Document of TheWorldBank FOR OFFICIAL USE ONLY ReportNo: 22478 IMPLEMENTATION COMPLETION REPORT (IDA-25880; TF-20125) ONA CREDIT IN THE AMOUNT OF SDR53,700,000 TO ETHIOPIA FOR A CALUBENERGY DEVELOPMENT PROJECT June 28, 2001 EnergyUnitAFC06 Africa Region,World Bank This document has a restricted distribution and may be usedby recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without WorldBank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
This document has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.
AfDB African Development BankCGSC Calub Gas Share CompanyEA Environmental AssessmentEEA Ethiopian Energy AuthorityEELPA Ethiopian Electric Light and Power AuthorityEIGS Ethiopian Institute of Geological SurveysEMRDC Ethiopian Mineral Resource Development CorporationEPA Environmental Protection AuthorityEPC Ethiopian Petroleum CorporationERA Ethiopian Road AuthorityFCCS Fuelwood Carriers Credit SchemeLPG Liquified Petroleum GasMME Ministry of Mines and EnergyNFPTA National Fire Protection AgencyOGEDO Oil and Gas Exploration and Development OrganizafionPITF Project Implementation Task ForcePMC Project Management ConsultancyTOR Terms of Reference
WEIGHTS AND MEASURES
1 kilometer = 0.621 miles1 square kilometer (km2) = 0.386 square miles1 kilovolt (kV) - 1,000 volts1 megawatt (MW) = 1,000 kilowattsI megavolt ampere (MVA) = 1,000 kilovolt amperesI gigawatt hour (GWh) 1 million kilowatt hoursI ton of oil equivalent (toe) = 10,500,000 kilocalories
Sector Manager/Director: M. Ananda Covindassamy, AFTEGTask Team Leader/Task Manager: Alfred B. Gulstone, AFTEG
FOR OFFICIAL USE ONLY
ETHIOPIACALUB ENERGY DEVELOPMENT PROJECT
CONTENTS
Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 45. Major Factors Affecting Implementation and Outcome 96. Sustainability 97. Bank and Borrower Perfornance 108. Lessons Learned 119. Partner Comments 1210. Additional Information 27Annex 1. Key Performance Indicators/Log Frame Matrix 28Annex 2. Project Costs and Financing 29Annex 3. Economic Costs and Benefits 31Annex 4. Bank Inputs 32Annex 5. Ratings for Achievement of Objectives/Outputs of Components 33Annex 6. Ratings of Bank and Borrower Performance 34Annex 7. List of Supporting Documents 35
Map - Ethiopia-Calub Gas Development Project Region 5 (Somali) IBRD 24070R.
This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.
Project ID: P000758 Project Name: CALUB ENERGY DEV. PROJECTTeam Leader: Alfred B. Gulstone TL Unit: AFTEGICR Type: Core ICR Report Date: June 28, 2001
1. Project Data
Name: CALUB ENERGY DEV. PROJECT L/C/TF Number: IDA-25880; TF-20125CountryIDepartment: ETHIOPIA Region: Africa Regional Office
Sector/subsector: GI - Oil & Gas Exploration & Development
STAFF Current At AppraisalVice President: Callisto MadavoCountry Manager: Oey Astra MeesookSector Manager: Ananda Covindassamy Stephen WeissmanTeam Leader at ICR: Alfred Gulstone Luciano BorinICR Primary Author: Colleen P. de Freitas
3. Assessment of Development Objective and Design, and of Quality at Entry
3.1 Original Objective:3.1.1 The project's objective was to augment the availability of Ethiopia's indigenous energyresources in an economically viable and commercially and environmentally sustainable manner by (i)improving the present unbalanced structure of energy supply in Ethiopia by increasing the availability ofmodem fuels; (ii) supporting economic growth by expanding petroleum supply from indigenous resources;(iii) contributing to the mitigation of peri-urban deforestation by inducing the replacement of woodfuelswith Liquified Petroleum Gas (LPG) and kerosene in urban households; (iv) developing the country'stechnical capacity to commercialize its fossil fuel resources; and (v) contributing to poverty alleviationthrough direct measures, induced economic activity, and through the development of Ethiopia's remotesouth-eastem region.
3.2 Revised Objective:3.2.1 The project objectives did not change, but the methodology of implementation significantlychanged. Because of the response of the private sector to the project in its original design, it became clearthat the commercial portion of the project (that of bringing the gas field and its associated surfaceinstallations and facilities into production) should be privatized, rather than developed by a share companywith majority Government ownership. The noncommercial project components would continue to becarried out by the Government. The result is that nearly $60 million of the original credit would be surplusto the original requirements.
3.3 Original Components:3.3.1 The Project included three components: (i) a commercial component; (ii) a regionaldevelopment component for Ethiopia's south-eastern region; and (iii) a support component.
3.3.2 The commercial component consisted of completion of the gas wells and plant constructionat Calub, privatization promotion, and operation of a petroleum extraction and processing plant by anindependent, share-capital company.
3.3.3 The regional development component for Ethiopia's southeastern region consisted of (i)rehabilitation of the Shilabo-Harar national highway (571 km); and (ii) an environmental monitoringsystem and a community development fund to monitor, through project life, the project environmentalimpact within the project area, and provide social and economic support to inhabitants of the concernedareas.
3.3.4 The support components consisted of (i) technical assistance to the Ministry of Mines andEnergy for supporting a project implementation task force, and strengthening the capacity of the Ministryof Mines and Energy (MME) to promote private and joint venture participation in petroleum explorationand development; (ii) support for LPG marketing and interfuel substitution; (iii) poverty alleviation amongpoor urban fuelwood carriers through a program to support income diversification; and (iv) three studies,namely, a Petroleum Pricing and Market Structure Study to assist the Government in formulatingpetroleum pricing policy and optimizing the petroleum sub-sector; a Regional Electrification Study, tosupply selected urban centers with gas-generated electricity from Calub; and a study to assess thefeasibility of a larger-scale exploitation of Calub's gas resources.
3.4 Revised Components:N/A
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3.5 Quality at Entry:3.5.1 The quality at entry was unsatisfactory. The project design was complex. The projectdesign relied on the willingness of the Government to implement programs that would stimulate andfacilitate private sector participation in the energy sector and promote the Ministry of Mines and Energy 'sability to facilitate petroleum exploration and development. The project had a significant "pilot" dimensionand was viewed as a starting point for a comprehensive, long-term development of the country's fossil fuelresources. In order for the project to operate in an enabling regulatory environment, the Government, at thetime, pledged to implement and maintain a revised Liquified Petroleum Gas (LPG) pricing policy based onimport parity; study ways to optimize pricing policy for all petroleum products; and establish national LPGstandards.
3.5.2 The commercial component of the project centered around the Calub Company andinvolved completion of the existing wells on the Calub gas field, construction of a processing plant andancillary facilities, and technical assistance for privatization promotion and supervision of construction andinitial plant operation. The Calub Company was expected to be registered as a share company, under theprovisions of the Commercial Code of Ethiopia. This would provide the legal basis for the private sector toacquire equity participation in the company. The newly registered Calub Gas share Company would offerfor sale to private investors, at least 35 percent of its declared equity as a condition for presentation of thecredit to the Board. The processing plant was expected to produce bottled LPG, which would be taken byroad to Addis Ababa for sale in the local market, along with kerosene. The unused natural gas wasintended to be reinjected to store it for future use and to maintain high reservoir pressures.
3.5.3 The regional development component involves road rehabilitation, an environmentalmonitoring system, and a community development fund. A study carried out by BACTEC, an Ethiopianconsulting firm funded under the project's PPF, identified the conditions and the need for rehabilitation ofthe Shilabo-Harar road (571 kms). Preparations were underway to use flying crews of maintenanceworkers to maintain the road during rehabilitation, using funds identified from an expected AfricanDevelopment Bank (AfDB) credit.
3.5.4 The environmental category A classification for the Calub Gas Development Project was aresult of the long-term impact of establishing a center of industrial development in an area traditionallyunderdeveloped, and historically the support of a delicate equilibrium between settled groups and nomadicSomali tribes. The Environmental Assessment (EA) provided essential baseline information to guide theplanning and implementation of the project. In addition there were various Government departmentsinvolved in collecting and analyzing environmentally relevant data. This information could be organizedinto an adequate data base, which once developed, could identify gaps in the available information andestablish a comprehensive Environmental Monitoring System for the project impact zone (150 km of Caluband 25 km on either side of the road).
3.5.4 The support components included: (i) Technical Assistance to the Ministry of Mines andEnergy (MME) financed by IDA (under a PPF) to (a) support a Project Implementation Task Force (PITF)responsible for coordinating, supervising and reporting on various project components and (b) strengthenMME's capacity to promote private and joint venture participation in petroleum exploration anddevelopment in Ethiopia; (ii) Market Support and Interfuel Substitution: Liquified Petroleum Gas (LPG)from Calub was projected to result in a four-fold increase in national LPG supply. The project supportedinitiatives to accelerate market absorption by promoting the use of LPG in urban centers and to ensure
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product safety. National LPG safety standards were to be established within 18 months of crediteffectiveness; (iii) Poverty Alleviation Credit Scheme: The project proposed a program to supportdiversification of income generation sources for urban fuelwood carriers through a Fuelwood CarriersCredit Scheme (FCCS). This would allow the project to develop and implement a credit and trainingprogram targeting fuelwood carriers, mainly poor urban women who would be displaced by the increasedsupply of modern domestic fuels; (iv) Studies: (a) Petroleum Pricing and Market Structure. This studywas aimed at assisting the government in formulating rational pricing policies for petroleum products anddefining cost-effective procurement and distribution policies. The study was scheduled to begin upon crediteffectiveness and to be implemented within 12 months of its completion. (b) Electrification of selectedurban centers around Calub. This study was aimed at evaluating the potential of supplying electricityfrom Calub to the district of Gode, the regional capital, and other local urban centers. It was agreed thatTerms of Reference (TOR) for this study would have been finalized by Ethiopian Electric Light and PowerAuthority (EELPA), and agreed upon with IDA within six months from the time of credit effectiveness. (c)Second Phase Exploitation of Calub deposit. This study was directed at analyzing the market potential,technical feasibility and economic viability of a larger scale exploitation of Calub gas resources. The TORwas scheduled to be finalized by the Project Implementation Task Force (PITF) and agreed upon with IDAwithin six months from the time of credit effectiveness.
4. Achievement of Objective and Outputs
4.1 Outcome/achievement of objective:4.1.1 The commercial objective of the project has not been achieved. The Calub Gas ShareCompany was established to manage and operate the gas extraction and processing plant at Calub. Thisentailed the removal of wet gas; refining of condensate; reinjection of dry gas; processing condensate toproduce LPG, kerosene, and diesel fuel; and taking products by road to market (mainly to Addis Ababa).To advance these activities the share company needed to rehabilitate the wells, install a processing plantand repair the roads. To do these through public financing, was the only viable option at the time, sinceEthiopia had just come out of a civil war and private investors perceived the project as a high political risk.
4.1.2 The share company did not attract enough private sector interest. In the meantime,conditions had generally improved in Ethiopia, and it became possible to attract serious private sectorinterest. In order to move the project along, the Bank offered to finance the preparation of a prospectus butthe Government did not take up the offer. At least five serious bids were received; the Governmentevaluated these bids, but was unhappy with the response since no bidder was willing to pay the $100million of sunk cost up-front.
4.1.3 The Bank continued to work closely with the Government and offered expert assistance tofacilitate negotiations with the best bidder. The Government, however, showed no interest in the offer. Fora time, it appeared that the Government would not commit to advance the project. Eventually, the Bankleamed from press reports that the Government was negotiating a contract with a private company (SICORInc.). The Bank understood that the company proposed piping wet gas to Awash where it would beprocessed, supposedly, to fill all the petroleum needs of Ethiopia.
4.1.4 Project closing date was approaching and it was clear that there was insufficient time forthe Bank to assess this scheme. In any event, the Government did not accept Bank's assistance, and theProject was closed.
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4.1.5 The regional development objective was only partially achieved. The Harrar-Shilaboroad rehabilitation and maintenance was only partly concluded. At the close of year 2000, only 180 km ofroad rehabilitation had been accomplished out of a proposed 571 km.
4.1.6 The support objective was mostly achieved. (i) The PITF secretariat was put in place,and the development studies supervised by the secretariat were completed. (ii) Twenty three geophysicaland geological staff were trained under the petroleum exploration promotion, and a final comprehensivepetroleum evaluation report was submitted to the MME in September 1998. (iii) A final report on the largescale gas development study was submitted to the Government, but the study's implementation andrecommendations are not likely to be given precedence. (iv) The implementation of the petroleum pricingand market structure study was delayed due to the privatization process. (v) The Calub regionalelectrification study was suspended. (vi) The LPG studies were completed and a final report was preparedfor the Government in March 1999. (vii) The Government financed the community development fund, butdid not pursue this activity after the decision to privatize Calub.
4.2 Outputs by components:Commercial Component
4.2.1 Calub well completion. (US$6,000,000; actual $5,532,000). As early as April 1994, areview of the details of various technical disciplines required for implementation of the Calub wellcompletion, gas and liquid separation, liquified petroleum gas (LPG) extraction, and petroleum productrefining, showed that it would be difficult and expensive to obtain personnel covering all such disciplinesfrom a single engineering company. It was proposed therefore, that the expertise required for wellcompletion and reservoir management will be separated from the rest of the job requirement by engagingtwo separate consultancy contracts: Project Management Consultancy (PMC-1) contracts (for wellcompletion and testing) and PMC-2 (for Gas Plant and Ancillary Facilities Component).
4.2.2 In July 1995, the Calub Gas Share Company (CGSC) entered an agreement with AlconsultIntemational Ltd. for well completion and testing. For the Well Completion Consultancy -PMC- 1(US$470,464; actual $540,832), the contract with Alconsult (Canada) was designed to provide CGSCwith expert technical advice pertaining to the subsurface elements involved in bringing the Calub gas fieldinto commercial production. To this end, the contract was divided into three phases:
Phase 1: Well Completion bid document preparation, and assistance in bid evaluation;
Phase II: Supervision of well completion and serving as CGSC's representative at the work site;and
Phase III. Management of the early stages of the resulting commercial production includingreservoir pressure maintenance.
Phase I and Phase II have been completed. Phase III was discontinued due to the privatization process.
4.2.3 In September 1995, a contract for the gas plant design and supervision was signed.PMC- I plus PMC-2 (SIOM) (US$1,080,312; actual $918,600).Parsons Engineering Consultants (UK)completed the basic plant design. This contract was divided into two phases:
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Phase I: (i) review feasibility report prepared by CGSC, and modify to the extent required; (ii)preparation of project specifications and tender documents for turnkey contract; and (iii) assistance in thebidding procedures and bid evaluation for selecting qualified and experienced contractors to complete eachof the existing nine wells.
Phase II: Provide supervision during plant construction; and project management.
4.2.4 All activities under Phase I of the Parsons' contract, with the exception of assisting in thebidding procedures and bid evaluation, were completed. The subsequent phases II and HI were suspended.
4.2.5 Gas plant construction (US$50,110,000; actual $0). The Government agreed to privatizethe entire operation after very few shares were bought in the Calub Share Company, and to install theprocessing plant. The Bank advised against the installation of the processing plant, since it would limitpotential bidders to a particular technology and thus could limit competition.
4.2.6 Training (US$800,000; actual $165,962). Five CGSC managers received externaltraining. Two were trained at the US Academy for Educational Development in Washington, D.C., inproject management and implementation and computer utilization, and one was sent to Oxford College ofPetroleum Studies in the U.K. for training in Gas Development and Management. Two technical managerswere trained in China at the Zhongyuan Petroleum Exploration Bureau on Gas Field DevelopmentPlanning.
4.2.7 Shilabo-Calub Road (US$650,000; actual $0). Road design work, road surveys andtender document preparation were completed (paid from a non-IDA account).
4.2.8 Privatization of CGSC. The major work of CGSC since 1997, was implementation of thewell completion and testing contract, paid from Government resources.
4.2.9 Procurement under the Commercial Component(US$0; actual $1,433,515: includespayments made for other consultancy services other than for those of PMC-1 and PMC-2). Allprocurement under the commercial component was completed.
Regional Development Component
4.2.10 Harrar-Shilabo Road Rehabilitation and Maintenance (US$2,500,000; actual$2,500,000). At end-December 1997, the Ethiopian Road Authority (ERA) rehabilitated a total of 46.71km of road. At end-December 2000, 180 km (31.5%) of road rehabilitation had been accomplished out ofa proposed 571 km.
4.2.11 Contract review and road rehabilitation supervision (US$2,000,000; actual $0). InMarch 1996, IDA provided its No Objection to ERA and Government's request, to utilize US$2 million ofIDA funds, which were allocated for supervision, to purchase additional equipment for the rehabilitation ofthe Harrar-Shilabo road. However, due to the privatization process, the Government decided to assumeresponsibility for this activity.
4.2.12 Community Development Fund. The provision of funding for this component which wasto be provided by unidentified bilateral donors, failed to materialize. By agreement reached duringnegotiations, implementation of this component was to be supervised by a specific Steering Committee, the
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Ministry of Natural Resources and Environmental Protection, and the PITF, in collaboration with theRegional Government. The TORs for a Needs Assessment Study and a Local Capacity Survey wereprepared and the short lists of consultants were compiled. During the review of these documents theSteering Conmmittee felt that the degree of Regional Government input was insufficient. Subsequently theRegional government was requested to redraft the TOR to better reflect the Region's priorities and desires.The Bank did not receive a request for assistance to help the Government in furthering agreements reachedduring negotiations.
4.2.13 Environmental Monitoring System (US$850, 000; actual $0). Letters of Invitation wereissued, bids received and evaluated by a bid committee which was chaired by the PITF Secretariat andincluded representatives from the Regional Government, the Environmental Protection Authority (EPA),CGSC and the Ministry of Mines and Energy (MME). However, the Steering conmmittee decided, based onthe proposed privatization of CGSC, to shift responsibility for the component from the RegionalGovernment to the EPA. The EPA, a regulatory agency, declined to accept responsibility for this activity.The agreement during negotiations was for the implementation of the Environmental component to besupervised by a specific Steering Committee, comprised of the Ministry of Natural Resources Developmentand Environmental Protection, the PITF, the Regional Government, and local representatives ofgovernment institutions dealing at the regional level with health, education, environment, agriculture,planning and energy. IDA proposed that the Government resolve the impasse, with IDA facilitating thisresolution. The Government did not respond and the component was not implemented.
Support Components
4.2.14 Poverty Alleviation (Women's Fuelwood Carriers Credit Scheme). The DutchGovernment declined to provide required financing for this component and hence, no progress was made.This component was detached from the Calub Gas Project, and responsibility was transferred to theMinistry of Labor and Social Affairs, for implementation under a separate project, not financed by IDA.
4.2.15 Project Implementation Taskforce (PITF) (US$300,000; actual 220,168). The PITFsecretariat is in place, and is staffed on a part time basis by MME personnel. All procurement wascompleted including, office and scientific equipment and three vehicles - one for LPG studies personnel andtwo for the PITF secretariat. Petroleum exploration promotion, LPG studies, and Petroleum pricing andmarket structure and Calub Gas large scale (Phase II) development studies were completed.
4.2.16 Petroleum Exploration Promotion (US$1,000,000; actual $886,168). In March, 1997,the Ministry of Mines and Energy signed a contract with BEICIP-FRANLAB of France to review andevaluate the petroleum potential of the sedimentary basins of Ethiopia and to promote the available acreageto investors. As part of this contract BEICP trained 23 geophysical and geological staff during November1997.
4.2.17 The initial report on the petroleum potential exhibited a lack of depth in several areas ofevaluation and did not incorporate new ideas. BEICP, after discussions with MME and IDA produced afinal substantially improved report in September 1998.
4.2.19 Large Scale Gas Development Study (US$500,000; actual $408,164). In April 1997,BEICIP (France) started this study to identify possible large scale gas utilization opportunities in Ethiopiawhich would promote projects of sufficient magnitude and economic viability. The projects were limited tourea production and electric generation. According to BEICP, urea production would lead to moderateprofitability while electric power generation from gas seemed more desirable. The Government of Ethiopia
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had no long tenn national energy development strategy, and the implementation of the recommendations ofthis study are not likely to be carried out in an effective way.
4.2.20 Petroleum Pricing and Market Structure Study (US$500,000; actual $368,910). Thefinal report of International Resources Group Ltd. (US) incorporating all comments proposed by PITF, theMinistry of Trade and Industry, and the Ethiopia Petroleum Enterprise was widely distributed within theGovernment and to the World Bank in 1998. There were delays in the implementation of the study due tothe privatization process.
4.2.21 Calub Regional Electrification Study (US$500,000; actual 0). This study was suspendedby the Steering Committee, PITF, on the grounds of the decision to privatize CGSC.
4.2.22 LPG Studies (US$350,000; actual $307,018). The objectives of these studies, carried outby the consulting firm Strategy, Energy, Enviromnent, Development (SEED), were to: (i) introduce therequired safety and technological standards to Ethiopia; (ii) investigate the potential for manufacturingappropriate cooking stoves locally in Ethiopia; (iii) promote LPG use; and (iv) make its use accessible tothe lower and middle classes.
4.2.23 The consulting firm proposed and recommended the adoption of standards of the NationalFire Protection Agency (NFPTA). On manufacturing the cooking stoves SEED conductedefficiency/performance tests, and assessed local manufacturing capabilities. SEED designed a publicawareness campaign to promote large scale and efficient use of LPG, which involved conducting surveys inthree major towns (Dire Dawa, Harar and Addis Ababa). As a result a final report was prepared for theGovemment in March 1999, consisting of data collected from the surveys, the methodologies used andrecommendations.
4.3 Net Present Value/Economic rate of return:Not applicable
4.4 Financial rate of return:Not applicable
4.5 Institutional development impact:4.5.1 The institutional development objective of the project was partially achieved. When theproject was designed, the design chosen was perhaps the only feasible one given Ethiopia's high politicalrisk conditions at the time. However, Ethiopia changed significantly over time making full privatization apossibility. Also, at the time of project design, the MIME was the entity responsible for developing thecountry's energy strategy, formulating and implementing the policies of mining, petroleum exploration andproduct sharing agreements. The organization and distribution of operations within the Ministry of Minesand Energy (MME) were cumbersome and responsibility too diffused. This Ministry consisted of sixoperating agencies/state corporations: (i) The Ethiopian Petroleum Corporation (EPC); (ii) the EthiopianElectric Light and Power Authority (EELPA); (iii) the Ethiopian Mineral Resource DevelopmentCorporation (EMRDC); (iv) the Ethiopian Institute of Geological Surveys (EIGS); (v) the EthiopianEnergy Authority (EEA); and (vi) the Oil and Gas Exploration and Development Organization (OGEDO).Of the six agencies, EPC, EELPA, EMRDC and EIGS are legally independent state corporations, withvarying levels of financial autonomy. The EEA and OGEDO are functionally autonomous but areessentially offices within the MME. Additionally, technical assistance, was overseen by the ProjectImplementation Task Force (PITF), which was responsible for coordinating, supervising and reporting onthe various project components.
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4.5.2 Over the years there have been institutional changes to the above organizational structure:EPC, EEPCP, and EMRDC are now development enterprises under the Authority for Government ownedDevelopment Enterprises. The new name of the EEA the Ethiopian Rural Energy Study and ResearchCenter (ERSRC). The Oil and Gas Exploration and Development Organization (OGEDO) no longerexists.
5. Major Factors Affecting Implementation and Outcome
5.1 Factors outside the control of government or implementing agency:5.1.1 Periodic devastating drought, and the impact of a long running civil conflict utilizedsignificant capital investment which was required to develop the country's modem energy resources.
5.1.2 The funding of the Community Development Fund by unidentified bilateral donors failedto materialize, so the Govermment had to use its own resources to fund this activity.
5.2 Factors generally subject to government control:5.2.1 The Government's efforts to privatize the Calub company were unsuccessful. TheGovernment expressed its intention to withdraw from the direct exploitation of the considerable reserves ofnatural gas contained in the Calub field, while at the same time ensuring that gas production and utilizationadvance the nation's economic development to the fullest. In order to select a technical partner to managefield exploitation, the Govemment advertised intemationally its invitation to tender bids for the purchase ofthe Calub company. The Government received four strong bids, concluded that the bidders were notresponsive and cancelled the process.
5.3 Factors generally subject to implementing agency control:5.3.1 MME was fully committed to implementing the physical aspects of the project, but wasnot particularly good at monitoring the project's specific issues; they also lacked the determination neededto put in place implementation mechanisms to further the institutional development aspects of the project.Some details of these issues are (i) lack of progress in the Harar-Shilabo road rehabilitation; (ii)implementation issues with the Community Development Fund and the Environmental Monitoring System;(iii) absence of funding in the Poverty Alleviation Program; and (iv) cessation of activity regarding theCalub Rural Electrification Study.
5.4 Costs andfinancing:5.4.1 There was no significant cost changes in the project, neither was there a reallocation offinancial assets. The overall budget remained the same and to date only 18.35% of the credit has beendisbursed.
6. Sustainability
6.1 Rationale for sustainability rating:6.1.1 If the Calub gas field is correctly developed, it has the potential to bring significanteconomic benefit to Ethiopia. A comprehensive strategy would define an approach for full private sectorparticipation in the development and operation of the gas field, facilitated by appropriate Governmentpolicies.
6.2 Transition arrangement to regular operations:6.2.2 The Government of Ethiopia does not seem to have the potential for handling thecomplexity of an operation such as the Calub Gas Development Project. It is important, however, that the
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Govermment follows through with the privatization process in order to access the benefits from theexpansion of employment opportunities; the expansion of LPG as a cooking fuel to avoid the use of morevaluable electricity and to avoid acceleration of the use of wood products; replacement of some importedtransportation fuels by indigenous products; and complementing the hydroelectric generation with somegas-fired thernal generation; and the potential for industrial use of gas, including the production offertilizer for the local market.
7. Bank and Borrower Performance
Bank7.1 Lending:7.1.1 The performance of the Bank in the identification of quality at entry and preparationassistance for the project was not satisfactory. The project was part of Government's strategy to improvethe performance of its infrastructure sector, and funding was available through a Project PreparationFacility (PPF), IDA, and other sources of financing. However, it is clear now that the RegionalDevelopment Component was unnecessary: only 31.5% of road rehabilitation was accomplished; fundingfor contract review and supervision was reallocated to purchase equipment for road rehabilitation;Government anticipated funding from bilateral donors for the Community Development Fund, but neveridentified a donor; and the planned Environmental Monitoring System was not launched because ofGovernment's inability to assign this activity to one of its agencies. IDA proposed to aid in the resolutionof this impasse, but failed to take steps to ensure appropriate action.
7.1.2 Appraisal of the project was satisfactory. In retrospect the project design was complex,but the Government gave strong indications that it was committed to improving the efficiency of the energysector, achieving energy sufficiency, and increasing the diversity of energy supply to foster economicgrowth and reduce poverty. This meant diversifying the supply of household fuels, improving energyefficiency and reducing the consumption of traditional fuels. These policies were expected to contribute tothe mitigation of deforestation, thereby improving soil productivity and farm output on which a largesegment of the population depended. Another important goal was the need to increase the supply ofmodem energy in order to support the development of the country's industrial and transportation sectors.
7.2 Supervision:7.2.1 Project supervision was less than satisfactory. The project was supervised regularly, onaverage twice a year. A mid-term review was planned for September, 1998, and the Bank proposedrestructuring the project. The Government did not come to an agreement on restructuring, and thus lost theopportunity of the setting of new objectives to reflect the reality of a changed environment, and set newtargets for the implementation of the project. It was at this point that the Bank should have consideredclosing the Project. Bank supervision missions continued and were thorough and issue-oriented. There wasa remarkable continuity in supervision missions, and mission members did their best to help MME toimplement the project. Unfortunately, the ratings were often too optimistic, reflecting expectations ratherthan reality.
7.2.2 In October 1998, the World Bank reaffirmed to the Ministries of Finance and Privatizationits strong backing of the Government's effort to find a suitable private partner to develop the Calub Field.The Bank suggested that the results of the tender were in fact quite promising and that the advisable nextstep would be to enter into negotiations with those bidders whose proposals were technically competent.To facilitate this, the Bank suggested that the financial Terms of Reference be expanded to allow greaterscope for mutual economic benefits, in accordance with the Government's existing development plans.Specifically, the Bank suggested that the development of the field be broadened to include powergeneration, fertilizer manufacturing and the provision of natural gas to industrial users, in addition to the
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extraction of LPG and the fractionation of recovered natural gas liquids. The Bank also suggested that theproposed timing of the repayment to the Government of sunk costs and share purchase be incorporated intothe project's overall cash flow projections (rather than the Government requiring that payment be made atthe outset). This would have allowed the Govermnent to receive repayment, while still allowing its partnerto realize an acceptable economic return on its investment. Lastly, the Bank indicated that the internationaloil industry has a number of commonly used legal tools, such as Joint Operating Agreements, which areavailable to ensure that project development could meet the Government's econornic developmentobjectives.
7.2.3 The Bank made clear its intention to continue to support the Government in itsprivatization initiative, through the provision of all possible legal, economic, financial and businessadvisory services before, during and following the negotiations. This commitment to assist theprivatization process extended to include the process of re-tendering the invitation to bid, if it wasnecessary. At the same time, the Bank emphasized its belief that abandoning the privatization effort andreverting to public development of the field would be counterproductive and would be hard to equate withGovernment's expressed intention to withdraw from the management of businesses in which it had noexperience or comparative advantage.
7.3 Overall Bankperformance:7.3.1 Overall, Bank performance was not satisfactory. As mentioned in para. 7.1.2 above, theproject design was complex and the Government of Ethiopia found it difficult to implement. The Bankshould have understood that within the centralized structure which prevailed within the Government at thattime, the private commercial aspect of the project would have been difficult to implement. Bank missionsestablished intensive communications with the Borrower, but did not establish a productive environment.
Borrower7.4 Preparation:7.4.1 The performance of the Government was satisfactory during project preparation.Technical configuration of the project was completed, and the institutional aspects were scheduled to befirmed up during appraisal.
7.5 Government implementation performance:7.5.1 The Government did not live up to its commitments. When it became clear that, given theinitial response to the Project, it was necessary to divest the entire operation, the Government did notpursue the sale aggressively. At this point its cooperation with the Bank to advance the project wasminimal.
7.6 Implementing Agency:7.6.1 The performance of the Ministry was marginally satisfactory. Due to the complexity ofMME's organizational structure (six operating agencies/state corporations with varying levels ofautonomy), formulating and implementing policies, necessary to the success of the project could not beeasily coordinated.
7.7 Overall Borrower performance:7.7.1 The performance of the Borrower was unsatisfactory.
8. Lessons Learned
8.1.1 Experience has shown that Government has great difficulty refraining from interfering in
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the management of their utilities. Politics bring on increased interference as Government finds it necessaryto replace managers of public enterprises, thus disrupting continuity.
8.1.2 Coordination and consultation with donors are vital to the success of a jointly financedproject and for the achievement of its objectives. The lack of coordination and a common approach led tothe cancellation of some components of the project.
8.1.3 Implementation targets should be reset as soon as it becomes clear that the Governmentdoes not intend to put in place an efficient and structured set of policies to further project completion.
8.1.4 The delay in recognizing the disconnect between the objectives and the components of theproject has led to the unsatisfactory performance of the project.
9. Partner Comments
(a) Borrower/implementing agency:Introduction
As a result of the petroleum exploration activities conducted by Tenneco of U.S.A. a substantial naturalgas and associated liquid deposit with a reserve of 2.7 TCF was discovered in 1973 at a locality calledCalub which is 24 km west of Shilabo.
The government of Ethiopia was interested to commercialize this fossil fuel resource of Calub Gas fieldwith World Bank financing as the deposit was found feasible by different studies to Ethiopia's economicand social development.
Accordingly, a development credit agreement (Credit No. 2588 ET) was signed between Ethiopia and theInternational Development Association on June 23, 1994. This was aimed at financing the Calub GasDevelopment Project which is centered around the installation of an extraction and processing pilot plant atCalub to process the condensate rich portion of the gas field.
The Calub Gas Development Project was designed to consist of components including the commercialcomponent, the regional development component and the support component. Thus it involved manyimplementing agencies of different organizations. From project management point of view this arrangementcreated difficulties.
The implementation of some of the sub-components of the commercial component and some studies havebeen completed. The major task, i.e. the installation of an extraction and processing plant at the Calub siteand others from the regional development and support component could not be implemented due to theprivatization process. In effect the central objectives of the project have not been met. From this it can besaid that the report being submitted in connection with the closing date of the project reflects not thecompletion of the project but the stage where the implementation of the project has reached.
The report consists of 1. Introduction 2. Objectives of the project 3. Implementation experience and results4. Project cost, 5. Major factors affecting implementation outcome, 6. Assessment of outcome and 7. keylessons learned.
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2. Objectives of the Project
1. Project Data
Name Calub Gas Development ProjectCredit Number 2588 ETCountry EthiopiaSector / Subsector Energy
Key dates
Board date March 29, 1994Signing date June 23, 1994Effective date 31 Sept. 1995Original Closing date 31 Dec. 2000Revised closing date None
2.1. Assessment of Development Objective and Design, and of Quality at Entry
The American Tenneco Oil Company drilled Calub-l well in 1973 and as a result the Calub gas condensatefield was discovered in the Ogaden Basin After an interruption in petroleum exploration activities for someten years the Soviet Petroleum Exploration Expedition (SPEE) carried out the drilling of exploratory anddevelopment wells between 1982 and 1992 in and around the Calub field.
After this discovery and subsequent exploration and development activities, the Government of Ethiopiawith the intention of commercialization of the gas field undertook prefeasibility and feasibility studies onthe utilization of the natural gas. An American consulting firm, GDC of Chicago, made a prefeasibilitystudy for the large-scale utilization of the gas field in 1984. The different scenarios of the studies included:
Pipelines construction from Calub to Dire Dawa and Addis Ababa.* LPG production i.e. the extraction of propane and butane at Calub.- LNG production.- Methanol productionL Fertilizer production (Urea and DAP)* Synthetic gasoline production and* Ethylene production
The same consultant, GDC, also performed a small -scale feasibility study in 1988. Gas processing plant ofliquid extraction by recycling lean gas was considered. In addition, ammonia-urea based fertilizerproduction plants, and transportation of natural gas by pipeline were also included in the study.
The World Bank (IDA) consultants appraised the small-scale study and a gas processing plant of liquidextraction followed by gas recycling was selected as the best scenario, since it was found to be technicallyand economically feasible.
It was further recommended that the gas reserve be audited, sampled and tested. Accordingly a Britishconsultant, Scientific Software Intercom (SSI) did the reservoir simulation study while gas sampling andtesting was done by EXPRO, a UK firm, in 1992.
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Technip Geo-production and BEICIP further did the feasibility study of the small scale Calub gas fielddevelopment which included the preliminary design of the gas plant. This study was appraised and TritonInc of USA also undertook a study on well completion.
All the studies conducted by the intemational as well as national consultants proved the viability of thesmall scale Calub Gas field development project.
Benefits anticipated from the development of the gas condensate field include the expansion in supply ofmodem fuels and a reduction in the dependence of urban areas on wood fuels. This is expected to supportgrowth in the productive sectors and generate employment and income and contribute to the mitigation ofperiurban deforestation in an economically and environmentally sustainable manner.
Having assessed the various studies and existing data, The World Bank (IDA) approved a credit of USD74.31 million for the Calub Gas Development Project, through the credit agreement signed between theEthiopian Govenmment and IDA on June 23, 1994. After fulfilling all the preconditions laid down by theWorld Bank, the credit became effective on September 21, 1995 and implementation started soon after theeffective date The delay in effectiveness of the credit contributed negatively to the overall delay in theimplementation of the project.
2.2. Original Project Objective
The central objectives of the project as outlined in the Staff Appraisal Report (SAR) of February 18, 1994were:
a) Improve the present unbalanced structures of energy supply in Ethiopia by increasing the availabilityof modem fuels;b) Support economic growth by expanding petroleum supply from indigenous resource;c) Contribute to the mitigation of peri-urban deforestation by including the replacement of wood fuelswith LPG and kerosene in urban households;d) Develop the country's technical capacity to commercialize its fossil fuel resources ,ande) Contribute to poverty alleviation through direct measures, induced economic activity and through thedevelopment of Ethiopia's remote southeastern region.
The project had a pilot dimension and was viewed as the starting point for a comprehensive, long termdevelopment of the country's fossil fuel resources.
2.3. Original components
Original Project Components included:
A central commercial component, regional development and support components.
2.3.1. Commercial Operation at Calub
This component involves a commercial operation consisting of the production of natural gas, separation ofthe associated liquids and re-injection of unused natural gas into the reservoir. The Government of Ethiopiaformed an independent share company called the Calub Gas Share Company (CGSC) with a total capital ofBirr 102,000,000 of which 95% is currently owned by government and the remaining 5% is by private.After its establishment, CGSC organized itself to implement the Calub Gas Commercial Component. This
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component includes the completion of gas production wells, the construction of the gas processing plant,ancillary facilities, offices and residential buildings, a 24 km link road from Calub to the main Shilabo -Harar road, and Technical Assistance to attract private equity, supervise plant construction and manageinitial plant operation.
23.2. The regional Development Component
This component consists of
* The Harar - Shilabo road rehabilitation (571 kIn). The objective of this component is to rehabilitate theHarar - Shilabo road so as to facilitate the transportation of Calub gas products from the gas field toother parts of the country as well as to enhance the economic activities and social development of theregion as influenced by the road;
* The Environmental Monitoring System (EMS) whose objective was to set up a monitoring system so asto monitor the impact of the development of the gas field on the local bio-physical and humanenvironment throughout the project life; and
* Community Development Fund's (CDF) objective is to mitigate some of the possible negative effects ofthe project to the inhabitants of the area and complement the economic opportunities offered by theplant installation and road rehabilitation.
The EMS and CDF are important for environmental and economic sustainability of the project.
2.3.3. Support component
This component consists of
* Technical assistance to support the Project Implementation Task Force (PITF) within the Ministry ofMines and Energy (MME) and strengthen the MME's capacity to promote private and joint ventureparticipation in petroleum exploration and development in Ethiopia (Petroleum ExplorationPromotion);
* The LPG Stoves Development and Market support study was designed and implemented as part of theCalub Gas Development Project with the following objectives:
a. Public Awareness Campaign
The main objective of the public awareness campaign was to promote LPG use by household for cookingand induce a switch from traditional fuels (such as fuelwood and charcoal). The major focus of thecampaign would be the organization and execution of promotional initiatives, to reach a broad range ofconsumers, including low and middle income consumers.
b. Establishment of National Standards for LPG usage and devices
The main objective of this task was to establish national safety in use and handling of LPG and, developstandards for LPG quality, road tankers, filling stations, storage, stove burners and pressure regulators.Furthermore, the objective was also to design and institute an effective inspection regime.
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* Poverty Alleviation (Women's Fuel Wood Carriers Credit Scheme) which was aimed at supportingdiversification of income generation sources for urban fuel wood canisters through a fuelwood carriercredit scheme; and
* Studies including:
- Petroleum Pricing and Market Structure Study which was designed to recommend changes inEthiopia's current system of petroleum pricing, taxation and marketing of petroleum products.
- Calub Area Electrification Study to evaluate the potential of supplying gas generated electricityto selected urban areas around the Calub Gas field, and
- Calub Gas Large Scale Utilization Study aimed at assessing the feasibility of a large scaleexploitation of the Calub Gas reserve. The study would analyze the market potential,
technical feasibility and economic viability of the commercialization of the given resource.
3. Implementation Experience and Results
3.1 The Commercial component
The following major activities of the project have been completed:
* Calub Gas Share Company (CGSC) is organized with the required manpower and materials;
* Two intemational consultants, one for the well completion and the other for setting up the gasprocessing plant were hired;
* The Site preparation with all the required facilities has been completed;
* The Parsons International Group of the UK were recruited to do the basic design and prepare biddocuments for Engineering, Procurement and Construction contractor for the detailed design andconstruction of the Calub small-scale gas processing plant. The draft final basic engineering design andthe bid document for the Plant Turn-key was completed and was sent to the World Bank forevaluation/approval.
* The Calub-Shilabo road design and bid documents for construction has been prepared by Pan-AfricanConsultant PLC, Ethiopia.
* Having completed an international competitive bidding evaluation an agreement was signed with thewinning company, Zhongyuan Petroleum Exploration Bureau (ZPEB), a Chinese firm, to undertake thewell completion. The company has completed, tested and has made ready the wells for gas production.
As it is seen from the above some important tasks like the well completion work have been implemented.However, the commercial component failed to achieve its major objectives as the component is brought to astandstill at the basic design stage of the gas plant since IDA No-objection for bid document for tenderingthe Calub gas plant turnkey contract was on "hold" since July 1997 due to the start of the privatizationprocess. Hence it can be concluded that the outcome of the implementation of this component isunsatisfactory.
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3.1.1 Output by Sub-Components
3.1.1.1 Project Preparation
0.862 million USD was expended for pre-feasibility and feasibility studies. These activities were completedbefore the credit became effective.
3.1.1.2 Privatization Promotion
In order to foster the economy, Ethiopia has embarked on the privatization of state-owned enterprise as anintegral part of the broader macro-economic reform program. To this effect the Ethiopian Governmentdecided to sell and transfer the shares it owns in the Calub Gas Share Company. Accordingly, a SalesProspectus was prepared to state clearly government's strategies and priority of obtaining a suitable foreigninvestor.
Invitations for interested companies to submit bids for the partial or total acquisition of Govemment ownedshares in the Calub Gas Share Company were advertised in international medias. As a result, differentcompanies expressed interest to buy the shares. However, it was found out that the offer given by differentcompanies in response to the invitation No. 005/1197 - 1998 were not even to the minimum expectations ofthe government, and hence the Government canceled the bid.
3.1.1.3 SIOM Contract - Technical Assistance
3.1.1.3.1 PMC- 1In order to achieve the objective of the commercial component CGSC entered an agreement on 23 August1995 with Alconsult International Ltd. for consultancy services op. Well Completion Project Management.The implementation of this consultancy service was divided into three stages.
Stage 1. Review the existing documentation for each well, prepare scope of services, design and biddingdocuments for selecting qualified and experienced contractor to complete each of the existing eight wells,and test each for commercial production or injection, as required.
Stage 2. To advise CGSC on contractor's performance on well completion, testing, and sampling.
Stage 3. To advise CGSC on reservoir management program prepared by the contractor and review theoperating capability of CGSC staff and their training needs.
For these activities, the value of the contract was US$ 470,464. Stage I and 2 have been completed andStage 3 is halted due to the privatization process. Due to variation order, the total payment made to theconsultant was US$ 486,770.
3.1.1.3.2 PMC - 2A contract for consultancy services for execution of basic plant design and Project Management contract(PMC 2) was signed on 16 October 1995, with The Ralph M Parsons Company Limited & KBC. Themain objective of this contract was to review the feasibility report prepared by CGSC's consultants andprepare modifications to the extent required, prepare project specification and tender documents for tumkeycontract, assist CGSC in inviting bidders, carry out bid evaluation and negotiations of a draft contract withthe selected bidder (Phase I) and conduct plant construction supervision and project management (Phase
11).
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The draft final basic design and bid documents were prepared and sent to IDA on July 7, 1997 forevaluation/approval. But IDA failed to give the No-objection. Hence, the task is halted at this stage. Thetotal contract price for phase I consultancy was 1,080,312 USD. The total payment made to date for tisconsultancy contract is 896,169 USD.
3.1.1.3.3 Operational Assistance (Phase III)
This phase is not performed due to the reasons described above under para 3.1.1.2
3.1.1.3.4 Training (TA)
So far, 14 staffs of the Calub Gas Share Company have been trained for short-term on projectmanagement, financial management and gas wells management.
3.1.1.3.5 Well Completion
The well completion task as stated above was executed by a Chinese company, Zhongyuan PetroleumExploration Bureau (ZPEB). Well Completion and testing activities on production wells including #2, #3,#4, #5, #6, #7, #8 and #9 of the gas field were fulfilled. The total cost of the contract was 5,631,869 USD.This work was completed on October 13,2000 and Certificate of Completion has been issued to thecontractor.
3.1.1.3.6 Plant Turnkey
Under this sub- component it was planned to undertake a detailed design engineering for the gas processingplant, liquids separation and treatment, recompression and re-injection of lean gas, power generation plantand support service, storage facilities, control room, and housing and camp facilities to be implementedunder a turn-key contract. The draft final basic engineering design was completed. However, this majoractivity of the project could not be implemented since IDA No-objection for draft final design and biddocument for Calub Gas plant Turnkey contract was on "hold" due to the privatization process.
3.1.1.3.7 Calub - Shilabo road
The design and bid documents for the construction of the road was prepared by Pan African Consult, anEthiopian firm. The road construction activity was not implemented due to the privatization process.
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The following table shows the summary of studies undertaken on Calub Gas Field
Name and Year of the Studies Recommendation ConclusionNo. and Firms Objective of the Study of the Study
Defie the feasibility of Confirmed the possibility ofthe small scale Calub gas producing annually 65,000
Small scale Calub gas field field development, to producmglannuallyt65,0001. June 1992, by Technicp process S0MMSCFD of products at Calub and
Geoproduction, France. reservoir fluid, to produce transporting the products byLPG, gasoline, kerosene trucks.and diesel.
Review records, and Provided an estimate for theCalub Field Well Completion design a work total cost of well completion
2. Program, June 1993, by over/completion program and developed detailed wellTriton Inc., USA. for all wells including completion program.
cost.Results of Geo-technical -out geotechni. .. ~~~~~~Carry-u goehcalinvestigation of Calub Gas investigation on Calub Obtaned Geo-techncal data
3. Development Plant area, Aug. Gas f for construction of gas1996, by Acquatech PLC processing plant at Calub.(Ethiopia). report.Survey Work Report, Aug. Carry-out topographic Detail Topographic Survey
4. 1996, by Getachew Zewdie survey of Calub Gas was conducted and a map wasbuilding and supervising field. produced.contractor, Ethiopia.
Prepare basic design andEPC tender documents for tender documents for Basic design of the gas plantsmall scaler dcaubens plant lump sum, Turnkey EPC with ancillary facilitiessmallc scale Calubrsgas pat (Engineering, completed. TenderItDec. 1996, by Parsons Procurement and documents were ready to be
Construction) contract of issued.Calub gas plant.
Calub-Shilbo Feeder Roadconstruction design and Assess the road Basic design and tender
6. preparation of bid document, condition, prepare design document is prepared, theSep. 1997, by Pan-African and bid document. road should be constructed.consultants, Ethiopia.
3.2 The Regional Development Component
3.2.1 Harar - Shilabo Road Rehabilitation
3.2.1.1 Civil Works
The civil work of the project was started in 1995 by Ethiopian Road Authority's (ERA) Own ForceConstruction Brigade. It was expected that the project would be completed in 1999. However, due toshortage of construction equipment and delay occurred during the bid evaluation process for the purchaseof construction equipment the rehabilitation work could not be completed at the scheduled time. The totalphysical accomplishment up to the end of December, 2000 is about 180 km against a programmedaccomplishment of 571 km. Thus only 31.5% of the road was rehabilitated.
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The evaluation of the completed part of Degehabour-Shilabo road reveals that in most sections theembankment is so high that it is difficult to find easy crossings to and from either side of the road for theinhabitants settling by the road side. At present, the Ethiopian Roads Authority intends the designconsultant, TCDE, to review the existing design by giving special emphasis to the problem areas wherepeople and animals cross the road and modify wherever necessary.
3.2.1.2 Status of Implementation of Equipment Procurement and Technical Assistance
The estimated cost to be financed by IDA under Cr. No. 2588 for the purchase of construction equipmentand technical assistance for Harar- Shilabo road project is USD 4.5 million. Up to December 31,2000 atotal of USD 2.536 million (Birr 15.317 million) was disbursed for procurement of construction equipmentand spare parts. The description, quantity and amount of equipment and spare parts purchased for the roadrehabilitation is shown below.
Goods Purchased Under Calub Gas Project
Item Description Quantity Amount in Million USDNo.
1. Bomag Vibrator Roller 4 0.339
2. Komatus Motor Grader 2 0.247
3. Cat Wheel Loader 2 0.226
4. Komatsu Dozer 2 0.566
5. Lommar Grease Unit 2 0.044
6. Lamnar Generators 2 0.031
7. Nissan Fuel Truck 1 0.092
8. Nissan Water Truck 1 0.089
9. Nissan Dump Trucks 1 0 0.673
0. Spare Parts for 0.019Komatsu MG
1. Spare Parts for 0.032Komatsu Dozer
2. Spare Parts Cat Wheel - 0.029Loader (Lost at Assab) (payment was not effected)
3. Spare Parts Nissan 0.099Dump Trucks
4. Frukawa Rock Drill 1 unit 0.079
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3.2.2 Environmental Monitoring system
The bid evaluation process to hire a consultant was nearing completion when the steering committee for theprivatization of the commercial component decided to transfer the responsibility of implementation of thisfrom the Somali National Regional State (SNRS) to the Environmental Protection Authority (EPA) whichdeclined to do so on the ground that the assignment is beyond its mandate.
Later on the steering committee, gave instruction to go ahead with the implementation of this and otherpending components as planned. Accordingly, we requested the IDA for their opinion regarding theimplementation of this component and others, but no response was obtained, Hence, this task could not beimplemented.
3.2.3 Community Development Fund
Initially it was planned that this task would be financed by bilateral donors but did not succeed. Thus thegovernment decided to cover the fund needed by itself.
The steering committee for the privatization of the commercial component decided to revitalize the TORaccording to priorities of the SNRS. Though the SNRS was requested to redraft the TOR no response wasobtained. Shortlist of consultants was made. It could not be implemented due to the above reason.
3.3 Support Components
3.3.1 Technical Assistance
3.3.1.1 PITF
The main task of the Project Implementation Task Force (PITF) which is part of a technical assistance wasto coordinate, monitor and report to pertinent bodies regarding the implementation of all components of theproject. The PITF secretariat was staffed by MME personnel who were working on a part time basis.
The major tasks fulfilled include
- All procurement of office and scientific equipment and three vehicles for the PITF, Petroleumexploration promotion, LPG stoves development and market support study, Petroleum Pricing andMarket Structure and Calub Gas large scale (phase II) development studies was completed.
* A computerized monitoring system to enable the PITS secretariat and component managers tofollow-up the implementation of the whole project effectively was set up within the PITF secretariat bya foreign consultant assigned by the World Bank.
* Short term training of four PITF members abroad on project management was conducted.
* Follow - up of the implementation of components of the project, together with the implementingagencies, was conducted and reporting to pertinent bodies including the IDA was made.
3.3.1.2 Petroleum Exploration Promotion
The Ministry of Mines and Energy of the Federal Democratic Republic of Ethiopia contracted
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BEICIP-FRANLAB of France to review and evaluate the petroleum potential of the sedimentary basins ofEthiopia and to promote the available acreage on March 17, 1997.
The basic services rendered during 1997 - 1998 were to assess all available data, analyze, interpret andcompile a comprehensive report, which could serve as a promotional document. A comprehensivepetroleum evaluation report has been prepared and submitted to the Ministry in September, 1998.
Training and Transfer of Technology
One of the objectives of the petroleum exploration promotion was to train Ethiopian staff in variousgeoscience fields. The training was designed to be given both at home and abroad.
In-House Training
This training program was held for one month in the Petroleum Operation Department, Addis Ababa. Thecourses included sedimentology, petroleum geology, basin analysis and modeling and seismic stratigraphy.About twenty geoscientists from the ministry were trained
Short term training abroad
Short term training in the field of paleontology and computer science was held in France. The number oftrainees were four from POD. The duration of the training was two weeks.
In the mean time a long term training of one geologist for his MSc degree was conducted in the UnitedKingdom.
Promotional Program
The result of the petroleum evaluation study has been presented to the intemational petroleum industrythrough appropriate means such as wide dissemination of a published professional paper coauthored byEthiopian project participants in the Journal of Petroleum Geology (JPG), and mailing to selected IOCs(140 companies), which were believed to be interested in investing in petroleum exploration activities in thecountry.
However, the petroleum price crisis of 1998/1999 affected the promotional campaign negatively.
Results of the study
* Fifteen copies of the main report including annexes, plates and enclosures were produced. The report iscurrently serving as a promotional document. One has been already sold to an interested oil company.
* MME personnel were trained in the fields of petroleum geosciences and computer science.
* Recommendation for the development of petroleum database management system (DBMS) for theMinistry of Mines and Energy has been made.
3.3.2. LPG Stoves Development and Market Support StudyAs a result of the bidding evaluation conducted a French company called SEED was selected for theconsultancy work.
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Having conducted the study on the national standards and regulations applied in different countries, theconsultant proposed the adoption of standard produced by the National Fire Protection Agency (NFPA).The NFPA is said to be widely adopted and complete in its coverage. The consultant had also put forwardsome recommendations of the adoption process.
Designing public awareness campaign to promote large scale and efficient use of LPG had involved surveyworks in three major towns, Dire Dawa, Harar and Addis Ababa. As a result a report containing the typeand frequency of safety and awareness campaign to be conducted through mass media such as TV, radioand grassroots demonstrations was prepared.
A study on development of LPG stoves and Bottles was also conducted. Finally the consultant submitted afmal report on March 1999 consisting of recommendations as well as data collected and methodologiesapplied. In the mean time a short term training on LPG gas safety was given to an expert from theEthiopian Rural Energy Research and Study Center.
3.3.3 Poverty Alleviation Scheme
This was initially planned to be financed by the Dutch Government. The required amount of finance wasnot made available and hence could not be implemented.
3.3.4 Studies
3.3A.1 Calub Gas Laree Scale Utilization Study
The Ministry of Mines and Energy of the Federal Democratic Republic of Ethiopia contractedBEICIP-FRANLAB of France to analyze and recommend the possibilities of large scale gas utilization ofthe Calub Gas field.
In order to identify the most favorable gas use opportunities, several scenarios were considered in thisstudy.
The main options considered were the production of electricity generation from gas, production of nitrogenbased fertilizers (mainly, ammonia and urea) where gas is used as a feed stock and other gas utilization inpetrochemical industry The study also included the possibility of natural gas utilization for synthetic fuelspreparation. Direct export of natural gas either in gas form or as liquefied natural gas (LNG) depending onthe intemational market and the amount of reserve was also considered.
Other opportunities of gas utilization in local industries as a substitute for fuel oil or coal, in the householdfor cooking or heating, in the transport sector as fuels, compressed natural gas (CNG) for vehicles werealso of interest.
BEICIP-FRANLAB has reviewed all the available data on Calub Gas development and assessed the mostfeasible markets for the natural gas utilization including gas based power generation, ammonia - urea basedfertilizer plant establishment, the use of natural gas in synthetic fuel production, the use of compressednatural gas (CNG) for vehicles, the use of natural gas in industries, methanol production and export, mixedutilization such as urea-plant and power generation.
The consultant finally submitted a final report of ten copies.
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Training
Short term training program under this study was planned and given to more than 20 professionals ofMME, CGSC, and other sectors of the economy in Addis Ababa.
The training included valuation systems of oil and gas production, measurement systems of oil and gasproduction, gas contract provisions or types of gas production contract, reservoir monitoring systemincluding depletion monitoring, oil and gas production monitoring system, production regulatory systemand financial analysis and accounting systems of oil and gas production.
Conclusions
Possible large scale gas utilization opportunities in Ethiopia allowing to consider projects of sufficientmagnitude and economic viability seem so far to be limited to Urea production and electric powergeneration. Other opportunities like the use of gas for vehicles as compressed natural gas may also beconsidered but only as a possible marginal extra outlet for gas. According to BEICIP - FRANLAB, ureaproduction leads to moderate profitability while electric power generation from gas seems more attractive.Electric energy production with combined cycle allows for the best gas vaporization and this is in line withwhat is experienced in other gas utilization studies.
3.3A.2 Petroleum Pricing and Market Structure Study
Having accomplished the bid evaluation for the consultancy service contract was awarded to the US basedconsulting firm, International Resources Group (IRG). The IRG started their work on April 17, 1997.
Report Compilation
As a result of the study conducted the consultant submitted a draft final report for review and comments.This was distributed to pertinent organizations for review. Having assessed the comments made and theinternational experience the consultant compiled and submitted the final report in January 1998. The reportcame up with important recommendations on issues regarding petroleum pricing and market structure in thecountry.
Training
Short term training abroad was given to three professionals from the Ministry of Trade and Industry inpetroleum products marketing and pricing as well as managing the project cycle: computer tools for projectanalysis, implementation and monitoring.
3.3.4.3 Calub Area Electrification Study
Bid evaluation to hire a consultant was completed, but could not be implemented due to the start of theprivatization of the commercial component. Based on the instruction given it was decided that theimplementation of this study be considered in conjunction with the result of the privatization.
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4. Project Cost
The expenditure made during the implementation of the project is presented as follows:
* The total cost of the commercial component including interest during construction was estimated atUSD 85.96 million equivalent at appraisal. The IDA credit of USD 66.31 million was supposed tofinance about 77% of the total commercial component cost. When the credit was closed on December31, 2000, the total amount expended from the IDA credit for the commercial component was aboutUSD 8.6 million.
* To date a total of 2.536 million USD from the IDA credit was disbursed for the procurement ofconstruction equipment and spare parts for the Harar-Shilabo road rehabilitation.
* In addition to the above mentioned a total of 3.5 million USD was allocated from the IDA credit for theEnvironmental Monitoring System of the Regional development component and the support componentincluding technical assistance for the support of PITF and petroleum exploration promotion, LPGstoves Development and Market support study and studies, i.e. Calub phase II Gas Development,Calub Area electrification and the petroleum pricing and market structure studies.
The actual amount expended from the credit up to December 31,2000 for the irnplemented studies, trainingand procurement of vehicles, office and scientific equipment according to PITF records is 2187891.78USD. This takes in to consideration the USD 10913.01 and JPY 271266 refund made by LAPSO to theFederal Reserve Bank of New York for Account No. " B" of Intemational Development Association (IDA).This is the balance between the amount of money transferred to LAPSO through direct payment ( IDA) andthe final invoices of goods procured and delivered.
5. Major Factors Affecting Implementation Outcome
5.1 Factors outside the control of Government or implementing agency
* Some delays occurred in getting no objections for procurement of goods and machinery from IDApartly caused delays in the implementation of some components.
* Frequent change of personnel.
* The remoteness of the Calub Gas Development site for transportation of equipment and materials tooka longer tirne and this has delayed scheduled works at Calub site.
* Some tasks like the poverty alleviation scheme incorporated in the project could not be implementedbecause the donors failed to provide the required financing as per their promise.
5.2 Factors generally subject to government control
* Low Scale of Salary contributed to the frequent change of personnel of some components.
* The privatization process has affected the implementation of the commercial as well as othercomponents of the project. Interruptions occurred during the implementation of some components orstudies due to the privatization process caused delays in implementation.
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* The project was started without clear understanding and commitment of the government and IDA. Thisaffected the implementation of some components within the project.
* No matching budget was allocated for PITF and other operations. This to some extent affected theperformance of the PITF secretariat and other implementing agencies.
5.3 Factors generally subject to implementing agency control:
* Some organizations involved in the project did not give their respective sub-components due attention,and hence failed to implement them according to plan.
* Different organizations were involved in the project. This made the overall coordination of the projectvery difficult.
Bank Performance
Overall Bank performance was satisfactory during project identification, Preparation and appraisal. Projectobjectives were fully consistent with the development issues identified. The design of the implementationadequately reflected the thinking prevailed at the time of appraisal At the beginning of the project, the Bankhas shown the willingness and readiness to assist in every aspect of the project.
The Bank's performance became unsatisfactory after the privatization was started. The Bank stoppedplaying the important role it used to play after the start of privatization process of the commercialcomponent.
Borrower's Performance
The Borrower's performance in project identification, preparation and appraisal is satisfactory. Duringimplementation, the Borrower has been flexible to respond to the various issues raised by the World Bank .For instance, Privatization issue is the one that the Borrower gave immense priority, giving enoughinformation to the private shareholders on the Sale of shares; and regular audited accounts were submittedto the Bank. However, at the beginning of the implementation of the project the borrower was not havingadequate personnel and understanding to implement some activities on time. In addition, the borrower wasnot fully aware of the complexity of the project.
6. Assessment of Outcome
The envisaged outcome of the project was the starting point for the long term development of theindigenous energy supply of Ethiopia. Though some of the important activities like the well completionwork and other activities of the commercial component were implemented the major one, i.e. the plantturnkey contract for the design and installation of the processing plant, could not be implemented.
Some studies including the Petroleum Exploration Promotion, the LPG Stoves Development and MarketSupport Study, Calub Gas large scale utilization study and petroleum pricing and Market Structure Studywere implemented. The necessary documents produced are of importance. The procurement and trainingconducted helped to enhance the implementation capacity of implementing agencies involved in the project.The part of the road rehabilitated contributed to some extent to the development of the region In the meantime some of the components of the project were not implemented due to the start of the privatizationprocess of the commercial component and the insistence of the IDA since then to go on with the
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restructuring of the project. Thus, it can be concluded that the project has not achieved the objective, henceunsatisfactory.
7. Key lessons learned
* The Calub Gas Development Project has three major components, which were carried out by differentinstitutions. Each organization was responsible for a specific component of the project. The overallcoordination of this project was found difficult and showed a delay in some of the activities. Hence,following a decentralized approach along institutional specialization in implementing such a project canminimize the risk of complexity and improve implementation.
* Bank should have been flexible and ready to review the impact of the privatization issue.
* The studies conducted came up with important conclusions and recommendations which are ofimportance in solving problems connected with the respective fields of study.
* The involvement of local experts in the implementation of some studies carried out by internationalconsultants helped them gain experience in their respective fields.
* The training and procurement of goods and machinery carried out enhanced the capacity oforganizations involved in the project to implement their respective activities in an enhanced manner.
The Project was approved in March 1994, and effectiveness was delayed until September 1995.The project objectives did not change, but the methodology of implementation was radically changed. Thecommercial portion of the project, that of bringing the gas field and its associated surface installations andfacilities into production, was to be privatized rather than developed by the Government. Thenoncommercial project components would be continued by the Government. As a result, nearly US$60million of the original credit will be surplus to the original requirements.
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Annex 2. Project Costs and Financing
Project Cost by Component (in US$ million equivalent)Appraisal ActuaULatest Percentage ofEstimate Estimate Appraisal
Project Cost By Component US$ million US$ millionCivil Works 0.65 0.00 0Equipment, Material and Vehicles 48.34 3.45 7.1Well Completion 6.00 5.61 93.5Consultants' Services and Training 8.91 3.70 41.5Refunding of PPF 1.17 0.86 73.5
Total Baseline Cost 65.07 13.62Physical Contingencies 3.10Price Contingencies 6.14
Total Project Costs 74.31 13.62Total Financing Required 74.31 13.62
Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)______
Expenditure Category ICB Procurement Method' N.B.F. Total Cost
Total 0.00 0.00 0.00 0.00 0.00(9.12) (0.00) (4.50) (0.00) (13.62)
"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 contractedstaff 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.
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Annex 3. Economic Costs and Benefits
Due to the fact the project was not implemented as envisaged, there are no economic costs andbenefits available for comparison with the projections in the Staff Appraisal Report.
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Annex 4. Bank Inputs
(a) Missions:Stage of Project Cycle No. of Persons and Specialty Performance Rating
Appraisal/Negotiation10/1992 10 PPE, PPS, C, POO S12/1992 2 POO S
Supervision05/1994 2 PPE, PPS S10/1994 4 FA, PPE, EE, HE S02/1995 1 HE S08/1995 6 SPO, PPE, PPS, EE, OA, FA S S03/1996 7 SPO, PPS, PPE, HE, EE, OA, C S S06/1996 1 SPO S12/1996 6 SPO, PPS, EE, HE, OA, PE U U09/1997 6 SPO, PPS, EE, HE, OA, PE S03/1998 2 LPE, PPS S S10/1998 2 PPS, C S06/1999 2 LPE, FA U U11/1999 2 LPE, FA U U
ICR
PPS = Principal Petroleum Specialist, PPO = Principal Operations Officer, C = Consultant, PPEPrincipal Petroleum Engineer, FA = Financial Analyst, EE = Energy Economist, HE = Highway Engineer,SPO = Senior Project Officer, OA = Operations Analyst, PE = Privatization Expert, LPE = Lead PowerEngineer
(b) Staff:
Stage of Project Cycle Actual/Latest EstimateNo. Stiff weeks U S$ ('000)
F Macro policies O H OSUOM O N * NALi Sector Policies O H OSU*M O N O NAOI Physicai O H OSUOM O N O NAO Financial O H OSUOM O N * NAO Institutional Development 0 H O SU * M O N 0 NAOI Environmental O H OSUOM * N O NA
SocialLI Poverty Reduction O H OSUOM O N * NAE] Gender O H OSUOM O N * NAEl Other (Please specify) OH OSUOM ON O NA
LI Private sector development 0 H O SU * M 0 N 0 NALi Public sector management 0 H 0 SU * M 0 N 0 NAL Other (Please specify) OH OSUOM ON O NA
