First Petroleum Sector Project
Report No: ; Type: Report/Evaluation Memorandum ; Country: Bosnia-Herzegovina; Region: Europe And Central Asia; Sector: Oil & Gas Exploration &
                                           Development; Major Sector: Oil & Gas; ProjectID: P009212




      The Bosnia and Herzegovina First Petroleum Sector project, supported by Loan 2597-YU for US$2.5
 million equivalent, was approved in FY85. The loan was closed on June 30, 1992, one and a half years
 behind schedule. US$1.0 million was disbursed and US$1.5 million was canceled. This was one of three
 projects, processed in parallel, that were designed to support the development of the petroleum sector in
 the former Yugoslavia. The other two were for Croatia (Loan 2595-YU for US$65 million) and for the
 former Autonomous Province of Vojvodina (Loan 2595-YU) for US$35 million. The Project Completion
 Note was prepared by the Europe and Central Asia Regional Office. Due to the disruption caused by the
 civil war, the borrower was unable to comment on the report.

       This was a simple exploration and promotion project, similar in structure and content to most other
 such projects that were approved in the early 1980s. Its main objective was to induce foreign oil
 companies to use their technical expertise and financial resources to invest in high risk exploration
 ventures which parastatal institutions were unable to support. The project was designed to gather, analyze
 and distribute sufficient information to demonstrate to foreign companies that the region had an attractive
 exploration potential. Project components included: (i) reprocessing of old seismic data and processing of
 new seismic data to be generated by an established local geophysical company under the supervision of an
 international consultant financed by the loan; (ii) geochemical analysis of rock samples and well borings;
 (iii) synthesizing and interpreting all newly generated data and compiling it into an exploration promotion
 package; and (iv) promoting this package to international oil companies to get them interested in joint-
 venture exploration programs.

      Both the geophysical (seismic) program and the geochemical analysis study was completed as
 designed, even though implementation was delayed, first by the slow process of getting the loan approved
 by the Federal Assembly, and then by a cumbersome procurement process. While most of the region was
 found to have little potential, four prospects were identified in northern Bosnia that were considered worth
 drilling. Although no formal promotion activities took place in the home base towns of major oil
 companies, one major international oil company (AMOCO) did sign a joint venture exploration
 agreement, and implemented some follow-up seismic data acquisition before the breakup of Yugoslavia
 and the subsequent civil war discouraged further activity. No additional work has been done since early
 1990. Subsequently, Bank staff lost contact with the project’s operational staff. It is unlikely that an
 international company would be interested in taking up the effort in the foreseeable future, given the
 marginal prospects and the political and physical (land mines) risks. Costs were substantially lower than
 anticipated at appraisal because estimates were based on continued high oil prices of the early 1980s, and
 did not foresee the rapid decline in oil prices and oil exploration related services that occurred at the end
 of the decade.

      The Operations Evaluation Department (OED) rates the outcome of the project as marginally
 satisfactory, because it met its primary objective of attracting a foreign company to invest in petroleum
 exploration, but rates its sustainability as highly unlikely, given the existing political environment. The
 institutional development impact is judged as negligible. Bank performance is rated as satisfactory,
 considering the external circumstances. The PCN did not provide ratings.
    The major lesson from this project is that there is a high cost in terms of time delays and efficiency if
responsibility for procurement and overall responsibility for project implementation are assigned to
separate entities.

            The Region wrote a Project Completion Note because of the country situation and, therefore,
did not propose project ratings. In cases like this one where over 40 percent of the loan was disbursed,
OED finds it desirable that the project be rated based on the best information available.

    No audit is planned.