Document of The World Bank FOR OFFICIAL USE ONLY Report No: 27480 IMPLEMENTATION COMPLETION REPORT (IDA-26290) ON A CREDIT IN THE AMOUNT OF US$30 MILLION TO THE REPUBLIC OF MOZAMBIQUE FOR A GAS ENGINEERING PROJECT March 15, 2004 Energy Team Infrastructure Group Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective January 1, 2004) Currency Unit = Meticais SDR 1 = US$ 1.47399 US$ 1 = 23,200 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CMG Companhia Mocambicana de Gasoduto (Mozambique Gas Pipeline Company) CMH Companhia Mocambicana de Hidrocarbonetos (Mozambique Hydrocarbons Company) DNCH Direção Nacional de Carvão e Hidrocarbonetos (National Directorate for Coal and Hydrocarbons) DNE Direção Nacional de Energia (National Directorate for Energy) EdM Electricidade de Moçambique (Mozambique Electricity Company) ENH Empresa Nacional de Hidrocarbonetos de Moçambique (Mozambique National Oil Corporation) ERAP Energy Reform and Access Project ERR Economic Rate of Return GDP Gross Domestic Product GoM Government of Mozambique GoSA Government of South Africa IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation MGJ Million gigajoules MGJ/a Million gigajoules per annum MIGA Multilateral Investment Guarantee Agency MIREME Ministry of Mineral Resources and Energy of the Republic of Mozambique MW Megawatt NORAD Norwegian Agency for Development OED Operation Evaluation Department ROMPCO Republic of Mozambique Pipeline Investments Company (Proprietary) Limited RSA Republic of South Africa SADC Southern Africa Development Community TA Technical Assistance TCF Trillion Cubic feet Vice President: Callisto Madavo Country Director: Darius Mans Sector Manager: Yusupha Crookes Team Leader: Joel Maweni/Marc Heitner Program Assistant: Lily Wong MOZAMBIQUE GAS ENGINEERING PROJECT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 6 6. Sustainability 7 7. Bank and Borrower Performance 8 8. Lessons Learned 10 9. Partner Comments 11 10. Additional Information 18 Annex 1. Key Performance Indicators/Log Frame Matrix 19 Annex 2. Project Costs and Financing 20 Annex 3. Economic Costs and Benefits 22 Annex 4. Bank Inputs 23 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 25 Annex 6. Ratings of Bank and Borrower Performance 26 Annex 7. List of Supporting Documents 27 Map IBRD No. 32884 Project ID: P001780 Project Name: MZ GAS ENGINEERING (ENGY) Team Leader: Joel J. Maweni TL Unit: AFTEG ICR Type: Core ICR Report Date: March 15, 2004 1. Project Data Name: MZ GAS ENGINEERING (ENGY) L/C/TF Number: IDA-26290 Country/Department: MOZAMBIQUE Region: Africa Regional Office Sector/subsector: Oil and gas (93%); Central government administration (7%) Theme: Other environment and natural resources management (P); Export development and competitiveness (P); Pollution management and environmental health (S); Access to urban services for the poor (S) KEY DATES Original Revised/Actual PCD: 03/30/1990 Effective: 10/16/1994 12/30/1994 Appraisal: 11/15/1993 MTR: 12/31/1995 03/04/1996 Approval: 06/16/1994 Closing: 06/30/2000 06/30/2003 Borrower/Implementing Agency: GOVT/MINISTRY OF MINERAL RESOURCES AND ENERGY Other Partners: DNCH, DNE, ENH STAFF Current At Appraisal Vice President: Callisto E. Madavo Callisto E. Madavo Country Director: Darius Mans Phyllis Pomerantz Sector Manager: Yusupha B. Crookes David Cook Team Leader at ICR: Joel J. Maweni Eric S. Daffern ICR Primary Author: Marc L. Heitner 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HS Sustainability: HL Institutional Development Impact: M Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The primary objective of the Project was to undertake all work necessary to enable the Government, ENH and the private sector investors to make a firm decision to develop the Pande gas reserves for export and for use in Mozambique. Secondary objectives included a minor environmental clean up relating to previous operations, preparing for gas supplies to suitably located Mozambican towns and the consequent opportunity for power supplies, training and institutional strengthening to prepare for a substantial Mozambican role in future gas operations. 3.2 Revised Objective: N.A. 3.3 Original Components: The Project was designed in two phases. Phase I was designed to establish sufficient gas reserves so that the private sector would be willing to enter into a Joint Venture Agreement to develop the Pande field. Phase I included: Cost: US$12.7 million Gas reserves enhancement through the drilling of three wells and shooting and processing 1,200 km of seismic which should bring the remaining recoverable reserves [at the Pande field] to 2 TCF; and technical assistance for a study on financing options. Cost: US$6.4 million TA, equipment, materials to enhance ENH's role as a joint venture partner and to strengthen it internally, in areas such as project management, assistance in negotiations, studies to better prepare the gas development project and ENH's position, strengthening ENH accounting and management information systems, a structured training program, work related to gas supplies near Pande and environmental support. Cost: US$1.1 million TA to strengthen the hydrocarbon directorate [DNCH] including defining environmental standards, formulating the relevant institutional and regulatory framework, tax and incentive system and appropriate training. Phase II was designed to include those tasks in which a joint venture partner will wish to have an input into the work, and where ENH's costs will be shared with the private sector partner [additional conditions of disbursements included besides the conclusion of a Joint Venture Agreement, the approval by the Council of Ministers of a satisfactory legal and regulatory framework, and the proving of sufficient reserves for the project to be able to succeed]. Phase II thus included: Cost: US$22.5 million Costs shared with JV partner including project management team, a full environmental assessment and mitigation plan, arranging finance, and engineering work. Cost: US$5.0 million Support to ENH in negotiating participation and benefits from the project, firming up knowledge of project issues, detailed work for gas supplies to Maputo and other towns, and implementation of accounting system related to Joint Venture. Cost: US$1.0 million Further strengthening of Hydrocarbons Directorate. - 2 - Phase I of the Project was consistent with its objectives as it comprised the establishment of adequate reserves to attract investors' interest, the support required to negotiate joint venture agreements, the institution building effort for ENH, the development of gas reserves for domestic use and the environmental cleanup. Phase II assumed implicitly that the Phase I program as such will not be sufficient to attract investors' interest, so that the Government would have to spend considerable amounts together with the private sector to enable the gas development project to materialize, notwithstanding the investment in three appraisal wells under Phase I. As a matter of fact, the Project evolved very differently from the anticipations at appraisal, as the conditionality attached to Phase II (insofar as the Joint Venture is concerned) became largely irrelevant. Formally, Phase II became effective in February 2001 -- by then some 80% of the Credit (before cancellation) had been disbursed. 3.4 Revised Components: The Project, as it materialized, was very different from the anticipations at appraisal on the following grounds: (i) the joint venture with the private sector to develop Mozambique's gas resources eventually materialized, but the private sector did not require Mozambique to match the funds, hence a US$17.6 million reduction in the Project cost (Mozambique acquired voluntarily equity in the export project for which it is presently negotiating financing); (ii) the amount of the Credit was reduced by about US$4.2 million; and (iii) in addition to ENH (the national oil company of Mozambique) and DNCH (the upstream regulator), two additional agencies benefited from the Credit, i.e. DNE (the downstream regulator) and UTIP (a promoter of private sector power export projects). Under the circumstances, given the central role of the IDA credit in the gas sector during Project execution, and the fact that it funded 100% of Project cost, it is best to compare the allocation of the proceeds of the Credit as estimated at appraisal, and at Credit closure: The two can be compared as follows: Project Description: Appraisal and Actual (US$ million) Category Appraisal Actual Difference Drilling and Seismic 12.8 11.1 (1.7) Phase I - Equipment/Materials 0.6 0.5 (0.1) Consultants 7.6 6.8 (0.7) Training Expenses 0.5 0.1 (0.5) Operating Expenses 0.5 3.2 2.8 Total Phase I 9.1 10.6 1.5 Phase II Equipment/Materials 0.2 0.1 (0.1) Consultants 6.8 3.3 (3.5) Training Expenses 0.5 0.1 (0.3) Operating Expenses 0.6 0.2 (0.4) Total Phase II 8.1 3.7 (4.4) New Beneficiaries (DNE, UTIP) 0.5 0.5 Grand Total 30.0 25.8 (4.2) - 3 - As the above table shows: (i) expenditures on training were considerably lower than anticipated -- as a matter of fact, NORAD and SASOL (the main sponsor of the gas export project) were the main financiers of the training program; (ii) the Credit financed considerably higher operating expenses than anticipated -- in particular the Credit funded inter alia fuel purchases, the insurance and maintenance of ENH's aircraft (which was lost at sea in 2000), vehicles and insurance expenses. 3.5 Quality at Entry: Taking into account the main objective of the Project, i.e. to firm up gas reserves and attract private sponsors, Phase I was properly designed as ENH benefited from the institutional support (legal, economic, project management etc.) required to negotiate joint ventures once the gas reserves at Pande had been firmed up. On the other hand, the design of Phase II raises a number of issues as follows: (i) when the State takes equity in a joint venture, its share, if any, will be normally funded by the sponsor, who will be compensated through the income the Project will generate, hence the provision of matching funds under the Credit was questionable; (ii) by making the conclusion of a Joint Venture a condition for Phase II, the Bank may have exercised excessive pressure on the Government to conclude an agreement early, thus weakening its negotiating position; and (iii) the components of Phase I and Phase II are identical (and the services were rendered by the same suppliers), so that the distinction is somehow artificial and arbitrary (the Bank recognized that implicitly given that Phase II represented 27% of the Credit at appraisal, and 14% at the date of closure). On balance, given the positive results of the promotional efforts, and the inclusion in the Project of the environmental and local gas distribution components, the Project is rated satisfactory at entry. The Project was consistent with the CAS (submitted to the Board simultaneously with this Project, on June 16, 1994) whose main objectives were poverty reduction (given the incremental fiscal revenues gas exports would generate) and increased self reliance through policy and institutional reform. It is questionable, however, whether the use of IDA resources in a joint venture with the private sector was consistent with the CAS -- in all probability, the feeling in 1994 must have been that the private sector would be reluctant to enter into a Joint Venture in the petroleum sector unless the Government provides cofinancing. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: Reserves figures are subject to a great deal of interpretation, so that estimates vary from one appraiser to the next. When the Project was submitted to the Board (June 1994), proven Pande's recoverable gas reserves were assessed at 1.5 TCF which was deemed inadequate to justify an export Project to South Africa (the only significant market for Mozambican gas). According to one consulting firm which applied the same methodology before and after the three IDA-funded wells were drilled, proven recoverable reserves increased from 1.642 TCF to 1.851 TCF (a 13% increase). It can be assumed that the confirmation of gas reserves at Pande encouraged the oil industry to explore elsewhere, which resulted in another commercial discovery by SASOL & al at the nearby Temane field. When SASOL decided to commit to export gas, its estimate of proven recoverable reserves at Pande, prepared by another appraiser, was 1.7 TCF -- together with 0.4 TCF at Temane, this level of reserves was sufficient to provide investors the comfort required to undertake the US$720 million investment (this Project is supported by the Bank and IFC) -- first gas deliveries started in March 2004. Given that the Government has been promoting this Project over the past 20 years or so (40 years after the initial discovery), this is a big achievement for Mozambique, and on these grounds, the achievement of the objective is rated Highly Satisfactory. - 4 - The other objectives of the Project, i.e. environmental clean up (resulting from a blow out in the 1960s which required nearly two years to bring under control) and the distribution of gas in the vicinity of the wells were achieved satisfactorily. With respect to the environmental clean up, water was desalinated, and new vegetation planted; the crater however was not filled as this was deemed too costly in relation to the anticipated benefits. With respect to marketing of gas in the vicinity of the fields, gas production has increased from 224 million cubic meter in 1994 to 2,423 million cubic meter (about 2,000 tons of fuel equivalent) in 2002, a remarkable 35% increase per annum. The gas is used mostly for power generation in the villages. ENH has entered into a Joint Venture with an affiliate of ESKOM (South Africa's main power utility) to distribute the gas, and it is essentially carried (its share of revenues are used to fund investments). The network is expanding rapidly, and two islands are expected to be connected shortly. On the other hand, the local grid is not financially viable, as the gas is not paid for -- on balance, it is important to note the importance of providing tangible benefits to the population in the vicinity of producing oil and gas fields. The training program, which benefited DNCH, DNE, ENH and UTIP included a wide range of topics from English Learning to Geophysical Interpretation (including the use of Workstations) and lasted from a week or two to one year. The institutions recognize the value of training, and continue to emphasize its importance by spelling out their requirements in detail, within the context of the budgeting process. 4.2 Outputs by components: The Seismic Survey and Drilling Program provided the investors with the necessary comfort to embark on the gas export project. Hence the output of this component is rated Highly Satisfactory. Most of the Phase I expenditures were related to a transaction with ENRON which obtained exclusive rights on the Pande Field in September 1994, and relinquished those in June 2000. During that six-year period, highly qualified advisers supported ENH (particularly legal, economic, financial, technical) as it was engaged in intensive negotiations with ENRON from time to time. While the various agreements drafted at the time subsequently supported the preparation of the gas export project as it eventually materialized -- this was certainly not the most efficient way to prepare the final transaction, particularly because frequent changes in the approach required extensive legal redrafting. By all accounts, the advisers were highly professional and they represented Mozambique's interest well. In addition, under Phase I, the expenditures on operating expenses were higher than the appraisal estimate by a factor of 6! The reliance on long-term funding for operating expenses indicates that the State was unable to support a national oil company, however desirable such a company was from a political standpoint. On the whole, the outcome of Phase I is rated unsatisfactory. Phase II of the Project became effective in February 2001, and most expenditures were related to the transaction with SASOL (given that the basic agreement with SASOL was signed in October 2000, undoubtedly some Phase I expenses were directly related to that transaction as well). Given that the gas export project materialized, the outcome of phase II is rated Satisfactory. 4.3 Net Present Value/Economic rate of return: NA 4.4 Financial rate of return: NA - 5 - 4.5 Institutional development impact: Establishing an effective national oil company is particularly challenging, given the range of skills required, the rapidly evolving technology, the importance of hands on experience, and the massive capital requirements. In the early 1990s, given the absence of investors, ENH was operating a drilling program in the Pande field with the expectation to increase gas reserves. Given that it was an operator, ENH had some 250 staff at the time. Pande is now being developed by the private sector, and ENH has deliberately ceased to be an operator, and intends to focus on the promotion of investments in the hydrocarbon sector. Hence, its staff now stands at about 120, of which 20 are located in the field and are expected to be transferred to SASOL. Of the remaining 100, some 50 work in unrelated businesses, which are expected to be spun-off. ENH has put a great emphasis on training its staff from Basic English, to Petroleum Fiscal Systems, Management of Petroleum Operations, Drilling etc. Most of the training has been provided through seminars and courses in various locations in Mozambique and abroad (certain programs lasted a year). It seems that on the technical side, ENH staff is reasonably competent. However, on the legal and financial side, considerable strengthening is required, and it is in the process of recruiting promising nationals for these functions. Overall, the corporate strategy adopted by ENH is very sensible, and at some point, consistently with Government policies, the company ought to be privatized. Overall, the institutional impact is rated Satisfactory. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: None 5.2 Factors generally subject to government control: As stated above, the ENRON transaction dominated the first six years of the Project. When the Project was submitted to the Board (June 1994), ENH was negotiating a Joint Cooperation Agreement with SASOL (South Africa) and Pluspetrol (Argentina). At the time, the Bank opined that a fourth partner should be brought in to provide pipeline expertise. The first supervision mission (July 1994) reported inter alia that: (i) SASOL's offer for the gas price had been deemed inadequate but that nevertheless, ENH was taking pains not to break the relation with SASOL; (ii) several large companies (including South African ones) were interested in marketing gas in South Africa, not necessarily through SASOL; and (iii) following a call for expressions of interest by ENH, four international oil companies including ENRON had been prequalified to own and operate the pipeline. In September 1994, the first agreement between ENH and ENRON was concluded providing inter alia: (i) for ENRON, to find a market for the gas within an 18 months period; (ii) for ENH, with the support of the IDA Credit, to confirm the gas reserves; and (iii) for ENRON, to prepare the plans for field development, gas processing and transport. For all practical purposes, the agreement provided ENRON with the exclusive rights over the Pande field without an obligation to invest in Mozambique. Shortly thereafter, ENRON proposed economic terms for the Joint Venture, which were deemed unfavorable ­ given a tight deadline, ENH began mobilizing various advisers with some urgency, in order to negotiate the terms of the agreement. During the subsequent six years, following technical consultations with ENRON, the three IDA-funded wells were drilled; and a financial adviser appointed (again, under the Credit) to handle the project-finance aspects. The main issue, however, remained the conclusion of a Gas Sales Agreement which would underpin the development of the Pande gas field. Many options were considered ­ the most - 6 - important one being a treatment plant for iron ore, initially in South Africa, and subsequently in Maputo (in cooperation with the Industrial Development Corporation [IDC] of South Africa). Under various amendments of the agreements with ENRON, the deadline for concluding a bona fide sales agreement was repeatedly deferred; the last agreement was entered into in April 1999 and provided for a 24 - 30 months extension; in late 1999, IDC withdrew from the iron ore project on account of the depression in the iron industry. In June 2000, SASOL which had by then discovered commercial gas reserves at the nearby Temane field, acquired the rights of ENRON to the Pande field for a reported US$30 million, and a few months later the Joint Venture agreement with SASOL was signed, thus enabling the implementation of the gas export project. The main objective of the Project was to develop Pande's gas reserves for exports, and indeed this objective was attained successfully. ENRON's effective control over the Pande field, however, constituted a considerable hindrance, as it invested its resources in the preparation of the transaction. In effect, the Government had to hire its own advisers at considerable expense to negotiate a venture which, after 6 years, failed to materialize. 5.3 Factors generally subject to implementing agency control: See above 5.4 Costs and financing: It was initially anticipated that the private sector would contribute US$17.6 million to the Project cost, and Mozambique/ENH, US$1.1 million. In reality, following the conclusion of the Joint Venture Agreement with SASOL, no Government financing was sought (although Mozambique got recognition for its past expenditures on Pande through an option to take equity in the upstream and pipeline portions of the export project). The Government provided financing largely for custom duties and taxes, but its precise contribution is not known, hence the final cost of the Project is taken to be the disbursements under the Credit. The US$4.2 million reduction in the Credit amount had no material impact on Project execution. 6. Sustainability 6.1 Rationale for sustainability rating: The establishment of additional gas reserves under the Project enabled the gas export project to materialize. As a 25-year sales agreement was concluded with SASOL, the State will start earning royalty income starting in 2004, and taxes after a few years; and ENH will start earning dividend income in 2005 (thus hopefully eliminating its dependence on the budget). The Project is rated Highly Satisfactory from a sustainability standpoint. One should bear in mind however that this rating is subject, of course, to the ability of the sponsors to produce, ship, and market/distribute natural gas to the consumers in the contractual quantities - the sponsors carry the commercial and technical risks of the Project and they have therefore considerable incentives to make the Project a success. 6.2 Transition arrangement to regular operations: Since the Project will be operated by competent and experienced parties, on the basis of a detailed contractual package, no particular arrangements are required for a transition period. - 7 - 7. Bank and Borrower Performance Bank 7.1 Lending: The Project was designed on the basis of a specific sequence of events i.e. additional reserves are established by the Government, joint venture is created, Government and sponsor both invest in the Project, and gas is eventually exported. The Bank should have recognized at the time that other scenarios could materialize, and that a more flexible approach was warranted, in particular with respect of the Government financing of wells in areas in which a private party has exclusive rights. The division of the Project into two phases was very artificial, and did not result in tangible benefits (except perhaps for the long-delayed passage of the Petroleum Law). Still, the specific components of the Project turned out to be very relevant including the appraisal of gas reserves, assistance during negotiations, economic and financial advice, institution building and training (as a matter of fact, the MOP includes a detailed, long-term, draft training program). On the whole, the Bank's performance at the lending level is rated Satisfactory. 7.2 Supervision: Much of the effort during supervision was focused on the transactions (both ENRON and SASOL). On the whole, the Bank's advice was very judicious, and unfortunately not always followed. For instance, with respect to the export project, the Bank recognized that SASOL controls all of its components (upstream, transport, downstream) and that its overall strategy is probably to seek gas at the lowest possible cost at the point of delivery; hence the Bank's recommendation that another oil company be associated with the venture, whose interests will be closer to GoM's, was very sensible, but was not followed. In the initial years of the Project, the Bank realized gradually that ENRON was not investing in Mozambique while holding valued acreage; however it had limited options. It rightly did not want to advise on a contract between a private party and the Government. It could have withdrawn from the Project, but this would have had very adverse consequences for Mozambique's efforts to develop its gas reserves. Eventually, the Bank's perseverance enabled the export project to materialize. The focus on the transactions resulted in less attention being paid to the environmental clean up, the local distribution of natural gas and the institution building effort. The performance of the consultants and advisers also does not seem to have been monitored much. During the last two years of the Credit, no supervision mission visited Mozambique on account of frequent changes in the Task Manager, and changing organizational responsibilities. However, this does not seem to have had an adverse impact on the project, particularly since several missions visited Mozambique in connection with the gas export project and interacted with ENH; one should note that the fiduciary requirements were complied with. Under the circumstances, the Bank performance in supervision is rated Satisfactory. 7.3 Overall Bank performance: The Project in the main part was properly designed to enable Mozambique to export gas. The execution of the Project was hindered by ENRON controlling the most promising gas reserves for six years without contributing to the materialization of gas exports. Thanks to the Bank's continuous efforts, the export project eventually emerged. Under the unusual circumstance surrounding this Project, the overall performance of the Bank is rated Satisfactory. - 8 - Borrower 7.4 Preparation: Given the high priority assigned by the authorities to the commercialization of Mozambique's gas reserves, the Government and ENH were wholly supportive -- as a matter of fact, ENH has promoted the development of Mozambique's gas reserves since its creation (1981). In the context of the Project, ENH was separated from the Ministry and DNCH was established. Hence the borrower's performance at Project Preparation was Satisfactory. 7.5 Government implementation performance: The Government played a key role in the implementation of the Project, having been a party to the agreements with ENRON and SASOL. More importantly, it assigned high priority to the realization of the gas export venture, and addressed expeditiously the various issues which arose during the different phases of the Project. In addition, its agencies (DNCH, DNE) directly benefited from the Credit. On the other hand, several strategic decisions were taken which are questionable with hindsight including the three extensions of ENRON's exclusivity rights over Pande (which did not result in tangible benefits to Mozambique as ENRON was not required to invest); the acceptance that in the gas export project, SASOL be the only genuine oil company (SASOL in effect controls the production, treatment, transport and marketing of natural gas); and more recently, the award of the rights to distribute gas in the Maputo area without competitive bidding. Moreover, while preparation of the Petroleum Law (whose passage was a condition of Phase II of the Project) began in 1995 (with assistance from Norway), it was only approved in December 2000. Notwithstanding several reminders, the Regulations under the Act and the Model Contract are still to be issued. On balance, taking into account however that the Government's efforts ultimately resulted in the long-sought gas export project being executed, the performance of the Government can be rated Satisfactory. 7.6 Implementing Agency: Given that ENH did not have the full range of skills required to carry out its share of the Project, it relied extensively on external consultants in areas such as project management (in excess of US$2 million); legal services (US$3.5 million); and economic evaluation of joint venture terms (about US$0.5 million). The contractors hired provided high quality services to the authorities. ENH has also given high emphasis to the training of its staff. Furthermore, during Project execution, ENH was restructured and downsized, as it ceased to be an operator and became a financial partner of the Joint Venture. On the other hand, quarterly reports were submitted erratically; and the audited Project and Corporate accounts were submitted late ­ while the accounts were not qualified, they were not consistent with International Accounting Standards. Overall, the performance of ENH was Satisfactory. 7.7 Overall Borrower performance: The first development of a gas field in any country is a very challenging endeavor given in particular the wide range of skills and experience required; when the first venture is designed for exports, project design becomes considerably more complex. In this instance, the Project is located in a low-income country, while the market is located in the regional economic power. Moreover, the Government's attention was distracted during the first six years of the Project, to the sterile (with hindsight) negotiations with one of the most aggressive oil companies ever. Lastly, there were serious uncertainties about gas reserves when the Project was initiated. Under the circumstances, the successful conclusion of a US$720 million project is a remarkable feat. Overall, the performance of the borrower is rated Satisfactory. - 9 - 8. Lessons Learned There are several important lessons to be drawn from this Project: Competition for Exclusive Rights: Exclusive rights should be awarded competitively -- this applies to virtually all commercial activities including exploration and production, transportation, and distribution. As this Project very well illustrates, without the benefit of tendering, agreements have to be negotiated in detail, a lengthy and costly process, without reference points or benchmarks. Eventually, agreements reached might well be based on the relative negotiating skills of the two parties rather than what economic common sense would dictate. Had GoM followed a competitive process, there would have been considerably less negotiating to do and the final transaction would have been that much more attractive. Institution Building: One should have recognized at appraisal that developing a national oil company required considerable capital, skills and experience that for all practical purposes, are unaffordable for Mozambique. True, ENH hired very qualified advisers, at a considerable expense, to strengthen its capabilities, but whether this was sufficient to best defend the national interest is a matter of debate. Moreover, ENH's participation in the Project as an equity participant should be assessed in relation to the benefits Mozambique will derive from this approach, when compared to, say, an increased level of royalties. In recent years, other institutions such as DNCH assumed some of the functions previously carried by ENH such as the management of the national petroleum data base and in the promotion of open acreage. Admittedly, ENH has done considerable progress at the institutional level over the past few years, still an agreement should have been sought up-front to privatize the company after the gas export venture materializes. An understanding with the Government regarding ENH's privatization was reached in connection with the recent gas export loan. Transaction Skills: ENH totally depended on its external advisers to appraise and negotiate the transactions. Irrespective of their performance, it does not appear that there was a substantial transfer of skills particularly in the business aspects of petroleum Joint Ventures. Given also the considerable cost of the expertise required, as long as it seeks a role as a promoter of joint ventures, ENH should have on board, on a full time basis preferably, Mozambicans with minimum skills in Economics, Finance and Law who will act as counterparts to the foreign advisers -- they will thus benefit from as much as possible "on the job" training. Subsequently, these new staff should be able to provide in-house services for increasingly complex tasks. Role of the Bank in a Private Sector Context: Had Mozambique given exclusive rights to a private party in a concession in which the State intends to invest prior to the submission of the Project to the Board, the advisability of such a proposition would have been heavily questioned within the Bank. Unfortunately, the decision was taken shortly after Board presentation, and ENRON was selected on the basis of its proposal to build, own and operate the pipeline. It obtained exclusive rights to the Pande gas field not through a conventional concession but through negotiated agreements with the Government which preempted a third party from investing in the field, while it was not under the obligation to invest. It does not appear that the Supervision Team was sufficiently aware of these ramifications. Consideration should be given to creating a review panel (including IFC representatives) where such situations involving the Bank and the private sector could be examined, and recommendations formulated accordingly. - 10 - 9. Partner Comments (a) Borrower/implementing agency: Mozambique: Gas Engineering Project (Cr. 2629-MOZ) Implementation Completion Report of the Beneficiary 1. The Natural Gas Project in Mozambique (1994 - 2003) The background of the Natural Gas Project is described in the Memorandum submitted for the approval of the Gas Engineering Credit signed in June 1994. By that time ENH was in negotiations with Sasol, as a potential anchor customer and with Pluspetrol, as a potential operator for the upstream operations. The three Parties were, jointly, also promoting the participation of an investor interested in operating a gas pipeline required to transport the gas from the field to the markets in South Africa and Maputo. This took place in the framework of a limited exclusivity agreement signed with Sasol on February 29, 1992 under which Sasol had certain obligations to promote, in association with ENH, a joint venture for the development of the natural gas project. Sasol also undertook the obligation to carry out detailed surveys and studies to identify a market with volumes and prices required to make the project economically viable. The agreement with Sasol terminated in August 1994 following the last proposal submitted by Sasol regarding the quantities and prices of natural gas that Sasol was willing to commit to buy. The economic analysis based on such a proposal demonstrated that the project would not be viable. In September 1994 a Memorandum of Understanding (MOU) was signed with Enron. The MOU was followed with the signature in October 1995 of the Heads of Agreement (HOA). Exclusivity rights over Pande were granted for determined periods, which could be extended through the achievement of determined project's milestones. Among others, Enron took the commitment to identify a suitable gas market for the project. The HOA included, as attachments, the term sheets contemplating the main terms for the various contracts to be negotiated by the Parties (Government, Enron and ENH). In association with "Industrial Development Corporation" (IDC), Enron carried out a detailed feasibility study in respect to an iron and steel plant to be built in Maputo (MISP), using the natural gas from Mozambique and the iron ore from South Africa. In October 1997 Enron and ENH finalized the negotiations of a Gas Sales Agreement (GSA) with IDC. The effectiveness of the GSA, that was not finally signed by the Parties, was subject to certain conditions precedent to be met and the commitment from MISP was to take 52 MMGJ/yr of natural gas at a price between 1.6 to 1.7 USD/GJ (price to be precisely determined with the conclusion of the negotiations at that time between MISP and the potential customers for the steel). Due to changes occurred in the international steel market, together with the heavy commitments taken by IDC in other large projects, including Mozal in Mozambique, IDC decided not to pursue with its participation in the MISP. In May 2000 Sasol and Enron entered in an agreement under which Enron declined the exclusivity rights to develop the Pande field and Sasol committed, in getting the rights from the Government to develop the field, to sell 25 MMGJ/yr of natural gas to MISP, if this project would reach financial closing by a certain deadline date. In October 2002 final agreements were signed between the Government, ENH and Sasol for the development of Pande and Temane fields, the transportation of the natural gas to Secunda in South Africa and the committed off-take by Sasol of 120 MMGJ/yr of natural gas. - 11 - The signed agreements contemplated, in addition to Pande, the development of the Temane field. Following the signature in 1996 of a "Production Sharing Agreement" (PSA) with ARCO/Sasol/Zarare, 5 wells were drilled to appraise the Temane field. Later on, ARCO and Zarare farmed-out its participating interest to Sasol. A new PSA was also signed with Sasol in October 2000 for the exploration and production of natural gas in the areas adjacent to the fields of Pande and Temane. In December 2003 the final commercial contracts, based on the main terms agreed in the term sheets attached to the agreements referred above, were signed between Sasol, ENH's affiliates and iGas (stated owned company in South Africa with shares in ROMPCO, the gas pipeline company). The ENH's affiliates and iGas were appointed by the respective Governments to act as vehicles for the participation of national private entities in the project, though its privatization in the near future. ENH has a participating interest of 30% in the upstream and soon will acquire a participating interest up to a maximum of 25% in the gas pipeline company, under the agreements signed with Sasol. 2. Gas Engineering Project (GEC) 2.1 ­ Objectives The primary objective of the Gas Engineering Credit stated in the Memorandum as being "to undertake all work necessary to enable the Government, ENH and the private sector investors to make a firm decision to develop the Pande gas reserves for export and for use in Mozambique" has been achieved. In spite of the other alternatives considered, during the implementation of the Gas Engineering Project, for the gas market and for the project structure, the natural gas project ended up in being very close to that described in the Memorandum. The already installed equipment at upstream and the gas pipeline is now under commissioning and the Start Date for the production and transportation is expected to occur in February 2004. The timing was different from that contemplated in the GEC, mainly due to the time required in getting firm commitments from an anchor customer to off-take the volumes of natural gas that would turn the project economically viable. The volumes Sasol committed under the signed agreements (much larger than the ones proposed in 2004) were possible through the decision made by the company to switch from coal to natural gas the feedstock to some units of the petrochemical complex at Secunda. The legal and regulatory framework required for the implementation of the natural gas project has been established during the implementation of the GEC and a new Petroleum Law nº 3/2001 was enacted. A draft of "Gas Distribution Regulations" was prepared by DNE/DNCH and is presently under discussion within MIREME. Five take-off points have been installed along the gas transmission pipeline that will be used in the future for the distribution of natural gas to areas to be determined. During the period of the GEC the gas distribution network in the local area close to Pande was expanded, through private investment, to Nova Mambone and to the adjacent islands mainly for the generation of electricity. The demand for natural gas increased along the years, mainly for electricity generation, having presently reached the energy equivalent of about 1 Mw. The development of the Pande and Temane fields will make, for the first time in the entire Southern Africa Region, natural gas available for use as an energy source and as a feedstock for the petrochemical industry. There was no legislation in place in South Africa on natural gas. Gas from coal has been used in some limited areas. The Government in South Africa was aware of the important role that the natural gas could have as an energy resource available in the country, in spite of its huge amount of coal reserves available at low cost. Following a long period of discussions among its representatives, a cross-border agreement was signed between the Governments of Mozambique and South Africa concerning natural gas trade between - 12 - both countries through the construction of a pipeline crossing the border. In 2000 the new Gas Act was enacted in South Africa. 2.1.1 ­ Phase I. Gas Reserves The main objective of Phase I of the Gas Engineering Credit was to ensure that the Natural Gas Project could attract and engage investors and international banks to develop and subsequently implement it. To achieve that target, one important task was to prove, by credible audit, that the proven recoverable reserves would be sufficient to implement the envisaged project. ENH had done, before the GEC's implementation, some appraisal work with financial assistance mostly from the former Soviet Union and Norway. 6 appraisal wells (Pande 6, 7, 8, 9, 10 and 11) were drilled using Russian technology and the last one was complemented with Western technology for the logging, coring and testing of the well. Two seismic surveys funded by NORAD were implemented. It was also drilled a relief well Pande 4E to kill the water and gas blow out and finally cap the well with cement. As shown in Table 2, the Pande's reservoir confirmed by that time to contain considerable volumes of natural gas, but it was not yet considered as being finally appraised. Some uncertainties existed in relation to the area extension of the reservoir and also in respect to some petrophysical parameters (permeability, porosity, WGC, recovery factor and others). Such uncertainties led to different results in the calculation made by different auditors. As referred in the Memorandum, no oil company showed interest in appraising the Pande field neither in exploring for natural gas. The key issue was to identify the market and to get a commitment from an anchor customer to buy and market volumes of gas that could turn the project viable. But to achieve that object, good quality reservoir data, together with adequate proven recoverable reserves, was required to satisfy the requirements of the market, as well as the lenders to the project. No potential investor would commit to a project without the comfort about availability of sufficient reserves. With funding from World Bank, following the interpretation of the seismic data acquired from the survey financed by the GEC's PPF, two further wells were drilled (Pande 12 and 13) during December 1995 and January 1996, which were designed to prove up sufficient reserves to justify the building of a 900 kilometer pipeline to sell the gas in South Africa, the project under consideration at the time of the signature of the GEC. At this stage Robertson Research International Limited was contracted by ENH to review all the data following the results of the last drilled wells (P12 and 13), estimate the gas reserves and give advice on whether additional appraisal drilling is needed. As a result of this work performed by Robertson, ENH received preliminary estimates of Gas Initially in Place and Reserves, which proven figures were: GIIP 1.987 tcf Reserves 1.642 tcf Based on these results, and through the discussions with the consultants from Robertson and Norwegian Petroleum Directorate, ENH proposed and the World Bank gave the no objection to the drilling of a final well, Pande 14 in the eastern part of the field. - 13 - TABLE 1 ­ WELLS DRILLED BY ENH AT PANDE Pande 6 12.01.89 24.10.89 Before World Bank Engineering credit Pande 7 12.04.90 17.03.90 Pande 8 12.04.90 04.06.90 Pande 9 16.10.90 02.12.90 Pande 10 30.07.90 14.09.90 Pande 4E relief well 17.01.91 13.03.91 Pande 11 02.07.92 15.10.92 Pande 12 03.11.95 09.12.95 Pande 13 25.12.95 21.01.95 Pande 14 15.05.96 06.06.96 After the drilling of the Pande 14 well the Proven reserves have increased, in spite of the successful results from the well, primary through a more rigorous approach with availability of more accurate petrophysical parameters, the evidence of a GWC in Pande 14 and better knowledge of the boundary limits of the reservoir: GIIP 2.197 tcf Reserves 1.851 tcf TABLE 2 ­ GAS RESERVES ESTIMATES (PROVEN) USSR/NPD Intera/Chris Intera/Chris Robertson Robertson 1990 April 1991 July 1993 Feb 1997 Aug 1997 Before 1st Before P11 After P11 After P12 & 13 After P14 GIIP 1.607 tcf 1.281 tcf 1.944 tcf 1.987 tcf 2.197 tcf Reserves 1.642 tcf 1.851 tcf In the final report issued in August 1996 Robertson concludes that the field was then finally appraised. They also said that within two or three years after the field being on stream, reservoir pressure data can be used to establish the gas in place by material balance to high degree of confidence, and by then calculated proven recoverable reserves most likely increased. We considered that the appraisal work, an important component of the Phase I of the GEC, was successfully implemented and its objectives achieved. In spite of the Reserves not having been largely increased, the quality of reservoir data basis was largely improved and the confidence about the reserves calculated. - 14 - When MISP was under consideration, after the final appraisal of the Pande reservoir funded by the GEC, the required reserves to supply 25 MMGJ/yr of natural gas were not an issue for the project sponsors and lenders. The project that is now under consideration requires 120 MMGJ/yr of natural gas. While the present proven recoverable reserves are not sufficient to satisfy the 25 years, the contract period of the Gas Sales Agreement, the Parties are confident that the required reserves will soon be achieved either after entering the reservoirs into production or through the current exploration activities in the areas adjacent to the fields. 2.1.2 ­ Phase II Following the signature of the agreements with Sasol (joint venture agreements) and the approval of the new Petroleum Law, the Phase II of the Gas Engineering Credit formally initiated in February 28, 2001. The final commercial contracts with Sasol were signed in December 2002, bringing the Southern Africa Regional Gas Project to fruition. The GEC closed on June 30, 2003. 2.2 ­ Project's components (i) Variation in the components. As shown in Attachment A there was no variation in the components of the Project. During the reallocation of funds for the implementation of Phase II of the Project some activities were agreed to be implemented by the Energy Directorate (DNE) under MIREME. The funds were allocated to DNE/UTIP under a new category C (not listed in the original budget). (ii) Project cost estimates. Before the start of Phase II, in early 2001, a reallocation of funds was made for each component of the project base on the costs estimates until the closing of Phase II, and the total of the Credit was reduced from SDR 21,000,000.00 to SDR 18,533,000.00. The main variation, and the respective justification between the original cost estimates and the final costs incurred are the following: (1) Consultants, Category 3B. It was originally envisaged that ENH would contribute, pari passu with the private investor, in the advanced engineering and in the detailed EIA's of all the components of the project. The private investors, at its own costs, implemented these activities. The most relevant costs incurred by ENH with Consultants, in an amount larger than originally expected, were related to the negotiation of the several agreements and in the procurement of finance for the equity of ENH's affiliates. (2) Operating costs. The costs incurred, larger than originally expected, were mainly due to the larger duration of Phase II and the shortage in funds that could be made available to ENH by the state budget. (3) The total costs were reduced mainly for the same reason as stated in (1) above. (iii) The listing of the major contracts awarded under the Project is in Attachment B. The procurement procedures agreed in the GEC were followed for all the components of the Project. Attachment C indicates procurement methods in the main components of the Project. 2.3 ­ MIREME The Credit Agreement contemplated, as Part A, support to the Hydrocarbons Directorate (DNCH). The tasks were performed as originally estimated. The main Consultants contracted by DNCH were "Kelly Drye and Warren" (Law Firm), "Austral" (Tax Advisor), "London Economics" (costs/benefit's analysis) and "Miranda Correia" (Portuguese Law Firm appointed to prepare the draft for the Gas Distribution Regulation). DNE contacted local advisors (one legal and one economist) to assist the institution in matters - 15 - related to fuels. The total costs incurred by MIREME under the Credit were: DNCH: USD 886,778 DNE/UTIP: USD 304,855 2.4 ­ Bank's performance From the beginning of the Project's implementation ENH received a good support from the Word Bank Team, in particular until the Beneficiary became familiar with the World Bank guidelines for the procurement of services and equipment. Since 1994 until the Credit's closure several changes occurred with respect to the natural gas project (gas market and project sponsors), as explained above. The Beneficiary received a good understanding from the World Bank in that respect. Some agreements took longer to negotiate than originally envisaged and for that reason ENH requested, in several occasions, the non-objection to extend the contracts with key consultants involved in the negotiations and the allocation of additional budget. In spite of such extension to constitute an exception to the World Bank Guidelines, the non-objection was granted and the negotiations with the project's investors was not disrupted. Some delays occurred, at some stage, in getting replies from the World Bank caused by the changes in its Task Manager. 2.5 ­ Beneficiary's performance It was for the first time that ENH and DNCH was beneficiary of a Credit from IDA. Through the implementation of this Project ENH's staff had the opportunity to become familiar with the procurement procedures, thanks to the collaboration from the World Bank staff, and actively participate in the negotiations of one of the largest investments ever implemented in Mozambique. Due to lack of previous experience in Mozambique in dealing with such type of projects the Beneficiary relied to a large extent on external consultants. The use of local expertise shall be prioritized in the future assistance required by the sector. 3. Natural Gas Project. Pre-development costs (1994/2003) 3.1 ­ Private sector's pre-development costs It was originally contemplated in the Memorandum that, during the Phase II, the private sector should invest pari passu in the pre-development costs. Although difficult to quantify it at this stage, a considerable amount (larger than originally envisaged) of costs were incurred by the private sector investor during Phase I and Phase II. In fact, most of the pre-development costs incurred by the private sector occurred during Phase I. Excluding the costs incurred with respect to the negotiations of the joint venture agreements the following activities, among others, were fully paid by the private investors: - 16 - l Pipeline routing. l Pipeline preliminary and final designs. l Environmental Impact Assessment and Mitigation Plans (upstream and pipeline). l Economic models for project evaluation. l Field Development Plan. l Pipeline Development Plan. l Gas market related studies (Sasol Gas, Sasolburg). Enron, which results were passed to Sasol, carried out some of the activities referred above. In addition, Enron/IDC incurred considerable expenditures in the MISP's feasibility study and in other activities in relation to the project they tried to implement, without success. While there is for the purpose of the GEC a clear-cut between Phase I and Phase II, in practice during most of Phase II the negotiations of final commercial agreements coincided with the construction works for the project's implementation. ENH has no full information about the pre-development costs incurred by Enron and Sasol. The only registered information at ENH is in respect to the project implementation's costs, which CMH and CMG will have to repay Sasol in pro rata to its participating interest. ENH expects to reach financial closing before the end of this year. SPT incurred as pre-development costs, including the appraisal in Temane though seismic and drilling of 5 wells (CMH will not contribute to such costs), in a total of 99 USD million. Our present estimation of pre-development costs incurred by Sasol Gas in respect to the pipeline, which the other shareholders in ROMPCO will have to contribute as "back costs" in accordance with Clause 10 of the Shareholders Agreement, is 8 USD million. An audited amount will be submitted by Sasol Gas at the time of the conversion of Class A shares in Class B shares by CMG and iGas. For the purpose of this report, we present as a contribution to the pre-development costs by the private sector a total of 107 USD million. 3.2 ­ Total During the period of the GEC's implementation the contribution from the state budget to ENH in respect to this project was 1.7 USD million. The total amount spent in the Project under the GEC is approximately 26 USD million (exact amount in Schedule A) . Pre-development costs (1994/2003): USD million IDA 26.0 ENH 1.7 Private Sector 107.0 TOTAL 134.7 4. Impact of the project on the Southern Africa Regional Gas Project and of the technical assistance component under ERAP The Southern Africa Regional Gas Project covers the territories of the Republics of Mozambique and South Africa and possibly will be extended in the future to other neighboring countries. The availability of a 900 Km pipeline for the transport gas will certainly motivate the exploration for natural gas in regions with reasonable access to the pipeline. New Exploration and Production Contracts are presently under - 17 - negotiations for contract areas with high prospectivity for natural gas. According to our estimates the project presently being implemented will bring in nominal terms, during the life of the project, more than 700 USD million to the Governments as taxes and more than 300 USD million to the local companies (CMH and CMG) participating in the project in association with Sasol. We describe below our views about the impact of the Project in Mozambique. Mozambique 600 Km of pipeline linking the Temane and Pande fields in North Inhambane to Secunda in South Africa was already built inside the territory of Mozambique. Five take-off points for the use of gas in Mozambique will be available out of which one will supply gas to a distribution area already licensed. A market study is planned to identify regions, relatively close to the main pipeline, where it will be economically viable to make the natural gas available for consumption. The natural gas can replace liquid fuels consumed by some industries, generate electricity in areas not covered by the national grid and, in the future, power vehicles or be distributed for domestic consumption. Such identification will allow the determination of priorities for the use of the gas immediately available for consumption in Mozambique, through the Government's entitlement to royalty gas, and the definition of areas in relation to which the private sector will be invited, through competitive bidding, to invest in gas distribution and marketing under concessions to be granted. Regulations for natural gas distribution in Mozambique will soon be in place. The award of concessions for investments in gas distribution infrastructures, normally through competitive bidding, shall ensure the least cost for the gas supply and an appropriate risk allocation. The policy on pricing will allow the gas to be sold competitively with other energy sources, enable operators to earn an appropriate return and generate additional fiscal income to the Government. The technical assistance component under the ERAP to the natural gas sector is required, among others, to the following: l Implementation of new accounting systems for CMH and CMH, as joint venture partners to Sasol in the upstream and ROMPCO. l Privatization of CMH and CMG. l Development of studies to maximize the use of condensate in Mozambique (initially to be exported). l Required technical inputs for the decisions to be made by CMH and CMG in the Management and Operating Committees with the joint venture partners. l Domestic gas market studies, identification of areas for gas distribution and negotiation of the concessions (DNE). l Supervision and safety audits of the design, construction, commissioning and operation of the new pipelines from the 5 take-off of the main gas transmission pipeline (DNCH). l Monitoring of the environment legislation with respect to the transmission and distribution of natural gas. (b) Cofinanciers: (c) Other partners (NGOs/private sector): 10. Additional Information - 18 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome / Impact Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Commercial development of the Pande gas First Gas in January 2004. First Gas in March 2004. field. Output Indicators: 1 Indicator/Matrix Projected in last PSR Actual/Latest Estimate Financial Closure of Gas Export Project. Board Presentation on November 20, 2003. Board Presentation on November 20, 2003. 1 End of project - 19 - Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Appraisal Actual/Latest Percentage of Estimate Estimate Appraisal Component US$ million US$ million Drilling 9.00 8.21 91 Seismic 2.00 3.33 166 Equipment and Materials 1.60 4.41 276 Technical Assistance MMR 1.70 0.68 40 ENH 8.20 8.30 101 The Joint Venture 18.60 0 Training MMR 0.10 0.51 506 ENH 0.50 0.37 75 The Joint Venture 0.30 0 Total Baseline Cost 42.00 25.81 Physical Contingencies 6.70 0 Price Contingencies 0 Total Project Costs 48.70 25.81 Total Financing Required 48.70 25.81 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N.B.F. Total Cost Other 1. Works 4.00 7.00 0.00 0.00 11.00 (4.00) (7.00) (0.00) (0.00) (11.00) 2. Goods 0.00 0.00 1.60 0.00 1.60 (0.00) (0.00) (1.60) (0.00) (1.60) 3. Services 0.00 0.00 13.80 14.70 28.50 (0.00) (0.00) (12.70) (0.00) (12.70) 4. Training 0.00 0.00 0.60 0.30 0.90 (0.00) (0.00) (0.60) (0.00) (0.60) 5. Contingencies 0.00 0.00 4.10 2.60 6.70 (0.00) (0.00) (4.10) (0.00) (4.10) Total 4.00 7.00 20.10 17.60 48.70 (4.00) (7.00) (19.00) (0.00) (30.00) - 20 - Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent) 1 Procurement Method Expenditure Category ICB NCB 2 N.B.F. Total Cost Other 1. Works 11.54 0.00 0.00 0.00 11.54 (11.54) (0.00) (0.00) (0.00) (11.54) 2. Goods 1.56 2.41 0.00 3.97 (1.56) (2.41) () (0.00) (3.97) 3. Services 9.56 0.48 0.00 10.04 (9.56) (0.48) () (0.00) (10.04) 4. Training 0.00 0.00 0.26 0.00 0.26 (0.00) (0.00) (0.26) (0.00) (0.26) 5. Contingencies 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 22.66 2.89 0.26 0.00 25.81 (22.66) (2.89) (0.26) (0.00) (25.81) 1/Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies. 2/Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. - 21 - Annex 3. Economic Costs and Benefits NA - 22 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g. 2 Economists, 1 FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation 12/15/1992 Appraisal/Negotiation 04/15/1993 04/10/1994 Supervision 02/08/1995 3 Finance (1) S S Petroleum (1) Economics (1) 03/18/1995 2 Finance (1) S S Petroleum (1) 03/23/1996 4 Petroleum Engineer (1) S S Finance (1) Geophysicist (1) Economics (1) 10/31/1996 2 Finance (1) S S Energy Economist (1) 06/16/1997 2 Gas Specialist (1) HS S Energy Economist (1) 02/20/1998 2 Energy Economist (1) HS S Gas Specialist (1) 11/12/1998 1 Gas Specialist (1) HS S 06/18/1999 2 Sr. Financial Analyst (1) S S Pr. Energy Economist (1) 04/13/2000 2 Finance (1) S S Economist (1) 09/07/2000 1 Economist S S 12/13/2000 1 Economist S S 5/10/2001 1 Economist S S ICR 10/27/2003 1 Energy Specialist - 23 - (b) Staff: Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ ('000) Identification/Preparation 34 91 Appraisal/Negotiation 69 215 Supervision 256 1178 ICR 7 35 Total 367 1519 - 24 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable) Rating Macro policies H SU M N NA Sector Policies H SU M N NA Physical H SU M N NA Financial H SU M N NA Institutional Development H SU M N NA Environmental H SU M N NA Social Poverty Reduction H SU M N NA Gender H SU M N NA Other (Please specify) H SU M N NA Private sector development H SU M N NA Public sector management H SU M N NA Other (Please specify) H SU M N NA - 25 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating Lending HS S U HU Supervision HS S U HU Overall HS S U HU 6.2 Borrower performance Rating Preparation HS S U HU Government implementation performance HS S U HU Implementation agency performance HS S U HU Overall HS S U HU - 26 - Annex 7. List of Supporting Documents - 27 - - 28 -