the price of alcohol has been set below the price of gasoline to encourage its
substitution (para. 1.10); a relatively low diesel price has been set to
stimulate the diesel fleet, agaLn ln substitution for gasoline; wood and coal
burning were promoted, in ceramLes and cement respectlvely, to substltute for
fuel oLl; and tariff lncentives were provLded for the consumption of
hydroelectric power at a time when it was in excess supply, again to reduce fuel
oil use.
1.28        These programs and policies succeeded in reducing Brazil I s dependence
on imported petroleum from 85% in 1979 to 46% in 1990. However, the resources
needed to increase the domestic energy supply required a major increase in public
expenditures, which contrlbuted signlficantly to the country's foreign debt,
fiscal deficit and inflation. The cost of the alcohol program, whlcb was to
support self-sufficlency, has been partlcularly high, sinee the economic cost of
production exceeded the opportunity value of alcohol (measured by the import cost
of gasoline). The annual subsidy to alcohol is estimated on this basLis to be on
the order of US$1.7 billion.
K. q!-e Bank's Role and Strateaw
1.29        The Bank strategy ln Brazil has been to support policies and
investments that encourage economic growth and soclal development ln the context
of macroeconomlc stability. The emphaeis li on efficient natural resource use
and allocation, improved publlc sector management and the appropriate targetLng
and dellvery of support to the poor. The energy sector is a key element in this
strategyt a secure and effLeLent supply of energy i indispensable to economic
growth. Because capital intensity and hlgh foreign exchange requirements



- 9 -
characterize the sector, rational investment and pricing policies are being
promoted by the Bank to lead to a more efficient development and use of energy
resources.
1.30        The Bank strategy for the energy sector is being elaborated through
its sector work (the ESIS - para. 1.02) and through various lending operations.
The ESIS gave particular attention to the lin:s between the energy sector and the
macroeconomy. These linkages demonstrate that some of the key policy issues can
only be addressed at the level of the energy sector as a whole and they require
a far-sighted approach, extending beyond the scope of any single Bank operation.
1.31        The Bank has had a long involvement in the Brazilian electric power
subsector, with total lending of some US$4 billion since 1949. However, due to
issues concerning nuclear power and electricity pricing, no loans were made in
the period 1987-1989. Furthermore, the Electricity Transmission and Conservation
Loan (3227-BR), approved on June 14, 1990, has not yet been signed because of
lack of progress towards meeting the average tariff level which is a condition
of effectiveness.
1.32        There has been only one lending operation in hydrocarbons, the Sao
Paulo Natural Gas Distribution Project for US$94 million in 1988 (Loan No. 3043-
BR). some hydrocarbons sector work was also carried out, including the Oil and
Gas Sector Review of 1983 (Report No. 4816-BR) and the Public Sector Investment
Review of 1985 (Report No. 6600-BR). The Sao Paulo project permitted the Bank
to establish a significant starting role in the developnent of natural gas,
principally at the retail level, and to broaden its involvement in issues related
to general energy sector policy, planning and implementation. However, for
further progress with the policy dialogue a direct relationship with PETROBRAS,
the key player in the hydrocarbon subsector, is essential; and the proposed loan
would accomplish this objective.
1.33        Through continued involvement in the gas subsector, the Bank would
help the Government and PETROBRAS develop an overall strategy to: (a) stimulate
the economic utilization of natural gas resources; and (b) clarify natural gas
utilization priorities. Bank involvement with the hydrocarbons subsector is also
important to support environmental and energy conservation activities (as well
as programs of lowest investment and operating cost), which would otherwise be
constrained. Investments of this type are typically the first to be deferred in
any energy company, where production ie given greater emphasis when there are
resource constraints.
1.34        Finally, the proposed project would permit continued progress in
natural gas and petroleum product pricing policy. Under Loan 3043-BR, the state
of Sao Paulo has accepted that the retail prices of natural gas should be based
on principles reflecting the economic cost of gas; and the Government has already
confirmed its intention to pursue a wholesale pricing policy for natural gas
based on economic cost, subject to macroeconomic, social and financial
considerations. The Gas Utilization Study being implemented under Loan 3043-BR
will anwlyze the level and structure of economic costs and propose a rational
retail gas tariff structure. An analogous exercise is required for wholesale gas
pricing, and PITROBRAS has taken the first critical step by developing profit
centers and upgrading its costing system (paras. 2.11 to 2.13). The system will
provide essential information, now lacking, on the financial and economic cost



- 10 -
of bulk supply; ascertain the transfer prices which are necessary to provide the
incentLve to conserve gas reserves and increas supply, especially frcm existing
non-associated reserves; and erve as a basis for pricing proposals to the
Government.
1.35        Cost-of-service studies are also a prerequisite for establishing
economic opportunity costs in the determination of petroleum product prices, 5he
upgrading of the costing system by PETROBRAS, in conjunction with the
establishment of profit centers, is necessary to establish a more efflcient
pricing structure. Also, it will provide essential base information for cost-
effective operating policies. PU'RBRA8 has welcomed Bank participation in the
continuing process of developing and refining its cost-of-service studies. The
project would provide for periodic reviews of gas and petroleum product costs
with the Brazilian authorities.   Such reviews would complement the Bank-
Government dialogue in the context of the Energy Matrix and ESID.



- 11 -
it Corpo raUt    AGNcY - EmmRa=
2.01        PETROBMS has responded well to its mandate to lead Brazil towards
greater self-sufficiency in hydrocarbons, and has become a rare public sector
success story in Latin America. While PUTROBBAS has a dominant (and often
monopoly) role in several areas of hydrocarbons (particularly in exploration and
production), the company displays a strong commercial orientation, largely
because of its significant private sector ownership. In consequence, it is
efficient and technologically advanced, with successful international operations.
2.02        Since the founding of PETROBRAS in 1953, its responsibilities have
gradually increased. The company, through its six subsidiaries (Annex 2.01), has
been responsible for: exploration and production of hydrocarbons; provision of
services and technical assistance abroad; import and export of selected
commodities; evaluation of the hydrocarbon and mineral potential of sedimentary
basins; some mineral production; marine and pipeline transport; and refining.
PETROBRAS also dominates both Brazilian petrochemical and fertilizer production
and has over 35% of the domestic retail market for petroleum products. Following
the privatization policy of the current Administration, the group is in the
process of reducing its interest in trading, mineral production, chemicals and
fertilizer, progressively divesting itself of activities which are not directly
related to hydrocarbons, its primary mandate.
2.03        With  the  objective  to  strive  for petroleum  self-sufficiency
PRTROBRAS, following the oil price shocks of the 1970a, emphasized exploration
and production to discover and develop BrazilIs  signifizant hydrocarbons
reserves. At the end of 1990, the company had 5,716 wells producing oil and
condensate and S9 wells producing non-associated gas. Total 1990 production was
653,000 barrels per day of crude and condensates, and 17.2 million M3/day of
natural gas. PETROBRAS has 10 refineries, with a combined crude charge capacity
of 1.5 million 8PD, most of which are located in the South and Northeast coastal
regions.
2.04        P    BTROBAS is not alone in the hydrocarbon exploration and devel oent
field.  Although the 1988 Constitution bans new risk contracts, "farm-inse  are
permitted.   Hence, there is a large presence of international companies in
upstream oil operations in Brazil. A total of 243 contracts have been signed
since 1976 (2 are still in effect), with the participation of both foreign and
domestic firms.  These companies invested US1.8 billion in exploration and
development activities (US$138 million in 1989), drilling about 200 wells and
"shooting" 165,000 km of seimic lines. The President of the Republic has
announced that he will seek an end to PETROBRAS8 monopoly power when the
Constitution is amended in 1993.
3     hArrangements  for  risk  capital  and/or  operational  expertise  to
explore/develop hydrocarbon field(s) in exchange for a share of the production.



- 12 -
B. Ownershin. Uanaaement and Orasaisatiom
2.03        The Borrower and Executing Agency, PETkOBRAs, was established in 1953
by Federal Law 2004 as a mixed (public/private) capital corporation. The company
is owned 51.0% by the Federal Government, 10.7% by the National Development Bonk
(INDES), 33 8% by individuals and private legal entities through publicly-traded
shares, and 4.5% by other public sector entities. Only Brazilian companies or
citizens can purchase shares; however, many Brazilian affiliates of foreign firms
own shares. Although PETROBRAS may increase its equity funds by issuing new
shares, the company'e statutes stipulate that at least S1% of shares must remain
in the hands of the Federal Government. Due to lack of funds, the Government is
currently unable to subscribe to additional shares; thus, the raising of
additional equity capital from private sources is constrained.
2.06        The President of the company is appointed by the President of the
Republic, and presides over a 12-member Administrative council, representing the
shareholders for 3-year terms. The Administrative Council establishes general
business policies, approves annual budgets, local and foreign borrowing,
participation in other companies and annual invoetment programs. A Board of
Directors (they are *lso members of the Council) is responsible for the day-to-
day operations of the company and for execution of guidelines established by the
Administrative Council.  A Fiscal Council of five members appointed by the
shareholders examines the finaxcial accounts, cash and investment position of the
company, and reports on the annual financial statements to the Administrative
Council. The MO? represents the Federal Government at the annual ordinary
general meeting of shareholders. Organization charts for the PETROBRAS Group and
PETROBRAS, S.A. are shown in Annex 2.01.
2.07        PETRO8RAS is divided into six operational departments (exploration,
drilling, production, industrial, transport and commercial), and eight service
departments (planning, data processing, engineering, legal, finance, public
relations, supplies and human resource development). Departments for safety and
environment, research and development, central administration and a general
secretary report directly to the presidency.   In addition, the company has
specialized agencies for research and development and for the handling of
exploration contracts, and representative offices in New York and London.
2.08        Staff of the PETROBRAS group numbered about 60,000 at the end of
1989. While salaries and benefits have historically been higher than in most
state companies, salary levels, which are controlled by the Federal Government,
have been eroded substantially in real terms by inflation. Because there is no
other local provider, all training in petroleum sciences in Braxil is done by
PETROBRAS.
2.09        PETROBRAS is well organ' zed to handle environmental problems and is
responsive to the requirements of environmental authorities. Environmental
responsibilities, previously dispered, have been centralized in a recently
created superintendency reporting dlrectly to the President in order to make the
handling  of  environmental  issues  a  clear  corporate  priority.        This
superintendency (incorporating the former Division of Engineering and
Environmental Safety) prepares company-wide norms and guidelines on safety and
environment, and is responsible for contracting environmental impact studies
(RINAs), as well as other policy related matters.   Within the refinery



- 13 -
operations, an Environmental Division manages efforts of the individual
environmental field-units located at the reflneries.   The field units are
operationally-oriented, handlLng LndustrLal safety, developing pollution control
systems, and monitoring envLronmental performance. Every project requires an
environmental evaluation and must be separately licensed by appropriate state
environmental agencies for design, construction and operation.   Aside from
tackling the envLronmental and safety issues related to the productLon, refining
and transport of petroleum products, PETROBRAS is making efforts to assist with
reducing the air pollutlon caused by the consumption of high-sulphur industrial
fuels in the main cities, notably Sao Paulo.  Although statf have had some
training in risk assessment and management, further traLning and professional
strengthening is considered necessary, and will be provided under the project
(para. 3.08 (b)).
C. Costin. Accountino and Audit
2.10        PETROBRAS submits annual capital and operating budgets to the Federal
Government by September for approval before January.  The extreme inflation of
the past several years has led to almost continuous revision of the budget,
making planning difficult. Since the early 1970s, investment decisions have been
based on financial and economic cost-benefit analysis prepared by the company's
Planning Department, with assistance from operational departments.
2.11        To improve the information flow for management docision-making, a
Costing DivLsion under the Financial Services Department was established in 1988
to bring into operation an upgraded costing system developed in conjunction with
international consultants. The new system will gradually introduce economic
concepts to complement existing financial information, thereby providing a fuller
basis for decision-making regarding pricing, operational policies, investments
and resource allocation. Notably, Lt will provide PETROBRAS with a more solid
basis for submissions of Lts cost recovery requirements to the DNC, which in turn
would use this information for natural gas and petroleum product price
recommendations. Other goals include converting from the current system of cost
centers to profit centers (which should result in organizational restructuring;
hence, the gradual nature of system Lntroduction), and segregating costs by
project, product, activity, organizatLonal unit, and market. Costs will be Ln
constant, comparable values; and economic costs would be reflected by taking Lnto
account, inter gjja, both the expansion and the replacement cost of assets, and
the international -border- prices of crude oLl and petroleum products. The new
system, which is being implemented in phases and is scheduled to be fully
operational by December 31, 1993 (Annex 2.02), is of central importance to the
continuing dialogue between the Bank and the Government on economic choices in
the energy sector.
2.12        The Bank has reviewed the consultant Is diagnostic study (which is the
basis of upgrading the costing system) and the implementation program which, in
som areas, is already at an advanced stage. The work represents an important
step toward generating transparent information for corporate decision-making,
lncluding economically efficient pricing and investment policies. The Costing
Division, established to lmplement this new system, is adequately staffed with
trained personnel.



- 14 -
2.13        PETROBRAS management intends to continue implementation of the
upgraded system and completion of the costing .e"rciese and to this end has been
gradually expanding the role of the Costing Division. During negotiations,
agreement was reached with PETRODRAS that it vill put into ef fect the new costing
syatem by December 31, 1993 to provide more accurate and appropriate information
for decision making. In addition, agre-ment was reached with both PETROIMS and
the Government to exchange views from time to time on its implementation and
application.
2.*14       Accounting  is practiced  according  to  internationally-accejpted
standards.  The system is comprehensive with well-defined cost centers, and
adjustments made to compensate for inflationary distortions. The internal audit
Department Is accountable directly to the President. Aknnual financial statements
are audited by international external auditors with expertise in the petroleum
industry, as well as by the 1401 and the Tribunal de Contas. Annual audits are
normally completed within four months after the end of the f inancial year.
During negotiationis, agreement was reached that: .(a) the accounts, records and
f inancial statements of PETROBRA, and sujpporting evidence for Statements of
Expendit-ares, would be audited each fisocal year by independent auditors with
qualifications and experience acceptable to the Bank; and (b) the audit reports
would be submitted to the Bank within four months after the end of the financial
year together with the certified copies of the audited financial statements.
D. Flinancial Performance
2.15        Historically, PETJORSM  has had heaklthy revenues and a robust
Investment prog[ram which was largely self-financed. The main source of revenue
(90-95%) has been product sales to the domestic mArket. Diesel, gasoline and
alcohol sales have reprecented about two-thirds of total sales. Annual gross
revenues of the PETROBRAS Group (including subsidiaries) during 1984-1987
averaged US$19-20 billion, but in 1988-1989 fell to about US$1S-26 billion,
largely due to a decrease in real domestic retail prices. Revenues have come
primarily from the parent company, PETROBRAS S .A. (about 47-S2%), and from the
distribution affiliate, Petrobras Distribuidora-(DR) (about 22-26%).
2.16        Unlike the majority of state-owned enterprises, PETRDRA  has not
relied  on Goverrment subsidies.   instead, it  has regularly  transferred
substan#-ial funds to the Federal Treasury. Between 1980-1982, in the era of
comparatively high international oil prices, net transfers to the Federal
Government (sales taxes, other duties, corporate income tax and dividends, loes
Government equity contributions) from PETROBMS S.A. and SR alone amounted to
about US$2.1 billion annually (Annex 1.02 gives a detailed description of
hydrocarbon taxation policy). Between 1983 and 1916,, the average net transfers
fell to about US$1.3 billion.  With an increasing tax on gasoline and alcohol,
average transfers rose to US$2.7 billion in 1987-1989. Tax transfers from the
private retail distributors would represent an additional US$0. 6-1. 5 billion each
ypar.4
4  The fiscal regime was altered following adoption of the new Constitution
of October 1988. The changes, which were Implemented gradually over 1989, focus
on transferring most fiscal revenues from the Federal Government to states and
municipalities. It is expected, however, that the overall level of transfers



- is -
2 17        In 1985 and 1986, P3TRODRAS generated net profits in the range of
VS$2.1 to 2.2 billion. With the relatLvely healthy incam levels prior to 1985.
the company was able to generate suffLeL nt funds Lnternally for debt service and
the bulk of its investments. Znvestment-rolated borrowings rarely excoeded 25%
of needs, and despite the large Lnvestment prorams (in the erly 1980v about
VS$3-4 billion per annum), PZTROflAS conaLstently ended its fLscal years wLth
cash surpluses.
2.18        After 1986, a peak year, financial performnce deteriorated.  In
1990, revenues (net of sales tax) fell to US$11.4 bllion, and net profits
declined by about 75% (from U8$2.2 billion to US$560 mllion). The decline was
due primarily to: (a) the precipltous fall in internatlonal oil price after 1986
which reduced margins because the border price of crude has been a major factor
in establishing local prLiesp and (b) delayed and lnadequate price adjustments
in cLrcumstances of increasing and high Laflation. Because of lts decroased
earnlng power, PETROBRAS reduced its Lavestment program, as a matter of
commerclally prudent policy and to safeguard lts financLal independence, from
US$2.3 billion ln 1987 to US$1.8 billion in 1989, still maLntainLng a high level
of self-financing. In 1990, Lnternally generated cash (net), covered more than
three-quarters of the 1990 lnvestment program of about US$850 million, and debt
service coverage level was ln excess of 2   The balance sheet positLon as of
December 1990 was healthy. The debt/equLty ratio was 18/82. WLth more regular
(and adequate) price adjustments, the 1991 flnanclal results are expected to
signlficantly lmprove, even though the fLrst quarter results will show the impact
of increased lnternatlonal olI prices due to the PersLan Gulf conflict  The past
financLal performance of PUTRODRAS S.A. is shown on Table 1 (next page) and in
Annex 2.03 (notes and assumptLons are included as Annex 2.04).
2.19        The conflict between cost-recovery pollcy and priLcng adjustments
under hlgh Lnflation has generated a complex financLal environment for PSTRCMS,
especially with respuct to the formulation of development plans.   To address
this complexlty and to improve coordination betwoen macroeconomic policy and
specLfLc polLcLes of the state owned firma, the Government is experimenting with
the concept of "contract management" on a yearly basls. P8TROBRAS became ln May
1991 the first organization to draft such a contract wlth the Gcvernment. The
contract comprLses commitments in terms of finunclal and productivity targets an
well as agreement on the rules for prLce adjustments. The comblnatLon of this
mechanism wlth the on-golng upgrading of the costLng system (para. 2.11) could
increase dramatlcally the transparency of the economic relatLons between the
Government and PzTRoBmS, facllitating the development of a more stable
envlronment for plannlng purposes, and les  prLcing control.  However the
effectLveness of this 'contract management" approach has yet to be tested in
Bra2il.
from the sector will remain roughly the same as those of the period 1987-1988,
i.e., ln the range of 20% of gross revenues.



- 16 -
Revenue Generation and Fund FPlow - PRThOBpAS
1984-1990
(US$ Millions)
1284     19852     l986     19M7      1988     I929    1990
SOURCES                         5 139    4.020    4,813    2.238    3.M6    2.412          4.Z9
Gross Revenues                 14,809   :3,890   15,087   l4,734   13,324   14,327    11,434
Leass  Sales Taxes              1,951    1,955    2,127    3,221    2,820    2,900         2,307
Less: Expenses                 12 285    9.810   10L724   11 312    9.880   10.574         8h568
Net Profit                        573    2,125    2,236       194       624      853        5S9
Plus: L-T Interest             2,071       877      649       432       370      238      1,932
Plus: Depreciation               429       464      515       557      497       398        356
Plus: Inv. Charged to Ops.    1,301    1,311        716       800      895       631        840
Pluss Other Non-Cash             246    _2101       374    J458)       212      figs)      -253
Total Internal Sources        4 G20    4567    4.490    1.525    2.598    1.925          3.940
Borrowing                        502       221      271       690      479       472        224
Equity Contribution            _.           1 4    _53         22      -20        20         28
Total External Sources          519       23S      323       713    __  ..98    An         252
USES                            5.139    4.802    4L813    2.238    3.026    2.417         4.192
Investments                   1,732    1,729    1,678    2,254    2,147    1,861          731
Debt Service                  2,761    1,746    1,192    1,311    1,139         803     2,048
Dividends                       163       195      391       307      256       213         54
Other                           374       725      751       283      175        21        120
Inc/Dec in Work. Cap.           109       407      801   (1,351)    (621)    (439)    1,234
Self-financing ratio               73%       87%      88f       68%       77%      67%       66%
Debt service coverage              1.7      2.6       3.8      1.2       2.3       2.4      2.8
Current. Ratio                     1.01     1.11      1.34     0.97      0.88      1.02     1.00
Debt/Equity Ratio                  0.33     0.29      0.20     0.19      0.14      0.16     0.14



17 -
2.20        PZTSOUAs pays its debts, both long- and short-term in a timely
fashion.  Short term lines of credit exist in foreign exchange to provide
PUTROUMS an assured source of funds to cover crude and product imports, and also
in local currency for general working capLtal requirements. Fixed assets in
property, plant and equipmesut are undervalued, au in most Brazilian state
enterprises. However, implementation of the new costing system will gradually
remedy the situation, since it will base asset valuation on replacement costs.
s.  Deeloent,t Sconario.. ftrformance Proiection
2.21        In November 1988, PETROBRAS issued an Action Plan (PASP) (Annex 2.05)
which laid out the broad lines of a 10-year development program. The strategic
targets for 1997 were to attain 96% national self-sufficiency in oil and increase
national gas production to 70 million m3/day. These ambitious targets were
accompanied by a program to reduce the cost of petroleum transport and increase
the efficiency of the refineries. The program called for an annual average
investment of US$3.4 billion. Within a few months of its publication, PASP had
become obsolete due to the anti-inflationary program (*Plano Verao") in early
1989 which dramatically reduced, intex alla, PETROBRAS investment budget.
mainly due to the accelerating inflation and the constantly changing
macroeconomic policies, PETROBRAS until recently had been, for all practical
purposes, without a clearly articulated, medium term investment and operational
program.
2.22        In the last four years, with constraints on revenue generating
capacity and external funding, PETROBRAS has adopted a policy stressing
efficiency and cost effectiveness, boti in operation and investment. This policy
was implemented through, lnter a&a, improvements (udebottlenecking') to
transportation networks, and the upgrading of technology to improve productivity
in refinery operations. From 1987 to 1989, this has led to a 74% increase in
investment funds allocated to transportation (from US$192 million to US$334
million) and of 238% increase in funds spent on the refinery subsector (from
US$78 million to US$264 million).
2.23        Recently, in light of forecast volatility in international oil
prices, PETROBRAS has revised its plans for the development and production of
indigenous crude to reach 70% self-sufficiency in the next 4 years (from about
54%  currently).   Depending on the availability of financial resources,
implementation of the program may take longer than the projected 4 years. The
objectives and direction are logical and justified, particularly considering the
gsze of the known indigenous resources and advanced technology of PETR0BRAS,
especially for deep-sea production. The program, if carried out over a four year
period, would involve annual investments averaging US$3.4 billion. About 12%
(US$2.1 billion) would be invested in new and upgraded transport systems: 14%
(us$2.4 billion) in the res:inery sector; and 74% (US$12.4 billion) primarily in
exploration and production. The proposed project would represent about 17% of
toftal transport investment and 11% of -. '.aery investments planned in the
program.
2.24        The future performance of PETROBRAS and its ability to undertake the
above program within four years, are expected to be affected basically bys (a)
chbavgos in sector priorities and policies by Foderal Government  (b) success of



- 16 -
ecoomic measures currntly undeway and the resultant rate of dmestic
1sflatioi (a) level of international oil. pricesg and (d) the extent to which
local price  reflect international prLces.  The Persian Gulf eriLLs ia not
expected to affect the future fLiancial performance of PITROMS. The financLal
forecast  for  1991-1997  (Anne  2.03)  La ba1ed on  ahnk  projections  for
Liternational petroleu, prlces, domestic prices (retail and ex-refinery) roughly
aralleling the assumed international price trd, and sales growth on the
average of about 3.5% p.a. The projections lndicate an avrwage annual not profLt
of US$1.3 bllion during the next flve years. The net internal cash generation
(on the average US$2.0 billon p.a.) would allow PUTROSRS to undertake, at a
mLaimm, an lnvestmnt program of  83$1.B-2.2 bllion p.a., extending the
imlemenaXtLon period program frm S to 8-9 years. IS that case, borrowng oan
the average would be no more than 30% of the investment requiememts, and
PETROMSA would still maintaLn a very healthr debt service coverage (Annex 2.03,
pag 2).
2.25       To ensure that financial performance continues to be strong, duriag
negotiations agreement was reached that PTROMDRAS would: (a) ineur no long-term
debt wLthout Rank agreement lf:  (L) a reasonabl financial forecast shows an
annual debt-servlce coverage ratlo of less than 1.4 tlmes, or (LL) after the
incurrence of such debt, the ratio of debt to equlty is greater than 40 to 60,
(b) maintain a current ratio of not less than 0.81 (c) produce funds from
internal sources equLvalent to not loss than 30% of capltal expendltures ln 1991,
35% ln 1992, 40% ln 1993 and 1994 and 4S% ln 199S and thereafter; (d) revLow with
the Sank, by November 30 of each year, a financial forecast satisfactory to the
Dank, the object of such review beLag to determneA whether PETRO3RAS would _set
the above financlal targets; and (e) take all recessary measure  to meet the
above financLal targets.



- 19 -
Kut.
a. aieizves
3.01        The project's main objectives are to: (a) enhance natural gas
utilization as a substitute for other sources of energy with higher economic and
environmental costs; (b) reduce the distribution costs of petroleum products by
substituting pipelines for road and water transport; (c) reduce petroleum product
losses through processing optimization; and (d) reduce environmental costs and
safety risks associated with petroleum product transport and with refining. The
project would include a Transport and a !rocsasina Component, together with
related operational and industrial safety training. The proposed loan would
address several of the highest-priority issues identified by ESIs, viz.:
efficient substitution of gas for other fuels; supply based on lowest investment
and operating costs; the environment, and energy pricing. Furthermore, the
project would reduce the public sector deficit and improve the balance of trade.
It would also support the BSI8 in promoting dialogue on energy policy with the
Government.
D. TEransport Caonoowt
3.02        The transport component comprises the following:
(a) A 42 km, 120 pipeline and related facilities to deliver 1.7 million
sR per day of natural gas (originating in the Herluza field) to Sao
Paulo City and to blend the extracted condensates with other
products at the Presidents Bernardes Refinery at Cubatao (RPBC).
(b) A 153 km, 18" petroleum products pipeline from a products terminal
at Guararema (near Sao Paulo) to the Planalto Refinery near Campinas
(REPLAN) plus related pump station additions. The pipeline will be
connected at Tegua to an existing line from the Vale do Paraiba
Refinery near Sao Jose dos Campos (REVAP) and will allow transfer of
refined products and alcohol between the two refineries and their
consuming areas.
(c) A 253 km petroleum products pipeline with 8" and 10" diameter from
the Parana Refinery (REPAR) near Curitiba, to Joinville/Itajai and
Florianapolis, all in the State of Santa Catarina. Also included
are related pump station additions at REPAR, a new pump station,
storage tanks, spheres and truck loading facilities at Itajai,
Joinville and Plorianapolis.
(d) A 361 km, 10" and 8" products pipeline from the PETROBRAS Terminal
at Madre de Deus (TEMADRE) near Salvador, Bahia, to Spiau, where the
line will bifurcate with branches going to Jequie and Itabuna, both
in the State of Bahia.  Also included are related pump station
additions at TUNADRz and storage tanks, spheres and truck loading
facilities at Jequie and Itabuna.



- 20 -
(e) Engineering design and environmental impact studies for the above;
and
(f) Assistance to enhance transport planning capacity and trainlng
(inside and outside of Brazil) for pipeline staff ins (i) corrosion
control; (li) design and maintenance of instrumentation, automation
and supervisory control and data acquisition systems (SCADA) for the
product pipelines; (iii) operation of the latter including product
metering and quality and interface control; (iv) operation of
instrumentation, automation and SCADA equipment for gas pipelines;
and (v) economic evaluation of liquids and gas transport by
pipelines.
Detailed descriptions of the components ars in Annexes 3.01 and 3.02
and Map IBRD 21867.
(2) Cost and Financina
3.03        The total cost of the transport component is estimated at US$362
million equivalent including all contingencies, interest during construction
(IDC), and taxes. Without taxes and IDC the cost is US$307 million, with the
foreign exchange cost at US$174 million or 57%. The Bank would finance 49.8% of
the costs (excluding IDC, taxes and duties) of the transport component or
US$153.2 million equivalent. PESROBRAS would finance the remainder and IDC,
taxes and duties. The cost estimates are based on recent supplier prices for
similar equipment and on recently completed similar works. Design and project
engineering costs are based on recent man-months rates for local consultants.
The cost estimates include average physical contingencies of 12% and price
contingencies of 3.4% p.a. during the period 1991-1994 on both the foreign
exchange and local currency costs. It is assumed that periodic local currency
devaluations would compensate for differences between the projected US dollar and
local inflation rates. However, construction costs have risen more rapidly than
devaluation recently, and project costs will be carefully monitored throughout
project implementation. The table on the following page summarizes the cost
estimates; Annex 3.03 shows further details.
3.04        Shell, which is the operator of the Merluza field, will finance the
development of the field and the facilities to deliver the wet gas to the RPBC.
These facilities are not part of the project. However, the timely availability
of natural gas for the Santos to Sao Paulo pipeline from Merluza field must be
ensured. During negotiation, as a condition of disbursement of this part of the
project, PETROBRAS agreed to furnish satisfactory evidence on the timely
availability of gas from such field.



- 21 -
jam^          FOR$SGN        lo=A  COSTSS
Materials                             28.2           31.5             59.7
Works                                 26.7          101.6            128.3
Equipment                             19.4            5.0             24.4
Engineering Design                    14.1             -              14.1
Training and Planning                   -             1.0              1.0
Land and Easements                     1.2             -               1.2
Total Base Cost                      89.6           139.1            228.7
Physical Contingencies                16.1           12.0             28.1
Price Contingencies                  22.6            18.2             40.8
Incremental Working Capital           S.0             S.0             10.0
Sub Total                           133.3           174.             307.6
Interest During Construct.             -             27.1             27.1
Taxes & Duties                       ZLA               -              27.4
Financing Requirement               160.7           201.4            362.1
(3) lmDlementatio
3.05        The basic designs for the transport component, including equipment
specifications and pipeline route selections, have been substantially completed
by PETRODRAS. The detailed designs are being done by local consultants who will
do the field supervision and quality control as well.  By September 1991,
detailed designs would be substantially completed. The construction contractors
selected will do the pipeline construction plan and profile. All consultants and
contractors will be supervised by Engineering Services (PETROBRAS), which will
be in charge of implementation of the transport component. The component is
scheduled for completion over 4 years (Annex 3.04). This schedule, in view of
experience of PETROBRAS in similar projects, is realistic. Training in pipeline
technology and transport planning and in project preparation would be financed
by the Bank and would be carried out by consultants selected according to Bank
Guidelines.   Procurement methods are summarized  in Annex 3.04.   During
negotiations, PETROBRAS agreed to exchanqe views with the Bank annually and not
later than October 1, on the training program for the following calendar year.
The Terms of Reference, the basis of the consultants* work, will be subject to
Bank review and concurrence.
(4)   Prour2ement
3.06        Individual contracts for goods and works estimated to exced
US$2SO,000 and US$2.5 million respectively will be procured under International



- 22 -
Competitive Bidding (WCE) in accordance with Bank Guldelines for Procurement, and
will requlre prior Bank review of the bid document and of bidder solection.
Som  20 such bid documents would be isued for all plpeline construction, pipes,
valves, tanks and spheres including erection, and pump and compressor station
equipment and for about half of the pipeline and station materials. These bids
would generally comprise large groupLigs of like goods and works, divislble into
smaller packages, to ensure the interest of both large international suppliers
and contractors and that of the smaller local ones. Individual bidders and
consortia with proper safeguards, such as joint and several liablilty, will be
allowed to bid after proper prequalification, for the Joinville/Itajal and
Floriandpolis, and the Jequi6-Itabuna pipelines. In bid evaluation, under ICa,
a domestic preference will apply to Brazilian suppliers in accordance with Bank
Guidelines for Procurement. Goods whose value is estimated at equal to or less
less than US$250,000 equivalent would be procured under Local Competitive Bidding
Procedures (LCD) acceptable to the Bank up to an aggregate of USS S million. The
Bank would not finance any contract for works whose value is estimated at less
than US$2.5 million. Goods whose value is estimated at les than US$25,000
equivalent would be procured under International and Local Shopping procedures
satisfactory to the Bank up to an aggregate of US$6 million. The balance of the
goods, works and services covering consultants" services for engineering design
and supervision, land acquisition, the balance of materials, all industrial
construction at the pump station and terminal sites, and all civil construction
would be procured under PETROBRA8 procurement rules, which were reviewed and
found acceptable to the Bank.  The Bank would not finance these contracts.
Procurement methods are summarized in Annex 3-04.
(S)  Technical and Financial Justification
3.07        In sao Paulo, demand for natural gas is considerably higher than the
available supply for COMGAM through its existing gas purchase contract with
PETROBRAS. To meet at least part of this pent-up demand, CONGAS intends to
purchase from PETROBRAS all the available natural gas from the Santos basin.
There are no technical alternatives to a pipeline if Santos basin gas is to be
made available to Sao Paulo. The design capacity of the line ensures least cost
solution. The three liquid (products) pipelines constitute technologically and
financially advanced means of transporting products from refineries to consuming
areas. These pipelines will transport a significant volume of products in the
heavily populated coastal regions, resulting in considerable transport cost
savings by avoiding costly land and sea transportation together with handling
costs and product losses. Two of the pipelines would replace combined land and
sea transportations   (a) the pipeline from  TENADRB Terminal in Salvador to
Itabuna which will provide a net savings of about US$6.80/m3 (US$l.08/bbl); and
(b) the line from the REPAR Refinery to Florianopolis which would provide a
savings of roughly US$ll5O/m3 (US$l.83/bbl). The third pipeline from Guararema
to REPLAN, which replaces only road transport, would provide savings of about
US$13/m3 (US$2.07/bbl). The total cost savings from the three lines would be on
the order of US$70 million per year. Sensitivity analysis indicates that changes
in international oil prices have small impact on the financial benefits.



- ;3 -
C. Zu"iaaf     Germanu&a
(1) &"AJn
3.08        The processing component of the Project consists oft
(a)  Hvdrreatment Plant - the installation of hydro desulphurization
and treatment facilities (HDT) of 5,000 op/day capacity at the IPSC
to treat with hydrogen the gas oil streams and convert them into
diesel oil of appropriate specification and to remove over 90% of
the sulphur present in the feed gas oils in the form of elemental
sulphur. The plant, comprising hydrogen treatment, hydrogen
generation, off-gas treatment and sulphur recovery, will increose
the net production of marketable diesel oil and contribute to
pollution batement at the fuel user's end by reducing the sulphur
content of diesel oil and fuel oils;
(b)   Industrial afety           - basically aimed at the Cubatao area (to
be expanded later to other refineries), would include: 1) a
comprehensive risk assessment of the RPBC Refinery operations and an
odor evaluation study; 2) appropriate training to enhance the risk
assessment and risk management capacity of PZTROSRAS staff at both
Cubatao and the headquarters (including the establishment of an
appropriately staffed risk assessment unit by September 1991). The
training would focus on hazard analysis and management in petroleum
products storage, manufacturing and refining processes, hazardous
material handling and toxicological risk assessment; and 3)
acquisition of mobile air quality monitoring laboratories to be used
in and near refineries; and
(C)  Automation 1AC0O  Prooram - to improve process and storage control
systems in the refineries with the objective of achieving higher
refinery capacity utilization, reducing product and quality losses,
and improving the safety and reliability of operation.
specifically, the program would include: (1) feasibility/diagnostic
studies for installing advanced control and optimization (ACO)
systems in different processing units of PNTROBRAS refineries; and
(2) subject to the findings of the feasibility studies, installation
of ACO systems at three atmospheric and vacuum destillation units,
as pilot projects for progressively introducing ACO system in all
the PTRORMAS refineries.
Detailed descriptions are in Annex 3.01.



- 24 -
Of ~ ~ ~~QRZ                   OOST
TOMA
(a) Hydrotreatmeat Plant
License and Engineering                6.5            1.6           8.1
Equipmont, Materials,
spares, Catalyst & Chemicals        12.0           65.4          77.4
Works                                 48.2             -           48.2
Digital Control                        0.4            1.0           1.4
Project Management                    14.9             -           14.9
Start-up                               2.9             -            2.9
Training                               0.6             -            0.6
(b) Industrial Safety Proaram             0.2             2.8           3.0
Sub Total (a)+(b)                     85.7           70.8         156.5
Physical Contingencies                14.0            9.2          23.2
Price Contingencies                   L1.            14.2          35.7
Sub Total (a)+(b)                    121.2           94.2         215.4
Interest During Construction            -            14.0          14.0
Taxes and Duties                      18.2             -           18.2
Financing Requirement (a)+(b)        139.4          108.2         247.6
I˘) Automation Proaram
Diagnostic study                       0.s            0.9           1.4
Basic Engineering & Design             0.8            1.5           2.3
Instrumentation                        0.6            2.3           2.9
Training                               0.4            0.1           0.5
installation, Commisioning             0.6            1.0           1.6
Sub Total (c)                          2.9            5.8           8.7
Physical Contingencies                 0.2            0.4           0.6
Price Contingencies                    0.4            O.S           0.9
Sub Total (c)                          3.5            6.7          10.2
interest During Construction                          1.0           1.0
Taxes and Duties                         2             -2.
Flnancing Requirement (C)             _5L.Z                        13.4
TtAl  Fginale ReguirAA                        ,L_
((a)+(b)+(a))                       v-w -



- 25 -
(2) gut and Financi.
3.09        The total cost for the processing component is estimated at US$261.0
million equivalent, including all contingencies, IDC, taxes and duties. Without
taxes and IDC the cost is US$225.6 millior. with a foreign exchange cost of
US$100.9 million or 45%. The following table oummarises the cost estimates,
Annex 3.02 shows the details.
3.10        The cost estimates are based on recent U8 Gulf Coast and French costs
for equipment, materials, spares, and man-hours estimates for construction and
erection (corrected for labor/productivity differences).  The cost estimate
includes physical contingencies of 15S and price contingencies of 3.4% p.a.
during the period 1991-1994 on both local and foreign exchange costs (para.
3.03). The Bank would finance US$106.8 million of the cost (excluding IDC, taxes
and duties (or 47.1%) and PETROBRAS, in addition to its share of the project
cost, would finance IDC, taxes and duties.
(3) Ig"ementation
3.11        The technology for the gas oil hydrogen treatment unit has been
developed jointly by Institut Francais du Petrole and the research and design
unit of PETROBRAS, under a long-term technology development agreement, based on
a proprietary process of the Institut. This process for hydrogen treatment of
distillates is well proven throughout the world. "Know-how" for the furnace part
of the hydrogen generation unit has been obtained from XTI (USA), and the
hydrogen purification part is based on pressure swing absorption technology from
Union Carbide (USA). All basic engineering and a substantial part of detailed
engineering has been completed by PETROBRAS for the hydrogen treatment, hydrogen
generation, sulphur recovery, and off-gas offsites units. Piping and other
remaining engineering work has been contracted to a Brazilian engineering
company.
3.12        The HDT component will be implemented by a full-time PETROBRAS task
force headed by a properly qualified project manager.   The task force will
include experts in planning and control, technitcal studies, procurement, quality
control, construction, and administration services. The task force organization
and linkage wlth the central corporate departments (Annex 3.0S) are typical of
the structures for implementation of large refinery projects, and are acceptable
to the Bank.
3.13        The hydrogen treatment reactors, which involve long delivery times,
were ordered in April 1988. Detailed engineering for all the other facilities
will be substantially completed by September 1991. Orders for other equipment
and materials will be placed beginning in late 1991 and would be delivered
progressively beginning in August 1992. Site clearances have been started and
construction works are scheduled to begin in late 1991. Feedetock introduction
and commencement of production operations are expected by mid-1994. Annex 3.06
shows the implementation schedule, which is considered realistic.
3.14        The diagnostic part of the ACO program will be carried out by
consultants under the supervision of Industrial Department of PETROBRAS. During
negotiations, PZTRODBAS agreed to complete the ACO diagnostic study by



- 26 -
December 31, 1991 and to complete execution of the pilot project by December 31,
1993 if recommended in the diagnostic study.
3.15        The Industrial Safety Program  wiUl  be carried out under the
supervLsLon of Environmental DivisLon of PBSROBRAS.  Draft TORs have boen
developed; flnal TORs will be subject to Bank revLew, and selectlon of
consultants will be according to Bank GuLdelines. The studies will address
current problems of safety and reliability at the refinerles; and are expected
to result in concrete programs and plans of actlons whlch will also be reviewed
by the Dank (paras. 3.20 and 3.23). During negotiations, PBTRODRAS agreed to$
(a) carry out the LndustrLal safety program studLes; (b) allow the Bank to
comment on findings and recommended programs; and (c) make its best efforts to
carry out such programs. PETQRASM also agreed to establish and maintain a Rlsk
Assessment Unlt. It is expected that such unit will be operational by September
31, 1991.
(4)   Pamu .ut
3 16        The packaging for the HDT procurement has been done on the basis of
discrete and homogenous groupings that will ensure receiving an adequate number
of competitive blds, while keeplng the number of bld packages to a minimum.
3 17        The Bank would finance goods (comprising equipment, materLals,
spares, catalysts and chemLcals) and industrial works which are expected to
exceed respectively US$250,000 and US$2.5 million per contract. These contracts
would be procured under ICB in accordance wlth Bank Procurement GuidelLnes. Prlor
Bank review of bid documents and contract awards would be required. The Bank
would finance one contract for industrial works, estimated at $8.8 million. In
bid evaluation, domestic preference would be given to Brasilian suppliers in
accordance with Bank Procurement Guidelines. Goods, the value of which is equal
to or less than US$250,000 would be procured under Local Competitlve Bidding
(LCB) procedures acceptable to the Bank up to an aggregate of US$S million. Bid
packages for goods under US$25,000 would be procured under Local and Inter-
natlonal Shopping procedures satisfactory to the Dank up to an aggregate of
US$2.6 million. Civil works would not be financed by the Bank, and would be
contracted under PETROBRAS procedures which have been revlewed and found
acceptable by the Bank. Procurement methods are summarized in Annex 3.04.
3 18        Selection of consultants for: (a) implem_nting the recomendations
of the A0O dLagnostic studies, and (b) process and detailed engLneering, software
development, supervision of installation, commisslonlng and training for tasks
resulting from Stage I of the ACO Program and agreed by the Bank, wlll follow
Dank GuidelLnes. Consultants for carrying out the diagnostlc studies (Stage X)
for the ACO, and procurement of computer hardware, and lts installation will be
the responsibility of PETROBRAS and will not be fLnanced by the Bank.
(5) Technical and Financial Justification
3.19        The RPDC, with a nominal crude oil charge stock capacity of 24,000
m3/d, produces a variety of refined products for energy and non-energy uses.
Because of the types and capaecties of refining equlpment and because of the
characteristics of the crude oil, signLfLcant amounts of gas oil fractions do not
meet the required specifications for diesel oil and are downgraded into low-value



- 27 -
fuel ol1. Furthermore, because of the lack of sulphur removal facl'.ities, the
sulphur in the gas oils is blended into fuel oil, result$ng in a fuel oil with
a relatively high sulphur content. Such fuel oil contributes to sulphur dloxids
pollution. Current Brazilian diesel oil epecLfieations permit up to 1I sulphur
but PBTROSMS intends to reduce this progressively to 0.25S to mitigate diesel
oll pollution. The HDT ccinonent will help to upgrade productlon to lnerease
diesel oil output by 5,000 mW/day, currently in defLict and lmported (about 1.9
LilLion n3 per year). At the same time, production of high-sulphur fuel oil,
currently in excess and exported (at a lower price than the import price of the
diesel oil), wlll be reduced by about the same amount. The corresponding net
reduction in sulphur dioxide would be equivalent to about 70 tons per day.
Including the incremental feedstock, operatLng costs and the costs of financing,
the unit would add net value of approximately US$31.SO/m3 (US$S.00/bbl) of
product processed, or, about US$57 million per year. Changes in international
oil prices would affect the benefits, more or less proportionatelyt an increase
of 100% in the price would double the net value per unit of product processed,
while a reduction of 50% in the oil price would reduce the benefit by about half.
3.20       The process and operations control instrumentation systems, when
initially built for the ten PETROBRAS refineries, were of the pneumatic type.
Recent advances in instrumentation and the advent of computerized control systems
permit a faster control response-time and closer approach to the limits of
controlled variables.  Also, modelling techniques for process units permit
simulation and selection of optimum operating parameters for regulatory control.
Interfacing the advanced instrumentation with computerized digital control and
with process simulation would permit PETROBRAS to respond flexibly and quickly
to changes in products, markets, and prices, while maximizing yield under any
given set of objectives. ACO systems also permit safer, more reliable production
operations, reducing product and quality losses.  Over time, PRTROBRAS has
modernized the instrumentation syste into electronic types in somae of its
refineries, permitting interfacing with computers for supervisory/ monitorLng
controls. Supervisory control systems have been installed in two PETROBRAS
refineries. The proposed AOO Program represents the next step towards control
system modernization that eventually would be installed in all the other
PETROBRAS refineries.
D. jafet, andffg oloa
3.21        Pipeline transport of hydrocarbon products is distinctly superior
environmentally to the current mode of truck and marine transport in four ways.
First and most important, the risk associated with traffic accidents and
subsequent spillage of hazardous and environmentally damaging materials is
eliminated. Second, vehicular emissions are eliminated completely and replaced
by negligible emissions from pump operations.  Third, even in non-accident
situations, small but persistent leaks in transport or transfers into and out of
tank cars would be eliminated. Fourth, energy requirements are significantly
less.
3.22        The pipelines will be coated, buried and protected from corrosLon,
thus greatly reducing the risk of leaks and giving the pipelines a life cycle
oqual to that of the protective coating, i.e., several decades. The plpe and
tanks for all the facilities will be fabricated according to the standards of the
American Petroleu Institute (API); and the LnstallatLons will be governed by the



- 28 -
guidelines of the American National Standards Institute (ANSI). The facilities
to be installed by Shell-Pecten for natural gas supply from the Morluza field
will be governed by the same standards (para. 3.26).
3.23        Regarding safety there is a real concern, particularly at the older
refineries. A recent fire at the vacuum distillation units of the RPBC la
believed to have been caused by an obsolete control system. As a rule, proper
automation of refinery operations will reduce human error, resulting in more
stable operations with smaller variations in process variables (temperature,
pressure, flow rates, etc.O. This was one of the chief reasons for including
institutional strengthening and special studies in the area of risk asseosment
for PETROBRAS (Annex 3.07). Automation of the tank farm operations will reduce
the possibility of contamination and hence reduce the potential ecological risk
from disposal of contaminated products.
B. Disbursemeats
3.24        The Bank would disburse 100% of foreign expenditures and 100% of
local expenditures net of taxes for those parts of the Project which it is
financing. Advance contracting of $60 million has been undertaken by PETRQBRAS
for urgently needed project components with long procurement lead time.
Retroactive financing of up to $25 million (about 10% of the loan) for project
components implemented since September 1, 1990 (one year before the estimated
date of loan signing) would be provided.
3.25        Disbursement categories and amounts are shown in Annex 3.08.  The
proposed schedule of disbursements (Annex 3.09) is based on a four year
implementation schedule, which is considered realistic, given the related
experience of PETROBRAS, and the fact that the refinery work comprises only
modifications to an existing plant. There are no relevant disbursement profile
c'mparators in the Bank. Disbursements are expected to be completed in September
1994, and the closing date for the loan would be March 31, 1995, six months
later. The minimum amount submitted to the Bank for direct disbursement from the
loan account will be US$1.0 million. During negotiations PETROBRAS agreed to
establish two Special Accounts: one (called CESA) for local expenditures with
US$10 million initial deposit in the Central Bank; and one (called FESA) with
US$10 million initial deposit in a commercial bank acceptable to the Bank,
outside Brazil, for foreign expenditures. Replenishment of the Special Accounts
would be according to standard Bank procedures and would be based on Statements
of Expenditures. PETROBRAS also agreed that the Special Accounts will be audited
by independent auditors acceptable to the Bank.
3.26        The project will be carried out in conformity with existing
environmental legislation. To this end, during negotiations, as a condition for
disbursement for the pipelines included in the transportation component,
PETROBRAS agreed to provide the Bank with satisfactory evidence of formal
approval (RIMA) by the appropriate Federal and state environmental authorities.
With respect to two product lines (REPAR to Florianapolis and TENADRE/Jequie/
Itabuna), which cross particularly sensitive areas, PETRO0RAS agreed that
disbursement for these facilities would be conditioned to Bank review and
approval of the corresponding RINAs prior to that of Federal and state
authorities.



- 29 -
r. Nonitorime. Coordination. and RMoprtia Renirementa
3.27        Physical  implementation and  supervision of the transport and
processing components will be the direct responsibility of Engineering Services
of PETROBRAS. The Environmental Division will take direct responsibility for the
industrial/safety sub-component. The Financial Services Division will coordinate
all project related matters vis-a-vis the Bank, including procurement and
disbursement administration, maintenance of the project accounts and preparation
of periodic reports; and has considerable experience with these functions. The
proposed arrangements are satisfactory. Within the Financial Services Division,
a Project Coordinating Unit (PCU) will be the prlmary contact point vis-a-vis the
Dank. During negotiations PETROBRAS agreed to maintain the PCU at all times
during project implementation, headed by a manager with suitable qualification
and experience assisted by qualified staff in adequate nwmbers. Also PETROBRM
agreed to furnish to the Bank monitoring reports on project implementation,
operations and financial performance, within one month after the end of each
quarter starting not later than three months after the signing of the loan
agreement. Detailed reporting requirements are shown in Annex 3.10.
0. Economic Evaluation
3.28        Of the seven sub-projects, the following five,5 representing about
97% of total project costs, are amenable to quantified economic analysis:
1)    Petroleum products pipeline:  REPAR - Florianopolis
2)    Petroleum products pipeline:  TEZADRE - Jequie - Itabuna
3)   Petroleum products pipelines  RZPLAN - Guararema
4)    Gas pipelinet Santos-Sao Paulo
5)   Hydrotreatment units  RPBC
There are significant non-quantifiable benefits associated with the project as
well.   From an environmental viewpoint, pipeline transport of hydrocarbon
products will be distinctly superior to the current mode of truck and marine
transport (para. 3.07). The HDT unit will reduce the sulphur content of diesel
and fuel oil produced at the Cubatao Refinery (paras. 3.19-3.23). The use of
natural gas as a replacement, mainly for fuel oil, is also significant in terms
of reduction in emission of air pollutants.   The economic evaluation is
summarized below; details are in Annex 3.11.
3.29        The costs analyzed included capital investment costs, less taxes,
duties and subsidies, plus cash operational costs. The latter are based on
actual costs of comparable units and annually account for up to 2.5S% of capital
costs. Benefits, in the case of the petroleum product lines, are derived from
the net savings aesociated with replacement of road and sea transport, plus
avoided port expansion and other relevant investments. These economic benefits
are estimated to reach about US$100 million per year, when the pipelines are
fully operational.   In the case of the natural gas line, the quantifiable
benefits are derived from natural gas to be sold to industrial consumers in
5     The two sub-projects for which the analysis is qualitative rather than
quantitative are the Automation and the Industrial Safety Programs.



- 30 -
Santos, and to industrial, comnercial and residential onsumers in Sao Paulo,
replacing other fuel8 with hlgher economic costs. These benefits are expected
to reach at least US$29 million per year. Benefits from the HDT unit are derived
from the net foreign exchange savings to the country. The unit would permit
Brazil to lower (high price) diesel oil imports, and to reduce (lower priced)
fuel oil oxports.  The average projected international CIF price of diesel
(imported) and FOB prlce of fuel oil (exported) have been used to arrive at
annual savings of about US$45 million per year. The following table summarixes
the economic rates of return (ERRs) for the various project components. In all
cases the first year rates of return are above the opportunity cost of capital,
indicating the timeliness of the project.
ERR -  8
8ENSITPITTY
PROJECt   lot YEAR        AtNaLYsI
(minimum ERR)
1) REPAR - Florianopolis Pipeline       19           22                 15
2) TEMWRE - Jequis - Itabuna           16             18                12
3) REPLAN - Guararema Pipeline         38             33                28
4) Santos - Sao Paulo Gasline           18           27                 15
S) EPWC Nydrotreatment Plant            i            21                12
Weighted average                        21            22                16
3.30       The minimum ERR under sensitivity analysis is based on the following
assumptions costs were increased by 10% in real terms; as most of the
expenditures are for plant and machinery, with well known techniques, the
allowance is reasonable; benefit reductions for three product pipelines reflect
about 30% lower rates of product demand growth and capacity utilization. For the
natural gas pipeline, the assumption of 10% lower benefits was used. This is
reasonable as the base case benefits already assumed a minimum value product
substitution mix. Finally, for the HDT system a 10% cost increase was combined
with i.:clusion of the ACO system costs, and a reduction of 10% in benefits. A
specLfic calculation was made of the effects of increases or decreases in the
price of crude oil and the assoclated product mixes. A decline to US$12/bbl for
Arabian light crude would reduce the overall project ERR to 18%, while an
increase to US$24/bbl would increase the project ERR to 29%. A delay of a year
in implomentation of project components would have little effect on ERR; for
example the ERR on the 8antos - Sao Paulo natural gas pipeline would decline from
18.7% to 16.8% (details of the analysis are in Annex 3.11).
R. Pr1ct Risks
3.31       From the standpoint of gas reserves and deliverability, the project
carries minimal risk since PETR08RAS and Shell have signed a take or pay gas
supply contract and Shell is already building the offshore facilities. After an
initial phase-in period of two years Shell comits to deliver and PETROBRb8
comnits to accept up to 2.3 million mi/day from the Merluza field for a period
of 15 years including phase-in. As for the implementation cf the project, the



- 31 -
risks are also minimal; paTMw   iS both technically  nd administatlvely well
verse  in impleenting projects of this slze and kid.
3.32        Similarly, thee ae no appreciable finacLal rlrks as@ooiatd with
the project. The pipeline  would result in mor cost effective operations sam
as they would carr only a small portion of the overall product deandw, cost
effectiveness of their us would be largely ioune to variations ln mcket
conditions. The financial benefits derLved from the ND plant are sensitive to
variations in oil prLcws. However, only a drastic drop ln oil prices (blow
US$10/bbl) would reduce the financial benefits significantly (by about S0). Mor
does availability of counterpart fund for the project present a riskl
particularly considering the history of sound comercial            _n   and
financially prudent corporate policy on the part of PBSrO=MS.             the
financial loan covenants further mitigate this risk.
I. ZgroIt& FAs
3 33       Annex 3 12 includes a list of the documentatLon utilied to procoes
the project and to prepare the SAn.



- 32 -
Y.                A       _     
4.01        ahe Goverment agreed to exchange views from time to time with the
Bank and P3TROMRAS on the implementation and technical application of the new
("upgraded") costing system (par&. 2.13).
4.02        PETOR  agreed to:
(i) put into effect by December 31, 1993 the new costing system to
provide more accurate and appropriate information for decision
making; and exchange views from time to time with the Dank and the
Government, at the request of any of them, on the implementation of
the system and its application (para. 2.13);
(1i)   have audited, each fiscal year, financial statements and supporting
evidence for Statement of Expenditures by independent auditors
acceptable to the Bank; and to furnish to the Bank certified copies
of the audited reports of its financial statements, including
Statement of Expenditure, within four months after the end of each
such fiscal year (para. 2.14);
(ILL)  Incur no long-term debt without Bank agreement if: (a) a reasonable
financial forecast shows an annual debt-service coverage ratio of
less than 1.4 times, or (b) after the incurrence of such debt, the
ratio of debt to equity is greater than 40 to 60 (para. 2.25);
(iv) maintain a current ratio of not lses than 0.8 and produce funds from
internal sources equlvalent to not less than 30% of capital
expenditures in 1991, 35% in 1992, 40% in 1993 and 1994 and 45% in
1995 and thereafter; review with the Bank, by November 30 of each
year, a financial forecast satisfactory to the Bank, the object of
such review being to determine whether PBTROBMAS would meet the
above financial targets; and take all necessary measures required to
meet the above financial targets (para. 2.25S);
(v)   exchange views with the Bank annually and not later than October 1,
on the training program for the following calendar year (para.
3.05);
(vi)   complete the: (a) ACO diagnostic study by December 31, 1991, and (b)
execution of pilot projects by December 31, 1993, if recommanded in
the diagnostic study (para. 3.14);
(vii)   carry out the industrial safety program studies; allow the Dank to
comment on findings and recommoAded programs; make its best efforts
to carry out the industrial safety programs agreed with the Bank;
and establish and maintain the Risk Assessment Unit (para. 3.15);
(viii)   a limit of U8$25 million for retroactive financing for project
components implemented since September 1, 1990 (para 3.24);



- 33 -
(x)  estabIlgh and maintain two Sp*cial  coatnts. a  in the Central sank
Ln the amount of  l$ dmllion euvalent for local xpenditures, to
be releisedacordin to standard Bank procedures con the basi.s of
S"tamets of Zupenditur., an on outside Brazil in the amunt of
US$10 mUlL.1 equivalent tot foreige                payment s the
Special Accounts wuld be audited by   e       auditors acceptable
to the Sank (para. 3.25);
(x)  maintain a MM headed at all time by a Projeot Manage  with
suitable quallficatlons and experience, asslsted by qualifled staff
in adato rnubere (par. 3.27)1 and
(xL   furnish to the Dank monitoring repot oan the progres of the
Projet, lts operaiionu and fliancal performace within one mth
after the end of each calendar quarter; the first report shall he
furished to the Dank not later tha three months after the signing
of the Loan Agrment (para. 3.27);
4.03    ItLor to Dgu        r  for the relevant projet componets, the Sank
wil recive atisfactory evidence of: (a) timely avalability of natural gas for
the Banton to Sao Paulo pipeline frm the Ksrluva Oa field (para 3.04), and (b)
formal approval by the appropriate nvironmental authorities of the envirormental
impact statemnts (RAs). *Por two product lines (RPJM to FlorLanapolLs and
WSDU-Jeqie-Itabuna), disbursements will be conditioned to Bank rewiew and
appoval of the cong   m     prior to that of Federal and state
authorities (pra. 3.26).
4.04     With the above assurances, agreemnts and conditions, the proposed
project would be suitable for a Sank loan of US$260 milLon euivalent, to be
reaid over a period of 15 years, including five years of grace, at the Dank's
standard variable interest rate.



mt  .wg   aa  loiw"' am. Ila"J  :ssJ
OOt        O'OOt      O'OOt       OOa        0-Wt        ot         Olt         Olt        0o 0         0M         0*?          O          Owt WA
S;-T   8'n               t ss81iZ't           t't        O-t         O-t        t-l1'1                  l't 9w  *    0u9       *o Oms 
818  Ł18      0w         8*38~~~~~$l  a'                                                      I"83  Ł'95 8own
so.  s'o,  t'w     es         *'a          sit        rus ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~  *.~~~~~~~~~~~~~  vs,  '~~~~~~~~~~~~~~~~~~~~'  ~~~~~~~~~2~~~~~~~g4@jp4g~~~~~~~~~~~~~~~9,tA
S "t  S@.tS      9-8tSPI    o8-@       $,S         4:00                    TIN                     :00                   8:08o8 g.   -   e   .  t-g            S4tvIjI00#F
S3 U       b-         O'SL        OPt        S'U         9'U        8'SL         'S'        6'0         538        50          Ł18        t'S8A
00   0-0   1-0        -0         S- 0O                   001         0'0                    S'0 oo      oo                     *0                                -  win q
Iv:    ° t t                      VIC 'O            t:                           9          VS          00t'0                  0         t°                        In* OS ° *t o9
r         t SP                  -Si        'S' -I sTI';                                  ow         Ta          CS         0            0          0                               Iso *Oam
Pt  gl    419          9         $I*        4: Ogg      III        il                                  ol         as    t gl              O's                           a" t t  tt t 
Pt*        ZeX         8e6        u's        Ło.         's6t        ,s          a'         sca                    S6                      W s'es  o'                          s
3801       tuss        urn:        4.56sn      CM?w        WIt        Pb?         388?        1865       166'ff      Cbe S't    6l65O       @                                     US
0SŁPt      eSWI        S2i9S'St    TWSP       868.9       36S*S       SStf        SSSt?    tItt0t        Tsao       CM          St'W        tWin                  '1w t-
. i         S          LtŁSS I        S5       Łht IS- ?-SSi- - I         so*     681t         *OP        l$t        9S          a R        638*rS  8U05                s 53att
SOt        OW          0*lt seot   "S          OWt        918't1    M0t           8L3    S    4t          "t 6O'                 3'38  '     A6             sinS U
O           o                                  auOto Ut=              aOO'S       US i'Si     OWS        0           0          0           0 wle
508  CM         ILL~~~~~4   158         aS         LOS1        538li       on:        15Ł          Mtt        85=:m1tI   ~fUI
,~~~~~~~~~~~                                                         ~ 
M nst            uss rs       s          sotIg       O            l IF      0 we   ab   938?        51S        TT'        awt  cult                                  of0t0  1uUO
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8~~~~~Ss w



pag 2,-cor 2
tfVmrtARN WARr MO PROCESDO PROCESJ
A. C0o*s 0eam.tic Celetion of Primsor &n.rav
5OLE19                                                       1900       1901        1902       1908        1904       196         1906       19"7        19m        1909        190
1            13f                    27 BP7      47.411     60.650      58.set     60 483     59,50       84.010     6.947       71.S7     74.270     78,2M       73916       7.460
Petrol..                          25.060      48.994     84.319      52,478     5'6        60.90S      54,124     54,679     58,081      5,481       59,570     59771       6.741
ObtXt"  Cs                           169        571       1i12S       1.066      1.452      2.007       2.460      3 090      S.560       4.047       8624       4,17        4,117
steam GMa                            600        65        I1190       1,794      2,190      2.163       2190       2,472      12,931      2.697      12.247      2.524       1,400
S.tIlurtigal Cool                  1,726       2,190      4018        24 17      80         4,47        0.0N       6,000      6.95        7,251       7,         7,66        76
Uraai.a                                0  0'              3.014                                 0          0           0          0         014          0           0          0
111106 E 962V                      47.060      so. 165    70.004      70,82      90,047     89,87       ",.70     105,954    103.217     107,918     10,0       114,29      107,171
6,droeIectfkit'         ~~~~~11.542  20,968     87,66a     57.92       40,926     43.928      48.812     51,729     52.902      08.024     57370       62.129      60.497
81,759     62,759      so.507     29,960    '29,127      29,727     82.677      32.180     31,772     02.120      817         32 300     27,440
sor Cs.. OrIVWeA                   $.52W       4,105      9.91       995        1,4         5,5         652       1.8         10.79      20.220      I852        796,7.7
Ott.. Rmwaoab I s                    2I         868         993       1,07       1.148      1,168       1,877      1.496       1,747      1,754       1.760      1.904       1,788
TOTAAL                            74,tS      186,576     38M.714    187.719    148,480    149,426     163.518    170.901     174,784    12.188      188,084    180,U14     179,657
SOL"=                                 1970       1975       1t60        1901        1902       1983       19o4        190        19018       1987       1900        19099       1990
l-m~L    nowY                         86.9       44.9        40.7       42.8        42.1       89.8        89.0       89.1        40.9       A0.8       40.0       39,5       40.0
PetroIem                            05.0       41.7        89.2       80.1        68.1       84.1        05.1       81.9        05.2      32.6       32.5        81.8       26.7 
lbt.ral a"                           0.2        0.8         0.8        0.S         1.0        1.8         1.3        1.8         2.0        2.2        2.1        2.2        2.8     ,
Su.. caoa                            0.0        0.0         0.9        1.8         1.5        1.4         1.8        1.4    ~    .ie        1.8        1.2        1.2        1.1
noulourg.cal CMI                     2.8        2.1         2.9        2.6         2.6        8.0         8.7        4.0         , .0       4.0        4.2        4.1        4.2
Ufa.iw                               0.0        0.0         0.0        0.0         0.8        0.0         0.0        0.0        i..0        0.4        0.0        0.0        60.
68.0"E 9MO                          68.1       58.1      5W.8         57.2       67.9       60.2        60.4       60.9        59. 1      50.2       60.0        60.7       St.7
otrdnwloctricity15.5                  19.9        28.9       27.6        20.0      29.4         29.5      30.0        80.8       29.8        81.5       58.0       s6.4
Wood olcrc42.6                                 81.0       92.1        21.6        20.8      19.9        20.0       18.6         18.2      17.6        17.4       17.2       18.3
Cm* e.0rlwtIwome                  4.7        8.9         6.5        7.2         0.8       10.1        10.0       10.9         9.6       11.1       18.1        9.8       10.0
Pr RomweloIs                       0.8        0.8        0o.7        0.0         0.8        0.6         0.8        0.9         1.0        1.0        1.0        1.0        1.0
TOTAL.                             100.0      180.0       100.0      100.0       160.0      100.0       100.0      100.0      100.0       100.0      180.0      100.0      100.0
Sour.: SrasU MM# I*oVana gnr*M eolemi, 1IW9
Auwset. 1990



- 36-
Page I of I
=2MMmu-An2mumz
1.          The retail prices of petroleum products and alcohol include a variety
of taxes, although alcohol has been exempt from some. Prior to the adoptlon of
the 1988 constitut:on the fiscal regime was essentially oriented towards the
rederal Government, and comprised mainlys the imposto Unico sobre Combustiveis
Liquidose o Gaoos 0 Lubrificantes (IUCL) ; a compulsory loan (FlD); an industrial
production tax, the Imposto sobre Produtoo Industrializados (IPI): and various
taxes to cover employee and social programs, notably the PIS (Prosrama do
Integracao Social), PASEP (Programa de Assistencia ao Servidores Publicos) and
FINSOCIAL (Fundo de Investimento Social). Gradually, during 1989, the old tax
system has been largely replaced by a system which transfers the bulk of the
receipts to the States and the municipalities, leaving a much lower proportion
for the Federal Government. The main features of the present system are:
o     The introduction of the ICMS to replace the IUCL.  It is a value
added tax charged by the States, typically at 17% of the retail
price, although in soma States 18%, for most products. LPG is an
exception, having a tax rate of 12%. PWERODUAS is exempt from ICKS
in the State of Rio, where much of its production is located;
o     The Imposto sobre Venda no Varejo de Combustivel (IVVC), which is
levied by the municipalities. The tax varies locally, but in Rlo de
Janeiro, as in most other municlpalities, it has been set at the
maximum limit of 3% of the pump prices and
o     The IPI, PIS and FINSOCIAL, which have been retained from the old
system, but together account for less than 2% of the price.
The Ifiscal load" by individual products, as of January 8, 1990, when most of the
fiscal reform was in place, shows a weighted average tax of more than 19%.
2.          Beyond the taxes on fuels, there are various taxes on vehicles and
vehicle ownership and there are road user charges.  The vehicle ownership tax
discriminates in favor of alcohol vehicles.
Source: Bank Mission, PETROBRAS
August 1990



- 37 -
Page 1 of 2
sli" I.I - D,ffiO
1.          Since 1980, energy consumptLor. has increased more rapidly than GoP
and urgent attention needs to be given to the rational use o' energy, especially
in industry. Various indices of energy Lntensity for the economy show an upward
trond relative to the unit value of output.  For example, the aggregate final
consumption of energy as a whole and energy excluding fuolwood, expressed in too
per Cz$S1OO of ODP in 1980 prices, Increased respectively from 10.15 and 8.11 in
1980 to 10.75 and 9.20 in 1987. With regard to industry, the intensity of non-
fuelwood energy consumption increased steadily from 1970 to 1987. While the
experience naturally varied between different types of industry, specific
consumption rose in a iide cross-section of Brazillan industries during the
1970s and 1980s.
2i          The pote vial for energy conservation L  high in transport, with
regard to diesel, gauoline and alcohol. The consumption of these fuels in toe
per Cr$1,000 of GDP in 1980 prices increased from 49.4 in 1980 to 51.1 in 1987.
In freight transport, the potential lies mainly within the trucking industry
itself, through efficiency improvements. Further savings could also be achieved
through inter-modal shifts, in particular if the rallways succeed in their
efforts to capture a substantial part of the increasing demand for later-regional
transport. In passenger transport, cars are responsLble for 70% of the total
energy consumed, although they account for only 24% of total passenger-kml while
buses, with 70% of the passenger-km, use only 16% of the energy. Contrary to
expectations, lower-income households own a substantial share of passenger cars
and there is some evidence that this may be due in part to the deterioration in
the level of service offered by public transport systems, especlally in urban
areas. Since the energy consumption of buses per unit of transport is about
1/12th that of private cars, there is potential for conserving gasoline and
alcohol through improving the level of service of public transportation to
attract private car usersl and the efficiency of the buses themselves could be
increased by rationalizing networks, routes and schedules, with consequent
savings in diesel. Finally, the use of natural gas in urban areas might be
feasible, in particular for buses and taxis, and should be further studied.
3.          Experience from a variety of countries shows that the level and
structure of energy prices can be a critical element in any effective demand
managemnt and conservation strategy: they can induce the desired entrepreneurial
behavior, for example, with regard to the choice of type of fuel, technological
process and investments in energy saving measures. In the case of Brazil, it can
be observed that the price of several important energy products rose more slowly
in the 1980. than in the 19708 or even declined in real terms energy consumption
may have been boosted as a result. Such was the case, notably, with gasoline,
alcohol, LPG, domestic electricity and, for most of the period, industrial
electricity.



- 38 -
mm* 1.02
Page 2 of 2
4.          In transport, aside from questions related to the price structure of
diesel, gasoline and alcohol, the Government should review its current policies
with regard to public transport tariffs: Lnotead of maintalning those tariffs at
lower levels at the expense of service quality, levels of service should be
promoted which would respond effectively to demand.
S.         The Brazil'an authorities have pursued a variety of non-price
approaches towards energy conservation, including technical methods, legislation,
education and promotion.  In 1981, the NIC launched an ambitious program
promoting the rationalization of energy use In industry. A special conservation
fund (CONSERVE) was established in 8DES to provide free energy audits as well
as conservation loans at subsidized interest rates to industry. CONSERVE was
principally a program to substitute petroleum products with electricity rather
than a broad program of energy conservation. Considerable progress has been made
but there is still scope to improve the implementation of CONlRVE.  more
recently, the Government launched a National Program of Electric Energy
Conservation (PROCEL), which the Bank is expecting to support through its
electric power lending program. Other conservation programs have generally been
less successful: the Program to Economize Diesel and Lubricants (PRODEL) has
existed since 1985 only on paper, although it was temporarily resuscitated in
December 19881 and the Program to Rationalize Energy (PROEN), set up in 1986 in
conjunction with BNDES, has to date approved only 10 projects with a value of
about US$14 million.  Given the importance of energy conservation and the
plethora of programs, an umbrella agency -- the National Program for the
Rationalization of Energy (PRONE) -- has been established under the coordination
of the Secretary of Science and Technology in the Presidency to bring about some
consistency and integration between existing programs and to establish priorities
in energy conservation.
Sources Bank Mission August 1990



- 39 -.
ANNEX 1.04
Page I of 3
1LRAZIL
HYDROCARON TRANSPORT AND PROCESSING PROJECT
PETROLEUN TRANSPORT
A. The Transport System
1.1         Brazil's transport system is extensive with about 1.50 million km of
roads, about 29,000 km of ra.lways, 35 important deep-water ports and numerous
specialized bulk-facility terminals, 40,000 km of navigable rivers and a large
number of airports and airstrips.   The backbone of the transport system is
constituted by 18 major transport corridors, mostly intermodal, that carry the
country's export and import trade traffic as well as the major interregional
flows. The modal share of freight traffic, in ton-km, nationwide is estimated
at 56% by road, 24% by rail, 16% by coastal and inland shipping and 42 by
pipeline.  Roads account for about 95Z of intercity passenger traffic.  The
transport sector (excluding own-account transport, services by truck owner-
operators and private automobile use), accounts for about 3.7% of Brazil's GNP.
B. Transport. Eneriv Consumption and Conservation
1.2         Energy consumption in the transport sector is about one-fourth of the
total energy and almost 50X of the oil products consumed in Brazil.   The
potential for conservation of petroleum and alcohol products is important. In
freight transport, the main potential for conservation of diesel-oil lies within
the trucking industry itself. Some savings, however, could also be obtained
through intermodal shifts, in particular if the railways succeed in their efforts
to capture a substantial part of the increasing demand for inter-regional
transport, resulting in particular from the densification of agriculture in the
Center-West. In passenger transport, there is evidence that the deterioration
of the level of service offered by the public transport systems is responsible
for the relatively high use of private cars, particularly in urban areas. Since
the energy consumption of buses per unit of transport is about 1/12th that of
private car users, there is potential for conservation of gasoline and alcohol
through improving the level of service of public transportation, in particular
through traffic management and the creation of bus lanes and corridors in urban
areas, improved frequencies and reduced bus occupancy ratios.
C. Petroleum Transport
1.3         The petroleum sector in Brazil is substantial and expanding and
consumes transport services in various forms.   PETROBRAS operates its own
pipeline system which is growing in importance. Partial expansion of this system
forms part of the proposed project.   Additionally, PETROBRAS, through its
transport department, meets most of its own coastal shipping requirements (all
coastal shipping is legally restricted to Brazilian ownership), and
nearly half of its international shipping requirements, the rest being provided,
as market conditions dictate, by various forms of charter service. PETROBRAS
does not operate trucking or rail services, although some 30-402 of retail
outlets for petroleum products are in fact operated by the subsidiary retailing
company BR.



- 40 -
ANNEX 1.04
Page 2 of 3
1.4         The recent development and imediate plans for expansion of the
transport activities within PETROBRAS' control can be summarized as follows:
(a)   the product PiReline system has increased from 503 km in 1970 to
3,136 km in 1980 and 3,963 in 1988.   Additionally, natural gas
pipelines now extend to nearly 4,000 km, all installed since 1980;
(b)   PETROBRAS'coastal and international shiRpina fleet has grown from
1.3 mdwt to 5.2 mdwt between 1973 and 1989. As a result PETROBRAS
in 1988 carried 522 of its crude and products in its own ships,
compared with 26% in 1973. The present strategy is to continue to
increase Brazilian carriage of international movements, but reduce
coastal shipping, in favor of pipeline movements.
1.5         In terms of total volumetric movement of products, coastal shipping
dominates. In total movements, coastal and inland waterways accounted for some
60%, railways about 20%, highways about 16% and pipelines the remainder. The
coastal shipping movements are largely from four main terminals (associated with
refineries)  to distribution terminals.    Rail movements  are  largely  from
refineries to distribution terminals with the average haul varying from a
surprisingly short 240 km to 800-900 km.   Movement of petroleum products
constitutes an important part of rail traffic--about 19% of FEPASA's and 12% of
RFSSA's total ton-km. Truck transport is g-nerally shorter haul than rail, but
can be over several hundred kilometers wher,. rail transport is unavailable. It
is, however, mainly local distribution and, although substantial in volume (of
the order of 9,000 million ton-km), it is unimportant (under 5%) as a percentage
of total estimated truck movements though presumably more important in heavy
truck movements.
D.  Potential Issues in Petroleum Transport
1.6         There are major potential issues in petroleum transport:
(a)   Trucking tariffs:  Whether trucking (and less importantly, rail)
transport tariffs are adequate to ensure long-run equilibrium in the
supply of and demand for services.   Tariffs  for movement of
petroleum products by truck (and rail) are presently set by the CNE
and based upon one-way revenue per kilometer calculations. As most
road tankers return empty, the system is logical. However, in a
country of substantially varying terrain and climatic conditions,
both of which (particularly the former) affect vehicle operating
costs (voc), and during a period of high inflation, it is by no
means certain that tariffs always reflect current operating costs.
In an analysis conducted, specifically for the petroleum product
movements in the corridors affected by this project, tariffs were
higher, by 2-11%, than the assessed voc, making adequate provision
for depreciation. Currently, therefore, the control of tariffs in
substitution for their determination by the interplay of market
forces is an issue in conceptual rather than practical terms.



- 41 -
AN .104
Page 3 of 3
(b) Coastal ship,ing. Product movement by coastal shipping raises an
issue which is a by-product of the general Brazilian tendency to
limit foreign intervention in certain areas. The ships employed are
both constructed in Brazil and manned under Brazilian manning
scales.    Both tend to produce  costs which  are higher  than
international average.  It is difficult to be precise as to the
difference from international shipping costs, but estimates show
this could be 20-25S. This is not, however, a problem which could
in practical terms be resolved by opening up the market, as the
comparatively short distances Involved in typical Brazilian coastal
movements of products would inhibit the substitution of charter for
local vessels. In other words, the high costs are more a function
of Brazilian practices than the lack of free entry to the coastal
shipping market. PETROBRAS, which, as noted earlier, is directly
affected financially, is addressing the issue by developing pipeline
systems as substitutes for coastal and land transport where the
volumes are sufficient to justify modal change and the company's
financial situation permits.
(c)   Petroleum transport planning. While the distribution of productive
activities between refineries and the balance of Brazilian
production imports and exports is subject to a rather sophisticated
model, the process of optimizing movements from refineries to
distribution centers is presently based upon much less sophisticated
techniques. It relies heavily upon the knowledge and experience of
the transportation department of PETROBRAS and while there is no
reason to doubt that the department is correctly prioritizing its
investment proposals within the limitations of its existing
knowledge of markets, it considers, probably correctly, that
development of a transportation model, compatible with computer
simulation, would greatly improve its long-term planning capability.
Accordingly, PETROBRAS has prepared the outlines of a distribution
model which would take as its starting point the consumption
patterns in the 4,000 Brazilian municipalities, and asked the Bank
for its observation.   One issue that is likely to arise is the
extent to which the optimal distribution pattern differs from that
which exists and the means by which, within budgetary constraints,
the degree of sub-optimality can be reduced (i.e. the means by which
a constrained "second best' solution can be achieved).
Source: Bank Mission August 1990



- 42 -
MNEX 2 U
BRAZIL
HYDROCARBON TRANSPORT AND PROCESSTNC PROJECT
PETRBRAS CROMM ORGANTZATrON CHART
|Petroioo Br mil,atro|
Petrobres Internaclonsl                  Petrol.o Braoil-iro S.A.                Pctrobr oDitribuldor
Potrobras Cmercto                                                               Pctrobrs Pri Qies
Int rnac70nxl                                                                      PtOUS
rP trobras M7n rnc o                                                                  brsFri ILne
|      PETROMISA                                                                         PETROFERTIL
PETROBRAS Croup
ComPony                                      Year EstabiIbhod
PETROBRAS                                           1958
pETROquisA                                          19S7
PETROBRAS-R                                         1971
ERASPETRO                                           1972
PETROFERTIL                                         1976
INTERBRAS                                           1976
PETROMISA                                           1977
INTERBIAS and PETROMISA are being liquidated.
PIlTRORAS *xpects private sctor Involvament In PETROtUISA and PETROFERTIL
Source: PETRO0RAS, August 1990



- 43 -
AMNg 2.01
Page 2 Of 2
&RAZIL
HYDROCARBON TRANSPORT AND PROCESSING PROJECT
PETROBRAS S.A. ORGANIZATION CHART
AMUCNISTRATIVE COUNCIL
President
Directors
Council Members
EXECUTrv DIRECTORATE
President
Directors
SAFETY AND         RESEARCH AND               SECTETARY             CENTRAL
ENVIRONMENT         DEVELOPMENT                 GENERAL          ADMINISTRATION
BRASILIA OFFICE                            NEW YORK OFFICE
SAO PAULO OFFICE
SALVADOR OFFICE                             LONDON OFFICE
HUMAN  |                                                DATA      [ I
PLANNING  RESOURCES MATERIAL  FINANCING ENGINEERING  JUDICIAL  PROCESSING  COZMUNIC
SERVICES   SERVICES   SERVICES  SERVICES   SERVICES   SERVICES
DRILLING  |    | EXPLORATION       PRODUCTION       INDUSTRIAL       COMMERICAL
DEPARTMENT        DEPARTMENT        DEPARTMENT       DEPARTMENT       DEPARTMENT
SOURCE: PETROBRAS, August 1990



- 44 -
MM 2.L
Page 1 of 1
EMIL
HYDROCAQBON TRANSPORT AD PROCESSING PROJECT
COSTING SYSTEM   PLEMNTATION TIMTABLE
1990            1991            1992           1993
STAGE I
installation
STAGE II
Design
Installation
STAGE III
Design
installation
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hauL                                                          ANNE 2.03
NYROC*AROM TRANSPOT AND REFIERY PROJECT                                        pop 1 of 3
PETUOLSO UaSiLeIRO 3.A.-PITURASM
I I em staotesent
(in current US ml tt1am)
198     196     1986    196      1988    1969     1990     1991     199      1993     19%4    1995      1996     199?
oros  ReveNue                  14,609  13.890  15S08  14,734   13.324  14,32    11,434  16.021   16,822   17,663   18,370   19,10s  19.889  20,"46
Products Salees              14,640  13,72   14.927  14,608   13,210  14.200   11,365   15,877  16,671   17.50%   18,205   18.933   19,690   20.471
Srvices                         168    163      160    125       114     127       *9      144      151      159      145      172      179      186
Tune                            1,951   1,955   2,127  3,221    2.820  2.900    2.307   3,137   3.242    3,393   3.5218  3.449   3,816    3.909
not Revweuib                   12,85   1193   12,960  11,512   10.5%t  11.427    9,127   12,885   13,566   14,271   14,842   15,435   16,053   16,695
operating costs                         so64     85 810  1118    1022   105I       ,      11,49    1207    12,13   13.11    13.64    1418        4,I
Foeedtock wid ref inine       824 744826  10,619   9.824  10,204    7,038   11,035   11,587   12,108   12,593   13,069  13,42    14,145
C.mwin.riextien                 30      26      38     III      108     106       77      115      121      126      131      136      142      148
GmseniluAdfnistretf ve          222    318      296    365       416    425       338      437      447      467      485     5so       525      546
TOMe                             56      52      92     105       52      53       45       57       60       63       46       68       ?I       74
Tochnfcal85Resets                20      26      71      53       S1      53       60       ST       40       43       66       48       71       74
Others                           72      s8      38     (11)   (182)  (213)    (90)   (207)   (205)   (214)    (223)   (232)   (241)   (MO1
Net operoting Icem              4,215   3,70   4,15       324      24      78     1,5      1,389    1,490    1,458    1.724    1,79     1,86     1,93
Net finrnmiat chare             3.340   1.570     517    376       230    447    (90)    395          390      396      410      433      464      500
net pertfcfpetimn In smAe.        350     312     289    251       302     500     (197)    200       200      200      200      200      200      200
Not nonoperatingcosts               3     (14)      3       3       (2)      2        2        2        a        2        2        2        2        2
Extruordfnary item                  0       0       0       0     (270)      0        0        0        0        0        0        0        0        0
Nettlnfltlvtonhadjustumts        (599)  (355)  (330)    (71)         0       0        0        0        0        0        0        0        0        0
Defore-tex proft                  49 283354               194      624     853      559    1,196    1,302    1,464    1,516    1,542    1403    1.641
inernetax                          56     214     183       0        0       0        0       84       91      102      106      109      112      115
Met profit                        53 186    341           194      42      853       59    1,113    1 211    1,61     1,10    1,453   1,491    1,526
xmmw        mm              m m           m       m        mm m                  mm                mm  



mutt                                                              AM= 2.03
U11ROCAM    TANPT AU  REFtWP  PROCT                                               po  2 .f 3
PETLO   USILEIIO S.A.-PETRURAS
Statement of Origirm & Application  of Reeore
(in current USS ol Iltfar)
t............... hi8toric .-                                        estte.
1t90-197
1964   195   1966   198        196    198     1990    199      1992    1903    1994    1996    196    1997 TOTALS
TOTAL SMCES OF FUINDS         5,139  4,602  5,906  2,238   3,097  2,417   4,192   2,950   3,272   3,610   3,72   4,154   4.452   4,739  31,241
Internt sonre8               4,420  4,567  5,665  1,525   2,599  1,9        3,940   2,406   2,679   3,017   3,251   3499   3,7    4,019  26,573
Net profIt                    53  2,125  3,411    194        624    853     558   1,113   1,211   1.361   1,410   1,453   1,491   1,526  10,123
Ptua:
Interest on long-trm debt   2,071    877    649    432      370    238    1932       204     206     216      235     261     294      333   3,661
Expensed fietsents          1,301  1,311    716    8o0      896    631      E40      622     659     66       719     762      809     864   5,942
Wet pert. In sibs. equity     39S)  (344)   230   (424)   (810)  (500)    1g9    (S00)   (500)   (500)   (500)   (50)   (500)   (500) (3,003)
Dividuin* of Vu*sidaries      20      22     30      22      22B    213      64      278     303     340      352     363      37s    3S2   2,455
Depreciatfon and oort.        429    464    515    557       497    398     356      S81     660      7e4     892   1,007   1,129   1,256   6,45
Resiblee _t value             234     24      6      31      276     40       6       58      68      78       89     101      113     126     639
Reult of ops. WI us.          176     87    107    (90)    576       So     -1S       S0      S0      S0       S0      S0       SO      S0     337
otlwr                         211      3      2       2       2       2                2       2       2        2       2        2       2      14j.
Exterml smceS                  519    235    323    713       499    492      252      542     593     593      62t     65S     692      720   446
sorrowAng                     5OO    217    249    663       44     447     112      497     s4o       8      56      610      647     675   4,213
Propos dtBDloon              0       0      0       0       0       0       0       39     138      50        a       0       0        0     235
other longw        debt        3       4      22     28      35      25     112       25      25      25       25      25       25      25     2Jr
Overrmnt credits              17      14     53      22      20      20      28       20      20      20       20      20      20       20    16
TOTAL UWS OF FUSS             5,030  3,817  3,566  4,216   3,71   2,856   2,953   2,874   3,281   3,406   3,875   4,159   4,456   4,463  30,047
Financal lnwestmmnts         321    137    206    360       167    100      115      100     100     100      100     100      100     100     615
Property, ptant   eqpet  1,732  1,729  1,678  2,254   2,147  1,661          73    1,969   2,166   2,193   2,302   2,440   2,587   2,700  17,051
Propoed projet fnwstt.        0      0      0       0       0       0       0      1ob     256      75       34       0       0        0     551
oeferred 1nwvstents            0       0       1      1       1       1       5        1       1       1        1       1       1        1      12
Debt sevIco                 2,762  1,746   1,192  1,311    1,139    80    2,08       732     738     m                866       9      90?   7,m
Am rt tion                  691    669    5       879      79     S5      116      52s 532         o55      57       5               574   4,050
Interest an t-t debt      2,01     8"     69    432       370    2       1932      20      201     216      255     261    2a        3     3,661
ividI                         1a3    19f    391    307      256    213       54      m       303     340      352     57      65       819   3,407
Ins. in long-te   ests        50       8    118    (38)       8   (123)            (226)      30     199     312      195     205      S1?   1,031
othe                            2      2      0       0       0       0       0        0       0       0        0       0       0        0       0
CInc)dec fn work. ap.       109    91   2,403  (1,977)   (621)  (439)  1,239        76      to9)             (4)     (4)      (5)   (105)



ERZIL                                                     ANNEX 2.03
NVOROCARtBON TRANSPU  ANDO SEFIUER  PIQWEC                                po3 of S
PETNOLS URA8ILLIR8 8.A.-PETROURA
Balance sheets
(in current US. ofiltifn)
..... -....hisoic....................                  ---------etfmt         ...................
1984   1985   1986   196       198    1989    1990    1991    1992    1993    1994    199         1996    1997
TOTAL ASSETS                 12,864 11.708  13,730 12,107  12,817 13,634  11,543  15.785  16,966  16,28    19,677  21,175  22,72   24.347
Cwrrent asses                 5,165  4,609  4,881  3,867   3,633  3,702   4,630   4,108B  4,302   4,505   4,679   4,860   5.068   5.243
Cash wn bans                  248    202     26      123      73     100     112      106     109      11      116      119     123      127
Marketabte securities         391    204    362    284       400    350      423      371     382      394     406      418     430      443
Accounts receivable         1,863  1.982  1,483  1,500   1.561  1.433   2.839   1,602   1,682   1,766   1,83?   1,910   1,987   2,066
Inventores                  2.581  2,111  2,650  1,861   1,518  1.719   1,167   1,923   2.019   2.120   2,204   2,293   2.384   2,480
other                          82    110    121    100        82    100       89      106      109     113     116      119      123     127
Long-term assts                 500    508    626    568       596    473      328      107     137      336     648      843   1.047   1,265
Penrmnut                      7,196  6,592  8,223  7,652   8,588  9,459   6,55   11,569  12.527  13,444   14,351  15.473  16,633  17.800
Gross fixed assets          6,257  3,936  7,388  6,215   6,28'  8,027   5.64?  11,68    13,668  15,743  17,920  20,216  22,643  25.191
Less: acuwtated dmpree'n.  (2,384) (2.623) (3,766) (3,389) (3,730) (4,128) (3,324) (5,195) (5,875) (0,659) (7,551) (8,558) (9,667) (10,943)
fet fixed assets in op.     3,873  3,313  3,622  2,826   2,556  3,899   2.323   6,490   7,79    9.084  10,369  11,658  12.956  14,248
Work in prowres               592    460    930  1,566   2,118  2.166   1,034   2,322   2,447   2,565   2,690   2,834   2,994   3,146
Fin. & dsf'Pd. firwestmnnts    2,733  2,819  3,670  3,260   3,913  3,394   3,228   2,75    2,287   1,79      1,292      981     683     446
TOTAL LIABILITIES & EWITY    12,864 11,70   13,730  12.107  12,817 13,634  11.543   15785   16,966  18,28    19,677  21,175  22,72   24,347
-Xtu m=maWu wxm                       Mm...    -    ==m...    -          m       sm.        mI
Current Uaebftities           5,128  4,165  3,636  3,973   4,148  3,626   4,597   4,047   4,250   4,448   4,626   4,811   5.004   5,204
Short-tern debt             386351 ,113  2,529   2,40?  2,272   2,118   2,699   2,834   2,976   3,095   3,219   3,347   3,481
Less inidatory deposits    (1,897) (2,238) (1,79)  0180) (1,092) (1,091)           (1,296) (1,360) (1,428) (1,485) (4.545) (1,60?) (1,671)
Accounts paydale            3,118  2,812  2,322  2,334   2,832  2.445    2.479   2,644   2,776   2,901   3,017   3, 138   6,263   3,394
LUU-term liabifitfes          2,310  1,862  1,71   1,326   1,293  1,455   1,083   1,550   1.621   1.720   1,877   2,099   2,342   2,616
irmncing  2,725   2.350  2,~~~  1.579   1,195 ~1,674        876;  1,543   1,63     1,755   1,951    2,229   2,532   2,875
Modatowy deposits            (589   (609)  (452)  (CM)   (192)  (335)          0    (309)   (326)   (351)  (C9)   (446)   (506)   (575)
s.*stdiaries                  169    106    175       10     276    100      199      300     300      300     300      300     300      300
Credits for equityilncream      5      14     28      17      13      15       0       Is      1s       15      Is       1s      15       15
Othe                            0      0       1       1       1       1       8        I       1        1       1        I       I        I
Equity                        5,426  5,682  8,319  6,808   7,376  S.553   5,863   10,188  11,096  12,117  13,174  14,264  15,382  16,527
Share capi talt6                      2    .9    ,8         ,5    ,8        ,9       ,8    3,48    3486   3,48    3,48    3,48          ,
Capital reserves            1,444  1,748      67      81      85    110       77      110     110      110     110      110     110      110
ReeLmtuiton reserv            65    5s9    704    715   1,050  1,125   1,04         1,125   1,125   1,125   1,12    1,125   1,125   1,120
Retained m. fnS.s           2.M5   2,645  4,155  3,331   3,191  3,832   1,947   5,466   6,375   7,369   8,453   9,543  10,661  11,805
NW STUBS:
ONrmnt rati o                1.01   1.11   1.34   0.97    0.83   1.02    1.01    1.02    1.01    1.01    1.01    1.01    1.01    1.01
Ddetleputy ratio             0.33   0.29   0.20   0..9    0.14   0.16    0.13    0.13    0.13    0.13    0.13    0.14    0.14    0.15



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peg 1 of 4
Notes and   su  s,tion  for
General
1.          secaus  the project is concerned only with the actlvities of
PWRaO0A8S, 8.A. (specifically transportation and refining), historioal and
forecast flnancial statements shown in this report are those of PETRO8RAS, S.A.
and do not laclude the accounts of subsidiaries which are part of the P3TROBRAS
group. Financial projections are baed on PETROBRAS historic data from 1984 to
1989, and were prepared in mid-1990 with prleos of March/April 1990 licludlng the
rate of exchange at that time. Actual financial statements for 1990 reflects
(a) the change (about 20%) in the purchasing power parity CRz/US$ as took place
between Xarch/April 1990 and December 19903 and (b) the uue of the BTN index for
asset revaluation, which underestimates local inflatlon as measured by other
indexesl accordingly the value of assets iu underestlmated.
2.          Notes on historleal financial statements and assumptions for the ba
cao forecast (shown as Annex 2.03) are provided below. Given the volatillty ln
international petroleum markets, the assumptions and cash flow projections for
a hich oil crice scenario are shown in para. 17 below.
Incm   tamnt
3.          Project salos during the historic period consisted of about 90% sales
to the domestlc market and 10% to the international market. This ratio is
assumed to remain relatively constant. It is assumed that total sales will
lncrease about 3.50 annually over the period. DomestLc retail prlces are assumed
to mirror, with a slight lag, the changes Ln international prices forecast by the
Bank.
4.          Historically most taxes were those levied by the federal government.
Following changes in the tax regime brought about by the new Constitution of
October 1988, mowt value-added taxes are now charged by the states and the
municipalities. For 1989 these comprised about 19% of gross product sales. For
the perlod 1990-1997, the total rate is forecast to be about 20% of groas
revenues. 
S.          operating oosts which are variable with volumes sold (particularly
feedotock and refining costs) are forecast to Lncrease concurrent wlth this
increase.   Depreciation is lncluded principally in the cost of feedstock,
refLnLng, technical research and development costs.
6.          net financial charges include those on both long and short term debt,
and are shown not of financlal revenues.
7.          P&rtieipation in ubsibdiries includes investments and other charges
made on behalf of subsidiaries, and are shown net of flows to PEBROBRA8 from
subsidiaries.



page 2 of 4
S.           I b n-rata costs include exchange losses from investments abroa
and other non-operating expense. Thes are shown not of non-operating revenues,
such as aset sales and exchange gains.
9.          The etrordiary it.s in 1988 was the result of a lump um  payment
from the Brazilian Reinsurance Institute for an oexlosLon on the Enchova Central
Offshore Platform in the Campos Basin (with offsettLig entries for respective
carrying value of the platform and costs incurred wLth the explosion).
10.         Inflatn e0djustuest  are made, according to Brazilian corporate
legLilation (Law 6404 and 1976), on all asset and liabllity accounts, according
to appropriate lndexes and exchange rates. As of 1988, PETROERAS began preparing
lts statements usLng monthly inflatLon adjustment, in addition to the annual
adjustments stLpulated by law, accordlng to guidelines of the Brazllian
SecurLties and Exchange Comission (with the objective of increaeLng information
available to shareholders and others). Thus, 1984-1987 statements are shown per
corporate," or Brasilian, legilation, while those of 1988-1989 are based on the
more accurate monthly, or *integral" correction. Projections for 1990 onward are
based on dollar values, thus inflation adjustments are not considered.
I1.         Income tax paid by PTROURAM  is subject to speclfle legislatLon.
PITROBRAS is exempt from income taxes on its research, exploration, refining,
import and transport of crude and petroleum derivatives actLvltLes. Thus the
standard corporate tax rate of 35% li charged on only about 10-30% of PUIROBRA,
actLvitLes. The projections assume no change Ln this element of the fisoal
reglme. As the result of a small second-quarter loss ln 1987, PETROBRAS has made
use of the lose-carry-forward provision (up to four years according to BrasLiLan
legislation).   Projections assume that the company will maLntaLn ln the
appropriate tax reglster an amount to be compensated against lncome generated
untll 1991.
Sources and Uges of Funds
12.         l nvstenat levels have ben projected on the basis of PETROBtUA
declared program of US$17 bllion to achlive 70% self-sufficLency of petroleum
supply. It has been assumed that the company will lmplement this program over
eight years (rather than the five proposed by PE5ROBRAS).
Balance Shoets
13.        zong-ter  assets include long-term securities, fLnancing, accounto
receivable (a portion of whlch is due by BLETR0M8S)I, and transactLons with
subsidiaries.
14.        Yiled asets are adjusted for Lnflation annually on the basis of
rolovant lndexs (whlch have not always kept pace with inflation, speclfLcally
in the markets for those assets, l.e. replacement value ls signlficantly higher
than book value). Projections do not aceount for any additional revaluation of
PUTACERA ' asset base, however, the costlng exercLse is likely, over the next
flve years, to cau   asset  to be lncreaLngly based on replacement costs and
over tim to reflect real replacement values.



so -
aL 2.0
Page 3 of 4
1S.         Provision for depreciatiom fo.- on a straight-line basis at various
rates based on the useful econoic life and consistent with Brasilian
logislation. Thoee rates also will be reconsidered in the review made during the
costing e*xrcise of asset valuers however, no specific changes in the forecasts
have ben made.
16.         Debt, both long- and short-term, as of end 1990 totalled US$5.6
billion equivalent, and was held 1S% in local currency (up to 12% interest), 7%
by foreign suppliers (6-10% interest) and 78% in foreign exchange (up to 12 S%
interest). Roughly 65% is held in current maturities, about 90% of which is in
US dollars, ln order to purchase crude and product imports ln the internatLonal
market. This ratio has been assumed to remain constant. Future borrowings for
investment are assumed, under the base case, to be limited to 25% of total
investment needs.
Rioh Oil Price Scenario
17.         Shown below is a summarixed cash flow forecast for a high oil price
scenario, which is based on the assumption that international crude prLces, after
the fluctuations of later 1990 and early 1991, reach U3$25/bbl by October 1991
and thereafter remain constant. This scenario maintains the same assumptions as
the base case regarding investment program, domestic price levels (paralleling
international prices generally, wlth a lag of about 4-6 months), however assu-es
an increase in debt of about US$2 billion over the five-year period. As shown,
thie results in reduced levels of internal cash generation, however enables the
company to malntain baslcally healthy financial ratios.



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nge 4.of4
HIGH OIL 110  sOsNRo
(in US$ miLlions)
AM  ma  ma  AM   ma
Revenues After Taxes            13.8        14.2        14.7        15.4        16.1
Operating Expenses              13.4        13.5        14.0        14.5        15.0
Other                            0.3         0.3         0.3         0.4         0.4
Net Profit                     0.1         0.4         0.4         0.5         0.7
Plus$  Interest                  0.2         0.2         0.2         0.2         0.3
Expensed Investments             0.6         0.7         0.7         0.7         0.8
Depreciation                     0.6         0.7         0.8         0.9         1.0
other                           (0.1)       (0.1)        0.0         0.0         0.0
Internal Sources                 1.4         1.9         2.1         2.3         2.8
External sources                 0.6         1.1         1.2         1.1         1.2
Total Sources              2.0         3.0         3.3        3.4         4.0
Investments                      2.1         2.3         2.7         2.9         3.2
Debt Service                     0.7         1.0         1.0         1.0         1.1
other                            0.2         O.S         0.6         0.8         0.9
Total Uses                 3.0         3.7S        4.28       4.7         5.2
Inc./Dec. in W.Cap.             (1.0)       (0.8)       (1.0)       (1.3)       (1.2)
PATIOS:
Internal Cash as S
of Investments               35%         41%         42%         44%         52%
Debt Service Covg.            1.6         1.7         1.9         2.0         2.3
Debt/Equity Ratio             0.22        0.2S        0.31        0.33        0.32
Current Ratio                 1.00        1.00        1.00        1.01        1.01
sources Bank Mission, PETR0O8MR
August 1990



- 52 -
ANNEX 2.05
Page 1 of 1
BRAZIL
HDROCARBON TRSPORT AND POCESSING PROJECT
PETROLEM4 SECTOR IN.VES¶1ENTR
Petroleum Sector Action Plan (PASP)
1.          In November, 1988, PETROBRAS Issued an Action Plan, the "Plano de
Acao do Setor Petroleo' (PASP), which laid out the broad lines of a tentative
development program to the year 1997. The strategic targets for the company were
to reach a domestic production of crude oil of about 1.48 million bpd by 1997,
to meet a consumption forecast of 1.54 million bpd, i.e. to attain a degree of
national self-sufficiency in oil of 962. In parallel, natural gas production
would rise to 70 million m3lday. A major portion of the production increase, for
botlh oil and gas would come from the Campos basin, with the Marlim oil field
playing a particularly important role. These highly ambitious production targets
would be accompanied by a program to reduce the costs of petroleum transport,
notably by making more extensive use of shipping and pipelines to substitute for
road and rail. PASP required an investment program which would increase from
US$3.4 billion per year. Within a few months of its publ.4 ation, PASP had become
obsolete as the Government introduced yet another. of its anti-inflationary
programs,the "Plano do Verao'.  PETROBRAS suffered drastic cutbacks in its
investment and operating budget and was forced to rethink its short- to medium-
term strategy.
2.          At the same time that PETROBRAS issued PASP, an extensive analysis
of the natural gas subsector was completed, under the auspices of the CNE. The
analysis considered the natural gas supply situation in light of the potential
market and proposed a development plan, including the investment requirements.
The plan is known as PLANGAS. Two development scenarios were examined. Under
the Basic Scenario, natural gas would be produced from known fields and delivered
through an expanded pipeline network to the principal market regions. Production
would increase by 8.5% per year and reach a level of 36.8 million ma/day in 1997.
Under the High Growth Scenario, production from known fields would be expanded
and gas would also be produced from fields which have not yet been discovered.
Production would increase 152 annually and reach 71.0 million m91day in 1997.
In both cases, some of the gas would be reinjected; some used for field
operations; and a declining portion would be lost. Heavier hydrocarbons, such
as ethane, LPG and condensate, would also be extracted. Some of the natural gas
was expected to replace town gas but in order to reach the consumption levels
projected for the lower growth scenario, the pipeline network and NGL extraction
plants would have to be greatly expanded and gas service would have to the
extended to new industrial and domestic consumers.
Sources     Brazil, Energy Strategy ang Issues Study (LAC I Energy and Industry
Division, May 1990



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Pag. I of 7
VASIL
HMYDRCARBON TUANPOR  AnD PRCSBING PRBJEC
Detailed Project DeRstrition
5RAN8POR COMPONENT
1.          This component comprises four pipeline system., of which one will
transport natural gas and the remaining three will transport white petroleum
products and alcohol. IBID map no. 21867, attached, shows the existing and
proposed systems. A detailed description of the facilities followes
2.          Santos-Sao Paulo Gas Piveline - This sub-component comprises 42 km
of 12 inch diameter gas pipeline which will deliver the Nerlusa offshore gas
(produced by Shell-Pe,ten) to Santos and Sao Paulo.   The pipe will be
manufactured to API-5LX-65 standards and will have three thicknesses, 0.281 inch,
0.2S0 inch and 0.203 inch. The pipoline will have a scraper trap at each end to
enable periodic launching of scrapers to clean the interior surface of the
pipeline in order to maintain flow efficiency. Safety shut-down valves will be
installed, spaced every 12 kilometers on average. These valves will be actuated
by high and low line pressure and by rapid pressure decrease such as would occur
during a line break. At least 10%, and up to 100% (depending on location), of
the welde will be inspected by radiography to API 1104 standards. The pipeline
will be coated externally with a corrosion resistant coating and will also be
cathodically protected from corrosion by an impressed current and sacrificial
anodes. Also included is a compressor station of 1800 horsepower to be installed
in the RPBC Refinery to pump the gas to Sao Paulo.1 A pressure regulating
station will be installed where the pipeline connects with the facilities in Sao
Paulo. The supervisory cum telecontrol system will be integrated with the Sao
Paulo regional control system.
3.          Guararema - RBPLA Products Pireline - This multi-products pipeline
will serve to transport diesel and LPG from the Guararema terminal (50 km east
of Sao Paulo) or the REVAP Refinery (near lao Jose dos Campos) to the REPLAN
Refinery (14 km north of Campinas) and to transport in the opposite direction
alcohol and gasoline from REPLAN to the Guararema terminal and RIVAl. RIVAl and
Guararema are connected by an existing 16 inch 34 km pipeline. The new pipeline
will have a diameter of 18 inch and a length of 1S3.5 km. In addition to the
pipeline, the faclilties w$il include scraper launching and receiving traps (to
enable running scrapers through the pipeline in order to maintain internul
cleanliness for high flow efficiency) at each end of the pipeline, a cross-
connection between the new line and the Guararema manifold, piping cross-
connections and an additional pump at REPLAN, and instrumentation and control
facllities to make the pipeline operationally safe. The supervisory control
system will be integrated with the regional control. The line will be buried one
I     The gas will be dehydrated offshore by Shell-Pecten.



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am  A.AL0
Page 2 of 7
meter below the surface, ln a 20-meter wide right-of-way, alongside two exLetLig
pipelines. The line will be coated and cathodically protected; '-t will be
designed to ANSI 331.4 standards and the welds will be radLographed to API 1104
standard. Block valves will be installed every 15-20 km along the line and at
all important river and road crossings. Internal corrosion detectors will be
installed at each end of the line and at low places along the line.
4.          REPAR - FlorlAnooolis Producte Pinelin - Consists of an 253 km white
products pipeline from REPAR to Florlanopolie, comprising 189 km of 10 inch line,
64 km of 8 inch lins, pump stations at RPAR and Itajai and products dietributLon
terminals at Joinville, Itajai and Florianopolis. The 8 inch and the 10 inch
pipe will be manufactured to API-5LX-65 specifications and will have wall
thicknesses of 0.203 in., 0.219 in., 0.250 in., and 0.279 in. for the 10 inch,
and 0.188 ln. for the 8 inch sizes. The pipellne will be externally coated with
a corrosion resistant coating and cathodically protected by an impressed
current. The pipeline will be buried ineide a 20 m wide right-of-way which will
allow room for future pipelines.   The line will be provided wlth scraper
launching and receiving facilities to faciLItate internal cleaning of the line.
To minimlze damage to the environment, fifteen block valves will be installed in
the cross-country section, many of these at large river and road crossings.
5.         A new pump station will be installed at REPAR where the pump will be
interconnected with the product storage tanks (anhydrous alcohol, alcohol,
gasoline, automotive and marlne diesels, jet fuel and liquefied petroleum
products (LPG). Instrumentation and control will be provided to permit product
change-over with minimum contamination. Two booster pumps of 120 hp each and two
shipping pumps of 275 hp each will be installed.
6.          Five tanks, three with cone roof and two with a floating roof
totalling 13,700 cuble meters will be installed at Joinville to store gasoline,
automotive diesel, anhydrous alcohol and alcohol, wlth batch interface control.
A truck loading station with gravity loading wlll be provided as will support
system for electricity, fire fighting water, compressed air, potable water, oily
drainage and sewerage.
7.          At Itajai, the connection wlth the pipeline will consist of
pressure/volume control, suction manifold, batch interface control, batch reeeipt
and treatment facilities, emergency shut-off and relief valves and the related
instrumentation and control system. A storage tank farm comprising four floating
roof and eight cone roof tanks will be installed with a total capacity of 51,300
m3 to store gasoline, motor diesel, anhydrous alcohol, alcohol, marine diesel and
jet fuel. Two LPG storage spheres with a combined capacity of 6,400 m3 will also
be provided. Transfer pumps and truck loading facilities will be installed.
Products will be pumped to Plorianopolis by two centrifugal pumps (one reserve)
of 360 hp each at a rate 130 m3/hr. Facilities for fire fighting, potable water,
drainage and sewerage, and telecemnunications will also be installed.



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AN"E 3,01-
Page 3 of 7
8.          At FlorLanopolLs the products to be handled are gasolLne, automotlve
diesel, alcohol and anhydrous alcohol. The connection wlth the pipaline will
conaLst of pressure/volume control, manLfold, automatic interface control,
emergency shut-off valve and a pressure rellef system.   Scraper receiving
facilitLes will also be installed. Seven tanks with a total capacity of 20,100
uE will be provided as well as a transfer/loading system comprising gravity
systems, transfer lines and loadLng platforms for five loading positLonu for the
products recelved. As ln other storage/loading statlone, supportlng utilities
systems will be Lnstalled.
9.          For the safe and economical operation of the system, a supervisory
cum telecontrol system wlll be installed whlch will provide remote read-out of
critical operating values and will permit remote, as well as local control of
the pump stations and storage tanks from a central control room as well as from
the local control centers at each site.
10.         TNMADRB - Jeoule - STABIMA Products Pineline - Thls sub-component
comprises a plpeline system consisting of 208 km of 10 inch line from TEMADRe to
Ipiau, 65 km of 8 inch line from Iplau to Jequie and 88 km of 8 Lnch line from
IpLau to Itabuna. A booster pump statlon wlth two pumps with a total capacity
of 500 hp will be installed ln Ipiau. ProvLsions will be made for a future pump
station at Valenga. About 22 km of the 10 inch line will be submerged across tw.e
BaLa de Todos as Santos and will have a wall thickness of 0.438 inches, whle the
balance of the 10 inch will have a thickness of 0.203 inches. The 8 inch lines
will have a wall thclkness of 0.188 inches. The pipelines will be buried after
the application of a corroslon-reolstant coating, the underwater portion will
have a concrete coating over the corrosion-resistant coating. The pipelines will
be further protected against corrosion by an impressed electrical current and
sacriflcial anodes.   Provisions wlll be made for lnternal cleaning of the
pLpelines by means of scraper launching and receLving traps which will also
permLt lat-nching devices which will measure any corrooion along the length of the
pipeline. The plpellnes will transport anhydrous alcohol, alcohol, gasolLne,
automotive and marine diesel and LPG.
11.         A new pump station will be built at TZZ4DRE which will be connected
to existing storage tanks in two locatlons ln the RELAX complex. Two booster
pumps wlll be Lnstalled in parallel for gasoline, dLesel, and alcohol, and three
maln pumpO ln series wlth a total of about 2,550 hp. New LPG booster pumps will
be connected to the suction side of the main pumps.   Utilities such as
electrLcity, flre flghting, water, etc., will be provided.
12.         At Jequie seven storage tanks :otalllng 29,400 m3 wlll be Lnstalled
for the liquld products as will be one sphere of 3200 m3 and another of 1,600 m3
for the storage of LPG. Two truck loading stations with meters will be provided
for the liquid products and a specLal LPG loading point as well. Utilities such
as electricity, fire protection, water, etc., will also be installed. Similarly,
Itabuna will comprise the same facilitLes except that liquLd product storage will
be for approximately 27,200 m3 and LPQ storage for 4,800 ml.



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am=s 3.01
Page 4 of 7
13.         This pipeline will be controlled remotely from the central regional
control center at TEMAPRE.   This will help ensure the safe and economical
operation of the system. Critical operating values, e.g. pressure, flow, state
of machinery, d1arms, valve position, tank level, etc., will be transmitted to
local and remote control centers, where an overview of the system always will be
available and from which operational commands will originate.
Refine-v Comoonent
14.         The RP8C refinery, situated between Sao Paulo and Santos port, was
commissioned in 1955 with a distillation capacity of 7,150 cubic meters (cm) per
day (or 45,000 barrels per day) of crude oil. over the years, the refinery
capacity was increaseod and several processing units were added. The current
capacity and configuration of process units are as follows:  (i) atmospheric
distillation: 166,500 barrels per day (b/d)I (ii) vacuum distillation: 111,600
b/d; (L-i) catalytic cracking: S0,600 btd; (iv) catalytic reforming: 10,500
b/d5 (v) reformer feed hydrotreater: 10,500 b/d; (vi) delayed coking: 29,600
b/d; (vii) HP alkylations  3,400 bld; (viii) asphalts   8,500 b/d; and (ix)
aromatics extraction (Udex):  8,800 b/d.  Utilities generation and off ites
facilities include: (i) steams 300 tph at 120 kg pressure in 2 units; 365 tph
at 43 kg pressure in S units; and 130 tph at 12.3 kg pressure in 9 units; (Li)
electricity: 37.5 NVA at 4,160 volts in 4 back pressure turbo generators; (iii)
crude oil storage of 4.2 million barrels in 24 tanks; LPG storage of 204,000
barrels in 10 vessels; and 2.85 million barrels of other main fuel products in
32 tanks; and (iv) waste treatment facilities for spent caustic, sour water, oil-
water separation (API), and biological treatment/aeration of process and storm
sewerage. Except for small amounts of natural gas and electric power purchases
from outside, the refinery is auto-sufficient in utilities. The refinery site
covers a surface area of 6.9 sq.km. of which 3.7 sq.km. is built up. RPBC
employs 2,142 personnel. It processes varying amounts of domeatic and imported
crudes and produces propane, butane and LPG, naphtha, motor and aviation
gasolines, household and aviation kerosenes, diesel oil, fuel oils, asphalt,
coke, solventa, and primary aromatics. Refinery throughput averaged 125,000 b/d
in 1986-88 or the capacity utllization averaged 75%, condltioned by the overall
optimization of costs of products supply to the domestlc market from all the
refineries of PETROBRAS.
15.         The  current  configuration  and  constituent  units'  capacities
constraLns the RPBC reflnery from producing the maximum possLble amounts of
diesel oLl. Currently, the refinery degrades sLgnifLcant amounts of potential
diesel oil (or gas oil) fractlons (streams) with low-value fuel oil by blending,
and also transfers part of such fractLons to other PETROBRAS refLneries for
upgrading to marketable dLesel oil. The Project aims at upgrading such fractlons
to increase the productlon of marketable diesel oll as well as improve the
refLnLng economics at RP8C. Furthermore, the Project will elimlnate and recover
aLb%ut 90% of the sulfur present in the fractlons which otherwise would end up,
as it does now, ln fuel oLl or low quallty but marketable diesel oil.



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page 5 of 7
16.         The Hydrodesulfurization and Treatment (HOT) Project will treat a
combined feedstock consisting of (i) atmospheric distillation unit heavy gas oill
(ii) FCC unit light cycle oill and (iii) coker unit light gas oil under high
temperature and high pressure conditions with high-purity hydrogen produced
separately to supplement some excess quantities of hydrogen from the existing
catalytic reformer unit. The treated product separates into on-specification
diesel oil liquid product and a gaseous fraction containing all the sulfur in the
feedstocks in combination with hydrogen. The sulfur-hydrogen compound in the gas
fraction in concentrated by absorption in diethanolamLne (DNA) solution, and is
oubsequently released for conversion into elemental, pure sulfur. The overall
HDT Project consists essentLally of 4 constituent units:   (i) the gas oil
hydrogenation unit; (ii) hydrogen generation and puriflcation unit; (ili) DNA
absorption and treatment unit; and (iv) sulfur recovery unit. The Project would
also include facilitles for generatlon and dlitribution of some utilities, liquLd
waste streams treatment, and interconnectLons of the Project facilities wlth the
exLsting refinery facilities. These are described below.
Hvdroaen Treatment Un&t
17.         The unit would have a charge stock capaclty of S,000 Wn per day
consistlng of heavy gas oil from atmospherlc distlllation unit, 50%; FCC light
cycle oil,  29%;  and coker unlt  light gas oil,  21%.   The feedstock is
characterized by sulfur content of O.SS%, unusually high nitrogen content of 1935
parts per milllon (ppm), cetane number of about 38, and high content of unstable
unsaturates at 2.1%. The high nitrogen content requlres the hydrogenation to be
carrled out at unusually hLgh pressure (about 90 kg), and the unit wlll be
designed to treat feedstock with up to 2.2% sulfur to provide for the eventuality
of the reflnery having to process increaseng proportlons of high-sulfur crude
olls, as well as to operate efficiently at as low as 50% throughput.  The unit
will eliminate 90% each of the sulfiar and nitrogen present in the feedstock.
Treated fias oil will be sent to the diesel oil pool of the refinery, the gas
fractLon to the DEA unit, and some light naphtha produced to the primary
distillation unit. Auxillary systems include oxygen-stripping of feedstoc!. by
live steam, in-situ water wash of heat exchangers to reduce incrustations, and
dimothyl disulfide (OMDS) injection to inhibit carbon lay-down on hydrogenation
catalyst bed. The unit design is based on well-proven technology but wlth some
modifications to take into account the unusual feedstock characteristics and
flexib$lity required, in turn based on pilot plant fac0liites at PETROBRAS and
Institut Francais du Petrole (IFP).
Hvdroaen Genegation and Purification Unit
18.         The unit would be designed to produce 800,000 n3 per day of 99.90+
purity hydrogen with feedestck consisting of refinery off gases from the existing
FCC, coker and reformer units, or of pretreated naphtha from the exlsting
reformer unit. Constituent sections includes (i) refinery offgas pretreatment
including autohydrogenation to remove unsaturates over a Cobalt-Molybdenum
catalyst, followed by desulfurization over zinc oxide catalyst to remove sulfur
compounds down to 0. 5 ppm level; (Li) steam-reforming of pretreated gas or
naphtha feedstock; (LiL) shlft conversion to convert carbon monoxide to



- 58 -
Page 6 of 7
carbon dioxide over ferrous oxide on chromium catalysti (iv) condensates
separationt and (v) hydrogen purification over molecular sieves by pressure swing
absorption (PSA) proprietory technology. The gas feedetock pretreatment section
will be designed to take into account the possible wide swings in the quality of
gae from the three different sources. Overall, the whole unit will be designed
to operate efflciently with a turn-down of 50% of the nominal capacity. All the
processes and technologies for each of the constituent sections are well
understood (basically ammonia plant technologies) and the process design has been
carried out by PNTROELS, except for the PSA technology and basic engineering,
which will be bought through UOP, USA.
DIM Unit
19.        The unit is designed to process a charge of 130,000 cm/day of off-gas
containing sulfur compounds from the gas oil hydrogenation unit. The sulfur
compounds will be absorbed in a 20% solution of DNA, and subsequently thermally
desorbed to yield acid-gas routed to the sulfur recovery unit. The unit would
be interchangeably used to treat aviation kerosene hydrogenation off-gases which
otherwise would normally be treated in the existing DEA unit attached to the FCC
unit. Essentially all the sulfur in the charge gas is concentrated in the form
of acid gas such that the remaining treated gas effluent contains less than 200
ppm of sulfur, sent to the refinery fuel system. Absorption is carried out in
counter-current flow absorption towers, the rich DEA solution is depressurized,
in the first step to remove hydrocarbon gases, and subsequently in the second
step to release the acid gas containing practically all the sulfur in the
feedstock. The lean DEA solution is filtered iA carbon filters and recirculated
to the absorption step. In case the downstream sulfur recovery unit is not
operating, all the acid gas would be routed to a dedicated flare system where the
sulfur-bearing gases will be burnt. The processes/technologies in the sections
of the unit are commonly known, and the process design and basic engineering have
been carried out by PETROBRAS.
Sulfur Recovery Unit
20.         The total acid gases, consisting of off-gases as well as acid gases
driven off from acid waters from the hydrogenation unit, plus residual of f gases
containing sulfur compounds from the existing units are treated in the sulfur
recovery unit. Two trains with a capacity to recover 35 tons per day sulfur will.
be installed.   The sulfur compounds in the feedstock off-gases, primarily
hydrogen sulfide, as well as ammonia are burned in two reaction zones with air
and reacted with sulfur dioxide formed as an intermediate product to produce
elmental sulfur. The process for converting hydrogen sulfide to sulfur (Claus
process) is commonly known. The knowhow for technology will be bought together
with basic process design. Construction of two separate trains of 35 tpd has
been envisaged to provide operational flexibility to handle fluctuations in
quantities and quality of gas stream constituting the total feedstock, as well
as to reduce the need for flaring the feedstock in c.se of malfunction of the
sulfur recovery unit. The unit will be designed to operate efficiently at 50%
turn down in each of the two trains, and to recover 90% of the sulfur in the
feedetock gases in the form of elemental sulfur of 99.8% purity.



59 -
ARMS 3.01
Page 7 of 7
UtilitLeg  and Offuites Failities
21.         Incremental utilLties and offeites facilLties ineludes (i) cooling
water system of 3,000 uS per hour consisting of coolLng tower, pumps, chemLials
dosage; (i) debottleneekLng, as required, of the exLsting boller feed water
deminerallzation systeml (LLL) expansion of the exiLting coking unlt substation
by installing a 20- mA, 138/13.8 XV transformer, as well as installing a new
substation consistLng of 2 transformers of 13.8/4.16 KV and two transformers of
13.8/0.48 RV, all for the coolLng water system expansLon; (4v) constructlon of
a new substation for the main process units consLsting of 2 transformers each of
13.8/4.16 RV and 13.8/0.48 KV; (v) acld-water treatment system of 50 tons per
hour charge capaclty to oxidize traces of hydrogen sulfide in acid waters by air
bubbling ln towers; (vL) a dedicated flaring system for acld gases capable of
handling all off-gases from the DNA unit in case of shutdown of the sulfur
recovery unitp (vii) interconnections with existing faciLities for hydrogen,
diesel oil product, naphtha byproduct, purge gases to and from the fuel gas
system, treated acid waters to process water system, small Lntermediate day-
tanks, sulfur handling and storage, and blanketing nitrogen; and (viii) a central
control room with distributed digital control system (DDS) linkage to the overall
refinery control program.
SOURCEs PETROSAS, Bank Lission
August 1990



- 60
ANNEX 3.02
Page 1 of 2
BRAZIL
HYDROCARBO TRANSPORT AND PROCSSINg PRRJECT
DRAFT TERMS OF REFERENCE
The main objective of the work in to assist P8TROBRAS in further
developing its "in-house" capability for optimizing the operation and expansion
of its transportation network.  The aim is to develop a sector-wide model,
compatible with the network optimization model presently utilized by PETROBRAS
to make operational decisions on the appropriate combination of the various modes
of transport.
The work, inter &lia, will include:
(M)     the developoent of a computerized network optimization model, based
on operatlonal research techniques;
(ii)     the projection of the consumption of the petroleum products, alcohol
and natural gas, at the level of sub-geographical areas (to be
determined) in line with the projected macro scenarios for economic
development of the country;
(iii)     development of a data base (a) for road transportation economic
costs, existing and projected capacity taking into account facllity
requirements; (b) for railways: existing systems, physical and
operational conditions, reliability, capacity of the links,
projections of the traffic demand for other products and their
impact on the capacity, economic cost of operation, facility and
rollLng stock requirements; (c) for pipelines: existLng network
capacity, utilization, operational cost   and (d) for maritima and
waterways transportation operational costs, capacity of fleet and
its utilization, waterway capacities, shore facilities, and expected
technological developments.
The work is expected co be carried out in two phases: The first
phase will focus on a speclfic region of the country, and the second phase will
cover nationwide dimensions. For practical purposes, during the development of
the firet phase, a pilot application of the model will evaluate transport
alternatives in a pipeline project under preparation.
The work will be coordinated by PETROBRAS' Transportation Division
supported by external consultants. The first phase of the work would take about
six months, and the second phase is expected to be completed over the aubsequent
eight months. The work would involve about 123 man-months out of which 63 man-
months represent the involvement of PETROBRAS personnel (including study tours
as appropriate) and about 60 man-months represent consultants' involvement.



- 61 -
ANEI= 3 .02
Page 2 of 2
RYDuRCARBON TRAN8PORT AND PROCRSsiNG PROJECT
ZjUna2c  Trainina
Training is envisaged in the following pipeline specialties (about
one month each):
Ng, of Staff      Soailtv
1           Corrosion control to cover, inter alla, cathodic protection
and intellgent Pigging,' conceptual design and maintenancet
2           conceptual  design  and  maintenance  of  instrumentation,
automation and SCADAt
a           Operation of instrumentation, automatLon  and SCADA  for
products pipolines to include product metering and produce
quality and interface controls
3           Operation of instrumentation and automation equipment for gas
pipelLness and
7           Bconomic evaluation of liquids and gas transport by plpellne.
It La estimated that four (4) instructor-months will be required.
iggrc  P1SRODRAS, Bank Mission, August 1990



i. si 0                aD 2XsztkR
6I~~. 0  .    l|X°   g-
5!   -ll                        ElO .|  3fl 
* -||  08a   ats*||
I.  -~~~~~~~~~~S



- 63 -
ANNEX S."
P2otof O
BRAZIL
HYDROCARON TRANSPORT AND REFINERY PROJECT .
UARAREMA/REPLAU PRODU. PVPELD
(Dot.. led C.t Esi.sWt In Thousnd US8)
LOCAL        FOREIGN
DESCRIPTtON                  CURRENCY      EXCHANE         TOTAL
PIPELINE
Line-ip. (Materlls)            .0"    12,70.00    12,70.10
Other Materals               Sg0        o     .m            so
Construction                   0.00    24,89.00    24,856.0
Eng A Supervision            806.00          *.00        800.
Subtotal:                    1,80.0O   83708.0          18,424.00
PUMP STATION
Equipent                     260.00          *.00        20.0
Materials                  1,484.00          0.0O      1,434.00
Construction                 042.00          0.0         942.J0
Eng A Supervision            100.0            .C0        10.0
SubtotaI:                    2,676.0           0.0       2,6706.0
Total, Base Cost             4,642.00     87,10.0       41,10.00
Physical Contingency         1,200.00      2,790.09      8,90.80
TOTAL                        5,242.00    89,758.06    46,eo0.00
Pr-co Continsency            1,80.00        ,400.0       9,700.00
GRAND TOTALs                 0,642.00    46,118.00    64,70.0
Base: JUN/SO - Dollars  NCZ8 1,519
Sources: PETROSRAS, Bank Mission
March 1901



44
WiD#ocARUN TRAMSnP    ANDE   Y PROJECT.
REPJMIAN LI PRU  PwPELINE
(Bael led Coot Ettimte ton Thousand USS)
LOCAL      FOREIGN
DESRInom                           CuRRENCY    EXoC Eu       TOTAL
PSPELNE
Right-.-Way Coat                  8$.t           f.6        399.00
Ltne-P*ip  (materials)              O.-O     O,111.OI     0,111.66
Equtpment                           0.60    1,066.60      1,666.66
Other Materials                  1,919.9         9.6      1,919.06
Constructeon                        0.      00 27n38.66    17,83.66
Eno A Supervtsion                2,66.6          9.66     2,66.66
Subtotl I                         4,719.6    $86,47.60    49,266.6
NEPAR PKW STATION
Equipmet                         1,206.00     S06.6S      2,166.66
Materials                         081.W9         0.00       931.00
Cenotruotton                      ?20.66         9.06       72.66
Eng A Supervision                 109.96         0.60       160.10
Subtotal:                         8,911.10       90.00      8,911.60
DINVILLE BASE
Land Cosot                         25.00         9.66       25.66
Equipmet                             as          9.66       650.00
Materials                         470.66         .9.        479.66
Tanks (Material)                  756.00         0.90       760.66
Tanks (Eretion)                   759.00         0.00       759.00
construction                     1,226.6         0.6      1,2256.
an a supervision                  5I90.           0 90.66   50.
Subtotl s                         4,S89.60         9.60     4,889.6
ITAJA! BSE
Lend Cos"ts.01                                   0.39.     69.00
Equipmet                         2,066.06        a.66     2,9".00
yTanks (Materiel)                2,927.66        69.6     2927.66
Spheres (Material)               2,39.66         a.00     2,899.66
Other (Materials)                1,652.66        0.00     1,528.66
Tanks (Erectlen)                 2,027.6         0.96     2,627.00
Spheres (Erection)               1,790.00        9.0      1,799.99
Construction                     2,8290          9.6 6    2,32.6
Ens a Supervision                1,8190.         9.6      1,619.66
subtotal:                         10,642.66       9.00    16,642.60
FLORNOPLIS SE
Land Costa                         2C.6          0.00       25.60
Equlipent                         65.6           9.06       s9.66
Tanks (Material)                   10.06         0.00       816.0J
Otheors (bterinle)               1,1960.         9 s.     1,156.00
Toanks (Ertlon)                  19.6.10 0,9o6.66
Construction                     1,878.00        0.00     1,878.66
Eng & Suporvtiton                 62.600         0.66        20.20
SubotalI                           5,899.OO        0.00     5,890.00
Toal, Base Coot                   34,663.79    85,447.00    71,166.66
Physicl Contingeny                 6,400.60    8,900.00      ,W86.00
TOTAL                             40,098.06    40,847.66    80,460.60
Price Contingaey                   9,366.66    5,606.00    14,809.00
ORND TOTALs                       49,8S8.66    45,847.60    95,260.60
*Bs   JEUN/so - DOIleas NCZB 1,119
Mouer k Ł999bk ISIO
marthr low          lgt Ill



Page 4.ofS
SaG? TRANSPORT NOD CONSUATION PROJCT.
rELA/J DE/IASIPRODUCTS PIECLDI
- (Dtal led Co"t estiat In Th.usaa  USd )--
LOCAL      POUSEN
1esScRi vimS             CWRIIC       uoweas       TOTAL    U OF sau
Rlght-ot-Wsy Costs       446.0         em         449.6 6. 
Line-Pipe (beterlels)      6.6    10,4M.6    10,4W.W          126
Equl_mSnt                     9     1,76.66        17m         2.6
021.., MaterIals        2,54.66        6.66     2,048.6        2.4
C.nstrustIe.to             6.0    87,5".66    87,55."         48.2
lg&Sup.rvIl.eo       8,66.6         eWe4    8Dm..           8.4
Subt8 als                6,408.66    49,7$4.66    55,m.76       ".5
TwAORE PFM STATION
Mate*a                   52.66         6.66                    0.6
Clom aele .              2.             .006      15.6         160
of- a SWOPtz              ."           0.0        2w.m         0.9
Suotal:s                 2,40.0        010i.00    8,180.6        8.7
IPW PUMW STATION
LOW Cost                  19..6                    19.6        6.6
EquIpment                856."         0.66       85.66        0.4
11||1             ~~~~~ ~~220.00  0.00     220.00       o.s
leftrutl             256.66        6.66       2.66         9.8
DV a Supervleo            79.6         6.6         790.6       0.1
Subtal: s                   00.6         0.00      900.0          .0
Lend Costs                25.660       6."        26.66        6.6
Ipmet                 2,70.00        0.66    2,766."         8.1
Spheres (Mateiel)       8,156.66       6.66     8,o.6          8.6
0th., (!bterlal.)       1,.66          0.6      1,.            1.9
Spheres (Erestle.)  1,46.6      6."      1,46.6         1.6
Co cstegatlee      8,76.66         6.6     $,76.          4.8
lag a SupervIsle       i,m.0           S."      1,065.6        1.2
Subtotal:I18,0                           6.66    18,673.66      15.7
ITAN   SAS
Lead Costa                26.66        6.66        26.06       6.6
Iquipeesti              2,76.6         6.66     2,766.66       8.2
Spheres (Meterlal)      8,156."        6.6      8,156.6        8.6
Other (MaterIel.)       1,"0.66        a."      1,070.6        1.9
Spheres (EreStIon)      1,46.          6.6      1,466.66       1.6
CeostuuotIoa         8,765.66        .6       ,7.6          4.4
lag & SupervisIon       1,13.6         6.6      1,186.66       1.8
Subtotsl:               18,926.66        6.66    18,926.66      16.0
TotSl, Sean Cos         86,416.6    59,654.00    0T,610.0      106.0
Physlo.l Coatingen)      5,93.66      8,5.66      9,406.60      19.6
TOTAL                   42,819.6    $4,634.0    96,466.6       110.1.
Me* ComtIagees           12,M.n       0,86s.    16,6.           21.6
1 TOTAL:               54,816.00    66,854.66   114,766.66   181.6
Ss:            .         -  NCZIS 1,519
$our&*: P2T11    # ,  Seaek



- 36 -
AN-  8.0
lYSROCARW IRANSPORT AND REPiN   PROJECT
AUTOMATION (ACt SYSM) COST ESTMATE
-(In USS Thousand o"lvaisot)-
L1OCAL     FOREIGN
PHASE 1                                  Qm_.c      EXCAwNGE      TOlAL
(a) talbtllSty Studie                  10.0         9.10       1,40.0
PHASE 2
SOltc Eatgeriag                     75."0       7."         784.00
O.t. led Design                  1,146.0        70.0 M."0.66
3*far 2  Dwoloom1ot                     5" 29.90| 
.  Cepotu s sod P ePhlral-                        1,128.6      1,12600
( Analyxes                               S."      1,:50.0      1,60.0
Cg Ctrol lo"                           756.0          6.Mf       156.0
Other Setwisa                          246.0          0.0        240.0
Insta lltion                       186.00      f66.66       641.0
Comissionig                        192.00      585.01       m.0"
(   Traing eWn ftaly Visit.            40066         76.6        47.09
TOTAL (Including Cstialngacto)    ,482.1     6,712.0    10,194.0
SavroPes  PETRORAS, Bank glst
Mrbch 196



- 67 -
11OROCAR11N TRANSPORT A  RFINERY PROJECT
NDT CWfKTOT COST IST?UAtES
-(In US8 Thousand of June 199)-
LOCAL      FOMOW
COST        COST         TOTAL
1) Hydrogeation Unit                 28,638.00    28,58.98    56,891.90
{2) Hydrog.notAn 4enerator Unit       8,182.00    20,91S.0    29,047.00
8  DEA Unit                           2,128 .0    8,290 500     ,412.0
Sulphur Recovery Unit                2,903.09    4,440.eo     7,843.00
Offit..                           9,652.00    *1,651.08    21,118.00
,B)  oner l                      88,440.09     1,610.800    4,484.00
Base Cost                             84,09."    $,82.        162,m7.0
Training    s  P11r.                                   0.00 08..90
Industrial SF Fty Pr90o                 20.0       2,800.08    8398.86
Physical Contingecy                   14,90.98     9,200.00    28,209.8
Price Contingeny                      21,50.00    14,2W.66    88,790.00
TOTAL COST                           126,989.98    64,282.0   26,271.98
sources: PETROSAS, Sank mission
March 1990



Pago I of 3
mg          *7>"OCAT   ^l  PROS8|8S  PROJec  1
Is
I. TRANSPORT CO1PONN3T
material                       2S.8      5.0     3.0      44.0 2      77.8
(25.8)   (5.0)   (3.0)    (-)         (33.8)
Works                          96.2              -        68.0 2    164.2
(96.2)          X-)        (-)        (96.2)
Equipmmit                      18.9              3.0      11.00       32.9
(18.9)           (3.0)      -         (21.9)
Ingineering Design
and supervision                -                 -        19.7 2      19.7
Training & Planning            -                           1.3         1.3
:~~)     (~~~)       (1.3) 3    (1.3)
Land a Eas_ments               -                 -         1.7 2       1.7
(-)             ( -)       (-)        (-)
Working Capltal                                  -        10.0 2      10.0
Total Transport Component    140.9      5.0      6.0     1SS.7       307.6
(  409)   (5.0)   L6.01       1.3J)   1 153jZ)



-~~ ~ ~ ~ 69 -
PA"e 2 of 3
I8
IS. 931133K? COMPONENT
A. HDT Unit
License and knowhow        -                -         2.3 2       2.3
Baic & Detailed            -               -           9.1 2       9.1
Ungineering              (-)             (-)            (-)        (-)
Equipment, Materials,    75.8      5.0     2.6       11.1 2    94.5
Parts (CIr/ex-worku)    (75.8)   (5.0)   (2.6)      (-)        (83.4)
Catalysts & Chemicals      4.2             -           -         4.2
(4.2)          (-)        C-)         (4.2)
Training                   -               -          0.8        0.8
Training  C..)  (-)         (0.8) 3    (0.8)
Industrial Works          8.8              -         63.9 2    72.7
(8.8)          (-)        (-)         (8.8)
DDC Syste                  -               -          2.0 2      2.0
Inland Freight, Startup,  -                -         26.82      26.8
Proj. Mgt.               f-J                                   .1-1
Subtotal             88.8      5.0     2.6      116.0      212.4
(IAM)   (5.0)   (2L)        (MAU      (2.IL)
B. A2Q RXMam
Diagnostic Study           -               -          1.4        1.4
(-)             (-)          _          _



-70- ~ ~   ~    ~ ~ ~ -
Pae 3 of 3
Engineering a Design      -               -          2.7        2.7
{-)      I-)        ~~~(2.7)    ( 2.7)
Hardware, Software        -               -          3.4        3.4
Installation            (-)             -)          (3.4)      (3.4)
Training                  -               _          0.5        0.5
(_)      (-)        ~~~(O.s) 3    (0.5)
Installation,            -                -          2.2        2.2
Commiissoning
(_)            L-I           x          J-f 
subtotal                                -         10.2       10.2
I-)             (-)         (6.6)      (6.6)
C.  Industrial Safety         -               -          3.0         3.0
Proaram                 (-)             (-)         (3.0) 3    (3.0
-    a 
Total Industrial Component  88.8      5.0    2.6       129.2      225.6
(88.8)   (5.0)   (2.6)     (10.4)    (106.8)
inum       -     2MM        mw 
1II.  TOTAL PROJECT               230.0    10       8.6      284.6       533.2
(230.0)  (10.0)   (8.6)     (11.4)    (260.0)
j/ Amts include contingencies.  Amounts in parentheses represent those
proposed for Bank finanaing.
2/ According to PETRODRAS procurement rules.
3/ Hiring of consultants, according to Bank CuLde1Lnes.
Igug=s PSTRODRAS, Bank mLssion, August 1990.



BRAZIL
HYDROCARBON TRANSPORT AND PROCESSING PROJECT
Project Implementation Organigram
Refinery Component
project
General
Desig and                                                                        Planndg and
.mr t                                                                          Catol  >e
llnager
Job 8t
Adinsratio                                                                         P1#D8 andw
SNP&W~~~~~~~~~~~~~~
Le.                |Te           Studies.               Coatcti  and |retin                  per
5113*                       SR=I                                 DIMgO                          SE?P
Constict.  Z rect. |                                                    Coutract. & amt.
Section I                                                                Section 2
So= I                                                                    51M 2



BUZIL
IYIDOCARBON TRRSPORT AND PROCESSING PROJECT
DUOUMMTION TIMETABILE
Transport Component
1989          1990           1991           1992           1993           1994
Basic Design
Detailed Design
and Route Surveys
Materials Procurement
and Delivery
Works Procurement
Pipeline Construction
Statims and TemnXalse
Testing and CoImissioni                                                             -
Training
Sources  PETOBRAS, Bank Mission, April 1990
e0w
t o0



BRAZIL
YDROCARBO  TRANSPORT AND PROCESSIN  PROJCT
IDPLEKEN?ATION TIHETABLE
HDT Component
1989         1990         1991          1992         1993         1994
Xldro_en Treatment Unit
Detailed Engineering                                               -
Critical Equipment                                                 -
Other Equipment
Electrical nastrument.
bdroen- Generation
Detailed Engineering                                             -
Critical Equipment
Other Equipment
Piping                                                             -                               -
Electrical Instrument.
DA unit
Detailed Engineerlng                                               -
Critical Equipment                                                 -
Other Equipment
Piping                                                             -                               -
Electrical Instrument.
Sulohur Recovery
Detailed Engineering
Critical Equipment                                                                    -
Other Equipment                                                                                    -
Electrical Instrument.
Offeites ltilitiss & Int'erconn.
Cooling Water System                                               -
Elecllnstrusent. System
Effluent Treatment/                                                -
Disposal System
Flare System
CGn_ral                                                               -
Civil Works                                                                                                           U



- 74 -
ANNEX 3.07
Pag. 1 of 16
RYRC~ARWON TRANPOR  AND PROCESIE  PROJECT
Industrial Safety
DRAFT TERMS OF REFERENCE
TsRoa   RISK ASSESSMENT TEA
Objective: To provide PETROBRAS with in-house capability to assure that all
their refinery unit operations are designed and operated in a manner which
mi4naizes hazards and risks to their omn workers and populations residing In
adjacent areas.
Rationale: Petroleum and petrochemical products are for the most part classified
as hazardous. They are generally flamable, in some cases (e.g., acetylene),
explosive and/or highly reactive. Many petroleum based materials are toxic as
well both in a chronic and an acute sense. With the large quantities of these
materials in storage or being processed at a given time in most PETROBRAS
refineries, an in-house capability to actually assess their safety and offer
modifications to Improve operatlons, particularly in the older, larger
installations (e.g., Cubatao) and to minimlze risk, represents a vital corporate
function.
Work Proaram: A corporate group (within DESEMA) is to be created whlch will
consist of six staff members thoroughly trained in the fundamentals and
methodologies for risk assessment and hazard analysis in five specialized areas.
In addition, three staff members will be generally available for developing new
procedures for rlsk and hazards analysis unique to PETROBRAS refinery operations.
The following specalilzed staff and skills are requiredt
Four (4) professlonals each trained in hazard and risk aspects oft
-Petroleum products storage
-Petroleum refining
-Petrochemicals manufacture
One professlonal trained in hazardous materlals management
(handling disposal, etc.)
One professional trained In toxicological risk assessment
Three (3) professionals with ln-depth training on the latest
procedures In risk analysis as applied to refinery operations
The group will be responsible for design reviews, establishing safety
programs, preparing guidelines and standards at existLig fsaclitLes (startlng
with Cubatao) and act as coordLiators with State and Federal authorities In



-75 -
ANNEX 3.07
Page 2 of 16
interpreting rules and regulations as they apply to various PETROBRAS refining
activities, and to new projects.
The group should also be involved with community awareness and
education programs and deal with technical aspects of inquiries, e.g., from
camnunity representatives.   They should be responsible for setting design
standards for community warning/response systems, as well as enhancing the
training of local authorities (firefighters, police, medical and hospital
emergency staff) in proper procedures.
Training Requirements:   In order to establish an effective team, it will be
necessary to provide appropriate training to select PETROBRAS staff (see Terms
of Reference - Risk Assessment Training). The program will consist of six short
term study tours and three scholarships for overseas university study in risk
assessmeAt.
Members of this group will be expected to actively participate in the
risk assessment study for the Cubatao refinery (see TOR for Cubatao risk
assessment).
Source: Bank Mission, March 1990



76 -
ANNEX 3.07
Page 3 of 16
DRAFT TEOMS OF REFERENCE
RISK ASSESSMENT TRAINING
1.          Obiective: Establish a special Risk Assessment Unit within PETROBRAS
so that the potential hazards of existing and proposed (e.g., hydrotreatment)
facilities at Cubatao can be addressed and PETROBRAS trained staff can actively
participate in the Cubatao Risk Assessment Study.
PHASE I: SHORT TERM TRAINING
Six (6) 2ETROBRAS staff will attend specialized training in hazard
evaluations and risk assessment in areas considered critical at Cubatao.
Courses will consist of generalized training in the methods of analysis
and the specialized computer programs available for hazard analysis, risk
assessment and consequence evaluations, as well as data requirements and
data collection programs (estimated times 1.5 months).
Subsequent to completion of the course effort, students will then spend
one to three months (see below) at actual refinery locations to work with
operational technical personnel, in on-the-job training specifically
focussed on hazards and risk reductions in refinery and petrochemical
operations:
Four professional will each spend one month at refinery
installations to study hazard and risk espects in e ach of the
following topical areas (total of three months per person).
-Petroleum products storage
-Petroleum refining
-Petrochemicals manufacture
One professional will spend one month at a refinery installation to
study:
Hazardous materials management
One professional will spend one month at a refinery installation to
study:
Toxicological risk assessment



- 77 -
Pao 4 of 16
PEAS li-LOWGUN2&UN
Three selected PETROBRAS staff members will be sent abroad to obtain
advanced (Master or equivalent) university degrees in the field of
industrial risk assessment (one year each).
Sources Bank Mission, March 1990



- 78 -
UW.p7
Pag8 5 of 16
DRAFT TIEMS OF
RIISR ASSESSMENT CUAkTAO REFINERY
1.          Objectivet To evaluate in detail, with consultancy assistance, the
hazard and risk potential of the PETROBRAS refinery/petrochemucal complex of
Cubatao and prepare a detailed program of improvements.
2.          Rationale:  The Cubatao refinery has been subject to some recent
mishaps which suggest that a rigorous risk evaluation would lead to substantial
improvements in refinery operating efficiencies, sad increase the level of safety
of both employees and local residents.
MEASE I: PRELIMINARY HAZARD IDENTIFICATION
In conjunction with staff of the (newly created) Risk Assessment
Unit, the consultant will conduct a preliminary hazard identification survey of
the Cubstso rofinery, provide in detail the risk/hazard methodologies recosuended
for use in this and subsequent phases of the project.  Major process element8
w'11 be evaluated in terms of their design para-eters, actual operating
conditions, and reliability history. It is anticipated that this effort will be
closely coordinated with the automatic process control study also being supported
as part of the Bank-financed project. The study will also lay the foundation
for the more detailed risk assessment of the Cubatao complex (estimated timet two
man-months).
In this phase, future PETROBRAS expansion and process modification
plans for Cubatao (including the hydrotreater) are to be reviewed in order to
determine any design constraints which may be necessary from a hasard/risk
perspective.   At the end of the first Phase, the consultant will present
recommendations, for PETROBRAS' review and approval, to be used in Phsse It.
PEASE II: DETAILED RISK ASSESSMENT
A detailed risk analysis of the entire complex will be conducted.
The analysis will cover all process elements of the refinery and will examine in
detail everything from deviations from good practice to quantitative hazard
evaluations (consequence analysis).' The analysis will include all planned plant
modiflcations and/or expansions.
In carrying out the analysis, the consultant Is expected to work
together with staff of the Risk Assessment Unit, considering them part of the
overall technical team. This will provide PETROBRAS staff the opportunity to
secure practical experience at their own facilities. Total estimated tinem 120
man-months.
'Detailed specifications of the model(s) to be used will be
provided by the consultant.



- 79 -
Page 6 of 16
PImE III   DEVELOPMENT OF A RISK REDUCTION PLAN
Based on the accepted recomendation stemming from Phase II, a
detailed program of hazard and risk reduction to the Cubatao complex is to be
prepared. The program is to include, but not be limited tos
-Improvements in operator practices-maintenance and operation
-Critical process elements
-Ider.ification of opportunities to reduce initiating events
-Identification of opportunities to reduce probabilities
and/or consequences of event sequences.
Possible areas to be included in the program ares
-Replacement of manual operations by automatic controls or
vice versa
-Changes in process conditions
-Changes in processing, storage and/or transport equipment
-Improved monitoring/warning system and emergency response
preparedness (in plant and neighboring community)
-Changes in plant layout
The risk reduction scheme should be in the form of an action plan and
is to be quantified to the greatest extent possible and cost estimates for each
action are to be provided, together with a timetablc. Priorities are to be
assigned to each of the proposed actions. (Estimated time: six man-months.)



- Rn -
AM= 3.07
7 of 16
3              2
03~~~ 0
. ~  ~    ~    ew.
a
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81 -
AMEX 3.07
ta* 8 of 16
DRUFT TRWS OF REPSRENCE
MILE EONV     NTL tUITRI  LNJBORATORY _OR
SPECIAL STMMIES (INITIALLY) AS TE CUBATAO  FUY
1.          Obiective:  To provide PETROBRAS with capability to collect full
range of air quality data for specialized studies, Including support In Cubatao
both for the odor evaluation and any environmental licensing requirements for the
proposed hydrotreatment facility.
2.          Ratlonale:   Environmental  Impact  analysis  as wvel  as  other
specialixed environmental studies require extensive capability for monitoring air
quality. Since the Cubatao area has had extremely serious industrial air
pollution problems in the past, air quality monitoring is essential to bring the
situation under control. As a matter of officiency, providing this capability
in a mobilized unit will offer flexibility and reduce the costs of duplicating
identical listrumentation at a number of sites. For acquiring the appropriate
equipment and utilizing it in the most efficient manner the following work phases
are considered necessarys
PEASE I: REVIEW ENVIRONMENTAL sTUDIESIPROGRAMS OF CENPES AND DEPIN TO
DETEMNE MONITOR N1-G NEEDS AND SCHEDULING (One month)
S *         A detailed in-house review of environmental studiestmonitoring
programs planned for the next five years should be conducted to determine the
types of  aeasur _ .ts to be made together with the time table(s) for the program.
PRASE IIs DETERMINATION OF ENVIRONMENTAL LABORATORY EQUIPMENT NEEDS (One
monthl
4.          Based upon results of Phase I, the types of monitoring equipment
needed for various air quality parameters will be specified.
PHASE Ills DETAILED LABORATORY DESIGN AND EQUIPMENT PURCHASE (two months)
5.          Detailed specifications will be prepared for the moblle laboratory
including monAtoring equipment, special agents, specialized heat and humidity
protection and utility support systems. The equipment will be selected, inter-
*Ua, on the basis of its accuracy, cost, robustness, ease of repair, ready
access to spare parts, and availability of suppliers technical support (repairs,
calibration, consultation).



- 62 -
Page 9 of 16
.'w IV, PUhQA  8amV  W&UG fo  mth)
6.   Upon delivery of the laboratorles, PEZTRORAS technical staff will be
trzaad in the utilization, calibration, maintenance and simple repair of all
equipwant.
Sources Book Mission, March 1990.



-83-
Page 10 of 16
DRAFT TERMS OF REFERENCE
ODOR EVALUATION AND CONTROL AT THE CUBATAO REFINERY
1.          Objectives  The purpose of th$s study is to determine the chief
sources of odor at the Cubotao refinery and implement an effective program to
eliminate the problem.
2.          Rationale:  PETROBRAS has made substantial progress eliminating
pollution from air, water and hazardous wastes at Cubatao. Nevertheless, one of
the most difficult problem remaining is that of odor control. This has proved
to be rather elusive and a source of some friction with local communities.
Protram Outlinet
PHASE I    With consultant assistance a survey based refinery-wide monitoring
system to assess likely sources of odor will be developed. The
system will include, but not be limited tos
-     Continuous in stack-monitoring throughout the refinery area.
Parameters to be measured shall include, but not be limited
to, organo-sulphur compounds, hydrogen sulfide, organo-
nitzogen   compounds,   ammonia,   phenols,    non-methane
hydrocarbons, and other likely odiferous pollutants common to
refinery operations.
-     Continuous water qualitv monitoring of liouids with exvosed
surfaces: (open flows, aeration ponds, etc.) for odor-causing
pollutants (e.g., organo-sulphur, organo-nitrogen, oxy-
organics, such as phenols, and inorganics such as sulfides,
amonias, etc.)
-     Continuous ambient air quality monitorint for odor causing
compounds noted above. Stations to be located at the refinery
(including waste disposal sites) as well as residential areas.
-    Meteorological data collection it is anticipated that the
system will be entirely automated with data collection
reduction and storage completely computerized.   Back-up
recording systems are to be provided throughout. (Estimated
time, three man-months).
PHASE-IT    Based on the accepted recomendation of Phase I, PETROBRAS will
Implement a system and collect data for a period of at least one
year.



- 84
Page 11 of 16
PHASE III   PETROBRAS will initiate a community awareness program where citizens
of Cubotao will be apprised of the study. PETROBRAS will also
develop a system of commaunity reporting, so that odor Incidents can
be recorded (location of observer, tie of incident, description of
odor, etc.).
PHASE IV    PETROBRAS with consultant support will review the data collected and
correlate rssults with the lncidence information reported by Cubatao
residents, in order to identify likely odor sources at the refinery.
PHASE V     A program of odor control will be prepared.   The progrsm will
identify the sources, specify equipment needed and preliminary cost
estimates.  Sources will be ordered in terms of priority (most
likely cause, .....  least likely).
PHASE VI    The odor control program will be tmplem_nted in accordance with the
priority schedule with a period of at least three months between
successive installations.
Sources PETROBRAS, Bank Mission, March 1990.



NYROCARION TRARSPORT AND PROCESSING PROJBCT
INDUSTRIAL SAFETY
RISK EVALUATION AND CONStOL, CUTADAO REFINERY
IHPLEMENTATION TIHETASLE
b                .               1,    1 tu    I               I             SB|
2           * -  ~so* few
tl
u..5er1  EpipaSOb
Eel~~~~~~~~~~~ les Se t.                                1t    t  1



- 86 -
Page 13 of 16
DRAF ThINS OP 
POLLUTION CONTROL. NAZARDOUS WASTE AND
WN    S UINRTAL           TRAINING AND STY TOURS
1.          Obiectives  To provide PETROBRAS with an International perspective
of how pollution, hazardous waste and environmental mau. ' -ent problems of
refivary locations world-wide are addressed to provide  usights into more
effective techuology transfer.
2.          Rationale: The relative isolation of PETROBRAS' environmental staff
from the latest world developments and practices for pollution control, hazardous
waste uanagement and nvirormental Impact analysis techniques in the petroleum
refining Industry should be elIminated.   Providing key staff members the
opportunity to visit their counterparts and long-term study will allow them to
acquire first hand knowledge on the state of the art for petroleumlpetrochemical
processing pollution management.
3.          Ayiroach:  Specialized study tours will be conducted at several
refinery locations world-wide (short term) where pollution control and hazardous
waste management  due to thetr particular nature, are  advanced.   Also,
institutions specializing In environmental Impact analysis training will be
utilized for the long term programs (e.g., several European and North American
universities). Refineries at the following locations are considered typical
(extnswive operations near major population centers):
-Los Angeles, California
-San Francisco Bay Area, California
-New Orleans, Louisiana
-Houston, Texas
-Rotterdam, Netherlands
In addition to refineries the study tours will also include visits
to environmental authorities (e.g., USEPA and USEPA research centers, selected
State Environmental Authorities)' trade organizations (American Institute of
Chemical Engineers, American Petroleum Inst1;ute, Institut Francais du Petrole)
and major engineering firms specializing in refinery designs and/or pollution
control.
S.          The  study  tours  will  be  designed  to  address  the  following
environmental issues of the petroleum/petrochemicals industry and which have been
particularly applicable to the Cubatao complex:
'States where petroleum refininglpetrochemicals manufacture Is a
sajor soctor, e.g., Texas, Loul8ianat California.



Page 14 @f 16
-Air and water pollution coutrol methods
-Haardous WastO management (including lead faming)
-Air quality modelling
-Air and water quality monitoring (analytical techniques)
-Emergency response procedures in refin mies
-Envirormental Impact assessenat
-Ecotoxicoligy
-Ground water recuperation
EstiMated time involvement:   Six staff members from th  environmental and
biotechnology division at CEEPES will participate in two short (one month) study
tours (a) each consisting of three people. One group will travel to Europe, the
other to USA. Another group of ten PETROBRAS staff members will be selected for
ahort term, (b) (two months) study tours. From this groul., two will be from the
Industry Department (DEPIN), five from the Environment Department (DESEKA) , and
thre  from the Environment Department of the Cubatao refinery.  Finally, three
candidates from DESENA will be choseA for the long term (one year) study program
Ln environmental Impact assessment.
7.          Scheduls:
PHASE IZs    Selction of Refinery location candidates (short term)
Selection of long term training institutions (2 months)
PHASE 11:   Arcange technical aspects of touras contacts with orgsaniations and
refinery personnel (one month/tour)
PHASE Ills Travel arrangements (short term and long term) (one month)
PHASE rVt  Program Implementation
Source: PETROBRAS, Bank Mission, March 1990.



~~~~~~~~~~~~~~~~~~3 O
- 88 -
'Ci 3.0.?
WaTA N. s  16
XY~~IDEtO USSR $A
1OL=TOW SaNrmL. &AR    WASTE AND Uov RN~TAL
KAaWAGDM  ST=D  TMOUS
___MMTTA?ON TnETABZ
PEASE1                      2       3         4 
. =         :
Weg S~.
2..                     aO aZ                              * .ceece
Socae: PETROB., Bank Mission
Aupzat 1990



AZ
UYDROCAIWONTRAWSPOW AND PROCESSINO PROJEC?
INUSTRIAL SAFETY COMPONENT
I*!NPLEHENTATION TIHETABLE
nmVWA Iwe 2                                                                                                      w
Iheri. USO;
It   *          oAn0 -*  2LIL* A4.
F  ~~0wo    sl Ot. o{s X
* t
I       .00_
I,~~   ~       ~                             ,       o    0         
.0                                     .I                           S
0V  a   fit   0   -it]   a  .34
*                                                                                          9..                    iII*lbttto  ie   o b  4oc  oaais  "Wlw slmr



- 91 -
Pago I of I
LOwpmugim nwamg
In MiLlion US
133  Fiscal Year      Disbursemnts         Cumulatlve          Dlsbur semnt
and Ouartqr Undino        In OU&Xt_               In
Sept. 30, 1991              40.01               40.0                   1S
Dec. 31, 1991               21.1                61.1                   24
March 31, 1992              18.1                79.2                   30
June 30, 1992               20.2                99.4                   38
rX .9z;
Sept. 30, 1992              32.5               131.9                   51
Dec. 31, 1992               i5.4               167.3                   64
March 31, 1993              3S.2               202.5                   78
June 30, 1993               24.8               227.3                   87
YY 1994
Sept. 30, 1993              13.1               240.4                   92
Dec. 31, 1993                7.2               247.6                   95
Xach 31, 1994                4.9               252.5                   97
June 30, 1994                4.5               257.0                   99
,PL1
Sept. 30, 1994               3.0               260.0                  100
1 ncludes an Initial amount of US$20.0 million to establish the Special
Accounts (US$10 million in local currency wlth Central ank,, and US$10 million
vn forelgn exhange in oomrcial banks vuoutsiLde Dal.



- 91 -
91~ ~~~~~~~~o
Page 2. of 1
MYDROCARBON TIANSPORT AND PROCESSTNG PROJECT
DISBURS4EMNT CATEGORIES
Loan Allocated                I of
(EIpressed In            Expenitures
Cateatory                Dollar Equivalent)         to, be Financed
(1)  Goods under Part A of                       )             1001 of local
of the Projects                             )             expenditures
a            net of taxes
55.700,000)             and 1002 of
)            foreign
3            expenditures
3
(2)  Civil works under Part A          96,200,000)
of the Project                              )
(3) Goods under Part B.1 of            87,600,000)
the Project                                 )
(4)  Industrial undoer Part 3.1         8,800.000)
of the Project                              )
(5)  Computer equipment, software       6,100,000)
and engineeriAg under Part                  )
B.3 of the Project                          )
(6)  Consultants' services and          5,600,000)
training under Parts A and B                )
TOTAL         260,000,000



- 92 -
AIR=E 3. 10
Pago 1 of 4
BRAZIL
HYDROCARBON TRANSPORT AND PROCESSING PROJECT
REPORTING REQUIREMENTS
1.          The following information is to be reported from time to time in
relation to the progress of work on the project and to the operations of
PETROBRAS.
2.          During the implementation of the project, quarterly reports covering:
(a)   Technical progress;
(b)   Cost estimates, expenditures and disbursements;
(c)   Comparisons with targeted action plans, e.g., training, review
diagnostic studies, etc.; and
(d)   Consultants' work
should be delivered to the Bank not later than one month after the end of each
calendar quarter.
3.          In addition, annual reports covering compliance with the loan
conditions and targets should be submitted to the Bank not later than three
months after the end of the fiscal year.
4.          Finally, PETROBRAS will be required to prepare, not later than three
months after the project completion date, a completion report summarising its the
experience with the project and the lessons learned.
5.          The following describes the reports in detail:
QCurterly Technical Progress Reports
6.          The reports should cover the following events:
(a)   physical work accomplished during the reporting period;
(b)   a comparison between the planned and actual progress;
(c)   changes, events or cunditions which would materially delay the
implementation
(d)   changes in key personnel;
(e) expected completion date.
7.          Such progress  reports  shall concentrate on the main physical
components of the project, broken down as follows:



- 93 -
Page 2 of 4
Transport comgonent
(a)   Pipelines
(b)   Pump and Compressor Stations
(c.) Tanks and Spheres
(d)   Truck Loading Facilities
Refinery comsonent
(a)   HDT Unit
(b)   Hydrogen Generating Unit
(c)   Sulfur Recovery Unit
(d)   DEA Unit
(a)   Offaites
Progress of construction should be covered in the text of the report and ahown
graphically in charts.
Construction Schedule
8.          A chart showing planned and actual progress on *a. of the principal
events referred to above shall be presented.
9.          Simplified CPM or PERT diagrams can be presented with the chatt to
give a comprehensive picture of the schedule.
Schedule of Orders and Deliveries
10.         A schedule of contracts/orders and completionsIdeliveries for
maior items of equipment and construction shall be presented in the following
form:
Description of item
Date of bid invitation
Date of order/contract
Name of supplier/contractor
Contract emoun-t
Completion/delivery dates
Original
Revised
Actual
11.         The schedule shall list major items for which contracts/orders have
been placed or bid invitations issued, and those for which bid invitations are
scheduled to be issued in the next quarter. The amount in the currency of the
contraet shall be shown and its equivalent in U.S. dollars to be rounded to the
nearest $1,000 equivalent.



- 94
Page 3 of 4
IV. ggarterly Report on Cost Estimate. Expenditure and Comitments Stagtemet
12.         The report consists of one table which should be submitted with, and
cover the same period as, the techical progress report. The figures of original
estimated costs should be those submitted to the Bank.
13.         The table should show any substantial changes In the cost estimates
that have become necessary since the previous report, alongside the estimate of
the previous report and the original estimate. The reasons for such changes
ohould be explained in the text of the report. Estimates should be reviewed and
revised or confirmed at last every quarter. Such revisions may be necessary
after important contracts have been awarded.
14.         The table shall include the following:
(a)   Foreian costs-in US$
- Original estimate                        (1)
- Estimate at last report
- Revised estimate                         (2)
- Disbursements
Previous                              (3)
- This quarter                             (4)
- Total                                    (3) - (3+4)
- Balance of outstanding commitments       (6)
- Total                                    (7) - (546)
- Remaining costs to complete project      (8) - (2-7)
(b)   Local Costs
Ssme as In (a) above in US$, clearly indicating conversion date and
rates.
V.    Proiect Completion Re#ort
15.         The project completion report Is a comprehensive review of the *xtent
to which expectations and objectives at the time the loan was made have been, or
show promise of being schieved. For each major project component, the original
cost *nd construction time estimto should be compared with tho actual results
with comments on the reasons for deviations. Non-physical objectives, such as
the installation of new information systems, etc., should also be reviewed and
the degree of accomplishment described, with an analysis of the reasons 'or any
delays or lack of success.
16.         The report should also covert whenever appropriate, the followings
(a) The mAjor problems (physical, financial, management, etc.) whiach
have arisen, why they arose, and what was done to solve them or
minimize their effects;



- 95 -
a 3.1
Pago 4 oi 4
(b) the performance of consultants *nd contractors;
(c)   any unusual features of procurement or disbursmeants
(d) any unusual procedureq of the Bank which gave rise to problems;
(e)   staffing and training aspects of the project;
(f)   aay deviation from the original financing plan and reasons;
(g) any problems or changes of an environmental or sociological nature;
(h)   any actions which need to be taken in order to maximize the benefits
from the projects (associated investments, further teecnical
training or advisory services, etc.).
17.         In brief, the report chould review the appraisal of the project in
the light of events to date in order to determine if the original basic
assumptions and judgments have turned out to be substantially correct.
Source: Bank Mission, March 1990.



-96-
PVg* 1 of 14
1.          The project comrises sVon sts of subprojects only five of which
a0 amenable to detailed economic analysis. These comprlse: (a) substitution
of thre product pipelLnes for sea and land transport; (b) constructLon of a
natural gas pLpeline; and (c) a hydrotreatm  t plant i one import refinery. The
two element where the analysis ia qualitative rather thn quantitative, comprise
optimLxatton automation processes and pollution reduction and account for less
thAn 5% of the total project costs.
2.          The oconomLc benefits and costs are established on the basis of
financaLl beneflts and costs, excluding taxes and subsidies. go signLficant,
quantifLable, externalities are present and there soes no more persuasive reason
for employLng non-offLaLal than official business exchange rates. Where the
benefits result form substitution of plpellnes for land transport, vehicle
operating costs derlved from the World Bank Highway Development Nodel (1DM) are
employed and where substitution for coastal shLpping i the basis. 8razILan data
checked against international shlpping data are employed.
Lcnoc AnaILssi
3.          The following table summarlsed th results of the economlc analysis:
_ _ S3RR - 
sUMSXTIVZTY      ANALYSI8
PQISr la.lot  (R (minimum ERRI    (Fuel Pr.)
1) mRWAR - FlorLanopolis Pipeline        19       22           15         13      21
2) TMQADRU-Jeqpie-Itabuna                16       18           22         15      18
3) REPLAN - Guararema Pipeline           38       33           28         36      41
4) Santos - Sao Paulo  asline            18       27           1S         1S      28
5) RP8C Hydrotreatment Plant              a                    U          U 1
Weighted average                         21       22           16         18      29
The maln features of the economic analyses of the prLncipal sub-component groups
are described belows



- 97.
Pago 2 of 14
DPrdak -   MItMal-PoinnlsPoutiein
4.         This sub-project comprises a 10' diameter plpeline from the RIPR
refinery to Itajai (189 km) and an 8  diameter pipelLne from ztajai to
Florianopolis (64 km). The pipelie would substitute for a (i) me transport
of products frm the ports of Santos and Paranagu  to Ztajal port; nd (L43
reduce average land transport distances by substituting distribution for
Joinville, ItajaL and PlorianopolLe for the preent distribution concentrated on
Stajai. Analysis at the pzr-feasibility stage indicated that construction of a
systo from the refinery to Plorianopolis yielded higher economic beneflts than
construction in two discrete stages.  This economic analysis is therefore
confined to consideration of the complete pipellne.
5          The base year (1991) traffic, together with projections to 2010 at
3.0% pv.. increase ar shown in Table 6 (the 1989 traffic was about 6% lowvr).
The pipeline diameters are basically geared to accommodating the higher traffic
level. As the costs of marginal increments ln pipeline capacity are basically
the squar root of the capacity increase it is clearly preferable to build in
sufficient capacity, rather than risk having to install a second pipeline.
6.         A particular feature is that the capacity of the berth at Itajai,
presently used for the discharg of petroleum products, is limited in two
respectst (i) it is physically impossible to increase the capacity of the berth
and associated storage capacity, due cto ncreachbent of surrounding urban
developentt and (Ui) the river depth limits the sise of ship which can enter the
port and, in practice, means that the tylp'.,al product tanker enters only two-
thirds full. to ensure consistency betwen the capacity assumptions with and
without the project, an estimate of the capital cost of relocatLag the terminal
on the opposite side of the river, whore there is space for expansaon, has been
made and its avoidance considered as a benefit.   The effect of draught
mlitations come out as an abnormal cost of sa transport.
7.         The best estimate Iconodic Rate of Return (ERR) is 19% (Table 1).
SensitLvity Anlysis (on the base described in para. 29) yields a minimum RRR
of 15%.
TUI2EaDR-Jeme-Xt&         Product Pipeline
8*          Presntly, products are partly moved by land from  the TUNADRB
refinery and partly by coasta1 shipping to the port of Ilbeus, last of the larger
city of 1tabuna. The port is a major cocoa export terminal and an a result,
interference occurs between petroleum vessels and cocoa ships, which use the sam
berths, during the six-months cocoa seaoon. Some plans to expand the port with
a dedicated berth exist, but physical work hae not started. As the data on the
leel of congestion which occurs during the cocoa season is inconclusive the
benefLt, due to eliminating such congestion, is not quantified in this analysis.
ther are no draught, nor significant storage limitations on petroleum vessel
operstions. Tih proposed project would also reduce land transport costs by
estabishing two teralnals, at Jequpl and Stabuna, instead of the present singl1
Zlheu  teinal.  PDTIOIRAS believes that this corridor has above normal



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Page 3 of 14
potential for consumption of petroleum produets and accordingly r"edict a growth
vat. of 5.5 p.a. Table 6 shows the base and final year traffic volumes on this
basis.
9.         The best estimate tRR is 16% on the abov conservative assumptions
(Table 2). Sensitivity analyses described in para. 30 yield a minimum RO of
12%.
PWLAM - Guararea P?oduct Pipeline
10.        This is a 180 pipeline which would parallel the existing 240 products
pipeline between REPLAN and Guararemf terminal (1S3 km) and complement the
RUPLAN-sar eri terminal pipeline to tbe West. These, and other terminals, are
part of the complex of four interconnected refineries ln Sao Paulo State.
11        SThe aEPLIN refinery primarily serves the mid-West region of Brazil
and has a planned capacity increase of about 25% to 60,000 mV/day of products.
Because of refinery characteristics, products are transferred between REPLAN and
other refwneris, principally REUAP (via the Guararema terminal). Without the
propoed pipeline, the system could not accommodate the incremental flows which,
in that case, would have to be transported by road. The benefits accordingly
reflect the avoidance of this more expensive transportation form.
12,        The now pipeline diameter (I8") is designed to accommodate demand
growth to about year 2000. This comparatLvely short time horizon was chosen
because of uncertainty about speed and cha.acteristics of modifications to the
other three refineries in the rgion whLch, as noted, are closely integrated.
The benefits are thus held constant for at least 10 years of the project analysis
period.
13.        The best estimate ORR is 38% (Table 3). senitivity analysis on the
basis $escribed in para. 31 yields a minimum MRt of 28%.
atural  aS Pinelin - 8antos-Sao Paulo
14.        PeTRORAS has currently two important obligations concerning natural
gas supply. These are a contract with COMGAM to supply 3. 0 m3/day to the Sao
Paulo system by 1994 and a "take or pay" contract with Shell/Pecten for supply
of non-associated gas from the Nerluza field off Santos, which takes effect at
approximately the same timo.
15.        The Nerluza gas is from a field with reasonably clearly defined
potentalI, and while the contract allows flexibility, in practice PETROBRAS
expect to receive a sustained flow averaging 1.5 m m3/day over about 19 years.
in the absence of a pipeline connection with Sao Paulo, a substantial part of
this production - about 60% - would have to be employed in the RPBD at Santos
as a low value input, or flared off, while only about 0.6 a mV/day could be
absorbed by industrial in the Santos ara.
16.        with the proposed gas pipellne, the flow of gas would depend largely
upon the dmwnds of the Sao Paulo market, whLch in turn would depend upon the
sped of development of the local distribution system, and the extent to which



_ 99 -
Page 4 of 14
supply was met by gas from the Campos field, Northeast of Rio. At a minimum, the
aforementioned 0.9 m m3/day would probably be passed through. For the purpos
of analysis, 1.2 m m3/day ti assumed to be fed to Sao Paulo. This is well wlthin
the plpellne capacLty whlch le designed to accept the mamu  flow of 2.3 a
m3/Gay.
17.         The Sao Paulo market has been analyzed in detail by CONMAS during
appraisal of SPNGDP. This study postulated an lnterfuel substitution pattern in
which the total supply of natural gas by the year 2000 would replace other energy
sources as follows: (as percentages of gas supply 72% of fuel oil, 8% naphtha,
and 12% of low voltage electrlclty. Because the cost ;.' electrLcLty is very hlgh
compared with other fuels, the benefits from natural gas supply are very
sensitive to the extent of electrLcity substLtution. Furthermore, more analysis
is necessary to establish why users of electriLcity, who presumably could have
changed to a comparatLvely close substLtute for natural qas, such as LPC/naphtha,
have not already done so. AccordLngly, the conservative approach is taken in
this analysis that only fuel oil, LPG and naphtha wlll be replaced, in the
*.roportions of 76112112 by year 2000. The economic costs of the replaced energy
sources are based upon the analyals carried out for the Sao Paulo Natural Gas
Project.
18.         The economLc costs include the pipeline investment costs, plus a
proportLon of the investment costs not already expanded, on establishment of the
distribution system. Again a conservative approach has been adopted: 40% of the
non-expended estimated costs, including investments by LndustrLal users, have
been attributed to the project (40% is the estimated contribution of the Merlusa
gas to the total Sao Paulo supply).
19.         The economic cost of the Merluza gas is assumed to be the payment to
Shell/Pecten a foreLgn company. The payment formula calls for PETROBRAS to pay
Shell/Pecten on a sliding scale with respect to fuel oil prLces  the greater the
off-take rate, the lower the percentage payment.  The proposed 1.5 ml/day is at
the boundary of two rates, and the higher rate is employed in this analysisi
again, a conservative assumption. The fact that the gas li non-associated would
normally suggest that a depletion premium would be applicable on the grounds that
it is a non-renewable resource that could be retained ln sLtu for future use.
However, this does not seem to be the case under the existing contract. The
initiative for the supply of the minimum contractual flow (1.2 m m3/day) rests
with Shell/Pecten. The company will supply the gas to shore, and at that point
PETR08RAS have, Literally, to use it or lose lt: PETROBRAS can only accelerate
deliveries not reduce them. In effect, the depletion premium L subsumed within
the payment to Shell/Pecten which s diroectly linked to quantity.
20.         On the basis of the above assumption whlch do not include any real
priee Lncreases for natural gas or products, the ERR is a fully acceptable 18%.
(Table 4) SensitLvity analysis, described Ln para. 31 ylelds a 15% mnimum ERR.



100-
AM  3.11
Page 5 of 14
Hvrtretmn_Cm(nntIRT
21.         The econceic costs are based on the costs of upgrading the Cubatao
refinery by the introduction of HDT. As for the other components, they exclude
taxes and subsidies, and aro not shadow priced.
22.         The benefits stem primarily from the fact that gas oil fractions
whioh are pWt.entially usable for the production of (relatLvely hlgh value) dlesel
currently ha'e to be down-graded Lnto fuel oil. Purthermore, this fuel oil La
of comparatively hlgh sulphur content and thus lower value--and lees
environmentally friendly--than the remainLng product after Litroduction of HDT.
23.         The economLc value to be attributed to upgrading the product depends
upon baslc border prle a"sumptLons and whether the product li a net import (thus
c. l. f ) or export (thus f .o. b. )    The nt directions of flow have been
establlshed for Srazll and, so far as thls refinery's products are concerned, are
not expected to alter durLng the perLod analysed. The source and destlnatLon
assumption are that net imports (LPG, H880, dlesel, naphtha) will originate ln
the Mediterranean and net exports (L810 and regular gasolLne) will be destlned
for the US Gulf. Varyiag those assumptLons to agree with PUToBURAS assumptLon
of imports of LPG from Angola and Caribbean sources/destLnations for other
products has little effect on the analysis  LLkewlie, to maLataLn consLitency
wlth the analyrsi of other sub-projects, and also because of the notorLous
dlfflculty ln forecastLng future price change of petroleum, whether crude or
products, the basLi scenario assumes constant absolute and relative product
border prLces, ln real terms. (The ensitivity analyses vary these assumptLons.)
Taking lnto account the above-mentLoned cost and benefLeLal EDT operatLng costs
over tho porLod to 2004 with the above-deflned capltal, the SRR is 23%.
24.         Associated wlth the HDT are lnvestmeLts ln assessment of and if
approprLate, LnstallatLon of advanced control and optimlzatLon systems (ACOs).
The estimated cost of these feasibility assesments and lnstallation, ln two
separate phases, is estLmated at US$11 mllIlon. Lack of precise knowledge of the
level of effLcLency of PUTROBRAS existing control systems makes quantifLcatLon
of the beneflts impractLcable at preent. To test the effect of lntroductLon of
the system on the EDT economlc vlabillty, two scenarios can be postulateds (i)
the feasLbilLty studles are undertaken and show further investments unjustified.
The effect is limlted to an addltlonal expenditure of under US$2 mllion wlth an
LnsLgnLfLcant effect on the tRR; or (LL) the fasbilIlty studles justLfy
Lnstallation of the ACOs system but the beneflts fall to materLalze in a
quantlflable form. The total additional cost would be about US$11 million and
the basLc ERR would be reduced from 23% to 22%.
25.         The best estimate ERR is 23%.  (Table 5) Sensitivity analyLsi on the
basLi describod ln paras. 33 and 34 yLelds a minimum SRR of 17%.
Rpn4t444t, Amlvg"2,
2G.         senaLtivlty analyses were carrLed out for all sub-projects to assess
whether the investments were tLmely, and (LL) economlcally justified under
realistLi alternative assumptions regarding the values attributable to the maln
parameters. The rates of return ln the flrst full year of operatlon were in all



- 101 -
AMZNE 3. 1
Page 6 of 14
cages above the opportunity cost of capital (taken as 12%) and thus the
investments are not premature.
,7*;.       The variations in parameter values are sub-project specific and are
-. :.ibed below together with the results. Two observations are in orders (i)
- -n the most conservative assumption all sub-projects achieved satisfactory
Zi,s  (ii) in ome cases variations ln parameter values which are perfectly
reasonable given inherent difficulties in forecasting prices and substitution
patterns yielded ERR appreciable higher than in the base cases.
gEPAR - F12rianovolis Product Pipeline
28.         With cost increased by 10% (and other variables unchanged), the mM
is 17%; with demand growth reduced to 2.5% p.a. the ZRR is 18%; with costs
increased and demand reduced, the initial year benefit base reduced by 5%, the
NRR is still acceptable at 15%.
TEMNDRN - Jeau&e Itabuna Product Pioelkie
29.         With initial demand reduced 5% and the growth rate reduced to 3.5*
(the national average) the ERR is 14%; with costs increased by 10% the ERR Ls
13%; with costs increased by 10% the initial demand reduced by 5%, and the growth
rate reduced to 2.5% p.a. the ERR is still acceptable at 11.5%.
REPLAN - Cuararema Product Plieline
30.         With costs increased by 10%, the ERR is 36%; with benefits reduced
by 10% the ERR is 30% and with the combined effects of increased costs and
reduced benefit the ERR is still a high 28%. Because the flows represent a
balance between different directional movements of products, a sensitivity
analysis based upon overall growth is not very meaningful; however, it should be
noted that the aggregate increase under the basic scenario is only 1 7% p. a. well
below the predicted national product demand growth of 3.5% p.a.
Santoo - Sao Paulo Natural Gas Pineline
31.         There are several variables the values of which could change and
alter the ERR significantly. However, these lead to mainly positive results.
if costs increase by 10% the ERR is reduced by two percentage points to 17%; if
benefits were reduced on average by 10%, the effect would be similar, and if
costs were increased and benefits decreased the ERR would still be a satisfactory
15i%. f, however, PE!ROBRAs was able to move to the next lowest Pecten payment
basis, the ERR would increase slgnificantly to 2S%, while if the inter-fuel
substitution pattern envisaged by COMAS did indeed materialise, the ERR would
increase dramatically to 36%.  This latter figure is a reflection of the
importance the Merluza/Santos gas supply will assume if the flows from the Campos
field to Sao Paulo are restricted for any reason.
32. *The HDT wa subjected to several sensitivity analyses. A reduction
in benefits by 10% reduced the ERR to 21%, an increase in costs of the same



- 102 -
Page 7 of 14
percentage has a similar effect, and a combination of the two offects gsduces the
ERR to a still acceptable 18%. Substitution of the Orlgin/destination assumption
favored by PETROBRAS has a negligible effect as the freight costs for the main
transported product, diesel oil, are virtually identical under the two scenarios.
Mdding the costs of the AOOs system, without any attribution of benef its reduces
th ERR to 17%.
33.         On the other hand, assumption of increase real prices of products
increases the ERR. Employing Bank assumptions of a series of price increases
based upon the hypothesis that Arab Gulf crude oil prices will increase from
$16.2 bbl ln 1989 to $18.2 In 1997 and $20.9 in 2004 increases the ERR to 26%,
while adopting of the PETROUMS scenario which envisages an increase to $19.9 in
1997 and $21.9 in 2004 increases the ERR to 33%.
Sensitivity to Oil Price Changes
34.         Recent events have raised the question of the likely effect of an
increase in the price of crude petroleum and petroleum products and substitutes
on the project ERRs. This can only be done on a rather imprecise basis, using
restricted assumptions. The hypotheses are: i) only operating, not capital,
costs will be affected; ii) within these, only fuel and energy costs would
increase in the first instance, and the extent and speed of effects on other
operating cost components are too imprecise to be included in calculations; Lii)
neither the existing nor the proposed energy transport systems would experience
efficiency improvements which could be attributed to the above-mentioned price
increases, in quantifiable terms; and iv) the relative prices of crude, products
and substitutes would not change, in the medium tmes.
35.         Under these circumstances, a say 50% price increase would result in
a modest increase in the ERR for the three product pipelines (about 1.8%)  For
the natural gas pipeline and the HDT component, the effects depend upon the
assumptions regarding the relative product prices. If, the relative prices are
assumed to remain constant then in absolute terms the differences would increase
by 50% and the ERRs would increase correspondingly. In what seems the unlikely
event of the price of crude petroleum declining below the project benchmark price
of US$l5.8/bbl Arabian light in 1993, the adverse effect on the ERR would again
be insignificant for the three product pipelines, but greater for the natural gas
plpeline and EDT component; with a decline to US$12/bbl the base ERR would
decline to 15.1% for the pipeline and to 16.5 for the HDT plant.
otal Proiect
36.         The ERRs for the sub-projects under the sensitivity analyses
described above are summarized in Table 7.
Smug:s Dank Mission, August 1990.



- 103 -
AhIILL U
page a of 14
Table Is1: ggtPt&J
RBPAR - Flolanolio
N             A(")                3(W)      .      AT 01ETR
1            -1.20                 .00                 18.72
2             10.20                .00                 18.72
3             -2.00                .00                 18.72
4             10.00                .00                 18.72
5              1.40              13.70                 18.72
6              1.40              14.18                 18.72
7              1.40              14.68                 18.72
a              1.40              15.19                 18.72
9             1.40               18.72                 18.72
10             5.30               16.27                 18.72
11             1.60               16.84                 18.72
12             1.60               17.43                 18.72
13             1.60               18.04                 13.72
14             1.60               18.67                 18.72
is             1.60               19.33                 18.72
16             1.60               20.00                 18.72
17             5.80               20.70                 18.72
i8             1.80               21.43                 18.72
19             1.80               22.18                 18.72
20             1.80               22.95                 18.72
21            -3.20               23.75                 18.72
5   P,TR03MO Bank Mission
August 1990



- 104 -
Pag* 9 of 14
Table 2t prgduct P&ipLne
TWADR-Jegute-Itabuna
BssLo Can
N            A(N)              8(X)          RATE OF R8TURN
1             .20              .00               16.26
2           21.60              .00               16.26
3           46.10              .00               16.26
4           10.50              .00               16.26
5            1.60             14.30              16.26
6            1.60             15.09              16.26
7            1.80             15.92              16.26
a            1.80             16.79              16.26
9            1.80             17.72              16.26
10            4.30             18.69              16.26
11            1.80             19.72              16.26
12            2.30             20.80              16.26
13            2.30             21.95              16.26
14            2.30             23.15              16.26
1S            2.30             24.43              16.26
16            2.30             25.77              16.26
17           13.00             27.19              16.26
1a            3.00             28.68              16.26
19            3.00             30.26              16.26
20            3.00             31.92              16.26
21           -6.00             33.68              16.26
5igg=   P3TROBRAS, Banki NJsion
August 1990



-105-
Page 10 of 14
Tabl* 3o Pggfi= *1se ine
REPLAB - GUARA
N            &(N)              3(V)         RW? 0o RETUR
1            4.90              .00               37.76
2            9.30              .00               37.76
3           19.00              .00               37.76
4           15.00              .00               37.76
5             .20             16.20              37.76
6             .20             20.10              37.76
7             .30             24.60              37.76
a             .40             32.50              37.76
9              50             39.20              37.76
10            .60              44.50              37.76
11            .60              45.80              37.76
12            .60              45.80              37.76
13            .60              45.80              37.76
14             .60            4S.60               37.76
15            .60              45.80              37.76
16            .60              45.80              37.76
17            .60              45.80              37.76
18            .60              4S.80              37.76
19            .60              45.80              37.76
20            .60              45.80              37.76
21           -4.30             45.80              37.76
5~gas 12 38, Bank miesion
august 1990



- 106 -
Page 1 of 14
Tabl 4s P , PIulIna
Snto  - Sao Paulo
B             A"()               3(3)           RATS OF RBTURN
1            12.60                .00                18.89
2            18.90                .00                16.89
3            30.70                .00                18.89
4            24.40              16.80                18.89
5             9.90              18.00                18.89
6             9.90              19.70               18.89
7             9.90              20.60               18.89
8             9.90              22.00                18.89
9              .00              23.60                18.89
10              .00              25.20               18.89
11              .00              27.00               18.89
12              .00              29.00               18.89
13              .00              29.00               18.89
14              .00              29.00               18.89
15              .00              29.00                18.89
16              .00              29.00               18.89
17              .00              29.00               18.89
18              .00              29.00               18.89
19              .00              29.00                18.89
20              .00              29.00                18.89
21              .00              29.00                18.89
22             .00               29.00                18.89
asg~  lpzTRAm, Bank  ission
Augut 1990



- 107 -
ANM  3.11
Pago 12 of 14
Table 5t
"s ic 
N              A(M)                3(1)            RATE OF RSTURN
1             10.88                 .00                 22.98
2             23.03                 .00                 22.98
3             79.7$                 .00                 22.98
4             74.48                 .00                 22.98
5               .00               36.00                 22.98
6               .00               96.20                 22.98
7               .00               84.70                 22.98
a               .00               44.30                 22.98
9               .00               45.40                 22.98
10               .00               45.40                 22.98
11               .00               45.40                 22.98
12               .00               45.40                 22.98
13               .00               45.40                 22.98
14               .00               45.40                 22.98
15               .00               45.40                 22.98
16               .00               45.40                 22.98
gwsa1W  fSTROUA, Bank  Mission
August 1990



- 108 -
DNEX 3. 11
Page 13 of 14
Table 6s Product Plueline Plows (000i
REPAR             TUMADRl-            RLAN
Florianopolis      Jequie-Itabuna         Guararema
50kal     Incr qntal
1991              1058                 78S              10534         1234
2010              1854                2170               14528        5228
2010 1                                1509
2010 2            1691                1225
a at 3.58 p.a.
2 at 2.5% V.a.
3 Total flows to/from the refinery and increment to be carried by the nw
pipeline.
Source: PETROBRAS, Bank Mission
August 1990



- 109 -
A.NN& 3. 11
Page 14 of 14
Table 7: X8nsitkittv Analyse  U&
Saj=u biect                       (BA&JBEU                   Susitiwity RB
min     (u" text)    Max
USPAR - Florianopolis                  19                15     17              18
TZMDEE - Jequie - Itabuna              16                12     13              14
RPLAN - Guararema                      38                28     30              30
Santos - Sao Paulo                     18                15     17       25     36
RDT                                    23                17     18       26     33
TOTAL                                  21                16              -      --
5mKaes PETROBA8, Bank Mission
August 1990



- 110
AMlL31
Page 1 of 1
WEERGY TRANSPORT AND CONSERVATION PROJECT
Documents and Data Available in the Project Files
- 'qRD, "Brazil - Energy Strategy and Issues Study:  Pricing and Investment
Policy" Report No. 8502-BR, May 1990.
IBRD  S8ugar Subsector Review" Report No. 7589-BR, May 1989.
Ministry of Mines & Energy, National Energy Balance 1989 and earlier copies.
IBRD World Development Report 1989.
IBRD "Brazil - An Asseement of the Current Macroeconomic Situation" Report
No. 7540-BR, December 1988.
-BRD "Brazil-Public Expenditure, Subsidy Policies and budgetary Reform"
Report No. 7738-BR, December 1989.
PETROBRAS "Principais Indicadores" Abril de 1989.
-CNN  Subgrupo de Referencias Basicasw Relatorio Final, March 1989.
C. Feu "Investimentos Energeticos" November 1988.
EWLTROBRAS "Plano 2010" November 1989.
NaEAE "Custos Narginais de fornecimento e precos medios praticados" October
1989.
DNAEE "Nova Tarifa de Energia Eletrica: Netodologia e Aplicacao
REVISE Relatorio diagnosticos Problemas fundamentais, questoes em rgentes"
October 1988.
REVISE, "Relatorio final dos subgrupos A, B e F" September 1988.
REVISE, "Relatorio final-Kinuta" January 1989.
CUP Anuario Estatistico, Ano 1988.
P. Notoki "Politica de Precos para Combustiveis Liquidos", 1988.
CENAL "The National Alcohol Program" May 1988.
I-RD *8razil-Management and Rehabilitation Project, SAR, December 29, 1989.
I- RD "Industrial Regulatory Policy and Investment Incentives in Brazil"
Report No. 7843-BR, June 1989.
A. Rodrigues "A Politica de Precos do Petroleo Q derivados no Brazil".
A. Rodrigues "Relatorio Banco Mundial" June 1989.
PETROBRAS,   "General  Characteristics  of  Oil  Products  and  Alcohol
Transportation in Brazil"
PETROBRAS "Relatorio Nensal de Acompanhamento das Atividades de PETROBRAS"
December 1988, 1989 and 1990.
G. Bodeley "Similation of Transp  t Costs of Petroleum Products - Brazil"
May 1989.
CNE "Plangas" 1988.
PETROBRAS "Plano de Acao do Setor Petroleo" November 1988.
PETROBRAS Annual Financial Reports, 1988, 1989 and 1990.






INSET A                         A
CAMPOS                                                                                        N
COLOMnJA\J         -                                                       BASiN                         /
BAHIA
BRAZ!L                                                                                                                                               TEMADRE
VAS  J f..
AjGEMINA
~~~~~~u~~~~~~~~~u~~~~~~~~~y ~~~~~~~~DS
~~               BR~~~ASILIA
GOI1AS
G E R A I S
ESPIRITO
SANTO
@Belo HGnzonte
Vit6ria 
SAO PAULO
REPLAN                                         R-
Coc'pcc'c~~~\' ~~.c'c.%cc.c.5~~~             DJ( D~q. d. Cc'cc)                           -f.  CRAM
r  -                                                 A  
PARANA    "/
B R A Z I L
.5VU4A TEfRAc-SFS                                    HYDROCARBON TRANSPORT AND PROCESSING PROJECT
-1                  t,_-sw4 /                   \          t r15  _s
4                                                                           Oil> and Ga.FiId,
ITAf A                                                          _~4__ ..1"   G. Pfp.  ("M. in _nll ( ?
SANTA  _jx-                                                                          pr.. phi  lh.inhj.)
AARaN- '                         I                                                                                                            .)
a~fIorianopolis                                 .         0               p-i sluion                                          Ilic
0             Addhcc'to Pc',ctcg Sictaioc                    @i    Nc'tic'oa Cp'jiol 
A          ,c=cc' SIci'c. OncIcc'                       0    Sc'Inicd Citi.' a'nd 14-c'c
o#>#|lP4l^fft*-°ef~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~-    f.t-aaalBndn
pfffa 7               /                                                0 ftodc'      lIc                                                                       _. 30.
csw=Z.~~~~~~~~~~~~5                                                                                 40.
w_foffff~~~~~~~~~~~~~~~ wf _